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Posts Tagged ‘VOA

Ofcom decisions lack transparency

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Basic CMYKFor all the thousands of words that accompany Ofcom’s consultations, the fact remains that the process of setting the basic price of communications is not transparent.

Ofcom is obliged to not disclose the costing information that it gets from BT, which can be different from that which BT discloses in its regulatory financial statements. The Value Office Agency, which sets business rates taxes, does not disclose its financial model, or disaggregate BT’s products, so an important component of BT’s regulated prices is opaque.

Besides, BT sometimes changes the basis of its costs, as in “A6.47 BT has moved from an absolute valuation to a methodology based on indexing capital expenditure by RPI.”

This leave plenty to argue about. Sky and TalkTalk in particular are fighting a running battle with Ofcom over its assessment of the effect of business rates on BT’s prices for unbundled local loop lines (LLU). The debate forms part of Ofcom’s consultation on the fixed access market, which goes into excruciating detail, complete with triple negatives, on the business rates issue in Annexure 26.

The result of the debate is material to the two ISPs, which are the biggest exploiters of local loop unbundling. According to the Office of Telecommunications Adjudicator, by the end of May there were 9.3 million unbundled lines, and 5.68 million lines on Wholesale Line Rental (WLR).

The ISPs contend that BT receives a rebate on business rates due to LLU that amounts to an estimated cash value of £23/y per line. The rebate covers BT’s loss of profits due to the alienation of the full earning potential of the lines. The VOA and Ofcom consider those putative profits to arise mainly from “downstream” products from Openreach.

BT still makes money from renting out the lines, and besides any “lost profit” is at best a guess. Further, the business rates tax is a tax on assets, not profits. The ISPs believe whole of the rebate should be applied to the price BT charges for the line. Instead only 15p is. They say this leaves BT with net income from the rebate of more than £20/y/ULL. Put another way, this means the ISPs are paying around £180m/y in unjustified costs, which BT can then apply to subsidise downstream products.

They allege that Ofcom ignores this income from the rebate in assessing Openreach’s assets to price LLU. They allege that the resultant prices for LLU are higher than they should be, and that BT’s downstream products benefit from an illegal subsidy. They argue that since BT’s rebate is based on profits, not assets; if Ofcom disagrees, it should get the VOA to change the basis of its rating of BT, and not simply pass the extra costs on to the LLU operators.

Another issue that confuses matters is that Ofcom uses a theoretical all-copper network model for its sums. This disregards the thousands of kilometres of fibre BT has installed in the past five years. Fibre is cheaper to run than copper. TalkTalk’s plea for Ofcom to simply consider the outcomes produced in the market fell on deaf ears.

Ofcom has dismissed the ISPs’ objections, but it did go back to BT for more data about its costs. “We have also carried out a PWNRC (profit weighted net replacement cost) calculation using data on BT’s assets which are more detailed than those published in the RFS…In the light of this, we do not now consider that BT’s 2011/12 allocation of cumulo [business rates] costs to MPF and WLR services is reasonable.

“An allocation which is in line… would result in a reduction in the cumulo costs attributed to WLR rentals from £3.31 to between £2.80 and £2.98 in 2012/13 and a reduction in the cumulo costs attributed to MPF rentals from £3.16 to between £2.68 and £2.85 in 2012/13. We have reflected this reduced allocation in our charge controls,” Ofcom said in the annex.

Ofcom has now published the new LLU charge control decision. It comes into effect on 1 July.

Sky and TalkTalk did not respond to requests for comment.






Written by Br0kenTeleph0n3

2014/07/01 at 12:56

VOA seeks info to tax wireless access points

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The Valuation Office Agency, which is responsible for valuing non-domestic property for business rates purposes, has written to network operators asking for details about their “occupation” of wireless broadband and fibre networks.

Operators already pay business rates taxes on sites and masts used for mobile networks and microwave backhaul ; this is a long-expected attempt to subject fixed wireless broadband networks’ passive components  to business rates taxes. Previous attempts have foundered because of a dearth of information available to the VOA.

The covering letter and forms are available Letter Area list Form Page 1 Form Page 2 Form Page 3 Form Page 4.

Written by Br0kenTeleph0n3

2013/10/17 at 11:10

NAO report on BDUK: blame game starts now

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The government’s rural broadband programme will transfer £1.2bn to BT, finish two years late, and rely on civil servants to establish whether it has received value for money.

“The rural broadband project is moving forward late and without the benefit of strong competition to protect public value. For this we will have to rely on the department’s (culture media & sport – DCMS) active use of the controls it has negotiated and strong supervision by Ofcom,” said Amyas Morse, head of the National Audit Office.

The NAO has been investigating whether Broadband Delivery UK, the quango set up in DCMS, will deliver value for money.

