BT and Virgin Media UK in Legal Challenge to Birmingham Broadband Funding

National UK telecoms operators BT and Virgin Media have “disappointed” Birmingham City Council (BCC) after they launched a shock legal challenge against the city’s £10m publicly funded (State Aid) plan to expand the reach of “ultrafast” (100Mbps+) broadband ISP and public wifi services by 2015.

Birmingham’s Smart City project forms part of the UK governments £114.1m Urban Broadband Fund (“super-connected cities“), which is designed to help ten of the largest cities expand the reach of faster broadband solutions into digital disadvantaged “areas where BT and Virgin Media will not go” (a further £50m has also been set aside to help 10 smaller cities).

The Smart City scheme is unique because in June 2012 it became one of the first UK cities to win State Aid approval from the European Commission (here), which praised it for proposing to develop a network that would be “genuinely open to all operators and will therefore promote competition“. This included offering open access to Dark Fibre, which BT has persistently refused to do. But BT and Virgin Media now fear that the new network will overlap theirs.

Virgin Medias Spokesperson said:

“We believe it involves a significant overbuild with our network. It’s a poor implementation of what is otherwise a sensible policy. It sets a bad precedent and sends a really bad signal to our investors … We believe the [EC] has made a decision based on inaccurate and misleading information which could waste public money.“

James McKay, Birmingham City Council, added:

“Birmingham is extremely disappointed in Virgin Media’s decision to appeal this landmark ruling. The city has worked in a very positive and collaborative way with them over the last few years to help inform and develop our business case and we are surprised that they have now chosen to appeal at such a late stage.”

Ironically many similar schemes have stalled over EU concerns about a lack of competition. BT has so far won all of the major Broadband Delivery UK (BDUK) contracts, while smaller ISPs have effectively been excluded from the process and Fujitsu, the only other approved candidate, appears to have all but given up after they were re-classified as a “high risk” for government contracts (here).

Thankfully the EC’s competition boss, Joaquín Almunia, revealed earlier this month that he would shortly be able to grant state aid approval for related projects (i.e. by early November 2012), albeit alongside some “relatively minor [and as yet unspecified] changes” to BDUK’s design (here). It remains to be seen whether this latest challenge will have any impact upon that approval.

Meanwhile BT and Virgin Media are no doubt keen to ensure that they don’t lose out to alternative publicly funded networks and, unlike smaller ISPs, they have the financial and legal clout to protect their interests. The irony will surely not go unnoticed among all those whom fear that BT already has an unfair advantage. Meanwhile Virgin Media doesn’t yet offer a truly open access solution to rival ISPs.