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

... £33 per customer per month. If this proves correct the business rates alone will be higher than the price paid for a fibre connection in Amsterdam or Paris — cities against which the Manchester project is aiming to benchmark.

Bleak outlook
When compared with the way that copper connections are taxed, the situation for fibre looks even bleaker. Local-loop unbundlers were treated as a special case by the VOA in what was essentially a political decision. BT was designated as the occupier of all local loops, even those operated by other telecoms operators, and therefore the rates bill fell to BT.

The VOA proposes to continue this arrangement with sub-loop unbundling — the set-up where an alternative operator takes over the customer connections from a local street cabinet. BT will still pay the rates on the copper part of the line.

None of these developments is good news for those innovative private-sector players investing in fibre to the premises, nor for the communities they are trying to serve. It seems that the net effect of the VOA policy is to tax new entrants more than the incumbent, and new fibre connections more than old copper ones. A truly perverse result if the overall aim of broadband policy is to incentivise the market to invest.

Britain is already performing poorly in the international broadband speed comparisons with a recent study placing us below Romania, Latvia and the Czech Republic. These taxes on fibre will help keep us there.

Any answers?
When Francesco Caio undertook his review of the barriers to next generation access, Aidan Paul of Vtesse Networks proposed an alternative system that de-rated fibre and instead taxed BT on its exchange buildings, which are not part of the local rating lists. Paul argues that this measure would be fiscally neutral, a fairer system and would incentivise — rather than discourage — investment in fibre by a wide range of players.

More recently Adrian Wooster has argued that government should exempt fibre deployments altogether in areas that Ofcom deems 'market 1', where little or no investment is taking place. He also argues that this measure would be fiscally neutral — the Treasury wouldn't lose anything since no investment means no taxes — and would encourage investment, particularly in the 'final third' — in that it has been unable to get broadband speeds above 2Mbps because it is too far from BT's closest exchange and BT has chosen not to invest in upgrading its network there.

Indeed, exempting all final third areas from business rates for a set period could tip the balance and speed up investment. Even more radical is Wooster's suggestion that the rating system should be turned upside down — why not tax unused and unshared assets and discount openly shared and used assets, encouraging user take-up, reaching out to the digitally excluded and hard-to-reach areas?

Alternative approach
Another option is for communities to create social enterprises in the form of co-ops or community interest companies to invest in local fibre projects and seek partial or full exemption from business rates.

Around the world co-operatives have long been used as a mechanism to create services in areas of market failure, often with tax and other incentives to help overcome some of the barriers.

A classic example is the rural phone co-ops developed in the US in the middle of the last century to bring telephone services to their communities. They did this very successfully and it's a model we could usefully copy in the UK in communities that don't want to get left behind.

Of course, the real answer is for the government to seize this problem and finally deal with it. Messrs Hunt and Vaizey are right — we need to encourage more investment and innovation in super-fast, next-generation broadband.

It would be very helpful if they could persuade Mr Osborne of the importance of this argument. Then perhaps we can all march in the same direction.

Malcolm Corbett is chief executive of the new Independent Networks Co-operative Association, which represents organisations building and operating independent next-generation broadband networks in the UK.

Topics: Government : UK

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