£830m to give 24% of UK superfast broadband. Really?

Well, someone may have been economical with the truth. Either that or building a national broadband network has suddenly got a lot cheaper.
The Financial Times interviewed BT CEO Ian Livingston about the largest UK telco’s latest half year results. Buried in the story was this statement: “The government is considering taking £830m from the BBC licence fee during the next seven years to help finance superfast broadband in rural areas. Mr Livingston says that this money, if secured in large part by BT, could enable it to extend its networks to 90 per cent of UK homes.”
So far we know it will cost BT £2.5bn to get fibre to the cabinets that serve 66% of homes, pretty much all of them urban. Now Livingston appears to be suggesting that BT can supply broadband to 24% of UK homes that are even more expensive to reach, for only £830m of public money.
So that’s a total of £3.33bn to provide fibre to the home for 90% of UK homes, just two years after the Broadband Stakeholder Group, of which BT is a member, said it would cost around £29bn!?
If that’s not good news, I don’t know what is. And with Livingston predicting BT’s free cash flow to hit £2bn a year, he doesn’t really need state aid to do it, some would have said.
Hang on a bit. Let’s remember what Francesco Caio reported as input to the Digital Britain report. He said “The BSG report indicates that the costs of deploying fibre access using FTTH/P2P (i.e. a single fibre to each home) on a national basis is almost £29 billion. A GPON configuration (in which a fibre connection is shared between several homes) would cost around £24.5 billion. If fibre was deployed only to street cabinets (FTTC), the cost would be around £5 billion. FTTC would though deliver a lower level of performance.” (ie, not “superfast”.)
Of course, the FT may have misquoted Livingston, or taken his words out of context, or perhaps didn’t really understand what he was saying, or even that Livingston was not being explicit enough. But so far there appears to have been no correction, and BT is usually pretty hot on making sure Computer Weekly gets things right.
So please can somebody explain how the numbers really add up?.

UPDATE 16/11/2010 (and posted as comment below)

BT has clarified Ian Livingston’s comments. It says Livingston meant (and was reported in another FT story as saying) that BT would match the public sector’s £830m with £830m from its own resources. This plus the £2.5bn already budgeted would bring to £4.1bn the total available to bring “high-speed broadband infrastructure (NOTE NOT SUPERFAST) to reach more than 90% of UK homes. We think we could get to over 90% per cent of the UK…2017 is not an unrealistic timescale,” BT said.

 
BT went on to say that this figure might creep up to £4.5bn, which it claimed is not too far from the BSG’s estimate of £5bn for an FTTC network.

 
An FTTC network cannot now deliver more than 40Mbps to the home, but who knows what advances in copper technology may bring, even as competitor countries are building 100Mbps and even 1Gbps FTTH networks.

Clear?

