NGN guidelines to £20 tax per house

The Valuation Office Agency has published guidelines for investors in next generation broadband networks based on optical fibrelinks. This is what it says, and here is a link to the VOA document (required for figures)

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Appendix A: Valuation Office Agency – Guidance for Industry, Next Generation Access Networks (NGA) (in conjunction with the BSG)

Valuation Office Agency – Guidance for industry Next Generation Access Networks (NGA)


The Valuation Office Agency (VOA) is an executive agency of HM Revenue & Customs (HMRC) that, amongst other functions, compiles and maintains the business rating and council tax valuation lists for England and Wales (in Scotland council tax and business rates are dealt with by the Scottish Assessors). This includes the application of business rates to telecoms assets, and specifically in this case the next generation access network infrastructure (NGA).

The VOA is committed to ensuring that its guidance is widely understood by potential investors. The VOA has provided guidance on its Internet site which addresses the problems of clarity over business rates on backbone fibre optic networks and the VOA will maintain clear, helpful guidance in respect of NGA.

In April 2009, the VOA attended a workshop with industry, facilitated by the Broadband Stakeholder Group (BSG), in order for the VOA to further explain their thinking. As a result of this, it became clear that more work was required to provide the VOA with the information and evidence it needed to provide greater clarity to industry, in order that industry could address and resolve the uncertainties in their business planning concerning business rate liabilities.

In order to move this issue forward, BSG worked with industry stakeholders to devise a range of fibre-based next generation broadband deployment scenarios. These scenarios cover a range of technologies, topologies, and ownership structures, although they are representative scenarios only and they are not meant to reflect actual deployments.

The VOA agreed to review these scenarios and explain how they would assess networks built and operated in these ways for non-domestic rating liability. The remainder of this document represents the response of the VOA to these scenarios.

General rating terminology and principles

Prior to an examination of the scenarios, it is useful to set out the terminology and principles that will be used throughout the VOA’s response.

•Hereditament is a unit of assessment/rateable property. In telecoms, a hereditament is a single contiguous network asset, which would be assessed as a whole. Network assets include exchanges, points of presence (POP), equipment cabins, street cabinets, duct, fibres, wires, etc. Where an operator has networks that are not contiguous, each separate network is treated as a separate hereditament. Contiguity in rating means physically touching or within the same curtilage. Dark fibres or own build network lit by an operator can create contiguity but capacity used on another operator’s fibres will not create contiguity for rating purposes as the occupation has to be exclusive.

•Rating list is the list on which the hereditament sits to be assessed. These are defined by local billing authority boundaries. Where a network crosses such boundaries, it is entered as a single hereditament in the rating list for the billing authority in which it appears to the Valuation Officer that the greater value lies. In respect of the 2005 and 2010 rating lists, three operators (BT plc, C&W UK, Global Crossing (UK) Telecommunications Ltd) appear on central (England and Wales) lists due to their designation by regulation.

•Rateable Value (RV) is the annual rental value for the whole hereditament, which can be calculated in a number of ways, as is explained below.

•Antecedent Valuation Date (AVD) is 2 years before a list goes live (1 April 2008 for the 2010 list). Each list lasts for five years, and has its rateable values set as at the AVD.

•Rateable Occupier is the person entitled to occupy the hereditament. This is usually the tenant but can be the owner when owner occupied or unoccupied. This is a matter of fact, irrespective of the terms of any licence or agreement. The rateable occupier of a telecommunications hereditament is usually the entity entitled to control or switch on and off the infrastructure. In the case of fibre, this is the entity responsible for lighting the fibre.

•Rateable Value (RV) is based on annual rental value as at the AVD. Rateable Value is applied mainly to the passive infrastructure. The active equipment is not-rateable. Where no rental evidence exists, the VOA will use alternative methods established in case law to determine annual rental value. In the case of fibre in the access network, this would either be based on a comparison with similar existing networks, such as CATV, or on an assessment of the decapitalised cost of installing the fibre network. A Receipts and Expenditure method is usually only applied to an established network with positive EBITDA. Both the method of valuation and the valuations themselves can be challenged and appealed on the basis of evidence that emerges.