It was expected to be critical; the Cabinet Office National Project report recently judged the BDUK project amber/red, meaning it is in danger of missing its targets. Few will have guessed how bad things are.

In the very baldest terms, the NAO said there is £1.2bn available to provide high speed (>24Mbps download) to areas outside BT’s commercial roll-out to two-thirds of the country. All of it will go to BT.

Central government’s contribution is £530m; the balance comes from local authorities’ budgets which are funded by the taxpayer, and BT. BT’s contribution will be 23%, way down on the 36% estimated in 2011.

There are 44 projects that call for 4.6 million houses to have access to ‘next generation’ broadband; BT has already won 26, and it has no competitors.

The original completion date for 90% of homes was May 2015. Last week DCMS increased the coverage target to 95%, and extended the deadline to 2017.

BT said in response, “BT’s fibre programme has been one of the most efficient in the world with the company going further and faster than industry experts thought possible. BT has applied these cost efficiencies to its BDUK work and so the company is delivering excellent value for money.‬‪”

It argues there was strong competition when prices were set at the start of the process. “That ensured counties have benefited from the best possible terms.
“Deploying fibre broadband is an expensive long-term business and so it no surprise that others dropped out as the going got tough,” it said.

On the specific claim that BT is likely to contribute 23% of the total funding or some £356m, BT said, “We would like to highlight we have committed more than £500m to date. With more than a third of the contracts yet to be signed, including a very large one in Scotland. We believe we will contribute around 38% of the total funds by the end of the programme, which is well above the 23% claimed in the report.”‬‪‬

Asked why, when the state aid issue delayed things for six months, the deadline is now two years later, BT said, “The timescales for when individual contracts are signed are out of our hands as these are dictated by the individual councils. Our commercial fibre roll out is at least 18 months ahead of schedule so we have proved we can roll out fibre at great pace.”

Few Br0kenTeleph0n3 readers will be surprised by the NAO’s findings. But some might be taken aback by the NAO’s plain-spoken statements of fact. It is rare, given that ‘superfast broadband’ has been such an iconic target for this government, and the vested interest in BT’s on-going attempts to rubbish criticism of the project, that the circumstances have been set out so plainly.

Indeed, the NAO has merely scratched the surface. It could have explored and said much more about why the BDUK Framework process attracted just two bidders from nine invited. These were BT and Fujitsu, which pulled out in March.

It could have said much more about the reasons for the six month delay before the European Commission swallowed its reservations and passed the Framework as fit for purpose. The commission spent weeks waiting for information from BDUK.

However, these would have placed responsibility squarely with individuals, and the tradition here is to apportion responsibility collectively, except in the most egregious circumstances.

That said, some people will have a chance to explain what they have been doing for the past three years. They include Colette Bowe and Ed Richardson, chairman and CEO respectively of Ofcom, the regulatory watchdog that became BT’s lapdog. They will face MPs on the culture, media and sport committee on Tuesday 9 July.

Next up on Monday 15 July are believed to be BT Openreach CEO Liv Garfield and Bill Murphy, MD of BT’s NGA project. They have been invited by culture secretary Maria Miller to face representatives from six alt-nets, including B4RN CEO Barry Forde, who are trying to get the go-ahead to build in the ‘Final 10%’ that BT won’t cover. The trouble is, BT won’t say what it’ll cover and when, leaving the alt-net vulnerable to state-funded competition from BT.

If that meeting agrees that BT is not allowed to overbuild where the alt-nets run, the alt-nets might say it was worth the trip.

Finally the Public Accounts Committee, chaired by Labour leader Margaret Hodge, is likely to want to explore why the Conservatives scrapped Labour’s plan for a national 50Mbps broadband network by 2013, funded by a 50p ‘broadband tax’ on fixed phone lines. But who shall be the victims? Will it be communications minister Ed Vaizey, who has presided over BDUK for the duration. What about BDUK head Rob Sullivan, or Matt Agar, who has been the lynchpin in the BDUK works? Or BT CEO Ian Livingston, who in September is destined for the lords and a job as investment minister at the department of business, innovation and skills? Or his successor, the former Procter & Gamble soap and nappy salesman Gavin Patterson?

Entertaining as such spectacles might be, there is serious work to be done. Ofcom’s role may be crucial. But it may need a shake up. It refuses to accept its decision to allow BT to refuse the use of its physical poles and ducts for third party leased lines had any effect on the BDUK process. Yet this was the main reason why everyone except BT and Fujitsu dropped out of the BDUK framework bid. Geo CEO Chris Smedley was particularly forthright in his comments.

Ofcom suggests he should have gone through proper channels rather than ‘have a slanging match’ in the press. Asked why, if it was aware of the problem BT’s terms and conditions for access to its physical infrastructure (PIA) were causing, it did not consult further, an Ofcom spokesman said it believed its feedback process was clear and transparent and should have been used.

