£100 million spent on broadband network to serve just 3,000 customers
It appears that the nine year story behind Digital Region in South Yorkshire may be reaching its concluding chapters, with either the network being acquired by French operator Bouygues Energies and Services (BYES) or closed down, with customers migrated to alternative operators.
A House of Commons committee meeting back on the 15th July 2013 met to discuss authorisation of between £10m and £45m to sever any further risk for the Government in the project. The network was started some years ago in 2006 with construction getting underway in 2009 and a construction cost of £100m has been cited and on going costs for keeping Digital Region Ltd running are £900,000 per month.
The network has some 80% of premises in South Yorkshire in its footprint for the VDSL2 services it offers, but the real kicker is that while the original target was a 20% take-up figure of around 100,000 customers the network is serving just 3,000 customers, i.e. costing £300 per month to supply each customer and it has cost £33,000 in network build costs to serve each of these customers.
Looking at these figures you can see why Michael Fallon MP The Minister of State, Department for Business, Innovation and Skills is looking to draw a line under this affair which has been inherited from the previous Government.
"DRL’s purpose was to provide high-speed broadband in a disadvantaged area to support growth and job creation. However laudable the motive, the project was deeply flawed. A combination of delays in appointing a contractor to build and run the network, failing to adjust as necessary in a fast-moving business sector and insufficient—in fact, zero—income risk being allocated to the network operator made the business hopelessly uncompetitive. I could go into how Yorkshire Forward should have been more agile and responsive as business conditions changed radically in the south Yorkshire broadband market while the DRL network was being commissioned, but doing so would sadly serve no purpose now.
My Department inherited a difficult situation from Yorkshire Forward, because we were faced with a technically advanced broadband network that was financially unsustainable. Contractual arrangements allocated all financial risk to the shareholders, providing no incentive at all for the operator to compete with the market leaders that entered the south Yorkshire broadband market. Simply to close the network was expensive, because severance costs had to be paid to existing contractors and the European regional development fund grant of £27 million that part-funded the construction had to be repaid.
A new operator for the network could still bring the economic benefits that were originally anticipated to an area that suffers significant disadvantages, thus preserving some value from the almost £100 million that has been invested."Michael Fallon MP on Digital Region
In the original BDUK funding allocation back in 2011 there was still a hope that Digital Region would meet the coverage targets the Government was chasing then of 90% with access to superfast and everyone else getting 2 Mbps or faster. The question now is given that it seems almost impossible that Digital Region will expand, and very likely it may close, what contingencies are in place to ensure South Yorkshire does not fall behind the rest of the UK.
A major problem for Digital Region was the delay in roll-out, as by the time services started to become available it was competing with Openreach rolling out its own FTTC network, and Virgin Media upgrading the speeds of its service. This publically funded network also appears to have also rolled out in the areas where it would be fairly clear to most that commercial operators would eventually deliver.