The Welsh Assembly Government is to be investigated by the European Commission following claims of unlawful behaviour under state aid rules in its awarding of a contract to BT to upgrade 35 exchanges in Wales that had previously been excluded from the telco's national ADSL implementation on economic grounds.
The contract forms part of the £13.4m Regional Innovative Broadband Support (RIBS) initiative, which is the final stage of the Broadband Wales strategy to ensure 100 per cent broadband coverage in Wales by 2007.
The complaint has been brought by WBNet Ltd, a family-run company in Monmouthshire which in 2004 began offering a 2Mbps SDSL wireless broadband service to businesses and communities across that county.
Most commercial broadband services offered at present, including those offered by BT, are based on ADSL, which offers slower upload speed than it does download speeds. Using SDSL, broadband providers can offer a service where the upload speeds and download speeds are the same.
WBNet invested more than £300,000 of private funds, which the directors raised in part through mortgaging their homes, into setting up the infrastructure required for the service, including the installation of seven masts around Monmouthshire.
The company also had its own internet backbone connection into the Telehouse co-location facility, giving it network capacity for a 10Mbps service, which according to the definitions used by Broadband Wales in its January 2005 strategy document, means that the company was capable of providing second generation broadband services to a rural user base.
The project was supported by Monmouthshire County Council, and WBNet received a grant through the Welsh Development Agency (WDA) offsetting seven per cent of its total project costs.
WBNet chairman Joss Goodall told Ping Wales: "Our grievance stems from the fact that in May 2005, we received clear and written assurance from the RIBS team that their project would not in any way interfere with our business."
In this letter, which has been seen by Ping Wales, a representative of the Broadband Wales unit states: "The RIBS project does not intend to fund broadband services in areas of Wales where there is already first generation (512kb-2mb) [sic] broadband provision, namely where telecommunications companies, such as yourselves, have decided to address the problem independently."
Up until 15 March 2006, one day after BT had been announced as the Assembly's preferred supplier to the RIBS project, the Broadband Wales website stated: "The project will focus on filling gaps where no form of broadband service is currently available and there are no plans to make broadband available to these areas by existing providers."
Although this webpage is still accessible, reference to this statement cannot be found on the new RIBS website, which was set up after the WDA was absorbed into WAG, and the new department for enterprise, innovation and networks (DEIN) created to take its place.
WBNet requested a judicial hearing into the matter, which took place in Cardiff on 21 July 2006. Goodall, who previously worked as a radio and radar engineer in the Royal Air Force, represented the company himself.
The hearing found that WAG had acted lawfully, and that WBNet should have made its complaint within three months of June 2005, when the Assembly put forward a proposed list of exchanges to be enabled under the RIBS project, even though the final decision to upgrade the contentious exchanges at Skenfrith, Cross Ash and Llantilio was only made in March 2006.
WBNet has since ceased trading. Goodall says: "We could not compete with a state-subsidised major telco. This outcome has gutted us. The irony of it all is that many users in Monmouthshire will not be getting anything like the level of service that our customers received."
It is anticipated that the remaining exchanges in Monmouthshire will be enabled by September 2006, making ADSL broadband available to most of Monmouthshire's residents.
The Wales Broadband Stakeholders Group comments: "RIBS was intended to assist the setting up of local and regional broadband projects, and whilst affirming the principle of technology neutrality, the scheme was essentially conceived to support wireless broadband projects as a last mile solution for remote and rural areas."
In 2001 telecoms consultancy and research house Analysys prepared the Ubiquitous Broadband Infrastructure for Wales [pdf, 5.5MB] report for the WDA, which led to the setting up of the Broadband Wales programme.
The Wales BSG adds: "In this report, wireless was seen as a significant means of addressing the digital divide, and the remote and rural areas telecoms agenda in Wales. It is therefore now a bitter irony that after such a lengthy delay, a wireless start-up in rural Monmouth should be adversely affected by BT's exchange enablement via the RIBS contract. Innovative broadband solutions such as those provided by WBNet were exactly the kind of initiative that RIBS was intended to enable."
Professor Dylan Jones-Evans, director of the National Entrepreneurship Observatory, comments: "From an entrepreneurial perspective, why should the state support [one company] to set up a particular service, as opposed to other companies? It's up to [each company] to take that risk."
Should the EC's competition directorate-general find that WAG has acted unlawfully under state aid rules, it could seek to have the aid recovered from the RIBS project, plus interest from the date of the first payment.
A DTI-authored guide to state aid cautions that the consequences for businesses, if funding bodies break the state aid rules, can be severe. If the EC requires it, member states are obliged to recover illegal aid, even if that means that recipient companies go bankrupt.
WAG declined to comment on the matter.
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