Small ISPs fuming over changes to fibre tax

The cost of fibre is set to rise despite the government's desire to increase fibre rollouts

Small internet service providers (ISPs) hoping for wholesale changes to the way fibre deployments are taxed have reacted angrily to new rateable values issued by the Valuation Office Agency (VAO).

ISPs were hoping that costs would be reduced or removed altogether, but the Revised Valuation Guidance for Telecommunications Networks will make it more expensive to deploy fibre, undermining the government's pledge to make the UK a leading broadband nation by 2015.

The previous charge of £200 for one fibre connection deployed over a distance of 2km has been increased to £850 for 1km, while the cost of 10 fibre connections over 1km has risen from £529 to £4,400.

Connections to premises, however, will now cost just £20 per household per year, based around rateable values that will actually work out at about half of the values listed.

"Charging £20 in rateable value [around £10 in real-terms] per connection is a good move, but these connections need to go to middle-mile networks and will prove a lot more expensive as firms like Geo, Colt and Vtesse will be hardest hit," said Matthew Hare, a member of the Internet Service Providers' Association.

"The VAO seems to be basing its increases on the idea that only large corporations will be paying for fibre connections, when in reality business of all sizes are moving to the cloud and require fibre connections."

Vtesse chief executive Aidan Paul, who last week invited Ed Vaizey to the switching on of a new rural fibre network, said that he was "very disappointed" to hear of the move, and that it is clearly not in the UK's broadband interests.

"There was no indication given that this was happening," he said. "The government needs to get its message sorted on broadband. Do they want broadband investment or not? They won't make any money from these changes as people like us won't invest and it will just stop final third rollouts."

The mood among ISPs was not helped by the fact that that BT's position in the industry has not been changed.

Hare explained that, unlike other operators, BT pays a flat fee based on incomes and revenues, meaning that it costs the firm no new money to install fibre.

"BT clearly has a massive advantage as it costs no extra money to deploy a new fibre network. It could be the case that these other firms actually asked to be charged in the same manner as BT as this could work out cheaper than the current system," he said.

However, BT argued that the system is fair and that challenges brought against had failed in a number of areas.

"Over the past few years several parties have advanced arguments along the lines that BT receives preferential treatment in the way that it is rated. None of these arguments is true," BT said.

"They have been heard, tested and then rejected by the European Commission, the Lands Tribunal in the UK and the UK Court of Appeal. In every case the authorities have found the rating system does not confer an unfair advantage on BT."

Vaizey also defended the VOA changes, claiming that they will be of benefit to networking firms.

"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," he said.

"The VOA has made it clear that it welcomes evidence from the industry to maintain a fair and accurate rating for this important market, which is a priority for the coalition government."

However, Vtesse's Paul claimed that the industry had spoken with the VAO " until it was blue in the face", and still ended up in this position, adding that it could be another 10 years before the situation is rectified.

A spokesman for the VAO explained that the organisation based its values on market increases in the hypothetical rental value of a network.

"Our remit is to be fair, accurate and consistent with the pricing values we set, and prices have gone up in the past five years. We are open to input from firms, but it's outside our remit as to whether any grants or discounts are applied," he said.