Government broadband plans avoid key fibre tax issue

The government's desire to drive the rollout of superfast broadband across the UK is being undermined by an unwillingness to reform the business rates system for taxation on the deployment of fibre, according to the Internet Service Providers' Association (ISPA).

The group generally welcomed the proposals outlined by culture secretary Jeremy Hunt on Monday, but argued that the tax on deployments could have a negative effect.

"Currently 'fibre taxes' are considered by many to be hindering small-scale network developments and slowing the rollout of superfast broadband across the country," said ISPA in a statement.

Tony Ballard, a digital media specialist at law firm Harbottle & Lewis, claimed that the government's refusal to reform this system gives major incumbents, namely BT, a huge advantage over other companies.

"The net effect of the rating system is that smaller companies competing with BT in laying fibre optic cable to provide superfast broadband in outlying areas (or indeed elsewhere) must carry an enormous handicap," he said.

"Inevitably, this makes it hard for them to come forward with competitive quotes, thereby leaving BT as preferred bidder and creating conditions conducive to a monopoly. This cannot be healthy for a developing market."

The current system means that larger telcos pay for deployments based on revenue, while smaller ISPs pay per kilometre.

Some operators have claimed that this effectively means that BT would have to pay £19 per kilometre of fibre, whereas smaller players would be looking at £750 per kilometre.

Aidan Paul, chief executive of Vtesse Networks, a firm singled out for praise by Hunt on Monday, argued in August that this approach needs an urgent overhaul.

"The government needs to get its message sorted on broadband. Do they want broadband investment or not?" he told V3.co.uk.

"They won't make any money from these changes [to fibre rates] as people like us won't invest and it will just stop final-third rollouts."

The monopoly argument was given extra credence yesterday when Ofcom confirmed that it will put a pricing cap on BT in certain areas of the country where the operator has an unfair significant market advantage.

V3.co.uk contacted BT but the firm had no official comment to make.

The government acknowledged the criticism of 'fibre taxes' in its proposal document but appeared to be happy with the status quo.

"It is not our role to decide who is liable for what under the business rates regime," the report notes. "Second, the existing rates regime has been tested in court numerous times and no ruling has required any change to the regime."