BT will have to pay back the £129 million of public money it received from local authorities to invest in superfast broadband, as it has exceeded the targets set for take-up of the services.
The money returned to local authorities will be re-invested into extended fibre-based connectivity. The government have a manifesto pledge to extend delivery of superfast broadband to 95% of the UK by the end of 2017. The Culture Secretary, John Whittingdale, has said that the returned funds could be used to increase superfast broadband coverage further, but the final decision will be taken by the local authorities. It was reported this week that the government is considering options, such as an industry levy, to extend superfast broadband coverage to the final 5% of the country.
As part of its programme to extend superfast broadband into areas previously considered not to be commercially viable, the government provided £1.7 billion of funding. The majority of this money went to BT. Contractual agreements with local authorities contained a claw-back clause, which specified that BT would pay back some of the money when adoption of the services exceeded 20%. The targets have been exceeded ahead of expectation and BT has now revised its take-up target of superfast broadband in rural areas to 30%.
The public funding was agreed after BT said that it would not be able to invest to expand superfast broadband to some areas of the country, due to the expected rates of take-up. BT had expected that it would be many years before it would recover its investment. According to BT, it will have spent in excess of £3 billion upgrading the broadband network once the roll-out is complete.
As BT reported its first quarter results, it announced it would pay back the subsidies as there had been better than expected demand for the services.
Government funding is channelled through its Broadband Delivery UK (BDUK) agency, which is part of the Department for Culture, Media and Sport. As a result of public funding, more than 2.5 million additional premises across the country now have superfast broadband access. This figure is expected to reach 3 million by the end of the summer. BT’s fibre broadband network currently covers about 80% of the UK, which makes superfast broadband services available to around 23 million premises. So far, around 20% of these premises have installed superfast broadband.
Chief Executive of BT, Gavin Patterson, stated that “We’ve hit our original take-up assumption and have rolled out ahead of target and on budget. This is a real success story for the UK”.
BT will work with local authorities to identify where the returned funds can be invested to increase superfast broadband coverage. Due to better than expected results, coverage can be extended sooner than would previously have been the case.
BDUK has so far spent over £350 million, as shown by a recent assessment by the Department for Culture, Media and Sport. The figure equates to 6,837 premises for each million that has been spent. In order for their area to be eligible for the programme, local authorities have to match BDUK funding.
In January this year, BDUK faced criticism from the Public Accounts Committee (PAC) for not being vigilant enough in delivering its own targets for superfast broadband coverage. MPs were concerned that there remained pockets in rural areas without broadband coverage. Surveys had found that only 16% of rural SMEs had access to superfast broadband, and that half are not satisfied with the service they receive. This was not the first time that PAC had criticised BDUK; it has previously raised concerns about BDUK awarding all of its contracts to BT. PAC criticised BT for a lack of transparency regarding the details of its roll-out, after claims from smaller, rural, broadband providers regarding unfair competition.
However, BT has had great success with many of its local authority backed projects. In Cornwall, for example, BT has recently reached its 95% coverage target. Superfast broadband coverage is estimated to have brought in excess of £186 million in economic benefit to the region.
The return of the £129 million of public funding ultimately means that the delivery of superfast broadband can be extended to more homes and businesses, earlier than was previously expected and at no additional cost to the taxpayer.