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Government offers five-year tax holiday on new fibre networks

In his Autumn Statement, Chancellor Philip Hammond confirms a massive cash injection for broadband and 5G, and announces business rate cuts for new fibre broadband network builds

New fibre-to-the-premise (FTTP) broadband network builds are to receive 100% business rate relief for five years, under plans set out by Chancellor of the Exchequer Philip Hammond in his Autumn Statement.

Before the Autumn Statement, the government leaked a number of proposals designed to improve the UK’s FTTP broadband and future 5G mobile network infrastructure, announcing a £400m fund to help smaller providers, also known as altnets, to roll out FTTP to two million homes, and £750m to fund 5G trials, amounting to over £1bn in cash.

In his statement to the Commons, Hammond not only reconfirmed these funding commitments, but went further by announcing the business rate holiday, which will apply to all new FTTP networking infrastructure and is “designed to support roll-out to more homes and businesses”.

Earlier this year, communication services providers (CSPs) and other network stakeholders expressed collective dismay at proposed new Valuation Office Agency (VOA) rates on fibre infrastructure – which is treated as a business premises for rateable purposes – that would hit a number of large service providers with huge tax rises.

Many, including BT, warned that such an increase would necessitate an increase in the prices charged to both businesses and consumers for their broadband services.

Having campaigned for years for relief on business rates for fibre networks, Thinkbroadband.com’s Andrew Ferguson responded positively to the changes, saying they were a big surprise.

“The announcement of five years’ 100% relief on the business rates that fibre infrastructure attracts might actually encourage more pure fibre deployment than the £400m investment fund would achieve on its own,” he said.

But Ferguson pointed out that it was unlikely much progress would be made on new builds until there was more certainty on the future of BT’s relationship with its infrastructure arm, Openreach.

The rate cut, which, according to government costings, could be worth as much as £85m over its five-year lifetime, will come into force from April 2017, said Hammond.

Broken promises

CSPs have been pursuing the government over business rates for a number of years, arguing that the business rating system favoured the likes of BT, and disincentivised them from investing in fibre networks themselves.

The Conservatives had previously committed to a review of the system before the 2010 general election that installed the Tory-LibDem coalition government.

But following a meeting with the VOA in August 2010, the then communications minister, Ed Vaizey, reneged on this promise, and although he later committed to meet with CSPs to mediate between the two sides, this meeting, scheduled for December 2010, was cancelled because of bad weather.

A rearranged meeting, which took place in January 2011, failed to force any shake-up of the business rate regime for fibre, with the government saying it needed more evidence before committing to change.

According to David Lewis, then CEO of Rutland Telecom and now an independent broadband consultant, who attended the meeting with Vaizey, the government said it would only consider reviewing the tax regime if the Broadband Delivery UK (BDUK) tender process received no applications for contracts from any CSPs other than BT, or if any applications showed non-BT network operators would have higher operating costs because of the tax on backhaul circuits.

However, by that time, Jeremy Hunt, who was then culture secretary, had published his report Britain’s Superfast Broadband Future, which said that whatever happened, there would be no changes to business rates, stressing the independence of the VOA from the government.

“It is not our role to decide who is liable for what under the business rates regime,” wrote the report’s authors.

Criticism over unambitious targets

Despite the government’s latest commitments being welcomed by a number of altnets, along with sector trade body the Independent Networks Cooperative Association (INCA), critics of the plan were equally vocal.

Recently-appointed shadow minister for the digital economy, Labour MP Louise Haigh, said the investment announcement would leave the UK at a huge disadvantage.

Haigh pointed out that the level of investment would take the UK from the current 2% FTTP coverage to just 7%, given that it would touch only two million out of more than 27 million British households, and claimed that both Latvia and Lithuania achieved this level of coverage in 2012.

“If this is the limit of the government’s ambition for our digital infrastructure, then Britain is going to have to get used to being in the slow lane for years to come,” she said.

“The announcement made today was trailed a year ago during the last Autumn Statement and will mean only a pitiful 7% of UK homes and businesses get the full-fibre broadband they need. Many will be wondering how it has taken them 12 months to come up with this.

“And while it is full steam ahead for FTTP for our European counterparts, Britain’s businesses are being held back by the government’s total lack of ambition.”

Haigh added: “While a small number of households will get ultrafast, an astonishing 1.3 million will still have to make do with just 1% of that speed. And the legal change the government are currently pushing through Parliament will only guarantees 10Mbps to those households, meaning that by the time the bill reaches Royal Assent, it will already feel outdated.”

‘A drop in the bucket’

Virgin Media CEO Tom Mockridge told the Financial Times that £400m was a “drop in the bucket” of what was really needed, and accused the Chancellor of giving away money he did not have, given public debt remains as high as it does.

Mockridge called on the government to instead turn its attention to paring back the amount of red tape that large operators undertaking commercial network builds – such as Virgin Media and BT – frequently decry as a barrier to broadband roll-out.

Writing in the FT, Mockridge said the wayleave rights that network builders must obtain to access sites and carry out building work were written into law 500 years ago and other utility providers were able to carry out essential work far more easily.

“Improving infrastructure is vital to securing the UK’s future economic growth,” he wrote. “With the will to cut through a tangle of red tape, government will truly be able to channel the enormous good that business can do.”

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