Taxing times for UK broadband

Business rates for fibre are a political minefield here in the UK. I don’t normally like venturing into minefields, but feel that the latest developments shouldn’t pass without comment.

The high cost of business rates charged on fibre are often cited as one of the main barriers to investment in NGA networks in the UK, and sadly it doesn’t look like that’s about to change any time soon. This week the Valuation Office Agency (VOA) published new guidelines for business rates on broadband networks, and the Department for Business, Innovation and Skills issued a statement welcoming the progress made.

“I welcome the work that VOA has been doing with industry. These new guidelines will offer much greater clarity for businesses that invest in broadband networks and give them the opportunity to feed their views to the VOA,” said Ed Vaizey, Minister for Communications. “VOA has made it clear that they welcome evidence from the industry to enable the Agency to maintain a fair and accurate rating for this important market, which is a priority for the coalition Government.”

Clarity? Yes, although it’s still pretty complicated to work out.

Fair? That depends on “which end of the telescope you’re looking down”. New entrants and alternative operators will pay one set of rates; BT and Virgin Media continue to be assessed on a different basis. The European courts have ruled that the basis on which BT is assessed is fair; the fact remains that small operators face disproportionately large bills for the amount of fibre they light up.

Accurate? Accuracy is important, but it is no substitute for a fair system (see above). I also note that the guidelines have been issued late (firms pay these rates from April 2010), and they look rather expensive.

For NGA networks, VOA has set a rate of £20 per home connected with FTTH. The charge was worked out on the same principle as the £7.50 per home passed in cable TV networks, but done on the basis of homes connected rather than passed in order to reduce the cost in the early days when there are only a few subscribers. Even so, the government will probably earn more from the fibre than the firm that invested to put the fibre in the ground, especially once VAT is added to the equation.

For wide area networks, the ratable values of short fibre lengths have also risen substantially because, says the VOA, the market rents for shorter fibres has increased. While this may be the case, it aggravates an existing problem for the roll out of NGA in the UK – there is little or no competition in the market for fibre backhaul, which leads to very high costs.

Elsewhere on the web, Ed Vaizey is reported as saying that government won’t review the business rates on fibre – something he personally promised to the industry in a speech last year. His original speech disappeared in the bonfire of the websites that takes place when a new government comes in. Some of the news articles reporting the “backtrack on fibre tax review” have also disappeared. The government’s true intentions are far from clear.

VOA carries out a revaluation every 5 years; therefore it appears that the newly published business rates on fibre will continue to apply until 2015 unless the government intervenes. This is a complicated issue, but one that the government sorely needs to sort out if it is to encourage investment in NGA.

For some background on fibre-optic business rates, I recommend reading this and this.

Ka-boom (your intrepid writer has just stepped on a mine).