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think a lot of the figures are quoted using obsolete tech, things have changed since then and fibre lays are not as expensive. Copper scrap prices have risen, also take away dole payments (as ftth would employ lots) and putting NGA in may show a tidy profit. Bit of joined up thinking wouldn't hurt. Regarding any public money going into the pockets of the BT shareholders, I think not. We got suckered with that scam in 2004 when they said they would get 1st gen broadband to everyone, we must not fall for that again. Millions went into enabling exchanges, and the profit from that has not been repaid to the public purse. BT and ofcom are still saying over 99% of the uk have broadband. It is an outright lie, 3 million have limited or no connectivity. They may be 'connected to a DSL enabled exchange' but that is for phone calls. They don't get a fit for purpose connection to the internet through it. Hope computer weekly stay on the case and keep an eye on these shysters. chris
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What's missing in this equation is BT's investment contribution. According to Analysys Mason, the cost to deploy FTTC/VDSL to 90% is about £3.85 bn. Therefore, BT would have to find the total cost of £3.85 bn, less what they would have already spent (£2.5 bn), less the gap funding from Government (£830 m), less the funding for Final Third areas covered by other projects like Cornwall and Northern Ireland (£183 m and counting). I wonder what number that gives? My simple maths says that number is should be in the region of £350m. Whatever it turns out to be, Livingston's comments suggest that BT would be happy to fund the difference.
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Had quite a few people point this out to me over the weekend, although we estimated the 24% to be directly convertible to £907m. It's definitely interesting though as BT appear to be saying that it would actually cost them less to reach the last 24% with £830m of government money than it would to do 24% of the first 66%; seems to contradict conventional wisdom that the last 24% should be way more expensive.
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A cynic might say that BT is less concerned about the money for themselves and desperate to prevent any competition from getting funding to then show how inefficient BT is at delivery. The real threat to BT hegemony is to be found at grassroots level across the nation where folks have had enough of crazy prices and endless waiting and are simply JFDI for themselves. The simple truth is that if BT is unwilling to invest in rural communities then they must step aside and accept the permanent loss of those wholesale markets.
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BT is desperate to get the money to protect their copper cabal. they can then spend thousands in public funding to run copper to rurals for BET. That will mean the route to the rurals through market towns and villages will also stay on copper. It must be stopped. Say no to BET.
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When ADSL was first deployed, BT used to maintain that they had covered "99.6% of the country", because the exchanges with ADSL equipment in covered 99.6% of premises, irrespective of whether or not the individual lines were short enough for broadband to work. They are now saying they have "enabled" certain exchanges for FTTC, without mentioning that they have no plans to deploy fibre to, and equipment in, the less economically attractive cabinets that are connected to those exchanges.
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Hi Ian, happy to explain how the BSG numbers add up. First, I'd like to clarify a couple of inaccuracies in your piece. You refer to the £2.5bn that BT is using to do FTTC, add the £830m the government is setting aside from the licence fee, and then compare the resulting £3.33bn to the fibre to the home cost (£29.9bn for point-to-point fibre), rather than the fibre to the cabinet cost (which is £5.1bn to serve all UK homes). You also compare the cost for 100% of homes, rather than the 90% that BT say they could reach (important as the final 10% of homes are the most expensive to serve, so have a large cost). The numbers add up when you consider that BT would add their own capital to the £830m the government is putting up. The BSG cost model, which you reference, puts the cost for FTTC to 90% of homes at around £4bn; this would suggest BT would be prepared to put c£0.6bn of their own capital into FTTC in these final third areas. To the first 66% of homes, BT are spending approximately £145 per home; using the above government subsidy, they would need to invest around £100 per home to take their deployment out to 90% of homes. Without the subsidy, BT's costs per home would be £225, which may be more commercially challenging to justify, or to make a return on. To be clear, these numbers are from the BSG's work, and are not BT's figures. Peter Shearman Policy Manager, Broadband Stakeholder Group
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or what was said was that BT would also provide more than matched funds so the cost would be £2.5bn plus £800m plus, say, £1bn ie about£4.3bn to get to 90%. This would be mainly FTTC. The final 10% would be significantly more expensive
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BT has clarified Ian Livingston’s comments. It says Livingston meant (and was reported in another FT story as saying) that BT would match the public sector’s £830m with £830m from its own resources. This plus the £2.5bn already budgeted would bring to £4.1bn the total available to bring “high-speed broadband infrastructure (NOTE NOT SUPERFAST) to reach more than 90% of UK homes. We think we could get to over 90% per cent of the UK...2017 is not an unrealistic timescale,” BT said. BT went on to say that this figure might creep up to £4.5bn, which it claimed is not too far from the BSG’s estimate of £5bn for an FTTC network. An FTTC network cannot now deliver more than 40Mbps to the home, but who knows what advances in copper technology may bring, even as competitor countries are building 100Mbps and even 1Gbps FTTH networks. Clear?
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Thanks to BSG's Peter Shearman for his explanation of how the numbers stack up. It would be nice for BT to confirm the £145 per house cost to provide FTTC to 66%, and the subsidised £100 a home for the next 24%. Doing a back of an envelope sum, if FTTP/H costs £30bn, and there are around 30 million premises in the UK, I calculate the average cost of a natioanl FTTP network at around £1,000 a home or office. My geriatric hardwired HP 12C calculator suggests it would cost £10.61 a month, at a 5% interest rate for 10 years, to pay that off. Some gimlet-eyed negotiators could get Corning to do a deal on fibre if this was on the table, making it even cheaper. A lot of farmers have indicated they might lend their equipment, time and land to help install the ducts, cutting the most expensive costs a lot. Let's not complicate this with estimates of potential savings local councils or central government departments could make if they could deal electronically with voters, ratepayers, and other users of public services. Let's just say that's the social dividend. So, if we treat broadband as the fourth utility, is there a local council that cannnot afford to fibre up all the premises under its control and to get the money back via a £10 increase in council taxes over 10 or 12 years? Perhaps there's a banker reading this. What's your view? Any bonuses for you for doing the right thing?
