UK rural broadband rollout criticised by auditors

The government's rollout of "superfast" broadband to rural areas is about two years behind its original schedule, an official audit has found.

The report said only nine of 44 rural areas would reach targets for high-speed internet by 2015, and four areas could also miss a revised 2017 target.

The National Audit Office also raised concerns that BT would be the only firm likely to win contracts.

It said the company would benefit from £1.2bn of public funds as a result.

"The rural broadband project is moving forward late and without the benefit of strong competition to protect public value," said auditor general Amyas Morse.

"For this we will have to rely on [the Department for Culture Media and Sport's] active use of the controls it has negotiated and strong supervision by [the regulator] Ofcom."

He added the scheme was also expected to cost the taxpayer more than first thought.

In 2011, then Culture Secretary Jeremy Hunt announced that 90% of premises in every local authority area of the UK should have access to internet speeds above 24 megabits per second by May 2015 and a minimum of 2Mbps for others.

To do this he pledged £530m of cash for rural broadband projects which would become available to councils if they also provided funds.

He said this would give the country the "best superfast broadband network in Europe".

However, the scheme was hit by delays, in part because it took longer than expected to get approval from the EU.

The NAO said once officials revised their projections, they found it was going to take 22 months longer than first envisaged for 40 of the areas to reach the goal.

Last week the Treasury revised its target, saying it now wanted 95% of UK properties to have access to superfast broadband by the end of 2017, effectively shifting the goal until after the next general election.

The NAO warned four areas - Highlands and Islands, Cumbria, Norfolk and Suffolk - might still miss this new deadline because the local authorities had failed to request sufficient funds.

A spokesperson for Cumbria County Council told the BBC that since the report was compiled it had signed a contract with BT to deliver superfast broadband to 93% of Cumbrian homes by 2015.

The DCMS said that a pledge to invest an extra £250m meant it would meet the goal.

However, the NAO said that past experience suggested the "government is not strong at taking remedial action to guard against further slippage".

The revelations prompted claims that DCMS did not have a "good enough grip" on its programme and that BT had been "cagey" about its costs.

"Opaque data and limited benchmarks for comparison means the department has no idea if BT is being reasonable or adding in big mark ups," said Labour MP Margaret Hodge, who is the chair of Parliament's Public Accounts Committee.

However, a spokesman for the DCMS said its efforts to deliver value-for-money were "strong and robust".

"We agree that effective enforcement of the contracts is important and are working with local authorities to ensure this," he said.

"As the NAO report makes clear, the project's funding model greatly reduced the cost and financial risk to the taxpayer."

BT also defended its record.

"There was strong competition when prices were set at the start of the process and that has ensured counties have benefited from the best possible terms," it said.

"Deploying fibre broadband is an expensive long-term business and so it was no surprise that others dropped out as the going got tough."

Sixteen organisations had originally shown interest in competing for the rural broadband projects.

The NAO noted that "competition was envisaged to be a key value-for-money safeguard".

However, it said suppliers had complained the bidding process was "difficult and complicated" and that the process favoured large companies with secure revenue streams.

By early 2013 only BT and Fujitsu were left in the running, and in March Fujitsu dropped out after it said various factors had made winning the work unattractive.

The audit highlighted that officials only scored BT's financial model eight out of 20 - the minimum pass rate.

It said it remained unclear how much of the firm's bids covered "contingency costs" - a safety-cushion to protect it against unexpected charges.

It also raised concern that BT said 40% of its costs would be on staffing - a figure the NAO said was hard to verify.

The report revealed that there had already been one instance when BT had been caught overcharging for management costs by £3m.

It also pointed out that BT's figures were based on the assumption that only 20% of properties would sign up to superfast broadband within seven years of it being enabled.

The study said this was lower than the figure suggested by both industry experts and international comparisons.

A clawback rule is supposed to ensure that if uptake is higher the firm should share the extra profits with the public.

However, the NAO said government workers would have to scrutinise hundreds of thousands of invoices to make sure this happened, and that some councils have already said they might not have enough resources to do this.