Rural broadband rollout slammed for favouring BT and over-running by £230m

Department of Culture mismanaged rural broadband scheme handing BT £1.2bn in assets out of public funds

MPs on the Public Accounts Committee (PAC) have criticised the rural broadband rollout intended to provide fast internet access to 90 per cent of UK homes by 2015 for favouring BT and adding as much as £20 to council tax bills.

In a report released today, it criticised the department for Culture, Media and Sport's design of the rural broadband programme which had "failed to deliver the intended competition for contracts, with the result that BT has strengthened its already strong position in the market".

All 26 contracts let so far by local authorities for rural broadband have gone to BT, and BT is also likely to win all 18 remaining contracts, claimed the PAC, which listed a catalogue of failures by the Department charged with the rollout.

"The department accepted contract terms that were overly generous to BT and do not promote value for money, such as confidentiality clauses over bid costs and roll-out plans.

"The Department also failed to negotiate the full access it needed to BT's cost information to validate that bids from BT for local projects were reasonably priced; a key control over value for money on a programme where there is no competitive tension in individual procurements."

PAC chairman Margaret Hodge said: "The sole provider, BT, has been placed in a quasi-monopolistic position which it is exploiting by restricting access to cost and roll-out information. The consumer is failing to get the benefits of healthy competition and BT will end up owning assets created from £1.2bn of public money."

She added: "The department's approach to procurement failed to deliver any meaningful competition to drive down prices and maximise coverage."

As a result, the scheme would cost councils in the rollout areas an extra £230m, or approximately £20 per household in extra council taxes.

The programme has repeatedly slipped up as costs have risen and targets have had to be revised. The initial aim was to achieve the 90 per cent target by 2015 - conveniently in time for the next election. However, that target has had to be put back to 2017. The programme has also come in for criticism for being unambitious in terms of the speeds that the "superfast" broadband would offer.

The investigation was triggered following a report in the Daily Telegraph newspaper last October that suggested that BT could be charging a mark-up of up to 80 per cent to install the service, given the lack of competition.

The report will be an embarrassment for BT's recently departed CEO, Ian Livingston, now Lord Livingston of Parkhead. He quit the company earlier this year to become a government trade minister.

However, it brought a sharp response from BT. In a statement, it said:

"We are disturbed by today's 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.

"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.

"The taxpayer is undoubtedly getting value for money. BT faces a payback period of around 15 years on its rural broadband investments in spite of the subsidies available.

"The Department for Culture has imposed a rigorous auditing process that ensures every penny is accounted for. Rolling out fibre is an expensive and complex business but we remain committed to the programme.

"The network we build will be open to all our rivals, who will be able to sell services to consumers, paying us the same prices we charge our own Retail division."