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Thanks to BSG's Peter Shearman for his explanation of how the numbers stack up. It would be nice for BT to confirm the £145 per house cost to provide FTTC to 66%, and the subsidised £100 a home for the next 24%. Doing a back of an envelope sum, if FTTP/H costs £30bn, and there are around 30 million premises in the UK, I calculate the average cost of a national FTTP network at around £1,000 a home or office. My geriatric hardwired HP 12C calculator suggests it would cost £10.61 a month, at a 5% interest rate for 10 years, to pay that off. Some gimlet-eyed negotiators could get Corning to do a deal on fibre if this was on the table, making it even cheaper. A lot of farmers have indicated they might lend their equipment, time and land to help install the ducts, cutting the most expensive costs a lot. Let's not complicate this with estimates of potential savings local councils or central government departments could make if they could deal electronically with voters, ratepayers, and other users of public services. Let's just say that's the social dividend. So, if we treat broadband as the fourth utility, is there a local council that cannnot afford to fibre up all the premises under its control and to get the money back via a £10 increase in council taxes over 10 or 12 years? Perhaps there's a banker reading this. What's your view? Any bonuses for you for doing the right thing?
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To help clarify the discussion, it seems like you’ve come across the FT’s financial results story on BT, rather than the bigger piece on broadband that appeared on the same day entitled: “BT quickens broadband pace.” To be clear, Ian Livingston has never said it will cost £830 million to roll-out fibre-to-the-premise to 24% of the UK. What Ian is quoted as saying in the FT piece is that “£830 million, if at least matched by private sector funds, could enable high speed broadband infrastructure to reach around 90 per cent of UK homes and premises.” The likelihood is that the private sector – whether BT or another investor – will need to contribute more than £830m in matched funds, as rolling out superfast broadband to harder to reach areas is more complex and expensive. Comparing the Broadband Stakeholder Group’s fibre-to-the-premise (FTTP) figure of £29bn, with our estimates for rolling out a mixture of fibre-to-the-cabinet (FTTC) and FTTP, is misleading. Our current plans are to rollout superfast broadband to two-thirds of homes and premises in the UK (not by any means all urban, as you suggest) through a mixture of FTTC (around 75%) and FTTP (25%) by 2015. As you say, the BSG estimates that it will cost around £5bn for a FTTC roll-out across the whole of the UK, remembering that the final 10% is the hardest and most expensive to reach. Given we’ve already announced a planned investment of £2.5bn to two-thirds of the UK, added to what BT has now said in terms of reaching 90% of the UK, the maths don’t sound that much different or, as you put it, “cheaper”? I question your comment that FTTC is not “superfast broadband” and that it offers a low level of performance. Ofcom, the UK telecoms regulator, and all the major ISPs rolling out fibre, define download speeds of above 24megabits per second as “superfast broadband”. Our FTTC product offers speeds of up to 40mbps and our FTTP services will offer speeds of up to 100mbps. Whether FTTC or FTTP, BT’s superfast broadband speeds quite easily meet the needs of bandwidth hungry applications, such as HDTV streaming and gaming, and other services that consumers are using. Probably more importantly, it’s worth noting that Openreach engineers are now making fibre available to more than 100,000 homes and businesses a week, having already passed three million premises. This is giving consumers – either through BT or the 25 other services providers using the Openreach fibre network – a chance to experience ever faster broadband speeds. The ‘final third’ of the UK is undoubtedly challenging to reach with fibre, but, as seen in Cornwall and Northern Ireland, a mixture of private sector and public funds, can make it possible. However, whether its BT or others rolling out superfast broadband, the most important thing is that the fibre network is open to all service providers on a fair and equivalent basis, to ensure competition and consumer choice. Johnny McQuoid Super-fast broadband programme director BT
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http://opticalreflection.com/2010/11/ftth-fibre-pioneers-light-up-ashby-de-la-launde/ http://www.trefor.net/2010/11/13/the-digital-village-pump/ Hi Johnny. The above links are futureproof, superfast fibre broadband. The BT product isn't. Fibre to the cabinet is ok, but it isn't futureproof and certainly does not need public money. The above final third village did not use public money. Nor did it have legacy ducts, poles or wayleaves. POP that in your pipe and smoke it all you coppercabal fanboys. chris.
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Well said, Johnny McQuoid. Let's accept what you say, even though definitions of broadband speed as high speed or superfast are arbitrary, and usually governed by what a network technology can deliver to a single user downloading data under optimal circumstances, with no contention on the line, as in "up to XX mbps". The more interesting call is in your last sentence: "the fibre network is open to all service providers on a fair and equivalent basis"... to ensure competition and consumer choice." We agree with the sentiment, and wonder why, if this is in fact the BT/Openreach policy in force, why Cornwall County Council was left with only one bidder, BT, for its recent £132m broadband project? See http://www.computerweekly.com/Articles/2010/09/30/243100/Cornwall-to-get-disputed-163132m-fibre-broadband.htm.
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Speaking as a resident on a housing estate in Rugby, 300m from the next BT cab to receive FTTC, we can't even get Openreach to give us a better cost estimate than "should be under £20K" for providing 100 properties - let alone installing the cab for free like our neighbours. David Campbell, MD of Openreach will only tell us "we are not currently planning to activate cab 91" Why on earth is Openreach not nationalised for the good of the nation? It's time to take control - not time to be held to ransom by Openreach as they see fit.
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