VOA ready to bung BT billions
The Valuation Office Agency review of business rates on fibre-based communications networks is shaping up to be a massive bung to BT, which already enjoys a cost advantage over its competitors because of the rating regime.
In a statement to Br0kenTeleph0ne, HM Revenue & Customs said “The VOA (Valuation Office Agency, which is responsible for setting business rates) hopes to publish the results of the NGA (Next Generation Access) final third Receipts and Expenditure valuation model (for rural areas) before the New Year in 2012.”
In the HMRC statement, a VOA spokesperson said, “We are aware of concerns about business rates in the telecom sector and we wish to see greater transparency and clarity in how rateable values are set.
“The VOA is working with the Broadband Stakeholders Group (BSG) to develop a new Receipts and Expenditure-based valuation model for Next Generation Access (NGA) networks in the final third (rural areas). This is not a review of how fibre networks are taxed and no such review is being undertaken by the VOA.”
The BSG declined to comment ahead of HMRC’s publication of the review.
BT is the only telco evaluated under the Receipts and Expenditure basis (ie on profits); VM’s valuation is based on “homes passed” and the others on the length of their networks and the individual lit fibres.
The VOA says, “BT and Virgin Media are assessed on the same statutory basis of rateable value as all other rateable properties.”
It is unclear whether the VOA review will look at fixed and mobile wireless infrastructure such as base stations, masts and towers, which are currently subject to business rates. If they are not included, the cost of delivering high speed wireless broadband to rural areas, via the mobile networks, microwave or even satellite, on a per kilometre basis may be higher than need be for purely competitive or economic reasons.
This would give BT’s wires, now 40 years old in many cases, a relative advantage, even though BT has said some areas will not get high speed broadband, and that “a mix of technologies” is needed.
It is also unclear what areas are considered “final third”. If it is Ofcom’s Market 1 regions, BT already enjoys either a monopoly or “significant market power” in these areas.
In 2006 an independent report commissioned by the government recommended that fibre be zero-rated to persuade network operators to invest in it. The then minister Stephen Timms ignored the report.
Subsequent reports showed that large network operators such BT and Virgin Media enjoy a consistent price advantage over smaller network operators as a result of the VOA’s different pricing formulas.
The formula for smaller operators uses distance, making it prohibitively expensive to install and light fibre in rural areas. For a grpahic view of the effect see the bottom of this page.