The bidding and procurement process for government broadband funding was destined to see BT take the majority of projects, according to industry insiders and a recent Lords report.

Last week's Lords report highlighted what many smaller communications companies had been saying for months: that they couldn't compete on a level playing field with BT for a slice of the £530 million in funding from the government.

Rules within the framework put in place by Broadband Delivery UK (BDUK) meant larger companies more were likely to win funding, but according to critics the decision to split the projects into regions and adopt a "gap funding" system exacerbated the problem.

Nationwide benefits
According to the Lords report, one issue that hampered competition stemmed from funding being divided up between some 40 local projects, which meant that only companies with wider networks would be able to cross-subsidise bids made in less populated areas with earnings from other more profitable areas.

"Networks within a local authority area may not be of sufficient scale to be sustainable without the assumption that the provider building the network already has scale across the country," the report found.
 "If they do, to simplify the point, they can cross-subsidise from densely populated areas of the country with lots of potential end-users, to sparsely populated areas with only a few.

"As a local authority area may not contain sufficient diversity for this sort of sustainable cross-subsidy itself, an infrastructure provider unable to draw on national scale is likely to be unable to compete."

Funding gap
The Lords report also criticised the "gap" funding approach, which meant companies willing to invest more upfront had a better chance of winning contracts, a point that hit home with rival network providers.

The concept had already been criticised as being a straight-jacket to innovation which marginalised smaller players, but even bigger companies with sufficient turnover to pass BDUK's qualification tests felt they were unable to compete.

"Against our request for a workable procurement model, we got a gap-funding framework from BDUK that is tailor-made for BT, utterly asymmetrical and useless for anyone else," one company executive told PC Pro. "BT can compete with all its revenues and the lowest cost base while we compete for the right to take them on from a standing start in a market that will have two players."

BT has won the first contract, and is one of only two suppliers bidding for the projects - and the only company in some regions. BT has previously told PC Pro it plans to bid for as many of the regional projects as possible, where it is economically viable, and that with "the sensible allocation of BDUK funding it will be able to push next generation access to 90% of the UK".

Because BT was in such a dominant position, the industry source said, many companies chose not to compete for contracts in some areas, a situation that officials claim justified the idea that those areas were not commercially viable.

“We hear comments from officials in the regulator that the lack of competition for the BDUK 'pilots' must be evidence that this part of the market is a natural monopoly rather than evidence of a deeply flawed procurement process and an incoherent approach by the regulator itself,” the source said.pcpro