UK broadband program in state aid bottleneck

It’s more than two years since the UK government launched its scheme to eliminate broadband “notspots” and expand superfast broadband coverage to 90% of the country. Many local authorities are reaching the end of a lengthy procurement process and some have already named their suppliers. But in spite of all the activity, the European Commission has yet to give state aid approval for the vast majority of the projects.

It’s more than two years since the UK government launched its scheme to eliminate broadband “notspots” and expand superfast broadband coverage to 90% of the country. Many local authorities are reaching the end of a lengthy procurement process and some have already named their suppliers. But in spite of all the activity, the European Commission has yet to give state aid approval for the vast majority of the projects.

The UK government promised to spend up to £830 million to meet its target to have “the best superfast broadband network in Europe” by 2015. It created a body called Broadband Delivery UK (BDUK), which was charged with spending those funds wisely. The cash was divvied up among local authorities, each of which had to set out its own scheme for how it planned to meet the UK targets, and select a supplier.

According to a report in the Guardian newspaper, the Commission has serious doubts that the BDUK process is sufficiently competitive. The framework procurement contract by the UK government has resulted in just two suppliers being selected, and so far only the incumbent, BT, has managed to secure any contracts. Moreover, Brussels is reportedly unhappy that BT is not willing to give its wholesale customers access to unbundled dark fiber connections.

Lack of state aid approval appears to be adding further delays to a process that was already behind schedule. In October 2010, four regions were chosen as pilot projects from which other parts of the UK would be able to learn. But it wasn’t until last week that one of them, North Yorkshire, became “the first project to start deployment using BDUK funds.”

However, one reason that North Yorkshire reached this point ahead of others was because the project was already well underway before the BDUK scheme was created. North Yorkshire had secured state aid approval for its plans in 2007, and merely required an amendment, not a new application.

There are more than 40 broadband projects underway in the UK, but state aid approval has been granted for just four of them - the three others being the counties of Devon and Somerset (working together), Northumberland, and the City of Birmingham.

BDUK has submitted an umbrella state aid application that would provide clearance for any project using its supplier framework, but in view of the delay, some projects decided to submit their own application. The notification to the European Commission was submitted in January 2012. BDUK has been in “intense negotiations” since then, and hopes to receive a positive decision shortly, according to reports.

Interestingly, aside from North Yorkshire, the regions that have already named BT as their supplier –Rutland, Lancashire, and Wales – have not yet gained state aid approval for their plans. The Welsh project, announced on July 20, is worth around £425 million, including a £220 million commercial investment from BT, making it one of the largest projects in the UK. None of these projects can start deployment until such time as Brussels gives them the go ahead.

It looks like the UK will be keeping the Directorate-General for Competition at the European Commission busy for some time to come.


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