Category Archives: Branson

Another fine mess …

I’m reading Modern Railways, pages 26-27, with great interest. Roger Ford’s hatchet job on Virgin Trains East East (VTEC is our main line here in ‘old’ York) starts well:

remember that while Virgin Trains West Coast is 1% Virgin/49% Stagecoach, East Coast is 90% Stagecoach with a 10% sprinkling of Virgin fairy dust.

After that, we know where it’s heading. And it’s all downhill.

For a start the Stagecoach prognosis is to lose £84.1 million on the East Coast franchise in the next two years.

There’s a further £44.8 million impairment of intangible assets associated with the right to operate the franchise. As far as I understand that bean-counting gobbledegook, I assume it amounts to paint jobs and cosmetics — including the very useful and passenger-friendly meet-and-greet stuff.

And on top of that there £57.5 million already spent, mainly on the £40 million rolling stock upgrade.

Then come the other problems.

Not this decade, Sir Richard

Those promised glossy Hitachi Azuma trains are at least two years behind schedule. And the schedule premium payments were based on a May 2019 introduction. Ford’s assessment is: a continuation of the VTEC franchise on its current terms untenable after May 2019. Ummm.

As I read it, the infrastructure problems are as acute. Not least of which is power supply. Ford has it that the Power Supply North is not done, in part because the Hendy Report took some out of the five year budget £40+ million needed to achieve the upgrade. With Cross-Pennine introducing electrics, that’s another drain on an already barely-adequate power supply.

Ford’s conclusion, as printed:

Overall, East Coast is probably a sorrier mess than the W[est] C[oast] R[ail] M[odernisation] (That’s going some— Ed!).

He also slips in another wrinkle: if the Azumas can’t be brought into service, the tax-payer is still committed to paying for them for a further twenty-seven and a half years.

A useful read.

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It’s not just railways

Once is happenstance.
Twice is circumstance.
Three times is enemy action.

Thank you, Auric. Now you deserve a lie-down. You cheated, too, but mainly at cards.

This ConDem lot do it on a national scale

Whatever the West Coast Main Line mess is all about (and the story of low-level civil-servants cocking-up the sums looks more ragged by the hour ), it is intensely political.

As they say, it doesn’t add up:

  • The heavy-lifting was done with Theresa Villiers as Minister of State and Philip Hammond as Secretary of State. He was plucked forth, the emergency replacement for Liam Fox (fallen on sword) at Defence. She was lately whipped away and sent to Northern Ireland.
  • Justine Greening was slotted into Hammond’s warm seat in October 2011, and promptly  shunted out again to Overseas Development at the start of this September.
  • By all accounts the most Greening was told (and that late on) involved “minor irregularities”. The main lead in today’s Times [£] has this:

Three Department for Transport (DfT) officials were suspended after it emerged that they had failed to assess the impact of inflation and rising passenger numbers on expected returns when deciding to award the £9billion contract to FirstGroup. The fallout immediately engulfed other lines, including long-distance trains to the West Country and key commuter routes into London as Mr McLoughlin announced a pause in bids to run three franchises due to begin next year.

The Times understands that Mr McLoughlin’s predecessor, Justine Greening, learnt of a potential flaw in the West Coast bid a week before the Cabinet reshuffle on September 4.

Ms Greening called in auditors from PwC to vet figures compiled by DfT officials. Mr McLoughlin was informed on Monday evening that the official figures did not add up.

We also have a side-box accompanying that Times piece:

No 10 said that government ministers should not be expected to take the blame for the “highly technical” errors in the West Coast bidding process. Justine Greening, the former Transport Secretary, and Theresa Villiers, the minister in charge of railways who oversaw the decision, are safe in their new roles because they were assured by officials that the process was robust.

Err … right.

  • So when Hammond was Secretary of State, he never laid eye or finger on the £9billion franchise? He must have been remarkably busy to have to pass a matter of such importance all down to the wee girl. Luckily, then, he doesn’t have to take responsibility.
  • Yet when Greening got the hot-seat, suddenly it all went to the top?
  • In all that time, nobody capable of reading a prospectus was around to suggest that FirstGroup were — how shall we say … — massaging the figures? Yet, when the franchise result was announced, every commentator was leery, and pounced on just that.

