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.