Do Stephen Carter's numbers add up ?

The Digital Britain report proposes an annual fixed line levy of £6 to fund the "final third" of fast broadband rollout. So we thought we'd look at how far that would go.

What will the last third cost to build ?
· Assume 27.2m fixed line homes.
· A report for the Broadband Stakeholder Group by Analysys Mason (fig 5.1) suggested that FTTC costs for last 16% of homes are £1175/home connected, with 36% take-up assumed= 27.2*16%*1175*36%= £1.8bn
· For next 17% homes (taking us to 33%, the last third), cost per home connected is £573, take-up assumed 36% again;
· = 27.2*17%*£573*36%= £1.0bn
· So total “last third” cost = £2.8bn

How much money is raised ?
The Universal Service Fund comes to £6 * 27.2m = £163m a year.

Does that add up ?
We have a choice of approaches.

a) We could assume that BT would contribute to the last third at the same level as the first two-thirds, with the Fund paying the rest. Taking the 2/3 cost (£400 ) as a break-even per home connected, that would make BT’s contribution to the last third = 33%*26m*£400 * 35% = £1.3bn., leaving £1.5bn to be covered by the levy. Payback = 9.2 years. Plausible, just about.

b) Alternatively you could say that BT would earn revenue on the last third that it would not otherwise have done. If we allow the levy for 10 years we get £1.6bn, leaving £1.2bn to find from 3.2m homes = £370/home connected over 10 years = £3/month. Again just about possible.

So overall one could say that £6 was a fairly well judged level for the levy. The problem might come if other groups take some of the levy for one-off ventures which don’t then get integrated. Or if the take-up assumption is too high.

Personally, I’d say this still looks a risky proposition.