The government has been accused of mismanaging the rollout of superfast broadband to rural areas, putting BT in a “quasi-monopolistic” position as the only bidder in the programme.
A report by MPs on the Public Accounts Committee (PAC) has claimed that failings by the Department for Culture, Media and Sport (DCMS) have led to an anti-competitive environment where BT is the only company bidding for over a billion pounds worth of contracts to supply local authorities with high speed broadband.
Margaret Hodge MP, chair of the PAC, said: “The sole provider BT has been placed in a quasi-monopolistic position which it is exploiting by restricting access to cost and rollout information.
“The consumer is failing to get the benefits of healthy competition and BT will end up owning assets created from £1.2 billion of public money.”
Under the rural broadband programme, the government was meant to encourage private companies to competitively roll out broadband connectivity to 90 percent of hard-to-reach areas in the UK by providing subsidies. However, BT and Fujitsu were the only two suppliers bidding for 44 contracts, because smaller suppliers - unable to take advantage of economies of scale - found it too expensive to take part.
Since bidding began, BT has won all 26 contracts tendered as of June 2013 and is likely to win the remaining 18 following the announcement by Fujitsu in March that it was pulling out of any further bids.
'Overly generous' contract conditions
The PAC described BT’s contract awards as being on “overly generous” terms, for example, confidentiality agreements were signed with BT around the cost of the projects. Furthermore a failure to negotiate full access to cost information meant that it was difficult for the DCMS to validate that bids from BT were reasonably priced.
BT will benefit from the government’s initial subsidy of £230 million, with a further £250 due to follow. The remainder of the £1.2 billion of public money - £730 million - has been provided by local authorities. Meanwhile, BT has only invested £356 million, £207 million less than initially expected.
As part of the recommendations made by the committee, it suggested that the government should withhold the £250 million subsidy until adequate measures are put in place by DCMS to ensure greater transparency and competition going forward.
Hodge said: “The department’s approach to procurement failed to deliver any meaningful competition to drive down prices and maximise coverage.
“Without that competitive tension, it is crucial to have full access to the single supplier’s cost information to check that BT’s bids are reasonably priced – but the department failed to negotiate that access with the company.”
The report also took aim at BT for preventing local authorities from providing proper information on the areas where broadband will be rolled out, making it difficult for other providers to build systems that would ensure a universal rollout.
However, BT has denied that the company has not been transparent throughout the process.
A BT spokesperson said: "We are disturbed by today's report, which we believe is simply wrong and fails to take onboard 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.”
The company said that it was ‘mystifying’ that it was being criticised for accepting ‘onerous terms’ in exchange for the government subsidies, claiming that these terms were what drove competitors away.
“BT faces a payback period of around 15 years on its rural broadband investments inspite of the subsidies available. The Department for Culture has imposed a rigorous auditing process that ensures every penny is accounted for,” the spokesperson said.
“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."
The rural broadband rollout has already received criticism from a number of parties, including the National Audit Office (NAO) which recently expressed concerns over the ability of the government to handle the project which has already run two years behind its scheduled completion date of 2015.