PAC Broadband Report: CSW Broadband Comments

What’s the story?

The Public Accounts Committee has today published a report which criticised the way in which the BDUK framework contract was set up and the fact that BT has won all of the contracts to date. The report can be found here:

What’s the facts?

The Statements by BT and DCMS are reproduced at the end of this briefing note.

What’s the local situation?

We have done a lot better out of the deal than many other areas. As a result of the excellent intelligence that we were able to collect through our extensive network of Local Broadband Champions we have a good understanding of the broadband challenges that are being experienced in our communities.

Because of the data we hold we did not have to simply accept what we were offered and we robustly challenged the assumptions made throughout the procurement process. As a result we were able to draw down an additional £750,000 funding, bringing the total to £14.5m

The headline figures are:

Total Contract Value: £14.57m
BDUK Contribution: £4.45m
Local Authorities Contribution (Total): £4.45m
BT Contribution £5.67m
Additional funding through procurement (included above) £750,000
Total Premises Passed – Commercial Rollout: 398,505
Total Premises Passed – CSW Broadband: 51,231
Coverage achieved for the additional £750,000 (included above) 7,500
% NGA (wholesale fibre access) Coverage Overall: 93%
% Superfast Broadband Overall [1]: 91%

What happens next?

Since the contract signing we have been working with BT to base-line the Intervention area. For BT this has meant carrying out a strategic CURE process. If you think of the copper telephone service, it has evolved over an extended period of time – in fact since 1878. In the first instance telephones were installed mainly in a few large houses, so the copper wires were installed specifically to those properties often covering very long distances.

As more subscribers came on board additional copper was installed, sometimes to new exchanges. As towns and villages grew and even more connections were required new infrastructure (including small local exchanges) were put in place and so the system grew.

That means that we now have a situation where properties within the same villages may be connected to any number of different distribution points. For voice services this didn’t matter, but data transmission degrades quickly over copper so distance is important.

Therefore, as part of designing the new network BT are looking at all of the existing copper installations to see where improvements can be made so as to provide the shortest copper routings and the best data transmission, whilst not disrupting existing telephone services. Hence a strategic CuRE – Cu (chemical symbol for copper) Re-Alignment.

Once this work is complete and other planning work has taken place we will be in a position to announce the first phase of work as part of a 12-month rolling programme that will be updated quarterly. The first announcements should come around the end of the year.

Where do I learn more?

Visit the CSW Broadband project website:

What do BT say about the report?

BT Media statement:

We are disturbed by today’s report, which we believe is simply wrong and fails to take on board a point-by-point correction we sent to the committee several weeks ago.  We have been transparent from the start and willing to invest when others have not.  It is therefore mystifying that we are being criticised for accepting onerous terms in exchange for public subsidy – terms which drove others away.

The taxpayer is undoubtedly getting value for money.  BT faces a payback period of around 15 years on its rural broadband investments in spite of the subsidies available.  The Department for Culture has imposed a rigorous auditing process that ensures every penny is accounted for.

Rolling out fibre is an expensive and complex business but we remain committed to the programme.

The network we build will be open to all our rivals, who will be able to sell services to consumers, paying us the same prices we charge our own Retail division.

Background on issues raised by the report:

1. Guarantees of value for money in rural broadband programme

The PAC failed to take on board evidence that there are strong guarantees of value for money. There was competition between BT and Fujitsu at the crucial stages of the process when prices were set. We guaranteed that our costs would be consistent with our own costs for our commercial fibre footprint. We have been prepared to accept a payback on our rural broadband investment of 15 years, which is even longer than the payback we expect to achieve on our commercial programme.

2. Concern over transparency of BT’s costs

The PAC failed to understand the key fact that BT bills the taxpayer AFTER it has spent money deploying rural fibre broadband and has to show receipts and time-sheets. There is no lack of transparency. The NAO report notes the risk that we will be providing so much information that the government and local councils will have to staff up to deal with it all.

3. Publication of details about which areas will not be reached by the current plans for rural fibre broadband

The position reflected in the report is wide of the mark. The information in question is owned by local councils and BT is not standing in the way of publication. Northamptonshire has already published and we understand more councils will be doing so.