The spokesman felt there may be “a new role” for PIA in future. This might also involve Active Line Access, a standard way for fibre carriers to connect that was developed but not enforced by Ofcom.

(There is more to be said about PIA because it is addressed in detail in Ofcom’s Fixed Access Market Review consultation published the day before the NAO report. But that is for another time.)

Just ahead of the NAO report Ofcom set out a consultation that makes it easier and cheaper for firms that rent fibre from BT to switch.

In a more formal statement referring to the Office of Fair Trading investigation into competition in public sector procurements, which include rural broadband and the still-born £150m Superconnected Cities project, Ofcom said it doesn’t regulate public service procurement or contracts. “Rather, we regulate competition in the private telecoms sector. Likewise, the BDUK programmes are entirely matters for DCMS,” it said.

Whether it can persuade others that is the case remains to be seen.

VOA seeks info on wireless broadband networks – to tax them

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The Broadband Stakeholders Group is hosting a meeting at which the Valuation Office Agency (VOA) will set out its views on the potential application of the non-domestic rating regime (aka ‘business rates’) to wireless broadband network infrastructure.

This meeting marks the start of a public consultation before the VOA publishes a Practice Note to clarify the valuation for non-domestic rates of wireless broadband network infrastructure. It is looking for inputs from industry on rental values and costs of installation.

The meeting comes less than a month after Vfast withdrew its proposal for a wireless broadband network for Tunbridge Wells, saying the VOA had told it the scheme would be subject to business rates taxes.

The VOA is the same organisation that saw fit to subject lit fibre to business rates and introduce three different ways of valuing it, two of which favour BT and Virgin Media. A recent Ofcom report on the market for >1Gbps services found the fibre tax is a serious inhibitor for investment.

Alan Bradford, head of telecoms at the VOA, will provide an update at the BSG meeting and there will be time for Q&A.

The BSG says this meeting is the VOA’s first opportunity to begin this industry consultation. However, Vfast’s reaction to its meeting with the VOA suggests that the VOA has already made up its mind to tax wireless networks. It is now just trying to fix the rate.

The meeting will take place from 10.00 to 12.00 on Monday 22 April at the Intellect offices, Russell Square House, 10-12 Russell Square, London WC1B 5EE.

The BSG thinks this will interest mobile operators, fixed wireless providers and other stakeholders with an interest in the non-domestic rating regime.

RSVP to by Tuesday 16 April.  Places are limited so early registration is advised.

Written by Br0kenTeleph0n3

2013/04/05 at 07:46

Ofcom ignores deeper problems with 11% price cut for >1Gbps links

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Last week Ofcom proposed to make BT cut its prices by 11% a year for each of the next three years for very high speed wholesale services outside of London and Hull. It believes this will encourage leased line customers, mainly large enterprises and bandwidth resellers, switch to Ethernet as it will allow prices for services based on older technologies to rise modestly to allow BT recover its costs from a declining customer base.

Supporting this proposal was a report from CSMG on qualitative issues around the >1Gbps market. Its main findings about market conditions were unsurprising: BT has significant market power outside London and Hull; most cities on the UK’s ‘figure of 8’ fibre ring are relatively well provided for; the rest of country depends on Openreach, etc etc.

The respondents, 25 end users and five wholesale buyers of >1Gbps services,  also volunteered comment off the ‘approved list’ of topics. Full marks to CSMG for including them in its report, and to Ofcom for publishing them even though they must have made uncomfortable reading.

The ‘unspoken’ issues include lead times to provision services, lack of physical route diversity, supply of dark fibre, business rates on lit fibre, and duct access. By and large, the comments suggest that Ofcom has failed to make best use of two of its primary policy tools, namely to encourage investment in network infrastructure and to ensure a competitive market at all levels.

“Numerous” end users told CSMG, “We have major problems with lead times – it can take three months to get a site survey, and a further three months to get installation. The whole process can sometimes take over a year, with major implications for business. There is insufficient competition outside the M25 to drive lead times down.”

Another said, “We find we have to rely on BT Openreach for laying fibre, whoever we are procuring the service from… the [network build-out] process is very slow, and it is hard to get firm dates and prices. It’s holding the business back.”

More than half (56%) were concerned about true physical route diversity, mainly to improve service resilience. CSMG noted this was because carriers are reluctant to share their route data, but one user reported having a clause in its contract that required its provider to reveal updates to its network annually. Another said BT charged a premium, “but at least they can confirm they are using a fully diverse route.”

Opinions on dark fibre were split. Some said it is relatively easily available, others that the market is “immature”. Two heavy users of dark fibre thought market consolidation will see less dark fibre on the market as the remaining carriers could choose to offer only higher margin lit services.