The Guardian, editorialising on the same story, is a whit clearer in alleging motives:

When the franchise was awarded to FirstGroup, industry critics tended to dismiss cries of foul from the existing franchisee, Virgin Trains, since Richard Branson advisers had reportedly, in an unguarded moment, described it as a licence to print money. But the claim that First’s revenue projections were based on a “preposterous” increase in journeys was more sympathetically heard. They were not due to happen for 10 years, and there were allegations that the company would game the system – an accusation it has faced in connection with its Great Western contract.

Now, isn’t that a golden — nay, Auric — phrase to treasure: game the system? The Guardian suggests that the gamesmanship and Goldfingering was happening elsewhere, even in the DfT:

… darker rumours of institutional antipathy for Virgin Trains have circulated the rail industry for years. Those gained further credence with Wednesday’s announcement. It stems from a renegotiation of the west coast franchise in 2006 – the consequence of a bungled upgrade of the route – that left the DfT feeling that it had been outwitted and outmanoeuvred, to the benefit of Branson and to the detriment of subsidy-paying taxpayers. Over the past 10 years, the Virgin rail operation has paid out £381.7m in dividends, split between Virgin Group, a 51% shareholder, and Stagecoach, which owns the remaining 49%. One industry source said the about-turn would reignite fears, voiced privately by Virgin, that it was always doomed to lose west coast.

Anyone smell rats?

Let’s stick with The Times, its main editorial, a moment longer:

Not one but two reviews are now under way to find out what went wrong and whether the bid process is fit for purpose. But certain aspects of the narrative are already clear. Over 15 months, the Department for Transport allowed basic errors in inflation and passenger growth projections to distort the auction for the West Coast franchise. It failed to factor inflation into the real value of the bidders’ revenue forecasts and to take proper account of the fact that most of First Group’s anticipated passenger growth was to take place towards the end of the 15-year franchise — too far into the future for any sober actuary.

First Group was awarded the franchise because it bid £700 million more than Virgin, even though its high debt burden raised serious concerns among analysts as well as rivals about whether the company could afford it. Virgin’s relatively conservative bid failed despite its strong record in customer service and investment. When Sir Richard Branson demanded a judicial review the Government at first expressed confidence in its decision. When the time came for Mr McLaughlin to state his case in court, he executed the most dramatic U-turn of this Parliament instead.

Sobriety needed

Hold on: Malcolm is confused. Greening summoned auditors from PwC to vet figures compiled by DfT officials only in late August, after First Group had been given the goodies. Yet a 15-year franchise extends too far into the future for any sober actuary. Then, only when it all went legal, the lawyers told McLoughlin to pull the plug? Does that make sense, at all?

Before we pass on:

  • Hammond was an international business consultant, and adviser to the World Bank;
  • Villiers was a barrister and university law lecturer;
  • Greening was a high-flying accountant and manager with, among others, the afore-mentioned PwC.

Now for the local news

It might sound familiar, and have echoes of the above.

This one is from the Ham & High, by-lined to Tara Brady, but not on the website (yet):

Doctors in Camden have been snubbed by an NHS trust after it awarded a contract to cover emergency out-of-hours to a private company.

Campaigners from Keep Our NHS Public (KONP) are angry the new contract was handed over to a company called Harmoni. Haverstock Healthcare Ltd, a consortium of local GPs who already run urgent care at the Royal free Hospital, Hampstead and University College London Hospital (UCLH), Bloomsbury, was not even short-listed.

  • The local authorities were not consulted.
  • There was no public consultation.
  • An anonymous outside operation is preferred over local knowledge.

Makes perverse sense in this political climate.

It’s all too secret for the plebs to be involved:

An NHS North Central London spokesman said the scoring process used during the bidding process was confidential and so cold not explain what a private company was chosen over local GPs.

He said: “Haverstock was invited to participate in the procurement process following their expression of interest, and made a submission.

“Unfortunately, they were unsuccessful in being short-listed to allow them to take part inn the final selection stage.”

Doubtless all those “processes” were “robust”.

____________________________________________

And already has!

The BBC reports (4 October 2012 Last updated at 19:36):

Former Transport Secretary Justine Greening did not know about the problem which led to the collapse of the West Coast Main Line franchise award, the Department for Transport has said.

The award of the franchise to FirstGroup was scrapped on Wednesday because of bidding process “flaws”.

The Times has reported that she learned of a potential flaw a week before the Cabinet reshuffle on 4 September.

The DfT says this was not the error that caused the process to collapse.

Three civil servants – who face possible further disciplinary action pending an investigation – have been suspended after the government admitted major failings over the contract to run the rail line.

