VOA rates leave network operators reeling

The Valuation Office Agency’s decisions to exclude BT from a £20 levy on all homes connected to next generation networks and to maintain its protection of larger network operators has shocked the communications industry.

The Valuation Office Agency’s proposal to exclude BT from a £20 levy on all homes connected to next-generation networks and to maintain what critics says is a protection of larger network operators has surprised many in the communications industry.

Critics say the government has missed a chance to encourage investment in next-generation networks. Andrew Heaney, director of strategy at Talk Talk, the UK’s largest broadband provider after BT, said the government was naïve to tax investment. “Tax income, tax profit, OK, but taxing investment just chases it away,” he said.

BT, however, maintains that it is treated fairly and not given special treatment.

Last week broadband minister Ed Vaizey broke the Conservative Party’s pre-election promise to review the business rates scheme, saying the country didn’t need the “rigmarole”.

Vaizey also promised to give new guidelines that investors could rely on in assessing the profitability of their proposed investments. The VOA’s proposals state frequently that final decisions can be negotiated on a case-by-case basis.
Heaney said the VOA’s proposals on the £20 charge and the new rates preserved an imbalance between BT and Virgin Media and the rest of the communications suppliers.

“We need a level playing field and it’s a pity the government hasn’t take this chance,” he said. “Even if the review took a year or two, it would be better to have the right system in place than the centuries-old system we have now.”

David Harrington, spokesman for the Communications Managers Association, which represents business network managers, said: “There’s a great sense of a lost opportunity.”

He was at a loss to explain the reasons for the government’s decisions. “I’m sure the government could have come up with a modern system that was revenue-neutral for the Treasury, but fairer to smaller network operators,” he said.

But BT says it does not receive special treatment from the VOA.

"It is not true that the VOA has decided to exclude BT from a £20 levy on all homes connected to next generation networks. BT will pay rates on its new investment, including fibre, exactly as all operators should pay rates on their network assets," said a BT spokesman.

"It is also not true that larger network operators are protected. This and similar arguments made by some of BT’s competitors have been tested time and again in the courts and shown to have no credibility. BT has consistently been shown to be rated fairly and it expects to continue to be rated fairly on all its new investment, including fibre. BT does not receive any special treatment. The industry has the opportunity to respond to the VOA’s invitation to give constructive and objective input to its '£20 per home connected guidance'."

Aidan Paul, CEO of Vtesse Networks, which has lost a number of court actions against the VOA’s assessment regime, said it was time the government decided whether it wanted investment in next-generation networks or not.

He said he didn’t understand why BT would pay £18 to connect a house, but other network operators had to pay £20. The VOA said the discount was due to BT’s liability for the sub-loop.

James Blessing, a council member of the Internet Service Providers Association (Ispa), said: “The killer for most ISPs is that BT is not treated the same way as the rest of us. If the tax was based purely on the cost of fibre, we could all accept that and move on, but it’s not.”

The result was that BT paid next to nothing for installing and lighting new fibres, but other network operators paid each time they lit a new fibre, he said.

BT says the rateable values of £18 and £20 are a misinterpretation of the VOA's guidance.

"The £18 refers to where a fibre is connected to a street cabinet, while the £20 is for cases where connection is to a home. Network operators will pay at the relevant rate per type of connection. BT's rates bill will also reflect any additional investment it makes, including changes to its traditional network infrastructure," said BT's spokesman.

Heaney said Talk Talk would not be directly affected by a £20 charge, but some or all of it would inevitably be passed on to customers.

He said Talk Talk was working with BT’s Ofcom-regulated Openreach division and other network operators on its network plans. He said Talk Talk could also compete with Openreach on unbundled local loops because it was more efficient than Openreach.

“This is not the nail in the coffin of competition to Openreach,” he said, “but it does make it harder for everyone else to compete against them because it gives Openreach a lower cost base than the rest of us. It’s like a handicap race, with BT and Virgin the only two that aren’t handicapped.”

The VOA replies
Asked on what basis it came to the £20 charge, a VOA spokesperson said in a statement, “The VOA clearly sets out in its rating manual, vol 5, section 873 [available from www.voa.gov.uk] that cable TV networks provide the nearest comparable means of assessing fibre networks, to arrive at a fair and reasonable assessment of rental value. This is set provisionally at £20 per home connected. 

“Consideration was also given to the cost of starting up such a network, as set out in a report produced by Analysys mason for the Broadband Stakeholder’s Group (BSG) on ‘The costs of deploying fibre-based next-generation broadband infrastructure’, published on 8 September 2008.”
The VOA’s proposals leave scope for adjustments to assessments. The rules for retrospective adjustments to any assessment were set out in regulations and would depend on the facts of each case, it said.
Regarding wireless links, the VOA said all wireless base station sites were rateable and were assessed as to annual rental value. However, it did not say whether it regarded home Wi-Fi basestations as rateable. These could be used by the passing public unless they were locked down.
With mobile network operators gearing up to deal with the torrent of data caused by smartphones, the VOA said if they used existing assessed sites without adding any rateable infrastructure, the value would remain the same until the next revaluation, due in 2015.

“If additional rateable infrastructure is added then it will be reflected in a revised valuation,” it said. Active equipment such as switches was not rateable.
“BT is treated exactly the same as any other ratepayer under the non-domestic rating legislation. All assessments are valued to annual rental value on the statutory assumptions,” the VOA said.

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