Tuesday, June 28, 2011
Digging further into "Propel Northants"
Trying to untangle the loss making assumptions behind the DCF analysis of the "Propel Northants" project I have observed the following questionable assumptions :-
- Take-up aspiration is very low - "a total connection rate of 30% of the total private sector premises passed in year 2026"
- Rate of take-up growth is abysmal - "2% of all existing Private Sector premises (B Type and non B type) passed are connected each year"
- A wholesale only "Open Access" model is used, with a modest proportion of revenue captured as a result - "it is assumed that the wholesale network operator takes 50% of the total retail revenues achievable"
- Retail pricing model is unambitious, matching first generation broadband pricing with a SOHO office internet / telephony bundle at £35 per month
- Large parts of potential market are excluded - "Other Public Sector premises (i.e. Education and Health) do not connect to the network and procure their telecom services via an alternative route"
The network is a substantial investment and isn't going to be achieved by community activists digging trenches - 110 km in 10 distribution rings are proposed, connecting to 224km of core fibre ring with 8 points of presence.
Capital costing is in line with corporate civil engineering costs, as one would expect from a report prepared by Atkins and The University of Northampton. The figure of £1,309 per business and public sector premise passed is perhaps not unreasonable, but escalates to an eye-watering £7,644 per premise connected when the low takeup assumptions are factored in.
"Propel Northants" could represent a good launch platform for further growth of FttH services in Northamptonshire, but its current economics leave it stillborn.
Can the above weaknesses be realistically addressed to make the project an attractive investment ?
Thursday, June 09, 2011
How to lose money fast ? public sector fibre optic broadband
I'm reading a report prepared by Atkins and the University of Northampton which considered the costs and benefits of building a fibre optic broadband infrastructure in Northamptonshire to produce economic growth - Propel Northants.
As a numbers man I have been digesting the discounted cash flow (DCF) analysis which shows a lot of red ink in Table 33. The project starts with £30m of capital expenditure in Year 0 and then makes a loss every year for 15 years, producing a NPV of (£57m). This says that the project is the same as burning getting on for £60m in a bin outside the council offices.
To be fair the annual loss does decline through the project, and is only a million quid by 2026, but it is still a loss from start to finish.
I will write more on why I believe the DCF produces such a dire result as I get my head around its assumptions. One obvious factor is that Health and Education are assumed to do their own thing and are therefore not included as potential revenue customers of the fibre network. This is a shame as a) these are two of the biggest players in the public sector and b) the model assumes that the fibre network gets 80% of the retail revenue from public sector customers (as opposed to 50% from private sector) with its open access wholesale model.
Tuesday, June 07, 2011
BDUK and Community Broadband
The ongoing process to try and connect up 1/3rd of the country for less than £60 per home rolls on with the publishing of their first "Delivery Model" document and related procurement announcement of around £2bn of public sector contracts, picked over in depth by Lindsey Annison.
The Delivery Model has several references to community engagement in broadband provision, with the word "community" featuring 93 times in the 60 page document. Selected highlights are :-
Point 7 of the Executive Summary sates that "Contracts are expected to include provision for Community Broadband Hubs where there is sufficient demand for them" and goes on to suggest they are exploring what the specification of such a thing might be and what demand there is for them.
Section 2.4.1 makes it clear that Community Groups are part of the intended audience of the delivery model document and Section 10 sets out potential roles for and involvement of such groups. Principle 3 (4.2.3) is to "Promote the involvement of local communities" including to "Explore the viability of the provision and use of a Broadband Community Hub at a local level". Principle 11 is to maximise competition " including SMEs and community suppliers as appropriate".
Section 9.2.3 looks to community champions to support demand stimulation, against a background where BDUK see potentially low takeup of superfast broadband in areas that currently have a workable standard broadband service.
In section 10.2.4 the bar is set for a local community to be at least 100 households that are sufficiently concentrated to be connected to a single "point of presence". A target of at least 40% of households signing up for the setup and monthly charges of any proposed community scheme is suggested as a minimum.
BDUK have funded The Rural Broadband Partnership at ruralbroadband.com to act as a focal point for Community Broadband issues, presumably burying the Community Broadband Network's role in this sector for good.
In Section 10.4 we get down to the nitty gritty of delivery, with BDUK stating that "In the majority of cases, community groups will not be involved in the actual delivery of the broadband infrastructure". They see a role in "raising awareness", "stimulating demand" and informing local bodies (Councils) of the community's needs. They go on to say that "In a minority of cases the community may become involved in the delivery of broadband infrastructure. This is expected to happen where the proposed broadband investment will not otherwise meet the community expectations. It may involve the use of a Community Broadband Hub."
Section 10 is fairly inclusive in its approach, while at the same time fairly dismissive - "Demand for this option is uncertain", "Demand for this option is unproven" and so on. The three main options identified for Community Networks are :-
- Community access point - support of an existing access point with an affordable annual rental and monthly bandwidth charges.
- Community network extension - arranging wayleaves or digging in ducts etc to facilitate extension of a private sector network where the community doesn't wish to build or maintain the whole network but at the same time wants more than is on offer on the usual commercial basis.
- Community design and build - the whole network owned and operated by the community.
So the document provides hooks for community projects to latch on to, but the money simply isn't there to give them the handouts that most will crave. It does have sufficient references to Community Broadband Hubs to make it difficult for Councils and their large corporate suppliers to totally ignore them, but at the moment the references are so vague they don't cast a lot of light on the subject.
Hopefully subsequent versions will firm up on the Community Broadband Hub concept.