20th November 20131

Hammers and ToolboxesCreating Choice for Government…. and People

Broadway Partners

20th November 20132

Complexity… and Externality

Source: Arthur D Little

20th November 2013 3

‘‘Thinking Out-of-the-(Tool)Box’!Thinking Out-of-the-(Tool)Box’!

• Gap-funding has got BT going… but will not deliver the ‘final 10%’ at acceptable VFM or quality

• A different approach required…

20th November 2013 4

What’s Possible?What’s Possible?

• The numbers are straightforward: £250m BDUK + £250m Council match+ £500m Investor match+ £2,500m debt, 2.5:1 leverage

= £3.5bn a/v to invest

• Regulatory perspective:• Assuming 12% allowed return… if Kd = 5%,

allowed equity return = 33%• Market perspective:

• £3,000 cost/connected home, £150 p.a. yields 2% to equity• £2,000 cost/connected home, £150 p.a. yields 10% to equity• £1,000 cost/connected home, £150 p.a. yields 32% to equity

• i.e. with scale, blended returns can compensate for uneconomic returns

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ConclusionConclusion

• Councils and Government can fix the ‘final 10%’!

• All the tools are available and proven – co-investment, project finance SPVs, local authorities as procurers – it’s only the combination that is new

• Benefits are substantial:• A real choice, not a re-tread• Superior technology solution – FTTH, with Open Access• An investment, not a grant – no State aid issues under MEIP• Service diversity – think 100% digital inclusion• More efficient delivery of public services• Stimulus to inward investment• Demonstrably better VFM with public funds

• In the vulgarism of the day, ‘what’s not to like?’

20th November 2013 6

ConclusionConclusion

Thank you!