BT to cut BDUK roll-out costs – but it was already 20% cheaper

PAC seeks value for £1.7bn high speed broadband rollout.

The National Audit Office (NAO) report on the BDUK’s former Rural Broadband Programme, now renamed the Superfast Broadband Programme, contains  elements that might lead to cognitive dissonance.

It reports that BDUK commissioned Atkins, a primary supplier of services to government, to look at BT’s costs to provide high speed broadband in rural areas. After looking at a few sites in Suffolk, Atkins concluded “BT had charged Suffolk nearly 20% less than would hypothetically be charged by another efficient supplier, in part reflecting that BT benefits from substantial national bulk buying power compared with other providers.” Paragraph 3.10)

That’s good news, right? But it seems there’s more joy to come for taxpayers. In Paragraph 5 NAO reports “BDUK’s experience of actual costs in phase 1 has led to BT agreeing to submit lower costs in its financial model for phase 2.”

However, it carefully notes that BT was picking low hanging fruit in Phase 1, namely peri-urban areas rather than deep rural ones where is cost to reach them is likely to be higher, unless you use a satellite.

NAO also suggests BT got other sums wrong. BrOkenTeleph0n3 revealed that BT’s planners estimated BT would break even on a 20% take-up in 12-14 years. “Take-up of superfast broadband so far has been significantly faster than forecast by BT in the phase 1 contracts. Take-up has risen to more than 20% already for two non framework projects”, the NAO found. This “should bring greater coverage than contracted, as local bodies will be able to extend their rollout with remaining funds,” it says.

BT is the only framework supplier left, and 43 out of 47 county councils have opted to use the framework to procure Phase 2, although 10 may elect to hold money back for Phase 3, the final 5%.

“Overall, the effect of the first 2 phases will be to reinforce BT’s already strong position in the wholesale market for broadband infrastructure (the Wholesale Local Access Market). BT’s assets and infrastructure will benefit from approximately £1.7 billion of public sector investment although BT must maintain these assets at its own expense. BT is also required by regulatory conditions to provide wholesale access to other suppliers.”

The NAO also revealed that the public will benefit from clawbacks due to higher than expected take-up for only seven years. “After these seven years, the supplier will keep all of the extra wholesale profit.”

BT amortises its fibre over five to 20 years, and its exchange equipment over three to 13 years.

BTW, in its 2013 rural broadband report on page 35, the NAO said “The Atkins ‘should cost’ model for Northamptonshire is three per cent higher than BT’s actual bid for the area. Atkins was not able to complete analysis of a second local body area, Suffolk, due to the difficulties it encountered in modelling a more complex technical solution. Atkins’ model is the only model available to us that has tried to match a corresponding BT bid identically.”

The hour-long Public Accounts Committee interview on the NAO report, featuring DCMS, BDUK and BT officials, took place on 28 January 2015. You can see the video here.