Is BT postponing broadband roll out to fund a content price war? If so, is it about to be leapfrogged by better funded competitors?

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When I blogged last July on the way that BT was delaying the roll out of fibre to cabinet to inner city areas and locations with a majority of business lines, the exchanges for Wapping and Whitehall were due to be enabled by the end of December  2013. Wapping has since been postponed twice and is now scheduled for the end of June (i.e. each quarter appears to go back a quarter). Whitehall no longer has scheduled date. Holborn is now due for the end of May. Southwark, home of Ofcom, has now been partially enabled including, of course, the post code serving Ofcom itself.

So why is the roll out being postponed?

The answer may lie in BT's briefings to some of the investment analysts. To quote from an analysts briefing on the risk that BT might have to repay the funds it receives from BDUK:

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Broadband subsidies under fire - but unlikely to change

Public Audit Committee (PAC) challenges BT subsidies

The PAC has criticized BT and the Government over broadband rollout plans that it claims lack detail and speed commitments.

BT has dominated tenders to date

Currently the Government has earmarked £490m in grants to local authorities by 2015 with an ambition that all UK premises can experience >2Mbps broadband speeds and that 90% of premises can access superfast broadband >20Mbps. Local authorities have the remit to match this cash from their own funds and similarly the contracting firm can add its own cash. A primary concern is that BT has so far secured all of the 44 bids put out to tender. Note that the Government has earmarked a further £500m in grants beyond 2015.

Mirroring the current EU predicament, is there an alternative?

In effect, the Government faces a similar predicament to the EU, that is, an urgent need for broadband investment and rollout, but no obvious alternative to the national incumbent as a partner. Thus there has to be some leniency as the incumbents invest fresh shareholders equity, with a commensurate need to generate a return. The unthinkable alternative is that the UK falls behind Europe and Europe continues to fall behind other Western regions in its broadband coverage. Given the proliferation of on-line trade and social media, this could have severe implications on future economic growth and competitiveness.

Reduced subsidies do not mean reduced cash flows

And we do not agree with the view that total subsidies could be reduced, thus BT's capex rises to make up for the difference and that cash flows fall. This seems counter intuitive to us. If subsidies reduce, BT's rollout commitments reduce and thus its overall capex reduces and cash flows remain essentially unchanged. In fact, they could even step up with reduced commercial activities and all of the associated Opex.

Conclusion: we see limited risk form this development

Our view is that the Government has little other choice other than to partner with BT. It has tendered the contract and no one else was interested. And it needs broadband rollout desperately. So there has to be some leniency, thus we would be very surprised to see a material shift in subsidy as a result of this review. In any case, this need not impact cash flows. If subsidies reduce, commitments reduce and capex reduces. Cash flows should remain essentially unchanged.

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Their analysts view appears to be that BT has HMG over a barrel and is prioritising broadband roll out according to the funding it receives from BT. However, the price war over packages of content (sports, films, TV channels etc.) has caused some analysts to follow those in other countries (e.g. France, Spain and Germany) and question the value of such packages in doing more than price cuts and quality of service improvements to enhance customer loyalty. In parallel, Sky and Talk Talk have finally begun to look at invading BT's urban infrastructure monopolies.

If York is successful in delivering gigabits to the home at the same time as slashing the cost of public service delivery, how many other councils will we see following suite?

Might Barnsley get a decent service in time to take hotel and restaurant bookings for the start of the Tour de France? Or is it now too late to avoid French jokes about how the UK has gone backwards since the Olympics?

Will the rural market be opened up in time for BDUK to get better value from its next £500 million by making BT compete head to head with the new infrastructure providers to provide fibre to village or farmyard business centres?

Will anyone change the nature of the game by offering unsubsidised gigabit services to those business parks and homes in and around Bromsgrove who are still stuck with crapband and, if so, how will the local MP react?

We may discover some of the answers on May 8th at the INCA Transform Digital event.

Transform is an over-used word but this event is expected to see the first public outing for the new Head of Broadband UK, alongside the Head of Broadband for DG Connect in Brussells and the heads of UK and EU public affairs for BSkyB and Alcatel Lucent (whose technology powers Gigabit to the home services around the world) and Chief Executives and Operating Officers from some of those  already providing fibre to homes, business parks and commercial centres around the UK. Other speakers will include the head of Digital Distribution for the BBC  and the CEO of Fluidata whose network connectivity services have done so much to open the UK broadband market to effective competition. 

I look forward to seeing who is in the audience.

Will it include those looking at the plans for shared infrastructure investment being made by Arqiva, EE, O2, Virgin, Vodafone and others?

Will it include representatives of the growing number of local authorities who have decided they cannot afford for their local economies, let alone their own service delivery, to be dependent on BT's obsolescent and increasingly overloaded 21CN?   

Will it include landlords and property developers looking to realise the sharp increases in rents and values that fibre to the premises have now been shown to enable?

I am, in any case, looking forward to a most informative day and took the precaution of booking early - although I am told there are still places available.    


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This page contains a single entry by Philip Virgo published on April 26, 2014 7:49 AM.

Surviving the post Heartbleed Cyber Security Skills Crunch was the previous entry in this blog.

City Centre creative Industries crippled by crapband as the rural revolution begins to gather pace is the next entry in this blog.

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