•All rateable telecoms infrastructure is assessed to an annual rental value for the same assets; there is no discrimination between operators, and there are no exceptions. The RV applies to the line when it is available to be powered (if copper) or lit (if fibre). For practical reasons, rateability for fibre networks is usually determined at the point the fibre is lit. Unlit fibre is not rateable per se as it is considered to be a network still under construction. However, once a fibre is lit it is rateable, even if it is subsequently turned off, unless there is a physical intervention to the fibre which makes it incapable of being lit or occupied.

•Network buildings such as exchanges and Points of Presence (POP) are subject to business rates and a rental addition is made to the “network” value for contiguous network buildings. The cabinet (but not the equipment in the cabinet) is rateable and will usually be included within any RV based on a per home passed or connected calculation. Outside of this, the 2010 list RV contributed by a cabinet, based on current information, is estimated to be £50, and therefore not likely to significantly impact the RV of the network hereditament. Active network equipment is not rateable.

•The above applies only to non-domestic premises. Residential accommodation is subject to Council Tax and not non-domestic rates. However, residential connections are controlled by the infrastructure operator up to the wall socket on the premises and are therefore not domestic until beyond the wall socket.

•Business connections are rateable to the operator, up to the wall socket on the premises. As a general rule, any infrastructure beyond the business premises wall socket will be included in the customer premises hereditament.

•These principles will be applied to the general approach set out below, and in response to the scenarios.

Application of non-domestic rating to BT

BT’s network is a single hereditament on the central lists for England and for Wales, which by special regulation, includes all unbundled local loops – this is an exception to the normal principle that the tenant of a rateable asset is liable for the non-domestic rates on that asset. BT is rateable for the same infrastructure as any other network operator. The entire BT network hereditament is considered as a cumulo assessment. The BT valuation is based on an examination of BT’s receipts and expenditures in line with current rating law and precedent. This will be the same for its next generation access


VOA approach to the treatment of fibre in the access network

What is important to understand, however, is that the industry sets the levels of value through the market. The VOA gathers this market evidence, analyses it to the statutory definition of RV and applies it to the telecoms infrastructure. Operators control the market rents and costs, and so the RVs applicable for the current 2010 list and future lists are in principle a reflection of the market as set by the industry itself. The next revaluation in 2015 will take account of any new market evidence as at the new AVD, usually 2 years before the new list goes live.

As fibre-based next generation access networks are only in the early stages of being rolled out, the VOA has no rental or cost of construction information available to it. The VOA therefore proposes initially to use a similar approach to that adopted for CATV networks, which are already fibre to the cabinet (FTTC).

This would apply to all fibre-based next generation access networks (FTTC and fibre to the home or premises (FTTH)), excluding BT’s NGA installations, regardless of architecture or topology, from the POP or exchange to the customer premise. This proposed solution is the best option available based on current evidence but maybe revised if reliable information becomes available from the NGA operators. .

The approach to CATV on the 2010 list is to apply an RV of £7.50 per home passed by the network.

However, the VOA has determined that it would be more appropriate, given the nature of the investment and longevity of payback, for a more easily scalable figure to be used based on homes connected. Scaling up the CATV scheme of £7.50 RV per home passed, with a service take-up at 38%, the equivalent RV per home connected is proposed at £20. This is the RV that the VOA initially proposes to use for all fibre-based next generation access networks on the 2010 list, (other than BT which will be an R&E based valuation), pending the availability of other evidence.

It should be noted that the value proposed has been developed having regard to the 2000 and 2005 list assessments for CATV, adjusted to reflect market conditions at 2003 and 2008. However, the 2005 list CATV valuation is subject to appeal and may be considered by the Valuation and Lands Tribunals in the next year. The outcome may require the 2010 basis for CATV to be revisited.

The VOA realise that this is the best available option on valuation for next generation access networks based on the available evidence, but considers that the £20 RV per home connected is likely to be below the full decapitalised cost of the cheapest infrastructure option available to an operator and the proposed value reflects the pioneering or new venture nature of NGA networks. However, if new evidence of rent or cost comes to light that indicated that £20RV/HC is incorrect or unreasonable, it can be taken into account. Similarly, once established a full receipts and expenditure method of valuation could be applied to next generation access networks, if no rental evidence is available.

