Government broadband strategy will fail unless fibre rates are challenged

The government strategy for broadband fails to address the taxation of fibre-optic infrastructure and puts at risk the creation of a regulatory and policy environment which would allow the market to deliver.

On Monday 6 December the government published its strategy document for broadband: Britain's Superfast Broadband Future. Although welcome in some respects, it fails adequately to address the taxation of fibre-optic infrastructure and thereby puts at risk the central plank of its strategy, which is to create a regulatory and policy environment which would allow the market to deliver.

Although a mix of technologies will be needed to deliver broadband throughout the UK, optical fibre networks will be a key feature, as the strategy document recognises. The market will not, however, deliver or deliver efficiently if the regulatory and policy environment applicable to fibre is tilted in favour of one group of players at the expense of others.

Lit fibre rates

There is a widely held view that business rates applicable to lit fibre are tilted in favour of larger operators. The question has been considered first by the European Courts and subsequently by the UK courts, in the context of the comparability of BT's network with others. As the strategy notes, no ruling has yet required any change to the rates regime, although the outcome of an appeal against the original findings of the commission is still awaited. In the meantime, the view persists, particularly among smaller operators.

Encouragement for that view comes from a number of quarters. In the course of the litigation, one judge in the Court of Appeal, in a dissenting judgment in January this year, warned that a radical inequity in the rating system may have been left unjustly unaddressed.

In October a robust view came from Scotland, where the Royal Society of Edinburgh, having taken evidence from - among others - the Westminster government, came to the conclusion that the treatment of fibre by the rating system in the UK causes deep distortions, uniquely among EU economies, particularly as it tilts the playing field strongly in favour of large network operators and against small businesses and communities that want to install short fibre networks. And, for good measure, it noted that no other EU country taxes lit fibre. It recommended that Scotland should remove the distortions under devolved powers.

Complex issue

The strategy document dismisses such concerns out of hand. It says that business rating of telecoms networks is a complex issue and often misunderstood by the industry and commentators.

Industry, however, at least those parts of it that take no advantaged from the distortions of the system, might well retort that the boot is on the other foot and that it is the government which has failed to understand that investment is unattractive if the playing field is tilted against the investor. Funds will be invested elsewhere if the rules of the game are not even-handed.

Launching the new strategy, culture minister Jeremy Hunt said he was pleased to be able to say the government had been having constructive discussions with BT about the role the telecoms giant can play in fulfilling the government's ambitions; and that, as a result, BT had announced a series of new initiatives, including bidding for government money on the basis that BT would match funds with a similar investment to get superfast broadband to reach 85% to 90% of the country.

That can no doubt be achieved but where will the rest of the industry be? Is the short-term advantage of rollout to be at the expense of infrastructure competition? The government needs to avoid complacently embracing a quick fix. If competition in fibre optic infrastructure provision is to flourish, it must be demonstrably on the basis of a level playing field for all players.

Tony Ballard is a partner at media law firm Harbottle & Lewis. He represented Vtesse Networks in the court case mentioned in this article that sought to question the business rates regime.

Read more on IT legislation and regulation