Tuesday, October 10, 2017

EU Raise BT Competition Concern Over Business Rates for UK Fibre Broadband

bt fibre optic cable bloom

The European Commission's (EC) competition regulator has called on the UK Government to defend its business rates regime after an unidentified complainant alleged that the charges, which are managed by the Valuation Office Agency (VOA), were being abused to provide "illegal state aid" to BT.

Complaints against the business rates system are nothing new and in the past a number of smaller alternative network providers (e.g. Vtesse, now owned by Interoute), specifically those that want to build their own ultrafast fibre optic broadband infrastructure, have claimed that the VOA's "Fibre Tax" treats them unfairly (i.e. forcing them to pay more for their cable deployments than big fixed line Next Generation Access (NGA) providers).

In recent years the way that such charges are handled has gone through some changes, although last year a spokesperson for Cityfibre told ISPreview.co.uk that the system was still "broken" and "current VOA policy taxes the fibre connections of smaller operators at a considerably greater rate than BT and Virgin Media. This is a massive institutionalised distortion of competition, out of step with other Government policy and a barrier to investment in the UK's broadband infrastructure."

Since then a recent "revaluation" of business rates has also quadrupled the costs for a lot of existing infrastructure, which has hit the largest providers particularly hard. The Government is attempting to balance that by introducing 100% business rates relief on new 5G and "full-fibre" (FTTH/P) broadband networks (estimated to be worth £60m), which will last for 5 years and be backdated to 1st April 2017 (here).

However it's possible that the latest EU State Aid concerns could result in a formal investigation, which might potentially delay or derail some of the measures that are intended to help boost the roll-out of new fibre optic infrastructure. Not that the Government seems worried (Telegraph).

A Spokesperson for the UK Government said:

"We have been informed by the EU Commission of a complaint concerning the granting of alleged state aid in the telecoms sector related to business rates.

The Commission have previously ruled that state aid is not present in the business rates system for telecom companies. Given the complainant has presented no new evidence, we are confident the Commission will conclude that this latest complaint is also unfounded."

The history of this subject suggests that the Government are probably right to be optimistic about the outcome of the complaint. So far the VOA has appeared, for better or worse, to be largely impervious to the many gripes that are frequently thrown its way.

NOTE: BT and other big providers are valued on a full receipts and expenditure basis, while the valuation approach for other/smaller networks is done on a rentals basis for the fibre, buildings or land, with additions for rateable Plant & Machinery based on decapitalised cost at the statutory decapitalisation rate (details).

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