Author Topic: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd  (Read 34188 times)

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Offline Geoff Reid

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On the 17th of November 2009 the Swindon Advertiser reported a Swindon Borough Council press release that promised:

Quote
Swindon is to become the first in the UK to provide free wireless internet access to all its residents


This was the day Swindon residents learned that their council had entered into a commercial partnership with Digital City (UK) Ltd and its Chief executive officer, John Richard Hunt, (also known as 'Rikki Hunt). 

It wasn't long before the public became interested in the terms of the partnership, especially as SBC had agreed to loan Digital City £450,000

Shortly afterwards, the 'wifi deal' was being discussed at the 14th December 2009 meeting of the scrutiny committee.

http://ww2.swindon.gov.uk/moderngov/ieListDocuments.asp?CId=619&MId=3999&Ver=4&J=13

Quote
The Chair [Monty] maintained that most councillors had been unaware of this decision before the recent announcement of the implementation of the scheme and he felt that the use of £450,000 of public money in support of a deal with the private sector presented a significant risk. He asked whether it was appropriate that this matter had not been debated by a larger forum of Councillors.



Quote
The Leader of the Council concurred that any commercial venture generally involved some level of risk, however, he maintained that the business case presented by Digital City had been thoroughly investigated and discussed and it had ultimately been determined to be a sound commercial venture and one that addressed other priorities, including social inclusion. The Leader of the Council assured the meeting that the decision had been made in accordance with Council policy and that consideration had been given to the level of consultation that might be undertaken in respect of the proposal but it was felt that the issue was one of competitive advantage, to make money for the taxpayers of Swindon, and that debate of the matter in a open forum would have increased the commercial risk.


Since that day, Councillor Bluh has refused to discuss or release the 'business case' and those councillors who have repeatedly asked to see it have fallen victim to the Bluh charm offensive.

This thread is purely to discuss what we know and do not know about the business case, upon which £450,000 of taxpayers money was advanced to Digital City Uk Ltd.

 It will invariably involve a degree of speculation but I'm confident we can form a couple of working theories by examining the known facts and studying the shape and scope of the missing information.



Points raised:

1. Richard Shaw:  "he is playing with our money not his"

« Last Edit: February 06, 2010, 09:03:30 AM by Geoff Reid »



Offline Geoff Reid

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #1 on: February 06, 2010, 09:04:25 AM »
Richard, your main point has been added to post#1

Here's a couple of extra questions though, who did the 'Thorough investigation' and who was involved in 'discussing it thoroughly'?   If you know the answer whisper it to me: leaks@talkswindon.org

To TS Members: What would you normally expect to find in a business plan/case, what should it look like, how extensive/detailed would you reasonably expect it be?

Offline Jenni Miles

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #2 on: February 06, 2010, 01:03:49 PM »
Was I sent a letter in the post in the form of a survey asking me questions re: WIFI and asking as a tax payer do I think its a good investment that would benefit Swindon 'NO'

This is a key question, what market research was done? How did they estimate figures of people who would sign up. This is a crowded market, where people do not move providers often (largely because they are tied into one provider for 12-18  months contracts, the inconvenience factor of having to change e-mail address especially as internet providers often provide other services as well (TV, 'Phone, mobile) amplifying this issue. Can they be competitive with both speed of service as well as price (particularly given that "convenience factor" I mentioned above), were they relying on a USP (Unique Selling Proposition) - what research did they do to see it's worth. They seem only just to be doing marketing now, this is a bit late in the game - what was their marketing strategy?

The most basic of business plans should set out clearly:

What they hope to achieve (over a few years).
How they will achieve that (this should have highlighted the "not having lampposts where they needed them" issue).
Information on their market and competitors.
Sales estimates and the basis of these figures.
Estimates of costs, revenues and profits (over a few years).
Research on customer needs and how the business will meet those needs (see above, this is difficult to do quietly when you are using a fixed location market, yet most people in Highworth were unaware of the scheme and local councillors were not asked).
Their Unique Selling Proposition.

Prior to handing over my money, I would look at the pervious track record of the owner (not just that they are not bankrupt, you would go much further than that).

Planning should look into potential problems also and I would have liked to see a SWOT (strengths & weaknesses within the company, opportunities & treats from the market) analysis of the potential company too.

I would not invested the money until the scheme had passed both of the committees.

