The £62m UKeU project was one of those big government ideas. The UK could trade on the reputation of its universities, attracting bright students from across the globe to study online.

Speaking at the launch in 2000, the then Education Secretary David Blunkett said: 'We want to create a new partnership between universities and the private sector, which will develop a novel means of distance learning and exploit the new information and communication technologies.'

But £40m - and just 900 students later - the government's aims for a distance learning partnerships, powered by the public and private sector, lie in ruins.

Documents released to Computing reveal that UKeU is currently in the process of being wound down and its platform sold.

'I really believed in UKeU and I almost feel cheated,' said Jill Hewitt, commercial manager for the department of computer science at the Universityof Hertfordshire, one of the institutions running courses through the programme.

'I worked so hard and I felt privileged to be working at one of the universities that was putting out the materials.'

Problems were already emerging a year ago, when Computing first exposed failings in the scheme.

And in December 2003, PA Consulting were sent in to evaluate the strategies and plans developed by UKeU.

Following the consultant's independent business review, UKeU sent an analysis of the PA report to th Higher Education Funding Council for England (Hefce), stating that it welcomed the report, but believed that that were 'differences of fact and perception'.

PA's review identified five major challenges that UKeU should address to successfully demonstrate a viable business proposition. These were related to business strategy, markets, finance, infrastructure and investments, and are presented below, each with a comment from UKeU's subsequent reply to Hefce.

The business strategy challenge

PA believed it was unclear that UKeU had demonstrated how it was generating and exploiting its competitive advantages.

This lack of focus on objectives was accentuated by the absence of a documented business strategy: 'In short, where and how will the UKeU make money?'

UKeU's response: 'No alternative is currently available which would enable us to offer courses from multiple universities across the world and meet their varying, individual requirements.'

The market challenge

PA suggested that UKeU had been unable to demonstrate that substantial global markets existed for online higher education - the project's primary goal.

The consultant suggested that the global elearning market was only just emerging and that the only substantial evidence of growing demand was in the USA- a market not targeted by UKeU.

It said that evidence of demand from other countries, including the UK, was patchy at best.

'UKeU's early efforts to build markets for their e-learning products were not successful, largely because they were based more on optimism than on market-led judgements,' said the report.

UKeU's response: 'Whilst it is true that the USAis by far the most developed elearning market, many other countries anticipate, and are preparing for, dramatic increases in elearning volumes over the next few years.'

The financial challenge

PA reported that the central goal for the UKeU was to become profitable and self-sustaining within a reasonable period.

The consultant said UKeU's financial plans forecast that this position would be reached by March 2008 but PA felt this remained: 'an extremely challenging target, vulnerable to significant risks and uncertainties'.

PA said the main financial challenge came from developing a bespoke elearning platform.

This strategy imposed extreme demands on business and financial performance, establishing the UKeU as a high fixed cost operation that needed to generate revenues in excess of £20m a year before net earnings could accrue.

UKeU's response: 'We fully accept that our ongoing costs are high but again see no alternative if we are to fulfil our mission.'

The infrastructure challenge

PA reported that the development of an elearning platform had dominated UKeU's early years, consuming more than £16m pounds of funding by December 2003.

What's more, the consultant found that although UKeU has been operating a pilot service since September 2003, it's platform was still at a prototype stage and was: 'not suitable for supporting UKeU's business needs as it stands.'

The delivery of the platform was running significantly behind schedule, even after the slipping target implementation dates from January to September 2003.

PA had 'real concerns' that the new March 2004 target would not be achieved and suggested that the development relationship with Sun was not working as effectively as either partner might have wished.

The consultant was also concerned by the low level of money set aside for bespoke system support. UKeU was providing £1.2m a year for support - far below the required industry benchmark of £3m to £5m a year.

UKeU's response: 'Clearly we accept that the schedule is still at risk and welcome any suggestions as to realistic ways to mitigate this.'

The investment challenge

PA reported that the UKeU business model required substantial capital before revenues from successful courses started to fund the business.

UKeU's revised business plan reduced this requirement significantly, from £83m to £57m.

However, it also moved the onus for capital provision entirely onto Hefce, rather than UKeU's original aim of a combination of public and private sector funding.

In fact, PA reported that the financial projections within UKeU's business plan made no allowance for the injection of private capital from any source.

UKeU's response: 'In the light of the risks PA rightly outline, it would be prudent to assume that a further £15 might be required.'