The proposed business rates on optical fibre networks for the next five years preserve the present 11% tax advantage enjoyed by large network operators over smaller ones and new entrants.
A draft proposal, published by the Valuation Office Agency, fixes the rates for 2010 to 2015 at the 2005 rates (see graphs below). This is due mainly to pending litigation between the Valuation Office Agency (VOA) and Vtesse Networks, whose outcome could affect the Valuation Office Agency's proposed valuations.
Vtesse claimed in British courts that the rating system discriminated unfairly in favour of BT, the UK's largest network operator. When that failed, Vtesse went to the European courts, claiming that the VOA's valuation was the equivalent of unlawful state aid to BT.
That case failed too, but Vtesse is appealing the decisions. The appeals will be heard in December.
The VOA uses a complicated formula for assessing network operators for business rates. The main elements are the hypothetical rental value of the buildings, plant and equipment.
In the case of fibre networks it also takes into account the total size of the operator's network, the length of the route between the subscriber's premises and the exchange, and the number of lit fibres per route.
Mobile network operators are assessed on their masts and high sites, while Virgin Media, the country's only cable TV company, is assessed on the number of homes that could connect to its network if they chose to. The VOA is considering charging for homes that connect to the core networks with fibre at the same rate as those with access to cable TV, which is £7.50 per year.
The VOA halved the rateable value of a single fibre-kilometre between 2000 and 2005 from £667 to £333 for networks of less than 3,000km in total, and from £600 to £300 for networks of more than 3,000km.
It also halved the rate per lit fibre. For the first lit fibre on a route, the rate dropped on a sliding scale from £667 to £333 for small networks, and from £660 to £300 for large ones. For the 48th, it went from £81 to £40 for small networks and from £73 to £36 for large ones.
This means that large network operators pay 11% less tax than small operators for the same service.
It emerged this week that the VOA is considering bringing WiFi and Wimax wireless networks into its valuation regime. This could affect hundreds of thousands of hot spots, community networks, and even residential wireless routers, say network experts.
The VOA has called for the industry to provide it with the necessary information on which it could reach decisions, but as one network owner put it, it is a very fragmented industry.