If you want me to look over a business plan that you may or may not have, I'm happy to do that. Given my old job and qualifications this is "my area" so to speak.
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Offline Chris Watts

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #3 on: February 06, 2010, 03:29:20 PM »
Jenni, I put similar questions to the 14th December Scrutiny Meeting. Click the link below for the minutes.

http://ww2.swindon.gov.uk/moderngov/ieListDocuments.asp?CId=619&MId=3999&Ver=4&J=2

The questions and answers are appendix A and Questions 7,8 and 9 were as follows:

7. As Digital City are entering into an already saturated market place that offers excellent cost effective products to the consumer and
 business, what share of the market place do Digital City expect to achieve? Although aQovia state that Swindon has a population in
 excess of 180, 000 this only equates to 70,000 household.
8. What is the unique sales proposition? As I have seen none in the current literature
9. Has Digital City looked into the quantity of households’ that already receive broadband as part of a Sky, Virgin Media or BT package? These households that are receiving broadband in such a way very cheaply are unlikely to drop the additional services in favour of the Swindon WiFi


Council answer as follows with my thoughts in red:

Response to questions 7, 8 and 9:
We agree that the market in Swindon for fixed line broadband provision to domestic and business consumers is competitive and penetration is amongst the highest in the UK (around 50% of households) ; however, Digital City’s market is broader than just ‘fixed line’ broadband provision. In addition it’s revenue model is diverse and selling broadband subscriptions is only one
stream of income. For Digital City, the market in Swindon is defined by unmet need in the following areas :
    •  20% of Swindon households where internet access is currently poor (low speed i.e 2 MB on average) or is not available.
This surprises me but we know that BT are in the process of upgrading the swindon infrastructure as we speak.
    •  50% of Swindon’s 88,800 households still do not have broadband access, potentially because of the high total cost from fixed line
       providers.
If these people can not afford broadband at the current prices, entry level £6.99, then i would assume that a majority will taking advantage of the free service. I can not see a large conversion rate in this demographic.
    •  Of the 50% of Swindon households who already have broadband access via a fixed line provider, there will be a number who will be looking to reduce their household bills in the current climate and will welcome moving to a provider offering a high speed service at a cost below that of major providers. In this respect, a high speed service priced at a total cost of under £10 per month, without the need to pay for fixed line rental charges, would be attractive to consumers.
I suspect that if someone did move over to Digital City they would also keep their land line for phone calls, therefore no saving on line rental. It would be cheaper to subscibe to Talk Talk at £6.99 or take advantage of the free service.
    •  People in Swindon with the latest generation of mobile device who want broadband access on the move but don’t want to pay twice – once for their home connection and again mobile connection.
This is correct, as i have an Iphone with unlimited data access included in the contract that works nationally i would not require a secondary service at additional cost from Digital City.
    •  Individuals and households who already pay for a mobile phone, are happy to have a mobile contact number only and do not want to pay additional rental costs for a fixed phone line just to access broadband.
Again price is obviously an issue therefore you would suspect that the free service will suffice
    •  Growing number of those wanting broadband access whilst on the move using the latest mobile devices such as the Iphone.
Of the 10,000 businesses VAT registered in Swindon ( and more companies that operate locally but are not registered here), we believe there are:
    •  Businesses in Swindon who want to offer their business visitors guest Wi-Fi services but don’t want to invest in the additional infrastructure costs.
I suspect that a majority of visitors will have 3G access or companies will have clean WiFi for visitors already installed. If not then a majority will make do with the free service.
    •  Specific business sectors in Swindon e.g Hospitality, Leisure, Conferencing etc that want to improve the quality of their offer to their
       customers by providing wi-fi access on their premises but are constrained by the total cost to buy, install and operate the technology.
Supplying WiFi is a revenue stream for hospitality therefore i suspect they will not be too happy, especially if they have already invested in the hardware.
    •    Small start-up businesses in Swindon who want to quickly setup connectivity for their employees and access to their customers but need to keep their fixed overheads to an absolute minimum.
I can see a small market place for this.
    •    Those business that want to use or offer applications and services that can uniquely exploit a town-wide Wi-fi infrastructure.
Any application or service that can run on the wifi can also run on conventional broadband. Why would you limit your market to the wifi users only.
We believe that Digital City are being realistic about target sales to households, business, public sector organizations and business visitors, their model is based on:
    •    Selling to 7 % 0f households in year one.
    •    Having between 5000 and 7000 free users, and we expect that a
         proportion of these will want to upgrade to a paid service.
    •    Selling a 1000 business packages
In summary, the service that Digital City (UK) limited will roll out is different from others in the market place. It is unique and more flexible; we believe that it will be competitive and that it will return a profit on our loan which we will use to re-invest in front-line public services.


The only thing i can say to Digital City regarding the targets is "good luck with that then".

Personally i would love for this project to work and for the social inclusion to be a success with a positive revenue stream back into SBC. Unfortunately I can not see this working and hope to be proved wrong. If the project was conducted openly and transparently perhaps the feed back would have helped to construct a robust business proposition that would benefit all parties although I suspect that  the end product would have been considerably different to the current plan.

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Offline Dougal

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #4 on: February 06, 2010, 03:56:30 PM »

Admins have been asked to move general comments from the main Business Case thread and place them Business Plan public gallery.

