Rival supplier reports BT for 'illegal subsidy'

Aidan Paul, Vtesse's chief executive, said: "It's unfair. They use one valuation for charging out their lines and another when it comes to paying their rates. And what the Valuation Office does is illegal under EU law and under British law -- we've complained for a long time and nothing's happened."

Vtesse complains that BT paid rates on its telecoms network of about £250m last year and that, if it had to pay rates on the same terms as its competitors, the bill should be about £1.3bn.

The BT rates formula was established nine years ago in an out-of-court settlement with the Valuation Office Agency, an offshoot of the Treasury. The agency has admitted that the BT formula is different from the rental-based formula applied to other carriers.

A BT spokesman said that the company was unaware of any EC investigation and that its arrangements on rates were "completely above board".

An EC spokesman said that the complaint had been received and, according to procedure, had been sent to the UK government for comment. The Office of the Deputy Prime Minister, responsible for business rates matters, is considering its response.

Vtesse is also pursuing a case on its rates valuation through the a legal appeals procedure. Paul expects the case to go to tribunal and on to the High Court. "They're stalling -- everyone's known about this for years. The rating office admits that it makes it up as it goes along," he said.

The company had a complaint against BT for 'predatory pricing' on its Wavestream Metro and Connect National products dismissed by now-defunct regulator Oftel late last year.