Virgin Media ‘Opposes BDUK Extension’ In Letter To EC

Fibre, network, broadband © Datskevich Aleh Shutterstock 2012

The broadband funding programme hands ‘hundreds of millions’ in excess returns to BT, according to Virgin Media

Virgin Media has confirmed it has written to the European Commission “strongly opposing” an extension of future aid from the UK Government into the country’s broadband infrastructure.

The company has accused the £1.6bn national broadband scheme of paying BT “hundreds of millions of pounds” of taxpayer funds in excess returns.

Virgin also confirmed that it has submitted a response to a British parliamentary inquiry arguing state subsidies for superfast broadband should end, as reported by the Financial Times.

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The British government is looking to renew the Broadband Delivery UK (BDUK) programme, aimed at extending high-speed broadband across the UK, and has asked for approval from the EC, whose state aid rules require that public subsidies amount to the minimum required for a network build to proceed.

BT has received most of the BDUK aid funds to date.

Virgin, one of BT’s main competitors, reportedly argued in its letter to the EC that if state funds were needed to extend high-speed networks to the last 5 to 10 percent of the UK, those funds should be limited to increasing demand to commercial levels, or providing satellite equipment.

A report commissioned by the company found that BDUK could mean excess returns of £320m to £869m for BT over a 20-year period, depending upon takeup, Virgin said in its letter.

Clawback mechanisms built into BDUK are aimed at returning public funds in cases where takeup of services is greater than expected, but Virgin’s report argues these only apply for seven years, and that BT retains all profits after the end of the contract period, according to the FT.

‘Unacceptable risk’

The company reportedly said that in Swindon, state aid was used to fund networks where Virgin would have extended its own services.

“If extended, these irregularities will give rise to an unacceptable risk of overbuild of existing networks, the crowding out of private investment, disincentives for future network expansion and, ultimately, the unnecessary granting of aid,” Virgin reportedly said in its letter to the EC.

Virgin confirmed the reported submissions, saying it believes such subsidies are not needed in the current market. The company has promised to invest £3bn in its own network.

BT rejected Virgin’s arguments, saying that it cannot make excess returns under the BDUK contracts and that higher returns are to be largely returned to the public sector to help further extend fast networks.

‘Value for money’

The Department for Culture, Media and Sport said in a statement that BDUK represents “value for money for the taxpayer”.

“Without our investment, millions of homes and businesses would be left without access to superfast speeds,” the DCMS stated.

Earlier this month the department said BDUK has now connected 3.3 million homes and businesses at speeds of at least 24Mbps. BDUK has handed out £372.2m to local authorities as of September 2015.

The government is targeting 95 percent superfast broadband coverage by 2017 and plans to cover the entire of the UK by the end of the current parliament. The final five percent is to be connected by alternative technologies such as wireless and satellite, although there are no firm rollout plans in place yet.

Prime Minister David Cameron recently announced plans to ensure anyone in the UK would be able to receive 10Mbps broadband by 2020. It is unclear what public support will be available to help achieve this goal, but BT has said it would be a willing partner.

BDUK has been criticised for the speed of rollout, an alleged lack of transparency and on the grounds that handing BT so much public money is in effect a public subsidy.

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