Please do not be offended if you post has been moved, your contributions are all valued but this thread must stay focussed AS PER TITLE: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd

Dougal
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Offline Geoff Reid

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #5 on: February 06, 2010, 04:32:32 PM »
 
@ Jenni and Chris:  Thank you, I think we can safely regard you both as competent witnesses for the purposes of our modest 'investigation'  :)

I'm hoping that Moley will condense some of the pertinent observations he's made in the lamplighters bulletin#6 thread and represent them here.

For my part?, I'll let our expert witnesses continue their testimony, as regards what they think a 'business plan/case' could reasonably be expected to contain, before I take the stand, swear the TS oath and publish what I know so far, and believe to be the truth.

Questions: 

1.Given the considerable publicity given to the Digital City/SBC WiFi project, and the ambitious scope of its rollout, is it possible to estimate (retrospectively) how extensive and detailed the business plan should be?

2. If approached for a loan to fund this project, what criteria would a bank manager expect to see satisfied by the plan/case before granting a loan?

3. For a project the size of this, how many sides of A4 paper would you expect a business case/plan to cover?


Offline moley

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #6 on: February 06, 2010, 05:20:41 PM »

I'm hoping that Moley will condense some of the pertinent observations he's made in the lamplighters bulletin#6 thread and represent them here.



I guess the questions I'd ask would be:

1) When putting the business plan together, was anyone involved with any expertise in provisioning, configuring and operating a wireless network?

2) What were the assumptions in the business plan about CAPEX (capital expenditure)  vs OPEX (operating expenditure), and how much of the budget was planned for network maintenance as opposed to subscriber provisioning?

3) Was anyone with expertise in provisioning, configuring and operating a wireless network involved in reviewing the business plan for the council before the investment was made (because I'm not convinced that Joe Public off the street would be able to assess some of the things that might be missing).

Based on my understanding in this area, to get the best part of half a million pounds of investment from a bank you'd need a reasonably substantial business plan - I don't see why the council should be any less thorough.

Moley

Offline Chris Watts

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #7 on: February 06, 2010, 05:31:05 PM »
Moley, Again i did pose a similar question to to the scrutiny 14th dec 2009

15. Have third party independent consultants been used in this process?

Answer form Council:
"No third party consultants have been used in this process. As for whether due diligence was followed, of course we looked at the risks
and exposure of the investment. There is absolutely no requirement for us to seek third party independent advice. We have successfully concluded many multi-million pound partnership deals and transactions and as a result have built up a high level of legal, commercial and technical expertise. In fact, many other local authorities and public bodies actually come to us for advice. in the
light of our experience and track record a £450,000 transaction is of a relatively smaller scale and we did not see the need to pay consultants to advise us on this."


I will elaborate on this further later but it is fair to say that the only expert advice would have been from the other Network City share holders.

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Offline moley

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #8 on: February 06, 2010, 05:43:46 PM »


I will elaborate on this further later but it is fair to say that the only expert advice would have been from the other Network City share holders.

And going back to my first question, I'd like to understand if there is significant experience anywhere in the whole activity.

My experience is always that novel projects are very hard to estimate....  it's "me too" projects that you can accurately assess costs and budgets for up front..

Offline Muggins

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #9 on: February 06, 2010, 06:13:59 PM »
form Council:
" There is absolutely no requirement for us to seek third party independent advice. We have successfully concluded many multi-million pound partnership deals and transactions and as a result have built up a high level of legal, commercial and technical expertise.


Do we think perhaps that they once had the 'expertise' do we think maybe, that those that had it have been made redundant? Because there is hardly anyone in there that has been there more than a few years.
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Offline Jenni Miles

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #10 on: February 06, 2010, 06:30:21 PM »

For my part?, I'll let our expert witnesses continue their testimony, as regards what they think a 'business plan/case' could reasonably be expected to contain, before I take the stand, swear the TS oath and publish what I know so far, and believe to be the truth.

Questions: 

1.Given the considerable publicity given to the Digital City/SBC WiFi project, and the ambitious scope of its rollout, is it possible to estimate (retrospectively) how extensive and detailed the business plan should be?

2. If approached for a loan to fund this project, what criteria would a bank manager expect to see satisfied by the plan/case before granting a loan?

3. For a project the size of this, how many sides of A4 paper would you expect a business case/plan to cover?




The business plan should be to the point, but contain a huge appendix to back up what their figures are based on. I've not seen one for this type of company before, but there is a sample business plan for an ISP here:
http://www.bplans.co.uk/isp_business_plan/executive_summary_fc.cfm that should give you more of an idea of what you should be looking at. Though it has to be said I did work for a very old fashioned private bank, they would expect to grill someone several times over their business plans and would ask very probing questions that they would expect the owner(s) to be able to answer in full with ease. I haven't noticed Rod be able to do this for any questions he has been asked on the matter so I can only assume he didn't ask them of Mr. Hunt. This concerns me, greatly. If all you have (do don't have) is a couple of sides of A4 then we are all  :censored:.
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Offline Chris Watts

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #11 on: February 06, 2010, 06:58:03 PM »

I'm hoping that Moley will condense some of the pertinent observations he's made in the lamplighters bulletin#6 thread and represent them here.



