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ISPs attack 'inequitable' BT advantage on rural fibre

Smaller providers say the UK's 'fibre tax' system means that BT will win most of the cash the government is offering as subsidies for rural super-fast broadband
Written by David Meyer, Contributor

The government's plans to subsidise rural fibre will leave small fibre providers out in the cold, with large suppliers such as BT getting most of the cash, according to a number of ISPs.

While the Internet Service Providers Association (ISPA) welcomed the push to boost super-fast broadband in rural areas, announced on Monday, it also called on the government to "ensure that there is a level playing field when it comes to companies having access to backhaul networks when building their network".

Fibre cabinet image

Under the government's proposals, rural communities will receive a fibre cabinet similar to the one pictured on the left. Photo credit: David Meyer

"Currently 'fibre taxes' are considered by many to be hindering small-scale network developments and slowing down the rollout of super-fast broadband across the country," the ISPA said in a statement on Monday. "The importance of sensible terms for open access to poles, ducts and cabinets is also key."

Small ISPs have long argued for a change to the UK's excise system for fibre, which attracts a form of property tax. The tax BT pays for its fibre operations is calculated according to the hypothetical rental value of its whole network. In contrast, smaller operators have to pay on a per-kilometre basis — which is an expensive way to be taxed when dealing with low-density rural populations.

In addition, companies with fibre networks less than 3,000km in total length have to pay an 11-percent premium to light the first cable on that network. This has the effect of penalising very small operators that may wish to roll out their own fibre.

The tax rates are set by the Valuation Office Agency (VOA), an agency of HM Revenue & Customs (HMRC). Before the general election in May, the Conservative Party promised to take another look at the system. However, in August, the communications minister Ed Vaizey said there would be no review of the fibre tax.

The inequitable treatment as between small operators and large ones was created by statute. It can be undone by statute.
– Vtesse Networks

Vtesse Networks is an ISP that has been rolling out fibre connectivity to some areas ignored by BT. On Monday, Vtesse said it has suspended such deployments to these 'final third' areas until "unnecessary regulatory barriers" are addressed in the new year.

"The inequitable treatment as between small operators and large ones was created by statute. It can be undone by statute," said Vtesse, which in February lost a Court of Appeal case over the tax issue, in a statement.

Tony Ballard, a digital media lawyer at Harbottle & Lewis, also criticised the tax regime in a statement on Monday, pointing out that no other European country taxes fibre infrastructure. He also referred to BT's "particular advantage" in the UK system.

"[BT's] rates are calculated on the basis of its receipts and expenditure, whilst other operators' rates are calculated by the length of their fibres," Ballard explained. "This means that installing new fibre may mean a smaller bill for BT, but will always mean a larger bill for its competitor. Even when all other things are equal, a smaller operator pays at a much higher rate than BT."

Ballard noted that smaller ISPs would struggle to give competitive quotes for rural fibre deployments, leaving BT as preferred bidder and "creating conditions conducive to a monopoly position".

Trefor Davies, the technology director at the small business ISP Timico, similarly noted in a blog post on Monday that "only BT is likely to be able to submit a competitive bid".

However, Davies added another criticism of the government's proposals — that the 'digital hub' being proposed for each rural community is a fibre cabinet. He said that a rollout of fibre-to-the-cabinet (FTTC) will make it much less likely that there will be a subsequent shift to fibre-to-the-premises (FTTP), which is faster and more future-proof.

"Once FTTC is in, that is it," Davies wrote. "The end user will be stuck with a copper-based [connection between the cabinet and their premises] for a long time to come. BT has said that it won't be upgrading users to FTTP if they already have FTTC... My own view is that 100Mbps symmetrical is the minimum standard we should be aiming for. This is supposed to be a long-term investment."

BT declined to comment on the fibre tax complaints on Tuesday, referring ZDNet UK instead to the government's own words on the matter. It specifically pointed to a section of Monday's government report into super-fast broadband (PDF) that begins: "Business rating of telecommunications networks is a complex issue and often misunderstood by the industry and commentators.

"The existing rates regime has been tested in court numerous times and no ruling has required any change to the regime," the report continues. "Business rates are only one component of the cost of running a network, and considerable savings can be made elsewhere without undermining the delicate balances involved in the rating system."

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