The government has gone back on a pre-election promise to review business rates on fibre networks, which are said to be the single biggest inhibitor of investment in next-generation networks.
Broadband minister Ed Vaizey said there would be no review. His statement followed a meeting on Monday between himself and the Valuation Office Agency (VOA), which sets business rates.
Vaizey was speaking at the opening of a Vtesse Networks fibre-to-the-cabinet scheme that provides up to 400 homes surrounding former "not spot" Birch Green, Hertfordshire with access to broadband speeds of up to 40Mbps.
Vaizey said the VOA meeting had been "constructive". Both he and the VOA had discussed their "issues". He did not elaborate on what the issues were.
Vaizey said a statement would be issued later. This would give potential investors in next-generation and other networks greater transparency and certainty on the tax regime their networks would be subject to, he said.
The Conservative Party manifesto on communications said the present business rates system gave BT an unfair advantage, a view held by Lord Justice Sedley, in a minority opinion in Vtesse Networks v VOA in January.
In the present system, BT is valued on the profit it makes from the whole of its network infrastructure, and pays after it has received its money from customers. Smaller network owners pay in advance for each fibre they light, even if they rent the fibre from BT, and per kilometre.
Links shorter than 3km, roughly the range of copper-based broadband, are rated considerably higher than links of more than 3km. This favours long haul over access links, and can make it prohibitively costly for smaller operators to replace BT's copper with fibre in unbundled local loops.
In its manifesto, the Conservatives said, "We will realign business rates to create a level-playing field for investment, aimed at encouraging new operators and ensuring that smaller companies and start-ups are not unfairly penalised. Our updated rates will be revenue-neutral to the Treasury."
Computer Weekly says:
It is not clear how much money the government gets from the fibre tax, but it is said to run to hundreds of millions of pounds a year. Given the size of the deficit, this is money the government would prefer to retain.
Nevertheless, broadband minister Ed Vaizey's refusal to review business rates on fibre networks will make it harder for new entrants to compete with BT and Virgin Media. This will ensure that BT and Virgin Media's retail prices remain high, and that they are under little pressure to install more fibre more quickly.
This could slow the introduction of new high-speed mobile networks, which increasingly depend on fibre links for backhaul. With the airwaves increasingly congested, thanks to smartphones, the quality of service mobile and fixed wire users enjoy is likely to deteriorate even further.
If Vaizey's intention is to preserve the UK's effective fixed-wire duopoly at the expense of the voting public, he could do no better.