The government's £1bn broadband investment programme for the UK could create local monopolies, will not stimulate infrastructure investment, and may breach EU competition rules, according to influential campaign groups and legal experts.
E-commerce minister Stephen Timms last week announced plans for nine regional aggregation bodies to pool public sector broadband demand in areas that operators currently deem economically unviable.
The Department of Trade and Industry said the broadband infrastructure built in these mainly rural areas to service this aggregated public sector demand from local hospitals, schools and libraries could then be made available to private sector businesses.
But campaign group Broadband4Britain claims the strategy could set back the rollout of high-speed Internet connections in rural UK areas.
Andy Williams, campaign manager of Broadband4Britain, said in a statement: "Since this is the only market intervention that we can expect from central government in the next three years, we would like to ensure that the money is spent effectively, and that the investment has real and sustainable long-term benefits. Having spoken to many stakeholders, we have real fears that those benefits aren't going to materialise."
Key concerns are that if demand is locked into one network operator it will reduce competition in the market in rural areas, and that using public money to create this infrastructure could then breach EU competition rules.
Michael Ryan, head of the European Telecomms Practice and partner at international law firm Arnold Porter, said in a statement: "In certain cases, an agreement under which the government gives a supplier exclusivity in order to promote the deployment of broadband services could constitute illegal state aid and violate EU procurement laws."
Lobby group the Broadband Stakeholder Group has also backed Broadband4Britain's demand for the Department of Trade and Industry to discuss the issues raised.
Antony Walker, chief executive of the BSG, said: "The aggregation of public sector demand for broadband is a one-off opportunity to extend the availability of broadband to rural areas. It is absolutely critical that we get this right for the future competitiveness of UK Plc. The questions raised by Broadband4Britain deserve a detailed and considered response from the DTI."
Broadband4Britain said there are also concerns at what recourse the public sector would have to change a network operator contracted under the aggregation plan that was underperforming, and how much it would cost to bring in another supplier.