I guess the questions I'd ask would be:

1) When putting the business plan together, was anyone involved with any expertise in provisioning, configuring and operating a wireless network?

2) What were the assumptions in the business plan about CAPEX (capital expenditure)  vs OPEX (operating expenditure), and how much of the budget was planned for network maintenance as opposed to subscriber provisioning?

3) Was anyone with expertise in provisioning, configuring and operating a wireless network involved in reviewing the business plan for the council before the investment was made (because I'm not convinced that Joe Public off the street would be able to assess some of the things that might be missing).

Based on my understanding in this area, to get the best part of half a million pounds of investment from a bank you'd need a reasonably substantial business plan - I don't see why the council should be any less thorough.

Moley


Moley, i am going to go out on a limb with this one. I do not think that the expertise required to role out a mesh network is particularly high end. In effect, any capable network engineer should be able to implement such a network (with the support of the manufacturer). It may be a case of learning on the job and re-thinking the distribution to ensure that there are no blind spots as they go along but after the first few installations it should be . I would suspect (and hope) that the expertise within the Council IT department should be up to the job. A Cisco Certified engineer would make mince meat of this.

The real expertise would be at the security end of the solution, in that this mesh is piggy backed onto the council network infrastructure therefore the two networks would need to be protected from each other. We would not want WiFi users hacking into confidential council files, such as a business plan for example.

I believe that SBC should have used a third party business consultant to look at the business plan from the angle of the business proposition, not so much the technology as this is already proven. This would have highlighted the risks to the business and a more informed decision could have been made. It seems to me that the expert advice received has been exclusively from the Network City partners. Not ideal.

An example risk would be the viability of the Manufacturer of the wifi equipment. In these uncertain time, if the manufacturer of the access points was to become insolvent and you were only 1000 access points into the 1400 access point installation how would you complete the project. Is the mesh protocol that the access point use proprietary or could you use another manufacturers access point to continue the role out. If it is proprietary then the whole project would be  :censored: in this scenario.

A business plan should highlight the risks.

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Offline Chris Watts

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #12 on: February 06, 2010, 08:20:26 PM »
Regarding the 14th Dec Scrutiny referring to question:

5. When was this project put out to tender?

The council replied:

They [Digital City] had a unique business model and technology solution which they believe allows them to be highly competitive in the market place and they considered this to be their sole intellectual property, which they intend to package and sell to other local authorities.   They offered the Council an opportunity to take a shareholding in this start-up business. It is worth pointing out that there was no intention (nor requirement) of taking the intellectual property that Digital City had shared with us and turning this not a public tender for the Council to‘purchase’ a Borough wide Wi-Fi network.


Taking this statement into consideration the business plan would have looked quite attractive. It certainly was a "unique business model" in that the council supplied the working capital by way of the loan, office space, the network, the IT expertise and the installation services. On the face of it you would see why they believed this "allows them to be highly competitive in the market place" as digital city have a much reduced capital outlay in comparison to a independent startup company trying to deploy the same service.

The business plan should also show the competitive risks. Since announcing the WiFi in November BT (£7.99 per month), Virgin, Talk Talk (£6.99 per month) and Sky have been aggressively marketing in the borough with much reduced rates for Broadband . 02 have also successfully completed the first trial of 4G. BT have also completed the upgrade of the broadband in West and North Swindon allowing them to supply a faster service. There is a huge potential for a sizable dent in the business plan with this level of competition.

At the scrutiny meeting dated 25th Jan 2010 I have asked for a definition of Intellectual Property. I am not sure if the council believe it is in the technology and services or the business model.


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Offline komadori

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #13 on: February 06, 2010, 08:53:52 PM »
This may seem like a minor point, but what Mr Bluh has referred to seeing is a 'Business Case' and that is what is referred to in the Cabinet Member Briefing note. It is not the same as a 'Business Plan'. A Business Case may include, at a high level, a few elements of a plan, but is mainly about identifying and quantifying the business opportunity and potential risks, rather than a plan for grabbing the opportunity and avoiding the risks.

We can tell from the difficulties that have been run into in Highworth that topography, if identified as a risk, was underestimated.

We know the title of the Business Case: 'National Wi-Fi Business Case 20/7/09'. From that title alone we might guess that it was aiming fairly high and thus might have covered local aspects in rather limited detail.

We also know from the Cabinet Member Briefing note that it did not include a marketing plan, but identify some 'unique selling points' and marketing channels.