4. PAC says there is a lack of transparency about the amount of contingency BT has built into its calculations

The committee failed to take on board important evidence. The plain fact is that BT is not able to charge the taxpayer anything for contingency. We can only charge for our actual costs.

5. Concern that BT is on course to win all the subsidy for rural broadband with no competition

There was strong competition from Fujitsu at the crucial stages, meaning there was competitive pressure on prices. The terms on offer from government were so challenging that other companies did not show interest and eventually Fujitsu walked away too. You can get a measure of how challenging the subsidy terms are when you realise BT faces a payback period of around 15 years on its rural broadband investments.

6. PAC says the fact BT is putting in less in funding than promised (claiming BT is putting up £356m when it was supposed to be £563m)

Again, this is inaccurate and we explained this to the committee. In fact, BT has to date committed around £700m to the rural broadband schemes in question and is on course to meet its promises.

7. The PAC says the rural broadband programme is now running late

This criticism is fast becoming out of date. Independent research house Point Topic has just reported that the UK is actually on course to have fibre broadband available to 90pc of premises by the end of 2015. Prior to that the government said that the threatened shortfall was just 2 per cent – i.e. that fibre would be available to 88 per cent rather than 90 per cent by the end of 2015. That’s hardly a delay.

8. The PAC is concerned about £1.2bn of public subsidy going to one company

BT takes its responsibilities seriously in using the money. You have to see this in context – Crossrail requires a subsidy of £4bn and public spending on High Speed 2 is likely to be far greater than that. The government, councils and BT are working together to get fibre broadband to 90 per cent of premises for far less than is being spent on those schemes.

9. The PAC says in return for the subsidy, BT ends up owning the infrastructure that’s built with the money

But the network BT inherits will continue to need maintenance, investment and upgrade – owning it is not a cost-free business. Again, you have to take on board that BT faces a payback period of around 15 years on its rural broadband investments because the business case is so tough, despite the subsidy available.

10. Overall the PAC report demonstrates concern about the state of the rural broadband deployment

As our rebuttal document makes clear (submitted to the committee in August and published on the committee’s website along with their report), the PAC is wrong in many crucial respects. Independent research now places the UK second in the G8 for average broadband speeds and ahead of all major EU states for availability and price. This lead is growing. Things have got to the stage where Australia now wants to copy key features of the British broadband rollout. Our rebuttal document is in the PAC report as an appendix and gives a point by point rebuttal of PAC concerns.

11. The PAC says the wholesale prices BT charges rival companies for using its network need investigating by Ofcom

Ofcom already keeps our prices and terms under review. We charge rival companies the same prices we charge our own Retail division for use of the network. Our rivals manage to make healthy profits using our network – as confirmed recently by the chief executive of TalkTalk when she addressed investors.

What do DCMS say?

A DCMS spokesperson said:

“We disagree with the views expressed  by the PAC  which are  at odds with the findings of the NAO. They found our approach reduced the cost to the taxpayer and reduced risk. We put in place a fair commercial process and encouraged different suppliers to bid. We are disappointed that the PAC fails to recognise that thousands of rural premises who have never had a decent broadband supply are now getting one, something that is vital for farmers, rural businesses and all those who live outside major cities.”

For information:

The NAO report confirmed that processes we have put in place to ensure value for money are strong and robust. We agreed at the time that effective enforcement of the contracts is important and are working with local authorities to ensure this. As the NAO report made clear, the project’s funding model greatly reduced the cost and financial risk to the taxpayer.

The Government is absolutely confident that our programme will deliver projects that are real value for money and result in a transformation of broadband in the UK.  From the very start we have built multiple controls into our contracts to ensure value for money, including independent assessment and clawback clauses.

Nine suppliers pre-qualified for the framework, three submitted final bids, two were appointed. Competitive tension was maintained throughout procurement of the framework, helping to ensure value for money. Suppliers withdrew from the process primarily for commercial reasons, or due to lack of technical or resource capacity.

[1] Based on our estimation that 5% of copper lines are either too long or connected directly to the exchange and will therefore achieve speeds between 2 Mbps and 23 Mbps, hence not qualifying as Superfast under the Ofcom definition.

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