The government has confirmed that plans to spend £150m on broadband infrastructure have been watered down after legal challenges by Virgin Media and BT.
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The companies challenged the fixed-line element of the plan to create 22 “super-connected” cities, claiming it could have helped rival companies.
BT and Virgin media joined forces to block the first £10m project by Birmingham City Council in opposition to what they said amounted to illegal state aid to competitors.
The government broadband plan for homes and businesses not served by BT and Virgin Media’s existing networks will now instead provide just £90m in vouchers for small and medium-sized enterprises (SMEs).
Companies with fewer than 250 employees and a turnover no greater than £42.4m a year or a balance sheet of no more than £36.5m, will be eligible.
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Under the watered down scheme, SMEs can apply for vouchers to help pay for the installation of faster broadband in areas where connections already exist, according to the Guardian.
But no new infrastructure will be created and the minimum speeds funded will be around 30Mbps, far below the 80-100Mbps promised by the original plan.
BT and Virgin Media have welcomed the government back down, saying it had recognised that public money should not be used to build more networks.
Much of the remainder of the £50m funding pot will still go towards funding large public Wi-Fi networks in urban areas, according to the Telegraph.
The super-connected cities initiative is separate to a £530m subsidy targeting broadband infrastructure in rural regions where BT and Virgin Media say there is no commercial case to invest, the paper said.
The chief secretary to the Treasury Danny Alexander is expected to provide an update on that scheme this week, amid claims that deadlines are not being met.