A formal marketing plan has not yet been developed but a Brand Consultant and Marketing Specialist... will be formally engaged once the company is live. Currently identified unique selling points are as follows:
  • A free offer with limited bandwidth will be available throughout the Borough;
  • Customers will benefit from a free 3 month trial;
  • Swindon Wi-Fi will be the cheapest offering in all sectors entered (which can be delivered as a result of a low cost base);
  • Customers can also sign up for a CCTV monitoring service for their home or business premises with a minimum contract term.
Marketing channels have been identified as:
  • Web (the company is already designing its website);
  • PR though (sic) the Press and Radio (the local BBC are very interested);
  • Attendance at local trade shows and conferences;
  • Mail dropping all businesses in Swindon;
  • Weekend stands in the Brunel and Outlet Centres;
  • Utilising Swindon Borough Council external and internal communication tools

From the point about 'low cost base' its seems they've not realised that most of the existing network in Swindon represents a sunk cost, so adding additional customers incurs only marginal cost (especially in those cases where it is part of a cable tv installation).
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Offline Ringer

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #14 on: February 06, 2010, 09:02:50 PM »
Regarding the 14th Dec Scrutiny referring to question:

5. When was this project put out to tender?

The council replied:

They [Digital City] had a unique business model and technology solution which they believe allows them to be highly competitive in the market place and they considered this to be their sole intellectual property, which they intend to package and sell to other local authorities.   They offered the Council an opportunity to take a shareholding in this start-up business. It is worth pointing out that there was no intention (nor requirement) of taking the intellectual property that Digital City had shared with us and turning this not a public tender for the Council to?purchase? a Borough wide Wi-Fi network.


Taking this statement into consideration the business plan would have looked quite attractive. It certainly was a "unique business model" in that the council supplied the working capital by way of the loan, office space, the network, the IT expertise and the installation services. On the face of it you would see why they believed this "allows them to be highly competitive in the market.

Chris I am no expert in wi-fi, but what is making me think is that this is a great deal for the company(council share) as it will be rolled out to other councils. This appears on the face of it to be  a public sector private sector type franchise monoply? I think this is something that the European Union has regulations about, like it does with tendering?

Is this a risk?I am sure it would be discussed in the business case. I am surprised that the FSB did not pick this up as they are experts, and referred it to the monopolies and mergers commission for advice, and OFT. Not an expert just a thought.
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Offline Chris Watts

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #15 on: February 06, 2010, 09:46:32 PM »
Regarding the 14th Dec Scrutiny referring to question:

5. When was this project put out to tender?

The council replied:

They [Digital City] had a unique business model and technology solution which they believe allows them to be highly competitive in the market place and they considered this to be their sole intellectual property, which they intend to package and sell to other local authorities.   They offered the Council an opportunity to take a shareholding in this start-up business. It is worth pointing out that there was no intention (nor requirement) of taking the intellectual property that Digital City had shared with us and turning this not a public tender for the Council to‘purchase’ a Borough wide Wi-Fi network.


Taking this statement into consideration the business plan would have looked quite attractive. It certainly was a "unique business model" in that the council supplied the working capital by way of the loan, office space, the network, the IT expertise and the installation services. On the face of it you would see why they believed this "allows them to be highly competitive in the market.

Chris I am no expert in wi-fi, but what is making me think is that this is a great deal for the company(council share) as it will be rolled out to other councils. This appears on the face of it to be  a public sector private sector type franchise monoply? I think this is something that the European Union has regulations about, like it does with tendering?

Is this a risk?I am sure it would be discussed in the business case. I am surprised that the FSB did not pick this up as they are experts, and referred it to the monopolies and mergers commission for advice, and OFT. Not an expert just a thought.

Ringer, funny you should say that because the full question 5 to scrutiny was:

5. When was this project put out to tender? Are there European law implications?

Council Answer:
"Since the Council is not purchasing any goods, services or relevant work, there isn’t a relevant contract under European law."

I retrospect i should have split the question. They may have satisfied Euro law with the tendering process but there are other European laws that could be brought into question.

The Competition Act 1998 and the EC Treaty incorporated in British law by the European Communities Act 1972 could be relevant.

Unjustified State aid: The EC Treaty also restricts State aid to enterprises. State aid means benefits (including tax concessions) given to
>specific enterprises. It excludes investment on the same terms as a private sector investor, and remuneration for public services on market-tested terms or on the basis of an objective assessment of expenditure requirements. The European Commission has broad powers to approve State aid. But if aid has not been notified then repayment of the aid may be secured through the UK courts.
>
Anti-competitive conduct by State bodies
State bodies engaged in commercial activities (e.g. a local authority acting as a landlord) are subject to the same rules as private enterprises. Bodies that discharge regulatory or administrative duties (e.g. liquor licensing) are not covered by competition law.
But action is still possible under administrative law for unreasonable failure to take account of competition, as well as under EC law if international trade may be affected. In particular Article 86(1) of the EC Treaty extends the prohibition on abuse of a dominant position to some abuses of State power. In all cases involving State power, whether directly orthrough enterprises with special rights assigned by the State, public interest purposes might provide a justification for otherwise abusive acts. The law recognises justification
for the delivery of public services and for income raised for the State by fiscal monopolies. Such justifications are limited by proportionality: onlyrestrictions on competition that are necessary for the public  interest purpose to be achieved are permissible.
Furthermore, even if a State restriction on competition is itself permitted, its exploitation by an enterprise (public or private) in a dominant position may still be abusive.


