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
    +4

    Comment number 1345.

    This is not capitalism. It is socialism for the rich. Privatisation of profits; socialisation of losses - state subsidies/bailouts for private corporations. Revolving door between mainstream media and criminal corporations, e.g BBC economics editor Stephanie Flanders is quitting BBC to join JP Morgan, one of the most reviled criminal banks ever -google demonocracy infographics/usa/derivatives .

  • rate this
    0

    Comment number 1344.

    Its amazing that Matthew Howett can blame the EU......mind you, I expect Ovum does a lot of research etc. for BT

  • rate this
    +3

    Comment number 1343.

    The Tories always preach Market Forces....but it seems that this does not apply when it affects their 'rich friends' in the shires !
    If the service is not commercially viable without public subsidy then it shouldn't happen...whether that be local bus services, broadband in remote areas, or Libraries in towns.
    But then, the Tories have always been the party of ' do as we say not do as we do' !!!

  • rate this
    +2

    Comment number 1342.

    If M.P's think the tax payer is being ripped off then it must be a truly eyewatering rip off.

  • rate this
    -1

    Comment number 1341.

    If you are going to accuse BT of ripping off the public, there are many more examples of similar practices in day to day life. If it was not BT doing the work some other company would do the same. You want broadband, you pay for it. Not only that, you have to wait for the installation as the cable goes underground, which is no easy task. Don't forget other comms groups use the BT lines.

  • rate this
    0

    Comment number 1340.

    So i live 5 miles outside Cambridge in a medium sized village and cannot get reliable connection of >1 Mbps. !!

    This isn't what most people call rural.

  • rate this
    +1

    Comment number 1339.

    Yet again, the Government have let private companies have a good, lengthy ride on what they see as the public contracts' gravy train. No doubt they consider it another perk!

    G4S, First Great Western, A4e, etc, etc.

    We need to apply the law against fraud more rigorously!

  • rate this
    0

    Comment number 1338.

    I think the most telling point is the considerable size of the reduction in BTs "contribution" - the profits will after all be going into their pockets, so them bearing a large slice of the cost would have seemed fair. BT have played games with the fibre rollout from day one, overinflating projected costs until they were given favourable terms, then suddenly finding the job was cheaper after all.

  • rate this
    +3

    Comment number 1337.

    I am saddened by the growing list of subsidies from this heartland of tory free market forces; pubs,shops,houses for children,buses,petrol and now broadand.
    If you want the city, move to it.
    As custodians of the country you should be doing things more allied to the muddy bits of the UK: growing stuff, shooting stuff, refining nimby skills and dancing with bells and sticks on your days off.

  • rate this
    -1

    Comment number 1336.

    In case you don't have time to read all the comments below, I'll happily summarise for you...

    Whinge, entitlement, whinge, corporate greed, whinge, ill-informed assumption, whinge, envy, whinge, political incompetence. Whinge.

    If modern technology simply allows the many to whinge to the many, why on earth would you want it?

  • Comment number 1335.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +1

    Comment number 1334.

    1329

    I know they are all in it for themselves, but ukip ,nah, no thanks, worse than this current mob.

  • rate this
    0

    Comment number 1333.

    What ignorant comments are on here, peol frequently have no choice where they live and in any event we pay exactly the same in Taxation mor for fuel, have poor public transport links and are forced to at for ferries simply to travel. We are already contributing fully to the National economy and deserve the same level of service as everyone else. Grow up people.

  • rate this
    -1

    Comment number 1332.

    I'm in an urban area with only 1.5mb/s because BT wouldn't spend the money on providing a 15,000 home suburb development with our own exchange instead of running us off a village one, 5 miles away. They also stopped upgrading the area to fibre before completing. BT need to be made to answer to someone if they are to continue to provide (or not provide) an essencial infrustructure for this country

  • rate this
    0

    Comment number 1331.

    I live in the centre of a reasonavly large town in England and I can't even get FTTC or FTTH. I'm stuck with ADSL2+ with a low upload speed and average download. I appreciate rural users want faster broadband but there needs to be real investment in all areas of the country, both rural and urban. This article has urged me to write to my MP about such concerns.

  • rate this
    +1

    Comment number 1330.

    Meanwhile BBC "economics" City of London propaganda mouthpiece is quitting HM propaganda service to join JP Morgan. JPM got $25 billion taxpayer in bailout money. It has no intention of using the money to lend to customers. JP Morgan also received a SECRET $391 billion dollar bailout from the Federal Reserve. In 2012, JP Morgan (JPM) took a $2 billion loss on "Poorly Executed" Derivative Bets.

  • rate this
    +1

    Comment number 1329.

    1327.sausage n mash
    I am now a 45yr old ukip supporter now though i may vote tactically to stop labour .

    Labour did nothing re investment in the south west even with the useless labour education minister mr J Knight as mp for dorset south now a lord , for god knows what !
    to top it all his useless staff said education is not everything .

  • rate this
    0

    Comment number 1328.

    People are arguing about rural communities. I live in Bristol 7 miles from the city centre in a large town, and I cannot get fast broadband. I have complained to my MP and the Council and they both say that it is down to BT not updating the exchange.

    It is a monopoly, I have no choice but to wait. SHOCKING FOR A MAJOR CITY.

  • rate this
    +2

    Comment number 1327.

    1319

    Don't worry it's not just the South West, in fact it's not about any area, it's about Tories and their mates making money - bet the founder of Wonga get's a knighthood before 2015 elections!

  • rate this
    +1

    Comment number 1326.

    1320 billy.

    Anywhere requiring digging to install ducting is massively expensive. You are now talking thousands for installing small amounts of ducting. Not all fibre is pulled through using existing ducting. Some of us here might have more experience and knowledge than others, working in networking doesn't qualify you comment on external networks. ;)

 

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