Friday, July 18, 2014

News: Rotherham's Digital Region costs revealed

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Rotherham Council has set aside £9.58m to cover its share of the costs of the failed Digital Region superfast broadband project.

The council, along with the other three authorities in South Yorkshire joined with the now defunct regional development agency Yorkshire Forward in 2006 to progress plans to bring continuous 25mb+ broadband to over 97% of South Yorkshire. At the time it was clear that BT had no plans to upgrade its own network in the region.

Work on installing the Digital Region network started in 2009, and by 2012, completion of phase one of the project saw 80% of homes and businesses within South Yorkshire able to be linked to the network.

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 zero income risk being allocated to the network operator made the business hopelessly uncompetitive.

With only 3,000 of the 100,000 customers it needed, the remaining shareholders agreed to halt their search for a private sector partner and begin a managed closure of the fibre optic network. The network will be switched off on August 14 and assets are being sold to Geo Networks, part of the American Zayo Group.

Recent estimates from Sheffield Council put the cost of closure at £83m and it is not yet clear if the sale of the assets will allow local businesses and consumers to utilise the fibre network.

A funding agreement was signed by all shareholders in February 2014 to ensure that sufficient funds were made available to enable services to be migrated without interruption of business and to enable the company to meet its debts. According to Rotherham Council this has not involved the shareholders having to provide any additional funding to that already committed. In its case this comprises £2m of capital loans as the Council's contribution towards deployment of the network and up to a further £7.58m of support agreed in 2011/12.

A restructure of the company to support its orderly closure was approved by the shareholders in June. This will involve the £3.736m advanced by Rotherham Council up to and including 2013/14 being converted into a new class of shares.

The figures were revealed in the council's latest set of unaudited accounts.

The project was financed by contributions from local authorities and included £30m from the European Regional Development Fund (ERDF).

Last year, the then Minister of State for Business and Enterprise, Michael Fallon, described the previous Digital Region project as "deeply flawed" as it had failed to attract customers.

Following the closure of Yorkshire Forward, the government has had to agree to provide at least 45% of the funding (up to £45m) to cover a significant proportion of the repayment of the ERDF grant which has to be paid back to Brussels, because the original conditions were not fulfilled. It will also pay a proportion of the contract due to the original operator, Thales.

External auditors, KPMG are set to specifically focus on the estimated costs associated with the orderly and managed closure of Digital Region Ltd as part of its ongoing audit of Rotherham Council.

Cllr Roger Stone, leader of Rotherham Council, said last year: "Within such a groundbreaking, complex and challenging project there were inevitably many risks including generating sufficient business to achieve the project’s overall aims. The unexpected introduction of BT and other network operators into the market and the fall in broadband prices had meant that the revenues Digital Region expected to generate have not been realised."

The millions for Digital Region come at the same time as Rotherham Council's latest budget included a £23m savings package put together in response to further massive reductions in Government funding. £70m has been cut from its budget since 2010.

Rothbiz revealed last week that Rotherham Council has agreed to underwrite the required local funding contribution of £1.596m in order to allow a contract to be signed with BT for another broadband project. It will also contribute a contingency budget of £124,000 and £112,500 towards the costs of employing staff to manage the provision of superfast broadband to the rest of the region.

Images: Digital Region

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