Not being a legal person I brought this up in a meeting with Anne Snellgrove before Christmas and she has referred it to HM Treasury and Dept for Communities and Local Government. I need to chase that up really.

I think you will find that the FSB have made several statements of concern over the WiFi project. I am a member of the FSB and they have been of assistance to me.
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Offline Geoff Reid

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #16 on: February 06, 2010, 11:16:31 PM »

Okay. It seems I'm not working tonight afterall, so I'm going to spend a couple of hours writing my next post  :)

Dougal has split a couple of posts off this one, don't worry, they are more relevant  to another planned thread and will end up in there soon  :)

Back in a while.

Offline Geoff Reid

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #17 on: February 06, 2010, 11:17:59 PM »
Forgive me for what may seem like a rambling post but I think it will useful to provide a bit of background, against which we can look again at what we know, what we don't know, and what we would like to know about the business case/plan Rod Bluh thought was good enough to stake his credibility on.

I need to thank Lamplighters Count Arthur Strong, Stonemason, Whipcracker and Pink Panther for lighting the way.  Their willingness to help goes to show that Councillor Bluh's 'NO LEAKS' edict has not impressed the herd, and that respect for leadership is earned, not enforced.   Lamplighting in the public interest and for the good of local democracy is to be applauded in my honest opinion and if one or two elected members are politically embarrassed, (or worse), because their actions are publicly scrutinised, I won't lose any sleep about it.  Neither will I lose any sleep over recent threats of 'we're going to fix Reidy and Talkswindon'.  Bring it on.



2nd of November 2009. 

The Conservative group meet and Rod Bluh announces the 'WiFi deal' to them.  This is the first time many of them have heard about it, even some members of the cabinet were surprised - they hadn't been in on it either.

The exact details of the deal are not discussed, but the idea of free wifi is widely welcomed and appears to impress those present.  Against a background of failed regeneration projects, unpopular decisions they had voted through council and a few other internal 'group' wrangles rumbling on, it's nice to have something positive to cling to.  WiFi, they feel, will be good for the town, good for the council and good for the Conservative group generally.

Rod Bluh announces that the launch date of Getsignal will be the 6th of December 2009. The launch will occur in Highworth he says, and the wifi will be 'live' from that date.


Remembrance Sunday, 8th November 2009:

Councillors remember today very well because today is the day Derique Montaut locks himself in the civic offices and has to climb out of a window and dash to the Remembrance service to take his place amongst the assembled members.  The service finishes and Councillors shuffle along to 'after service coffee' where the usual ribaldry and poli-gossip is exchanged.

*Sometimes we forget that away from the civic chamber many Councillors are also good friends with councillors from other parties, especially so the floor-crossers.  Friendships are more enduring than political allegiances, and rightly so. My point here being that a 'no leaks' rule from one party leader is utterly irrelevant when friends get together and start chatting.

Over coffee, conversation spans many topics, firstly Monty is teased for locking himself in the Civic and setting the alarms off when he leapt, cat like, from the window.  Andy Harrison's selection by the Lib Dems is also discussed and there is some chatter about wifi.  It appears most present are firmly in favour of WiFi although detailed knowledge of the project is still in short supply.  Universally free wifi, they think, will be a good thing.  One or two voices wonder about the cost of the scheme and someone mentions that £250,000 is being loaned to Digital City by SBC.

Prior to the 17th of Novemebr 2009, SBC distributed an embargoed 'WiFi' press release and on Tuesday the 17 November 2009 The Swindon Advertiser broke the news that "Swindon was to become the first in the UK to provide free wireless internet access to all its residents"

Shortly after the story breaks, the loan amount appears to have increased from £250,000 to £350,000.  The £350,000 figure features in several letters subsequently submitted to the Adver although the cabinet briefing not of the 12th October 2009 already shows that the correct figure for the loan is already £450,000 by this date.  Cabinet members knew the figure being talked about was incorrect by a factor of £100,000 yet chose not to set the public record straight.



Conservative Group Meeting: Monday 7th (?) December 2009

By now, WiFi has been referred to the Scrutiny committee and, whether to due to technical difficulties at Getsignal or the scrutiny referral has caused the delay, the promised launch date of Getsignal has come and gone and no launch has occurred.   Comments of 'Rod has bottled it' are heard being repeated throughout the group.  The higher loan figure of £350,000 is also the subject of quiet speculation.   

