The UK government has steadily refined its national broadband plan, guided as it is by the 2010 Digital Economy Act which aims to provide all households with a broadband service of at least 2Mb/s by 2015. The government appears to be coming around to the popular view that this level of service is far from adequate. The initial 2012 timetable has already suffered a three-year setback, but at least the revised speed target is shifting towards 50Mb/s.
Currently, only Virgin Media, with a network covering about half of all homes, offers significant data speeds. Its 100Mb/s service has been rolled out steadily during the year, with plans to extend it across its network by mid-2011. The company has also trialled a 200Mb/s service in Ashford since mid-2009 (extended to Coventry in early 2010), and in mid-2010 began preparing for modems to handle 400Mb/s. BT’s fibre offers are geographically limited as yet: its £2.5 billion programme aims to provide up to 40% million homes with fibre by 2012 and 66% by 2015. In June 2010 BT announced plans to connect 87% of homes and businesses in London to FttC-enabled exchanges by about April 2011. Since most of the national infrastructure is hybrid VDSL / FttC, it is restricted by its reliance on copper for the last mile. Furthermore, last month BT, having achieved speeds of 70Mb/s using FttC in laboratory conditions, announced that it would not upgrade to FttH those areas where FttC has already been deployed, considering FttC sufficiently ‘future-proof’ for consumers, even though in practice the majority of FttC homes cannot expect more than about 35Mb/s.
To address the problematic rural areas, the government has allocated £830 million to fund fibre-based hubs to every community in the country by 2015. The hubs will be linked to exchanges by fibre, allowing ISPs to deliver faster IP services. There is an additional £50 million (derived from BBC licence fee revenue originally intended for digital switchover) allocated to funs pilot projects to test how these hubs can be extended to rural areas.
So good, so fine. Yet there is disquiet among ISPs that the scheme fails to address the current fibre tax regime which favours BT and Virgin Media against smaller ISPs. BT is assessed for tax in a different way from small companies. The Valuations Office (VOA) in mid-2010 considered that the taxable rate per home should be £20 (compared to £7.50 per home connected with cable). In addition, BT pays tax based on the rent generated by a cable as also on its entire physical non-domestic infrastructure. All other players pay per fibre pair – with networks up to 50kms they pay for cables used at between £2,000 (outside London, or £3,000 for business rates) and £3,000 (within London) for the first kilometre. There is then a phased scale, increasing the rent per kilometre as the length of the network falls below 2,000kms – in other words, for tax purposes smaller networks pay proportionately more in tax. BT does not pay higher rates with the greater number of fibres used, whereas alternative operators pay more proportional to each kilometre lit up. For alternative operators, the higher cost to access each home becomes evident since each is connected with a separate cable (almost all of which are shorter than a kilometre). Although the tax rate falls rapidly the more cables an operator has the overall tax bill to deliver fibre to a community can be burdensome, and would dissuade a proportion of those people so served from signing up.
So the existing taxable rating system stifles fibre-based broadband services by making it economically unviable for operators other than BT and Virgin Media from undertaking the work. A meeting was held earlier in December 2010 between the government and a numbers of ISPs and stakeholders to discuss the fibre tax, yet this was essentially a letting-off steam exercise for ISPs, rather than one aimed at revising the tax. Some of the key smaller fibre operators, such as FibreCity, which recently restarted its stalled deployment in Bournemouth, were not invited to attend.
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