Exclusive: Cash rows hit £100m flagship internet network

Managers overseeing the South Yorkshire Digital Region project have contacted Culture Secretary Ed Vaizey and industry regulator Ofcom over concerns that BT's Openreach arm is charging them unreasonably high sums to connect to the nation's existing telecoms network.

The row follows another long-running dispute between Digital Region chiefs and BT over the sharing of vital customer data, which appears to have been a key factor in the project's failure so far to attract major internet firms on board to sell the new super-fast Internet service to home users.

Millions of pounds of taxpayer-funded loans hang on the success of the pioneering scheme, which is designed to make South Yorkshire the first region in Europe where almost every home and business has the opportunity to access high-speed fibre-optic broadband – the next generation of internet technology which enables a range of new online possibilities including HD video-conferencing and ultra-fast downloads.

The project was announced by the last Government in its 2009 budget and has been funded by loans from Sheffield, Doncaster, Barnsley and Rotherham Councils and regional development agency Yorkshire Forward, as well as a grant from the European Union.

More than 250 miles of fibre optic cables have been laid so far beneath the streets of South Yorkshire, council chiefs expecting to recoup their outlay by signing lucrative contracts with commercial internet firms who will sell the high-speed service to customers across the county.

But one year on from the network's official "go live" date in December 2009, not one of the large national Internet Service Providers (ISPs) such as TalkTalk, Sky, O2 or Plusnet have signed up to offer the service to home users.

The fibre-optic service is currently available only through three small local Internet firms, all of whom are more focused on selling the service to businesses.

George Taylor, head of one of the companies – Digital City Region Broadband – said the failure to attract a large national ISP is one reason why relatively few home users have signed up so far.

He said: "You can buy the service from us, but you'll be buying our business service. They (Digital Region) are meant to be generating substantial amounts of money, we're talking tens of millions of pounds. They are not going to be doing that from business sales.

"You look at the fact Sheffield Forgemasters had their 80m loan rejected by the Government, and everyone is making a big fuss about that. Well here is 100m that's been invested, and there's no value being derived from it."

The original business plan for the Digital Region scheme, drawn up by Yorkshire Forward in 2008, makes clear that attracting ISPs was always the "major risk" of the project, and that the entire business case "relies heavily" on these revenues.

The project's 100,000-a-year chief executive, David Holt, had been involved in negotiations with large ISPs but left his role unannounced in May.

His replacement, David Carr, a respected industry veteran who previously ran AOL's broadband service, said discussions are ongoing with big ISP firms and insists at least one will eventually sign up to offer Digital Region services.

But he added they are unlikely to do so until the final roll-out of the scheme is completed in 2012.

He said: "Being realistic, until we've pretty much completed the build they are not going to rush in, in the sense they like to market to a complete area. We will get them – I don't have any doubt about that. It's just working through at their pace.

"You are obviously keen to do everything yesterday – but whenever you get these issues you have to work through them. And we've had challenges with BT Openreach, and continue to have these challenges."

After months of wrangling, BT has now finally agreed to provide