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EU State Aid Clearance Problem Delays BDUK Broadband Contracts

Wednesday, December 9th, 2015 (1:03 am) - Score 1,010

The Government’s Broadband Delivery UK programme is close to securing a new approval from Europe for the use of state aid in their national roll-out of “superfast broadband” (24Mbps+) services, which has been stalled since the original umbrella agreement expired at the end of June 2015.

Last month’s Autumn Statement 2015 (Spending Review) was notable for its absence of any serious commitment to expanding the reach of superfast broadband (24Mbps+) services to cover the final 5% of the United Kingdom.

We had been expecting such an announcement since the summer when the Digital Economy Minister, Ed Vaizey, promised to make it “absolutely clear” where superfast broadband would be delivered (originally expected before the end of autumn) and he also pledged to publish a firm plan for reaching the final 5% “before the end of the year.” Neither have shown up.

Instead we’ve been treated to talk of a vaguely defined Broadband Investment Fund for alternative network providers (here), as well as the more positive proposal for a 10Mbps Universal Service Obligation (here) and most recently a short-term Satellite subsidy to help cater for the old 2Mbps Universal Service Commitment (USC) that many may frown upon (here).

One of the reasons for the seeming lack of progress on the “superfast” front is due to the uncertainty of state aid approval. The original Phase 1 Broadband Delivery UK contracts (90% superfast coverage by 2016) were all covered by an umbrella agreement with the EU and nearly all of the Phase 2 (95% coverage) contracts fell into the same category, but this came to an end on 30th June 2015.

The situation means that some outstanding Phase 2 contracts (e.g. Herefordshire, Devon + Somerset etc.), plus all of the potential model for Phase 3 (final 5%), have effectively been stuck in limbo while the Government attempts to negotiate a solution with the European Commission.

A Spokesperson for BDUK told ISPreview.co.uk:

We have been progressing a State aid notification with the Commission since June 2015. These discussions have been productive and we hope to publish our proposed approach in the New Year.”

However achieving the new agreement is far from easy, otherwise it would have been completed sooner. According to a recent speech from Chris Townsend, CEO of BDUK, the road to approval has been a rocky one because the EU will require all suppliers to provide “full open access” (i.e. share cable ducts, masts, local loops) and that approval also favour “small” projects (i.e. encouraging smaller suppliers to bid). According to BDUK, the EC want to see procurements being as pro-competitive as possible, including considering size of interventions.

The problem is of course that some of the most capable altnets, such as Gigaclear and B4RN, prefer to adopt a much more closed network model. It’s hard enough to build new infrastructure as a smaller player, without strict regulation making your efforts vulnerable to bigger competitors.

On the surface this may sound similar to the original state aid agreement, but it appears to be stricter. Under the new state aid proposal even BTOpenreach’s network may not be considered open enough, which is despite the fact that they’re one of the most heavily regulated incumbents in Europe.

Never the less BDUK believe they can reach a more acceptable compromise in time for the end of February 2016 (we’ll keep an eye out for that), which will retain the required “full open access’ basis“, but we’re informed by the Government that discussions around the exact access conditions are still being negotiated (subject to change).

Even if an agreement is reached in February 2016 then the situation will still have created another administrative delay, which means that the remaining Phase 2 programmes probably won’t catch up with their own contracts until towards the end of spring. Meanwhile it will take longer before we know what model Phase 3 is to adopt, although this might be ready in time for the 2016 Budget.

Credits to Patrick Cosgrove and BDUK for assisting with our research.

Leave a Comment
6 Responses
  1. Avatar NGA for all says:

    Are LA’s free to use underspends, clawback and anticipated BT capital to extend whatever phase into the entire intervention area as originally notified? Or is all the underspend, clawback and anticipated BT capital now not available for the final 5-10%?
    The existing state aid conditions are not being enforced, enhanced PIA, mapping of hops, agns and cabinets, and their is no transparency on anticipated BT’s capital contribution.
    I assume EU are saying £1.7bn is enough for BT, if the state aid conditions on gap funding are enforced.

    1. Avatar MikeW says:

      My best guess is that the old EU approval is valid for the total amount of state aid mentioned in the phase 1 contracts.

      As underspend and clawback both represent money not yet spent from the original state aid, rather than fresh state aid, My guess is that it remains free to be used for further coverage within the same contract, if both parties wish. Otherwise it can be returned to the LA, as per contract terms, for them to choose to deploy separately.

      If an LA does choose to deploy the returned money through another company, via a separate contract, then I’m less sure. It would be original money, but a whole new party and a whole new contract.

      The “BT capital” (anticipated or otherwise) is, of course, BT’s money. No EU approval needed to spend more of that.

  2. Avatar MikeW says:

    Isn’t Herefordshire (& Gloucestershire) running on their own OJEU rather than the BDUK framework? I’m not sure EU approval of the framework is holding them up.

    1. Mark Jackson Mark Jackson says:

      It seems to be a bit of a mix (BDUK and OJEU), although the Herefordshire side for BDUK Phase 2 hasn’t yet put out a formal tender. Never the less you’d expect that the local authority might want to see full details on the new state aid agreement before making a final decision as that would be the prudent course.

    2. Avatar MikeW says:

      If things are mixed with the framework, then I’d agree on a touch of prudency – though you’d imagine that the LA would have a good idea of what the sticking points in EU approval were.

      But not all projects are being reined in by this – didn’t Oxfordshire (also OJEU) just announce a whole new contract with BT?
      http://www.ispreview.co.uk/index.php/2015/11/4600-extra-oxfordshire-uk-premises-to-benefit-from-fibre-broadband.html

    3. Mark Jackson Mark Jackson says:

      Didn’t that tender enter the actual procurement phase before June?

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