Exclusive: Concerns grow over future of £100m Yorkshire web project

CONCERNS are growing over the future of a groundbreaking £100m taxpayer-funded project to bring next-generation internet to homes and businesses in South Yorkshire after its end-of-year accounts warned of "material uncertainty" surrounding the scheme.

Financial documents filed this week by Digital Region Ltd, the firm set up by four South Yorkshire councils and regional development agency Yorkshire Forward to construct a "super-fast" broadband network for the county by 2012, reveal "doubts" about its viability amidst a series of disputes with both BT and the project's main contractor, construction firm Thales.

The accounts state the scheme's future is reliant upon a renegotiation of the contract with Thales, Digital Region's project "partner" which is overseeing the construction of a fibre-optic cable network beneath the streets of South Yorkshire. Digital Region directors say they are "optimistic" of a satisfactory outcome.

The accounts, made up to the end of 2009-10 financial year, also reveal Thales has paid Digital Region more than 700,000 in penalty fees due to delays in the physical roll-out of the scheme and failures to meet financial targets.

However, Digital Region still made year-end losses of nearly 850,000 – though managers said this was roughly what was expected at this stage of the project.

The scheme was first announced by the last Government in its 2009 budget, with construction work beginning later the same year.

Its aim is for almost every home and business in South Yorkshire to be able to access the internet at speeds five times faster than the current average by 2012, opening up a wealth of technological possibilities including HD video-conferencing and instant downloads.

Millions of pounds in loans have been poured into the scheme by Yorkshire Forward and Sheffield, Barnsley, Doncaster and Rotherham Councils, who need large numbers of people to sign up for the new 25-40Mbs service in order to recoup their money.

Last week the Yorkshire Post revealed that with the roll-out of the project now half-way through, few people have yet signed up.

Digital Region is desperate to get one of the large national internet firms such as TalkTalk or Plusnet on board to sell the new service and generate more income but is being hamstrung by disputes with BT over access to data and connections to its telephone network.

The accounts published this week reveal the negotiations with Thales aim to ensure the network can be "marketed at competitive prices" to these big internet firms.

The documents state: "The outcome (of the renegotiations) will materially affect the operation of the company.

"The directors recognise there is a material uncertainty that may cast doubt on the company's ability to continue as a going concern. However, it is the directors' view that, based on ongoing discussions with Thales, a satisfactory resolution will be reached."

Thales last night declined to comment on the situation.

But a spokeswoman for Digital Region said negotiations have progressed well over recent months and that the firm's financial performance up to March 2010 was "in line with expectations".

She said: "Given that the Digital Region network is only partially built and operational, we were always expecting to be making losses at this time.

"Since (March), Digital Region has worked through a period of negotiations with Thales to the satisfaction of both parties.

"Whilst the auditors and directors accepted that a level of material uncertainty existed, all were sufficiently satisfied to sign the project off as a going concern."