BT’s NGA will be valued on the basis of the impact on its R&E valuation.

The scenarios

The following scenarios are intended to provide clarity to the approach the VOA would adopt when applying the approach set out above. The scenarios cover FTTC, FTTH-GPON and FTTH-P2P, and have the following assumptions underlying them.

• The end users in each case are a mix of residential and business customers; the identity of the end users as either residential or business users will not necessarily be available to the organisation liable for the rates on the asset (particularly if they are providing wholesale access to other service providers).

• In each scenario, it is assumed that a number of different service providers will provide retail services to end users over the network via wholesale access, but responsibility for lighting the fibre will be with the operator (not necessarily a provider of retail services themselves) as set out in each scenario.

• For each scenario the VOA will be asked to provide advice on the following:

• who is responsible for the rates on each rateable network asset

• what the anticipated approach is likely to be to assessing the rateable value of those elements, taken together, given current knowledge

• indications, if possible, of the likely rateable values for the combination of rateable assets for each hypothetical operator.

The scenarios presented do not represent an exhaustive list, nor do they represent accurate deployment models. These are hypothetical models and do not imply any intention on any market operator to offer specific products, deploy particular technologies, or follow particular architectures.

Fibre scenarios for BT

The scenarios below in figures 1-3 reflect situations where BT is responsible for operating the fibre-based access network asset. As discussed above, BT’s network assets are assessed as part of their cumulo assessment on the Receipts and Expenditure basis by the VOA. Therefore, any scenario where BT operates the fibre-based next generation access networks will be part of the cumulo assessment also; the following scenarios are included in this document for completeness.

Each scenario assumes that the fibre is lit by BT, although end users could be served by a number of retail service providers that BT would wholesale to. There is no provision here for a dark fibre product, which would see the altnet be responsible for lighting the fibre. At this time, we understand, BT has no plans to introduce such a product.

Where sub-loop unbundling from the cabinet is undertaken by an altnet, the same provisions as for local loop unbundling would apply: BT would be liable for the unbundled sub-loop. The altnet would be responsible for their network assets up to the BT cabinet, including any cabinet installed by the altnet, and their tie-cables to the BT cabinet. Active equipment, such as the equipment within the cabinets, is not liable for business rates and would not be included in the assessment.

Figure 1: BT FTTC



Figure 2: BT FTTH-GPON




Figure 3: BT FTTH-P2P



Fibre scenarios for altnets

As discussed above, these scenarios cover a range of technology choices and topologies. They reflect possible, and likely, network topologies, although are not complete network scenarios, which in reality could involve more complex topologies.

Figure 4: Altnet infrastructure – FTTC with BT infrastructure


In this scenario, the BT copper from the BT cabinet to the end user falls under the BT hereditament, including when the lines are being unbundled through SLU to the altnet. This is also the case for the BT copper connection between the altnet cabinet and the BT cabinet. If the connection between the altnet and BT cabinets is the altnet’s and not BT’s, the altnet would be liable for the rates on this link but it is likely to be deminimis in RV terms and is unlikely to affect the overall liability of the altnet.

For the altnet’s fibre from the PoP to the altnet cabinet, the VOA propose to use the RV of £20 per home connected, but apportioned to take into account BT’s liability for the sub-loop. The VO propose to use an averaged figure for the apportionment of all sub-loops with £18.00 per home connected (or 90% of whatever may be suggested by a R&E analysis of the effect of BT’s roll out of NGA) apportioned to the altnet. However, the VOA is open to alternative suggestions, if supported by evidence that operators may wish to submit.

The PoP is treated as part of the altnet’s network hereditament and its rental value is added to the network assessment. The cabinets are considered as part of the £20 RV per home connected for the local loop and no further addition will be made. Active electronics within the PoP and cabinets are not liable for rates. Where n gets very high the evidence of rental values from the market will need to be considered.

Figure 5: Altnet infrastructure – FTTC with BT infrastructure and FTTH



With the addition of the fibre to the home connections from the splitter to

Figure 4, the altnet becomes fully liable for the RV of each home connected with FTTH (again, £20 RV, or whatever may be suggested by a R&E analysis of BT’s roll-out of NGA). This would be additional to the apportionment of the altnet’s share of the RV for the FTTC connections through BT’s copper infrastructure where the altnet is providing the end customer with a service through sub-loop unbundling of BT’s copper from the BT cabinet.