I believe it was either at this meeting, or very shortly afterwards that two councillors requested a meeting with Hitesh Patel, (SBC Director of Business Transformation), to discuss the business plan/case.  The meeting had certainly occurred prior to the Scrutiny meeting on the 14th December 2009.

edit/correction: Thanks to lamplighter Green Hornet

Quote from: Green Hornet
The meeting between Mike Bawden and Hitesh was before the group meeting on the 7th December
edit ends

At the time I recollect hearing that a meeting had taken place between Councillors Mike Bawden, (Ex Mayor),  Peter Mallinson, (Conservative Whip) and Hitesh Patel.  At this meeting the business plan was discussed, as were other WiFi schemes in other parts of the country, in particular the failed Norfolk Link scheme in Norwich.  I understand Councillors Bawden and Mallinson later remarked to other councillors that the business plan was, in their opinion, weak.

I subsequently formed the impression that the business case/plan comprised a couple of sides of A4 paper although I have to admit I cannot recall exactly why I have this opinion. It may be an assumption on my part based on the 'weak' opinion or based on a definite comment. I am not sure.

The records of the next Scrutiny meeting (14th December) do not show Councillors Bawden or Mallinson voicing any public concerns after their meeting with Hitesh Patel.

Edit/Correction: Thanks to lamplighter Turncoat

Quote from: Turncoat
Pete Mallinson was not at Scrutiny he was on leave and did not return home until 19th December. He went on leave on or about the 9th December
edit ends


I would be more than happy to receive written confirmation/denial/explanation of this from the councillors concerned.  leaks@talkswindon.org

I do not believe any other councillors have had sight of the business case/plan and I know of at least two cabinet Members who knew nothing of the proposal prior to its first mention by Councillor Bluh on the 2nd of November 2009.


Scrutiny Meeting: 14th December 2009

I won't cover the entire meeting, but there is much of interest there, especially question posed by several Talkswindon members. For the purpose of this thread I will draw your attention to a reply made by Rod Bluh to questioning about the business plan/case:

Quote
Whilst he recognised members' concerns about the level of information made available to them regarding this venture, he hoped they would recognise that this had proven essential in order to maintain the commercial viability of the proposal.


A lamplighter at the scrutiny meeting says: 

Quote from: Count Arthur Strong
"I overheard one councillor say to another: " You don't think they are delaying the exposing of it, to allow them the time to write it do you?".   I laughed at this, and thought to myself: 'Well, the council would not have risked the money without it'. 


Another lamplighter says:


Quote from: Stonemason
"The Scrutiny Meeting in December was the best display of political smoke and mirrors I have witnessed in a long time. The leader was bullish and answered all the questions quite easily, which isn't surprising as he has all the evidence and facts at his fingertips and we know virtually nothing"




Officers Hitesh Patel and Stuart McKeller were questioned. Hitesh Patel was in a strange position as he was, (and still is as far as I am aware), both SBC's director of Business transformation and a Director of Digital City (UK) Ltd.  I believe very few councillors would have been aware of this at the time of the scrutiny meeting.

Stuart McKeller, (SBC Director of Finance), acting as 151 officer was very professional in his answers and the perception of at least one Councillor who was listening keenly to his answers are convinced Mr McKellar stated that he had, and this is very important:


"Only given advice around it being an investment, not a loan"


I think the that this single line from Stuart McKellar provides a lead to a procedural 'weak-link' which been exploited by Councillors Bluh and Edwards to pursue their WiFi vision and I wonder why Stuart McKellar didn't, or couldn't, give advice on what is now obviously being described as a loan.

Stuart McKellar is the 151 officer. The LocalGov Glossary describes his role as:

Quote
Section 151 of the Local Government Act 1972 requires every local authority to make arrangements for the proper administration of their financial affairs and requires one officer to be nominated to take responsibility for the administration of those affairs. The Section 151 officer is usually the local authority’s treasurer and must be a qualified accountant belonging to one of the recognised chartered accountancy bodies. The Section 151 officer has a number of statutory duties, including the duty to report any unlawful financial activity involving the authority (past, present or proposed) or failure to set or keep to a balanced budget. The Section 151 officer also has a number of statutory powers in order to allow this role to be carried out, such as the right to insist that the local authority makes sufficient financial provision for the cost of internal audit.


His duties and responsibilities are huge, but in some instances I'll bet he can, and does, authorise payments without getting too involved with documents like 'business plans' or 'business cases' in relation to making investments because other people have already 'signed them off' as being an acceptable risk.

But, the cabinet briefing note of the 12th October 2009 states that:

Quote
The Directors of Finance and Law and Democratic services will make the necessary arrangements for the council to provide a loan of up to £450k to Digital City (UK)Ltd


A loan. Not an investment.  Yet the briefing document clearly mentions that this loan, (a loan that Stuart McKellar says he did not advise on), is in accordance with cabinet minute 28 of the 23rd July which was approved by full council on the 23rd November 2008.  That minute says:

Quote
That the Treasury Management performance for 2007/08, be noted, and the Council be recommended to approve the proposed change to the Annual Investment Strategy, as detailed in paragraph 2.6.7 of the joint report (In respect of joint venture arrangements, to permit the Director of Finance and the Director of Law and Democratic Services, in consultation with the Cabinet Member for Resources, to invest in such schemes provided that the overall terms of the arrangement are suitably advantageous for the Council, subject to the Soft Loan Accounting requirements contained in the 2007 Statement Of Recommended Practice.).


