Government wants hard evidence before changing fibre tax

The government wants concrete evidence that the business rates tax on lit fibres - the so-called fibre tax - unduly hampers network investment before it considers reviewing the system, network owners were told this week.

The meeting between communications firms and the government was due to take place in December, but was postponed because of the snow. Soon afterwards, culture secretary Jeremy Hunt published the new broadband strategy, which stated there would be no changes to the current rating system.

David Lewis, CEO of Rutland Telecom, who attended the rearranged meeting this week, said the government appeared to be saying it had too little information about the effect of the tax to make decisions now.

Lewis said Rutland Telecom would provide information on its own feasibility studies to the government, which has called for evidence. He expected to receive a government action plan today (Friday) on fibre taxes, based on the meeting.

Lewis said the government might be prompted to review fibre taxes if BDUK, which will evaluate four bids for public funding for broadband roll-out in the coming months, receives no applications other than from BT, or if the applications show non-BT network operators have higher operating costs because of the tax on backhaul circuits.

Under the present system, introduced in 2010, the shortest fibre link on a non-BT or Virgin Media (VM) network is valued at a minimum of £2,000. The per-fibre valuation of fibre networks then falls steeply the longer the network and the more lit fibres the operator has. As BT and VM have the biggest networks, this system favours them, claim critics.

Lewis said the meeting also proposed an £8 a year levy on homes connected with fibre from the street cabinet at 100Mbps. This is instead of the standard fibre tax and is based on the Valuation Office Agency's (VOA) assumption that the rateable value of the line is £20 a year, and a tax rate of 41%. Backhaul circuits, from the cabinet to the trunk network, would be at VOA rates.

The meeting, described as a "non-decision-making meeting", was to discuss with small or potential network owners how business rates on fibre networks affect their investment decisions. In all Europe, only the UK and Ireland tax fibre networks.

Communications minister Ed Vaizey last year reneged on a Conservative Party pre-election promise to review the fibre tax system, which has been described as "the biggest single barrier to joined-up investment in low-cost, resilient UK broadband" by Philip Virgo, secretary general of Eurim, the parliamentary lobbying group.

Critics claim that unless the rating system changes, BT and VM will continue to enjoy a competitive pricing advantage over newcomers and smaller network operators. This could leave areas outside the BT/VM footprint - some one-third of the population or 20 million people - reliant on services from BT.

BT is investing £2.5bn in broadband based on fibre to the cabinet (FTTC) to reach two-thirds of homes, but has appealed for public money to extend its fibre footprint.

The government has up to £830m available for rolling out broadband to rural areas. BT has said this sum, with matching funds from BT, would be enough to offer 40Mbps service to 90% of the population.

BT does pay business rates, but based on its receipts and expenditure rather than BT's infrastructure itself, which means it attracts no direct tax for lighting fibre - a system that has survived previous legal challenges. But critics claim that because of the different ways in which BT, VM and others are rated, a rural network not owned by BT or VM that received public money would have to spend some of it paying the rating tax, which would make any subsidy for non-BT/VM networks less efficient.