Rural broadband rollout: Taxpayers being 'ripped off', say MPs

 
Rural home Rural dwellers say they want the same broadband speeds as those living in cities

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The taxpayer is being "ripped off" over the cost of rolling out broadband to rural areas of the UK, MPs have said.

The Commons Public Accounts Committee (PAC) says the government "mismanaged" the project by awarding all 26 rural broadband contracts to BT.

It also said BT had "exploited its quasi-monopoly position" as the main provider.

The government defended the process as fair, while BT said it was "disturbed" by the claims which were "wrong".

'Failed to deliver'

Making sure that those living in the countryside get broadband speeds comparable to those living in towns and cities has long been something the government has grappled with.

Public Accounts Committee chairwoman Margaret Hodge said taxpayers had been ''fleeced''

Commercial firms such as Virgin Media and BT see little profit in rolling out services to areas with few people living in them.

So, as an incentive, the government provided a subsidy pot of £230m for firms taking on the task, with an extra £250m available after 2015, and it awarded contracts on a county-by-county basis.

Local authorities are also contributing £730m to the project, bringing the total amount of public funding to £1.2bn.

But only Fujitsu and BT entered the bidding competition, with Fujitsu later withdrawing.

BT has so far been chosen in 26 counties and is expected to win the 18 remaining contracts.

The report by the PAC criticised the government's management of the project: "The Department for Culture, Media and Sport's design of the rural broadband programme has failed to deliver the intended competition for contracts, with the result that BT has strengthened its already strong position in the market."

Broadband speeds around Europe

  • Denmark plans to have 100 megabits per second to all by 2020
  • Estonia wants 100Mbps for everyone by 2015
  • France plans almost universal coverage at 100Mbps by 2020
  • Germany expects to have around 70% coverage at 50Mbps by 2014
  • Greece wants 100% of citizens to have access to 30Mbps by 2020
  • Ireland plans 100Mbps for all by 2020
  • Italy wants to see half of its citizens have access to 100Mbps by 2020
  • The UK's target is 90% coverage by 2017 but at the lower speed of 24Mbps

It said its contract terms were "overly generous" to BT and did not "promote value for money".

It also accused ministers of failing to check whether BT's bids were reasonably priced and said there had been "wildly inaccurate" estimates of costs.

"Local authorities are contributing over £230m more to the programme than the department assumed in its 2011 business case and BT over £200m less, yet BT will ultimately benefit from £1.2bn of public funding," the report said.

Committee chair Margaret Hodge added: "The taxpayer has been ripped off with £1.2bn going to the shareholders of BT.

"If you (the government) had devised it differently, had bigger areas for the contracts so you could spread your costs more, allowed different technologies to be used and insisted on a 100% coverage, we would have found other people in the game and I bet we would have spent less of the taxpayers money."

Media minister Ed Vaizey told BBC Radio 4's Today programme the costs were "not out of control", stressing BT was "putting up more than a third of the costs of rural broadband".

"BT is delivering under our scheme to up to 10,000 homes now; it will deliver to millions of people over the next two years with the best value-for-money, government-sponsored broadband scheme you will pretty much find anywhere in the world."

Culture Minister Ed Vaizey said the broadband programme is ''very good value for money''

He said only BT and Virgin had the infrastructure to roll out the broadband, adding Virgin had not wanted to open their cable up for other companies to use - whereas many companies used BT.

Vodafone said the project would "not deliver value for money nor the rural connectivity that Britain needs", and urged the government to revise the process to encompass wireless 4G.

'Transparent from start'

BT was further criticised in the report for failing to provide local authorities with full information about where exactly it would roll out superfast broadband services, which in turn hampered rivals from drawing up alternatives.

And it was criticised for including a clause in its contract preventing local authorities it dealt with from disclosing the costs involved to other authorities negotiating contracts.

This lack of transparency meant the company "exploited its quasi-monopoly position" to limit access to both the wholesale and retail market "to the detriment of the consumer", concluded the report.

BT said it was disturbed by the report, "which we believe is simply wrong and fails to take on board a point-by-point correction we sent to the committee several weeks ago".

It added: "We have been transparent from the start and willing to invest when others have not.

"It is therefore mystifying that we are being criticised for accepting onerous terms in exchange for public subsidy - terms which drove others away."

bbc map of broadband coverage

It denied it had failed to deliver value for money for the taxpayer and said that, even with the public subsidies, it would take it 15 years to pay back its investment in rural broadband.

"Rolling out fibre is an expensive and complex business," it said.

BT's "point-by-point correction", sent to the committee on 13 August, included 83 comments responding to statements made at a committee meeting a month earlier.

It described many of the comments, on issues from the percentage of households reached to the way the contracts were awarded, as "false" and "misleading".

Dave Reynolds on fast internet services in Devon

The report recommended the government should publish BT's detailed rollout plans so other suppliers could offer services to the final 10% of the population that would not be covered under current plans.

It said the DCMS should not spend any more money until "it has developed approaches to secure proper competition and value for money".

In 2011, then Culture Secretary Jeremy Hunt announced 90% of premises in every local authority area of the UK should have access to internet speeds above 24 megabits per second by May 2015, with a minimum of 2Mbps for others.

The process has suffered huge delays and is due to be completed in 2017, nearly two years later than planned.

But, according to Matthew Howett, an advisor at Ovum which examines the commercial impact of technology, the delays were down to the EU's failure to approve the scheme.

He said the "challenges of deploying to the most rural and remote areas of the UK shouldn't be underestimated" and that there were not many providers who could do this.

 

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  • rate this
    +7

    Comment number 1219.

    Fast broadband is not a luxury. There is no reason the rural sector should not have equal access to it. Should the rural sector stop supplying food, pretty things to look at on a weekend, holes for landfill or perhaps potable water? Are these a luxury?

  • rate this
    +35

    Comment number 827.

    We're getting ripped off by having to take a land line with broadband, which most people don't want or use.

    As for the incentives - they're clearly needed as it will never be profitable to roll out to the countryside. I think it's good that the country are trying to build the infrastructure over the whole country. The internet is life's great luxury these days - more important than the TV.

  • rate this
    -36

    Comment number 454.

    Simple fact of the matter is that those living in the sticks cannot expect to get the benefits of living in a city.

    One of the downsides to consider, and the one that has stopped me moving out of the city, is broadband speeds.

  • rate this
    +89

    Comment number 406.

    BT are a private company and have a duty to their share holders. Providing new infrastructure to rural areas is not in their interest as it will be a dead loss to them. I don't blame them for this, its perfect business sense.

    I do blame the government who sold off public services and utility companies as private entities. I'll state again, utilities should be ran as non profit by the state.

  • rate this
    +51

    Comment number 235.

    I live in rural Hampshire six miles from an exchange and the internet is dire for me and the entire village. It's incredibly disenfranchising and makes home working a near impossibility. We reguarly holiday in rural France and Italy and find braodband speeds are blisteringly fast. Where did it go wrong for the UK? Oh yeah BT...

 

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