BBC transport correspondent Richard Westcott said the department told him Ms Greening had been made aware of an area of “potential concern” but that she had been told it would “not affect the outcome”.

She asked officials to check it further and it turned out to be a “minor error”. The department insists it is not related to the main flaw that they found later on and which brought the whole process down.

Two days gone; and this

make-it-up-as-you-go-along, back-of-the-envelope, miserable shower

still haven’t manufactured a straight story.

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The Sky’s the limit?

Yesterday, Sunday, Malcolm was net-less, tv-less and (for a briefer period) ‘phone-less. That was because the Virgin Megabrand, which now supplies his cable connection, let him down. For several hours. In mid-blog.

Now Malcolm’s recent experience of Virgin’s broadband provision has been at least acceptable. Nor is he a great consumer of tv pap (BBC News 24 and documentaries apart). So the great BSkyB/Virgin spat passed him by as the idle wind. Except for all the bumpf that the wind, the postal services and the billboards carry. Naturally, though, in his bereft state Malcolm considered his options.

And that prompted a small question in his enquiring mind: how much?

The answer came courtesy of MarketingWeek:

BSkyB spent £734m on marketing in the year to June 30, a £112m – or 18% – rise on the previous 12 months…

Sky, which is embroiled in a public battle against cable rival Virgin Media, also upped its above-the-line spend to £96m, a 28% increase on £75m a year earlier…

Figures released by Nielsen Media Research in July show Sky spent about £70m in the first six months of the year, 40% more than a year earlier and about double the £37m spent by Virgin Media.

Sky is gouging an average of £412 per year out of its customers, with a total profit of £958M.

And one further statistic: BSkyB loses about 15% of its customers each year. In other words, it (like Big Tobacco) has a need to hook that number, or more, of new or returning consumers even to stand still.

Yikes.

So, is all well in the great Murdoch Empire in the Sky?

Well, since Sky makes so much of its sports coverage, Malcolm starts there.

First up is the forthcoming David-Goliath slugfest between Sky and Setanta. As Malcolm understands it, Setanta has snaffled 46 Premier games per season for £392m. Sky, having enjoyed a virtual monopoly since 1992, keeps 92 games a season and first pick for £1.3bn. It only needs a less-fancied team to have a good run for the Setanta bet to pay off well.

And then there’s the growing muscle of broadband services. Unless one is a committed “live” sports fan, the offerings from (for example) BTVision begin to look increasingly attractive.

Beyond the touchline, there’s the rise-and-rise of Freeview, which is about to overtake Sky subscription as a gross number.

Decline, if not fall?

The last decade has been the fat years for BSkyB. From now on, the going gets tougher, the competition fitter and more numerous.

Greg Dyke, back in 2003, signalled that the BBC would not forever be happy as a dependency of the Sky Astra satellites. That move may have been premature, but it must indicate a state-of-mind in the Beeb. Earlier this year, the BBC and ITV got the go-ahead for an unencrypted high-definition satellite service.

Moreover, the BBC’s engineers are implementing ways around the bandwidth limits of Freeview. One avenue is adapting the multiplexing techniques used by mobile phone downloads speeds and for 802.11n Wi-Fi.

James Murdoch has sniffed the wind, too, and is trying to break out of his particular niche, as shown by the acquisition of Amstrad:

Amstrad no longer manufactures set-top boxes. The company designs the kit in conjunction with Sky before outsourcing the manufacture of the products. It is the second leftfield move made by Mr Murdoch since he took over at Sky after the company’s acquisition of the business broadband supplier easynet last year. The satellite TV company has since launched broadband and telephony services to try to diversify its business.

Ah, yes, Sky’s Achilles heel: upload speed.

Above all there is the savvy consumer, eyeing up Skype as a way of getting out from under telecomms bills. That same wiseacre was shrugging shoulders at the recent anti-Virgin campaign to keep in touch with serials and mini-features by switching to Sky. Such a consumer will already be ahead of the watercooler moment by downloading from Torrents or the Usenet or one of the P2P networks all those US serials the day after they air in Pocatello. When More4 were pushing Studio 60 on the Sunset Strip Malcolm was made aware that more than one young person had already viewed the entire series, without leaving London, by such judicious pirating.

Meslier (not Diderot) revisited

We cannot hope soon to see the last Murdoch throttled by the obsolete RJ45 cable of the last Branson, but the monopolies are under assault. The death-rattle is implicit whenever News International gets sniffy about the BBC licence fee (£135.50 per annum: just a third of the average Sky subscription).

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