Convergence Conversation

There are four different ways for rateable valuation to be applied to network assets in the UK.  BT are regarded as lucky,  striking a network wide deal which means they pay 'only' £15 per km per fibre pair in the form of business rates.  Cable companies pay on a rateable valuation of £7.35 per home passed.  Mobiles companies pay rates on the radio masts and the land they sit upon. New investers can look foward to being hammered with paying £500 per km per pair per anumn using a calculation from something called the 'Tone of lists'. The latter prevents most community build projects. The annual rates bill for UK networks is estimated at £1bn a year.

The business rates on fibre installs is an odd one.  On one level it all looks logical,  but the outcomes are profoundly irrational. The debate re-started in 2001, thanks to action taken by Vtesse Networks, challenging a rate officers 'Tone of list' calculations on part of their fibre network.  The case is yet to close, but the hearing drew on clever analogies drawing parallels with the benefit of occupying a building and the 'occupation' of a fibre. No doubt a clever mind can associate the lighting of a fibre with taxing Chelsea irrigation pipes in 1833,  or taxing 'occupied' telepgraph poles in Salford in 1855.  We like precedence in the UK,  the older it is the more a trained lawyer can concoct an elaborate and memorable justifiication. The rates system was introduced in 1601, as a means of Elizabeth I to pay for housing for the poor. It was tax on the benefit of occupying a property.  It is odd that it is now acting as a barrier to the roll out of connectivity to all including the poor, as well as a barrier to wealth and job creation. 

If the Vtesse case judge looked futher to 1601 he or she could have equally used their cleverness to dismiss rates on pipes as a legal aberration of the C19th century. If their Lordships looked forward in time,  even to the present day, then they could get a different picture from the conclusions in the Vtesse case.  The 21st century  duct carrying fibre is a very different beast to  gas,  electric, or water carrying facilities.  Gas, water,  electricity is actually scarce in nature and we do need to use such resources sparingly.  In contrast,  the more bits carried and the more bandwidth available the better.  Bits carried equates to more trade, more learning, more efficient delivery of information and better care and health services. Even better,  the more we use it the cheaper the unit cost.  Ofcom supported research on Video distribution shows that bandwidth costs will drop from circa £80 per Mbps to £5Mbps if we crack on and deploy.  The scarcity,  be in the airwaves or on backhaul is pretty much of our own making.  The law in this case was only interested in the apparent fairness or unfairness in the application of the tone of lists,  not the outcome. Lord Justice Denning stated in the past that the laws an ass and the application of rates on fibre roll out  fits that category.

The consensus is,  even amongst MPs and ministerial advisers,  is that networks should be de-rated with the tax collected from the occupation of the buildings at either end of the fibre.  Just about every report since the action taken by Vtesse in 2001 supports the need to de-rate networks and return to rates on occupied buildings such as exchanges.  Removing the rates from fibre and imposing rates on the buildings occupied will remove one barrier for communities and businesses to get more active,  and create some more impetus for extending network builds. 

Given the consensus,  it hard to understand why the change has not occurred. There will be no more that 200 companies involved. It must be a very low priority for our civil servants. Forensic investments as proposed by the Digital Britain report are just that,  forsenic.  It was Faraday who suggested  during an early demonstration of electricity to a confused Gladstone,  that electricity was something he could one day tax.  Just think, 20 Gigabytes of data a month per houshold.  All of it potentially taxable,  all that VAT on all those transactions,  all those new businesses, all those cost savings in public service delivery, but such an opportunity will not happen unless you plan for it.  No such plan exists,  but a commitment to de-rate networks is one part of such a plan.  This does not constitute a plan for fibre to the home,  but removes one barrier for those who wish to have a go,  particularly in the not-spots. The net cost to the government, given the rateeable shifts to the buildings using fibre including BT exchanges is zero.