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BT share price: Government defends BT broadband subsidy, claims economic benefits

Investment will bring 20-fold return, according to taxpayer-funded report

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iNVEZZ.com, Thursday, November 14: The UK government has defended its £1.2 billion subsidy of BT Group Plc’s (LON:BT.A) upgrade of the former state-owned telecom’s national broadband network, The Telegraph reported today. A government-sponsored study indicates that the upgrade will bring major benefits for rural areas.

Members of Parliament have sharply criticised the government subsidisation as there has yet to be a single contract for the provision of broadband services to rural areas to anyone but BT. The scheme has prompted complaints from BT’s rivals that taxpayer money is being used to help the company monopolise rural broadband rollouts.

In today’s trading, BT shares have gained 1.15 percent, to be at 379.30p as of 12:45 UTC.

Claimed economic benefits

Trade these shares now through Hargreaves Lansdown from £5.95 per deal.

Despite the mounting criticism, Culture Secretary Maria Miller argues that the subsidies are “excellent value for money” and will bring economic benefits and increase national competitiveness, with the assertion supported by a government-commissioned study from economic consultants SQW.

“What this report shows us is that as well as superfast broadband being good for economic growth it will make even more of a positive impact on the way we live, helping us work more productively and get online faster,” The Telegraph quoted Miller as saying.

The report’s authors estimated that by 2024 the subsidy will have produced a 20-fold return to the economy. Most of the benefit would come from an increase in the productivity of businesses that rely on broadband, SQW said. They estimate that the investment will create 20,000 new jobs.

Criticism

Such claims are unlikely to satisfy critics of the government’s handling of broadband subsidies. The main criticism is that the process favours BT at the expense of other broadband providers and projects. The parliamentary Public Accounts Committee recently found that the subsidy scheme had been ‘mismanaged’ by the exclusion of proper competition and that BT had been given a ‘quasi monopolistic position’ over the rural broadband rollouts, The Telegraph noted.

BBC News today reported that local broadband groups in Oxfordshire and Dorset had planned to provide superfast internet services in those counties but were turned down by their respective councils, which have instead decided to rely on BT services.

Sebastien Lahtinen, founder of broadband news site ThinkBroadband, was quoted as saying: "Some of the niche operators want to deliver better and faster services now, and don't understand how BT can win contracts on what they believe is a weaker product.”

BT provides FTTC (fibre-to-the-cabinet) services to the majority of homes in the UK, while rival rural broadband groups want to roll out faster fibre-to-the-home (FTTH) services.

As of 13:36 UTC buy BT shares at 379.60p

As of 13:36 UTC sell BT shares at 379.40p

Trade these shares now through Hargreaves Lansdown from £5.95 per deal.

Prices can go up and down meaning you can get back less than you invest. This is not advice. Dealing services provided by Hargreaves Lansdown.

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