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'Gainshare' provisions save £500m for superfast broadband project

Approximately £500 million in public funds were saved from the cost of delivering 'superfast' broadband access across the UK as a result of a clawback mechanism included in the project contracts, according to a new independent report.

'Superfast' broadband is a term that refers to services with download speeds of at least 24 Mbps.

Commercial broadband suppliers have been involved in making superfast broadband networks available across the UK in recent years under a scheme backed by UK government funding.

The last UK government set out a target of delivering “near universal superfast broadband” across UK homes by 2020, building on earlier pledges by the then coalition government which vowed to ensure that superfast broadband services were available to at least 90% of the UK by the end of 2015 and 95% of the UK by the end of 2017. Broadband Delivery UK was set up as the body responsible for allocating funding for the roll out of superfast broadband networks by telecoms providers across different areas of the country.

An evaluation of the economic impact and public value of the superfast broadband programme (63-page / 1.50MB PDF) between 2012 and 2016 has now been carried out on behalf of the Department for Digital, Culture, Media & Sport (DCMS). According to the report, the anticipated net cost of the scheme to the public sector has reduced by approximately £500m as a result of provisions included in the contracts for delivering superfast broadband access.

A 'gainshare' mechanism was included within the contracts to ensure that telecoms providers building superfast broadband networks returned a share of future revenues to the public sector if adoption of their services was greater than expected. The report detailed the financial benefits this has delivered.

"The underspend and take-up gainshare mechanisms had a significant role in protecting the value for money associated with the programme," the report said. "These protections have reduced the expected net cost of the programme to the public sector from £1.6bn to £1.1bn, although this is dependent on anticipated future take-up. This implies that the public sector is not expected to incur costs on a share of premises that would have been upgraded by the market without the programme."

The gainshare mechanism "could have more widespread applicability" within public sector projects, the report said.

Some of the money recovered via the gainshare mechanism was reinvested into the superfast broadband programme. In 2016, the government said that it was reinvesting £292m it had recovered from the clawback provisions into the programme.

Simon Colvin, telecoms expert at Pinsent Masons, the law firm behind Out-Law.com, which helped develop the contracts used by DCMS for the superfast broadband programme, said he was delighted the contracts had "proved effective in securing gains for the taxpayer as well as in facilitating the wider economic gains from the subsidised coverage". He said it is also positive to see the potential for wider applicability within the public sector acknowledged in the report.

According to the new report, the superfast broadband programme has helped deliver financial benefits for businesses in areas benefiting from the improved networks, as well as wider benefits to local rates of employment.

"It is estimated that postcodes benefitting from subsidised coverage saw employment rise by 0.8% and turnover grow by 1.2% in response to improved infrastructure," the report said. "Overall, it is estimated that subsidised superfast coverage led to the creation or retention of 49,000 additional jobs on those postcodes that received upgraded infrastructure."

"The total turnover of firms located on those postcodes also expanded by almost £9bn (per annum) in response to the upgraded infrastructure. The productivity of local economic activity, as approximated by turnover per worker , also increased by 0.32% as a result of faster available download and upload speeds, accounting for £2.1bn of overall turnover growth. There was evidence, however, that over 80% of these impacts were driven by the relocation of firms to postcodes receiving subsidised coverage," it said.

Approximately five million homes and businesses across the UK now have access to superfast broadband – a coverage rate of 95.39%, the government said. It said it hopes more than a million extra UK homes and businesses will also gain access to superfast speeds over the next few years, to deliver coverage of 98%.

The UK's minister for digital, Margot James, said: "Our rollout of superfast broadband across the UK has been the most challenging infrastructure project in a generation but is one of our greatest successes. We are reaching thousands more homes and businesses every week, that can now reap the clear and tangible benefits that superfast broadband provides. We are helping to ensure the downfall of the digital divide."

The government recently set out plans to devote £200 million from the superfast broadband rollout programme to increase the UK's 'full fibre' connectivity.

At the moment, copper wires often carry the data transmitted over broadband networks in the so-called 'last mile' of connectivity to properties. 'Full fibre' networks involve connecting those properties up to the network using fibre optic cables, but just 4% of premises in the UK are currently connected in this way, compared to 99% and 97% of premises in South Korea and Japan respectively. Fibre networks provide for far greater bandwidth than the copper wires.

Delivering full fibre broadband connectivity in the UK is anticipated to cost around £30 billion, according to DCMS.

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