Six of the eight respondents who expressed concern about business rate taxes on lit fibre said they were having to take lit services rather than buy dark fibre, as they would prefer, because of the high rates of tax payable on lit fibre. Two were currently using much more dark fibre than lit, but said they may have to move back to lit services in future because of the high rates, CSMG said.

Two end users wanted more clarity regarding the use of self-managed dark fibre, especially who has to pay the rates on lit fibre. One believed he was exempt because he was using the fibre himself rather than reselling it. However, he was still having to pay an unexpected bill for three years’ rates.

One of the wholesale buyers was keen to build out more of his own fibre, but said the rates payable on lit fibre were damaging the business case.

Three interviewees believed that BT was advantaged by the fibre rates regime. This was unfair on smaller operators and end users who bought dark fibre, they said.

“The very high level of the fibre tax is a major reason why we have to limit the use of high bandwidth fibre services. We feel that the level of fibre tax which BT pays is unfair. We would like to see everyone paying the same rates as BT – or preferably, no tax at all.”

Another said, “The fibre tax is arbitrary and unfair – we do not see why smaller, more agile players should get taxed while more dominant players such as BT are given tax relief.”

A wholesale buyer said, “Costs are currently prohibitive for new entrants to the market, and for existing players looking to expand their network. In particular, the fibre tax is not helping the business case for network build-out, and gives larger players – particularly BT – an unfair tax advantage.”

Vtesse Neworks earlier took the fibre tax issue to the Appeal Court, which ruled two to one against the carrier. Responsibility for the fibre tax lies variously with the Treasury, the department of communities and local government, the Valuation Office Agency and local councils. The incoming coalition government promised to “review” the tax, but as these comments suggest, has failed to level the playing field. Ofcom may be entitled to redress any advantage that might accrue from the allegedly unfair treatment, but has not done so.

Where Ofcom has also done less than it could is in opening up duct access. It did persuade BT to introduce a new product, Physical Infrastructure Access, to allow third parties to use BT ducts and poles. However it also allowed BT to impose terms and conditions such that there has been no large-scale take-up of the product. In fact, these terms and conditions were largely responsible for seven of the nine carriers invited to bid dropping out of the BDUK next generation procurement framework .

CSMG reported, “Four interviewees, including two wholesale buyers, were disappointed at the lack of duct access available in the market, which was preventing them undertaking more widespread build-out.”

As these comments were not within Ofcom’s brief to CSMG, it is unlikely anything will come of them. This leaves us with the actual outcome – the proposed 11% price cut.

One could say it’s better than nothing. However, CSMG found that end users and systems integrators can negotiate discounts, especially where there is competition. Fifteen respondents, including all five wholesale buyers, reported being able to negotiate on price. Three won discounts of around 30% and one got a 50% cut on a dark fibre service, CSMG said.

That makes Ofcom’s proposal look like small beer indeed.

Written by Br0kenTeleph0n3

2013/03/03 at 19:35

Surprise at VOA’s tax proposals for next generation broadband

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Br0kenTeleph0n3’s attention has been drawn to the new Valuation Office Agency proposals on how to tax next generation networks.

“It isn’t exactly what we thought it would be,” said the industry source, who has been closely involved in the discussions between the industry-led Broadband Stakeholders Group (BSG) and the VOA that have led to these proposals.

Indeed some may be astonished with VOA’s founding assumption: “NGA will be mainly the replacement of existing copper infrastructure”. As BT has been saying since forever, that is true only up to a point, that point being the street cabinet. Copper local loops will be with us for a long time yet.

The proposals are nothing if not complicated. As reported earlier, one of the proposals is that non-BT operators that service rural areas (the 33% of homes that BT says it won’t supply with NGA without state aid) will have their networks taxed on a receipts and expenditure basis, ie, like BT, namely on profits.

This is good news, as everyone knows that profit is an opinion while cash is reality. But the VOA says it all depends on it getting enough information from the market to be able to make a realistic assessment of the notional rental value of the link.

VOA apparently considers urban and rural residences to offer different rateable values. In town it’s either either £18 or £20 , depending on whether BT has unbundled the local loop. In the sticks it’s £2 , £6.50, £10 or £13 per end user, depending on “the factual data for each network”.

The VOA also says it will assess connections to large businesses and high bandwidth SMEs on their own merits, but there is no indication of the threshold for “high bandwidth”.

Please read the document. There is sure to be lots more important detail, but frankly, my eyes have glazed over.

Besides, as almost all the alternative operators have dropped out of the BDUK rural pilots, the entire issue now seems moot.

Written by Br0kenTeleph0n3

2012/01/05 at 08:00

VOA ready to bung BT billions

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Happines is a warm bung.

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.

While in opposition, the Conservative Party vowed to review the so-called fibre tax, but soon forgot its promise.

Written by Br0kenTeleph0n3

2011/12/16 at 07:02