Ministers cross wires on next-gen broadband

Summary:The government is making all the right noises about super-fast broadband, but its own officials seem to be taking a different view, says Malcolm Corbett

One arm of government is enthusing about the private sector's role in creating next-generation broadband. Unfortunately, another arm is trying to choke infant initiatives at birth, says Malcolm Corbett.

The coalition government continues to trumpet the virtues of private sector-led approaches to next-generation broadband and to promote local, community-led schemes. Although there is no big pot of central government money available, ministers and officials say they want to help the market develop, remove barriers to investment and encourage local innovation.

This is all well and good. But while Jeremy Hunt, Ed Vaizey and BIS officials are marching us towards a Big Society, super-fast broadband future for all, another set of officials working in the dusty-sounding Valuation Office Agency (VOA) seems intent on taxing those new initiatives, possibly to death.

Business rates on fibre have long been a bugbear in the industry. Vtesse Networks fought a long-running campaign in the courts against what it sees as unfairness in the system that benefits incumbents like BT while disadvantaging smaller players.

Barriers to investment
Francesco Caio highlighted the issue in his review of barriers to investment in next-generation access. It was noted in last year's Digital Britain report. Before the election, the Tories seemed intent on tackling the issue, but have since changed their minds. Pressure from the Treasury, perhaps?

On 11 August, the Valuation Office Agency (VOA) published its Revised Valuation Guidance for Telecommunications Networks. This guidance lays out the rating scheme that will apply for the next five years. The documents are long and complex, culminating in a series of tables giving the rateable values on fibre network routes, the number of lit fibres and a comparison with the previous scheme from 2005.

Perhaps it was no coincidence that the VOA's new guidance was published at the height of the silly season. Many commentators have focused on the proposal to set a rateable value of £20 per year per household connected to new fibre deployments. In the past they assessed cable networks on the basis of £7.50 per home passed.

The argument put forward for the new scheme is that it benefits new fibre deployments since rates are charged only for those premises actually connected rather than all those in the development. However, on brand new green-field sites where most customers would be expected to take a service over fibre, this change represents almost a tripling of the rates bill.

Taken together with rates increases for short fibre runs — on the basis that the market price for these has risen — the net effect will be to make an already marginal case for investment much worse, except perhaps for BT and Virgin Media.

Receipts and expenditures
Unlike the smaller players BT is not taxed by the kilometre of fibre for historic reasons. Instead, BT's rates are calculated on the basis of receipts and expenditures, arrangements whereby BT's accountants and the VOA argue about what the bill should be until a final settlement is reached.

Independent Networks Cooperative Association (Inca) wanted to delve deeper into the implications of the latest guidance and asked three broadband experts to put their heads together. The task went to Pauline Rigby — author of the FTTH [fibre-to-the-home] Council Business Guide and Inca's forthcoming UK supplement, Adrian Wooster — responsible for Inca's technical programme and well known broadband guru, and Louise Lancaster — responsible for Inca's policy and regulatory briefings.

They took as their model example a small market town of 1,000 customers and 25 businesses in the high street with a hub connecting them to the internet 25km away. The calculation is complicated, with various uncertainties, but they estimated the rates bill payable for this project could be between £15,000 and £18,000 per year. Assuming the network build cost to be £1.4m paid back over 20 years, the rates bill adds about 25 percent to the overall costs.

In Manchester, others undertaking similar calculations for business customers connected to the proposed Oxford Road fibre project indicate that the rates bill could be as high as...

Topics: Government : UK

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