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7/9/2013
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U.K. Blasts BT Monopoly On Rural Broadband Project

Leaks suggested that auditors would be tough on BT and the government's rural broadband project, but the final report is even worse than expected.

As predicted back in June, the U.K.'s National Audit Office (NAO) has delivered a highly critical report on the progress the country's making toward universal superfast broadband delivery.

What those earlier stories, based on unauthorized leaks of an early draft to a national British newspaper, didn't make clear: That the official spending regulator would be this skeptical about the project's chances of success -- or this tough on the government's commercial "strategy," which more or less read, "give all the work to the phone company."

The context is London's plans for making high-speed broadband as available as possible to the widest range of the British population, even in less commercially attractive areas like the deep country. That program has now been probed by the NAO, and it is not that impressed with what it's seen.

Specifically, the study says the government target of 90% coverage across the country by May 2015 will be missed by almost two years. Indeed, a mere nine of 44 defined rural target areas would reach the targets by then. Four areas (Highlands and Islands, Cumbria, Norfolk and Suffolk) could even miss a revised 2017 target, as local governments had not yet committed to help.

[ BT's chief exec is turning public servant. See BT CEO Poached For Parliament Role. ]

A key part of the problem is that there is almost zero market competition to speed it up; dominant U.K. telco BT has been awarded all 26 contracts assigned so far, and, in the report's gloomy view at least, there's no prospect of any other bidder coming forward to challenge it for the remaining 18.

As a result, "The rural broadband project is moving forward late and without the benefit of strong competition to protect public value," concluded Amyas Morse, head of the NAO.

How different it all seemed when the plan to offer fiscal support to suppliers to build out high-speed networks was dreamed up by Broadband Delivery UK, the government unit in charge of opening up more access. Back in 2011, the government promised Brits Web speeds and coverage meant to be "the best in Europe."

At one time, no fewer than 16 suppliers expressed interest in bidding for rural broadband contracts; nine made it to the next stage of seeking approval. The report says the way the government tinkered with the process, combined by unhelpful EU rules that delayed the approval process, forced all bidders out except for BT. (The last alternate supplier, the U.K. end of Fujitsu, dropped out of the process in March 2013.)

That means less choice for government and customers, plus it stoked suspicions that that company's perceived dominance of the U.K. fiber market will get further strengthened, which would stifle competition that might bring prices down for consumers (urban or rural alike).

As an example of what it means, the study points out that BT's costs contain a very high 40% for staff charges, plus offer a payback model based on an assumption that only 20% of properties will sign up for superfast broadband within seven years of it being enabled. The NAO says this is a very conservative assumption, far lower than figures suggested by either industry experts or international comparisons.

In strict cash terms, according to this study, the government at one time looked to BT to eat 36% of the cost of each new rural broadband project. Now, that's more like 23% -- landing the already hard-pressed British public purse with an unexpected shortfall of £207 million ($307 million). All in all, that means BT can look forward to at least £1.2 billion ($1.8 billion) of public money out of the rest of the project.

BT told the U.K. media, "Deploying fiber broadband is an expensive long-term business and so it was no surprise that others dropped out as the going got tough." It also said the 23% figure is inaccurate, with the real figure more like 38%.

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