Figure 6: Altnet infrastructure – FTTC from Wide Area Network (WAN) with FTTH


In this scenario above, there are three variations that should be considered:

i)where the fibre between the two BT exchanges is altnet trunk fibre currently used within the altnet’s wide area network (WAN), and has its rateable value assessed as such already on the backbone fibre rental scale;

ii)where the altnet fibre is new fibre;

iii)and where new fibre is laid, or an unlit fibre is lit, alongside existing used fibre.

For i), as the altnet trunk fibre is already assessed on the fibre rent scale for backbone networks, it would not be assessed again as part of the access network infrastructure. The connections between the DWDM unit and the altnet cabinet and the altnet cabinet to the BT cabinet (as discussed in response to

Figure 4) are likely to be deminimis and so are unlikely to affect the overall assessment of the altnet’s network hereditament.

For the end users served by FTTC through BT’s copper, the copper is part of BT’s Cumulo assessment and so would not be assessed separately, even if it has been unbundled. For the end users served by FTTH, the altnet would be liable for £20 RV (or whatever is suggested by R&E analysis of BT’s roll-out of NGA) for each customer connected for the local access network fibre; this is the case regardless of the number of fibres provided between the splitter and the end user.

In ii), where the trunk network fibre is newly installed by the altnet or where dark fibre has been rented by the altnet between the two BT exchanges, and the altnet has lit the fibres to provide services to end users, the altnet will be liable for the newly-lit fibres. For consistency, the fibre will be valued on the fibre rent scale for backbone networks. Therefore, the length of the fibre and number of fibres lit will affect the RV between the two BT exchanges. The treatment of the network from the DWDM unit to the end users is as per case i).

Where a new trunk network fibre is lit by the altnet alongside existing lit altnet trunk fibre in situation iii) the fibre between the BT exchanges will be treated as part of a single altnet hereditament, and will be assessed as per the fibre rent scale. If, for example, the original trunk has 2 lit fibres and 2 new fibres are lit, the rental value will be determined as for 4 lit fibres on that route. Again, the treatment of the network from the DWDM unit to the end users is as per case i).

Figure 7: Altnet infrastructure – FTTH-GPON



Where the above scenario is found, the altnet is wholly liable for the local access network fibre; the RV will be £20 per home connected (or whatever is suggested by the R&E analysis of BT’s NGA roll-out). This will be constant regardless of the length of the fibre from the cabinet to the PoP. As before, the cabinet is accounted for within that RV, while the active electronics such as the splitter are not rateable.

If alternative evidence is provided by the altnet based on the projected receipts and expenditure of the FTTH, the cost of installing the fibre or actual rental values, the VOA would be in a position to reassess the value based on this evidence. Rental evidence would be likely to exist particularly in a scenario where the altnet was renting dark fibre from another operator, as a rental value is clearly established. A caveat to that is that if a situation arose whereby two altnets were wholesaling dark fibre to each other across a number of areas, it may be that accurate market evidence would not be provided as the ‘fibre swap’ could be accounted for by the altnets at artificially levels, making the evidence unreliable.

As in previous scenarios, the altnet is liable for the PoP as an addition to its network hereditament. If the altnet PoP is located within a BT exchange, however, the altnet will not be liable for rates on the PoP providing that BT retains overall control of the space within the exchange. This would not affect the RV per home connected for the access network.

Figure 8: Altnet infrastructure – FTTH P2P



As with the FTTH GPON scenario, the altnet is wholly liable for the local access network fibre, and the RV would be £20 per home connected (or whatever is suggested by the R&E analysis of BT’s NGA roll-out). This would be constant regardless of the length of the fibre or the number of fibres. Again, there could be the possibility of alternative R&E or rental approaches, the latter in a situation where the altnet is renting dark fibre from another operator, although the caveat discussed in response to Figure 7 also applies here.

If an altnet were to seek a review of the valuation based on an alternative methodology to the home connected approach, other factors – such as length of fibre, number of lit fibres, dark fibre rents, cost of installation etc – may play a role in any new calculation of the liability.