So is this an investment or a loan, or is it both, or are both terms interchangeable with each other?

Anyway, if the Lead member for finance and/or leader of the council had 'signed off' the business plan/case and exercised delegated powers to loan £450k and take a 40% stake in Digital City, then perhaps Stuart McKellar as 151 officer simply didn't need to 'look too closely' at the proposal because other officers and members were able to do so under delegated powers.

Has a deliberate 'fudging' has been enacted by as few as two people to deliver a loan to Digital City under the guise of it being an investment.

Would they do this in order to circumnavigate the inconvenient truth of a 'thin' business case which was itself 'supported' by negligible market research submitted by a new company with no trading history and no experience in it's intended market.  That this company approached a council for investment funding is not a surprise. It is doubtful any bank would lend to this company but, in the leadership of Swindon Borough Council, Digital City (UK) Ltd already knew it had a friend that could, and probably would.

Had another individual presented a similar proposal to SBC, with the same scant details submitted, I wonder whether the loan would still have been made.  Somehow I doubt it.   

The only known quantity in this proposal appears to be the identity of the proposer of the deal, and I fear that many of the checks and balances we could reasonably expect a council to observe when using public money have been suspended, ignored, bypassed or fast-tracked because delegated powers enable single councillors to do exactly that. 

The leader and his cabinet-within-a-cabinet no longer need to listen to common sense argument from back benchers, neither do they need to.

I suggest that the strength of the business case/plan, or indeed lack of either, is largely irrelevant to Mssrs Bluh and Edwards.   Whilst we might expect and desire that a strong and viable plan/case be presented to them before they lent our money out against it,  I fear the reality is that they were able to do exactly as they wished without subjecting themselves, or allowing anyone else to subject them, to any meaningful form of diligent scrutiny.

They did it because they could, but didn't want or seek outside opinion as to whether they should.

Thoughts invited.... 


« Last Edit: February 07, 2010, 12:01:03 PM by Geoff Reid »

Offline komadori

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #18 on: February 07, 2010, 09:24:14 AM »
Loan versus investment: I would regard a loan as an investment: nothing to get concerned about there. The fact that the cabinet minute you have quoted refers to both in the same context supports that view. In many ways in these circumstances a loan is a better form of investment than equity. As a shareholder, if the company goes belly up you're at the end of the queue for getting a pay out from the administrator. If your investment is a loan then you're a creditor and in this case (from what the Cabinet Member Briefing note suggests) it's a partially secured loan, so the chances of getting something back are much better.

Length/strength of the Business Case: It's not that uncommon for relatively large amounts of money to be handed out on the basis of rather thin documentation, but in those cases they usually are 'hand outs': grants and other such payments where no financial return is expected. (And not all grants are given that easily, some require masses of detailed documentation). However, this is not a grant. As Mr Bluh is so fond of telling us, he'd like it to be treated as 'an investment', a business 'opportunity'. If that's the case, it needs to be treated as such and have a proper business case. It might not be very long, but I'd expect significantly more than a couple of pages.

Speculation on the value of the loan: When the story first broke, there was very little financial information available. The press release and some news articles said that SBC had a 35% stake in the company and that the project would cost £1M. I suspect others did the same as me and used those two figures to guess an 'investment' of £350,000. It was only later, when the Cabinet Member briefing note was produced for the Scrutiny Committee that it became apparent that the loan value was higher (£450,000), as is the shareholding (40%, with an obligation to sell 5 percentage points to Mr Hunt's consulting company if the loan is repaid on schedule).
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Offline Chris Watts

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Re: 1: The Business Plan and the £450,000 Loan to Digital City (UK) Ltd
« Reply #19 on: February 07, 2010, 11:06:48 AM »
Regarding loan versus investment. If there is an accountant on TS that could clarify.

My  understanding is that when you incorporate a company you decide on the share allocation and opening value based on the initial investment. If the £450K was an investment then the other two shareholders would have to match proportionally that investment to maintain their share. I have asked the question at the scrutiny meeting 25th Jan 2010 as to the level of investment from the other shareholders. I would be concerned if the loan is a majority / the total of the working capital. It would show a lack of financial commitment from the other shareholders.

Effectively, it could be said in this scenario, that the loan is a convenient way to inject cash into the company without other partners having to invest their own money. Risk free to all but the tax payer. This is speculation but I wait with interest to the answer to the question above and hope it is not stymied using the commercial confidentiality as an excuse.

If you were to go to a bank or investor for a loan / investment of this magnitude one of the deciding factors would be the financial commitment of the applicant.
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