Business rates relief for new fibre on telecommunication hereditaments

UKCTA is a trade association promoting the interests of competitive fixed-line telecommunications companies competing against BT, as well as each other, in the residential and business markets. Its role is to develop and promote the interests of its members to Ofcom and the Government. Details of membership of UKCTA can be found at www.ukcta.com. Given that UKCTA members have been investing in fibre networks in the UK for over twenty years and have campaigned for reform of the rating of fibre networks for over fifteen years we welcome the opportunity to respond to this consultation.

UKCTA welcomes the fact that Government has decided to take action in this area. UKCTA has campaigned for over fifteen years for reform of the business rating system as it applies to fibre optic networks. We have seen action taken on the appeals system to try to break the logjam of appeals against assessments, and this latest initiative partially addresses our long standing call for action to deal with the rates burden.

Although it does nothing to level the playing field caused by the various rating methodologies employed, limited relief is nonetheless a good thing. We do have a number of concerns regarding the way that the relief will be implemented. We believe that the way in which the relief is being implemented is sub optimal and that in order to deliver fully on the Government’s policy objective, the Government should revisit the detail of the implementation and respond to the shortcomings and potential unintended consequences identified by industry. As currently designed, the relief may actually make it more attractive to overbuild existing network (causing additional traffic disruption) rather than lighting existing, unused, fibre. The different rating methodologies used to levy rates also mean that the benefit will not be uniformly available to all those investing in new fibre.

UKCTA has previously commented on the DCMS call for inputs on fibre deployment saying that the definition of new fibre in the regulations is critical for the success of this policy. We previously suggested that a start date for the relief be set, and proposed 1 April 2017, after which all fibre lit for the first time should qualify for the relief. We are pleased to see that the Government proposes that the relief commenced on 1 April but are disappointed that qualification for the relief is to be based on the date of construction. We understand the need to have a defined start date and believe the date chosen is broadly sensible but are concerned that the definition of new fibre in the draft regulations will cause needless complexity and may in fact distort investment decisions.

The proposed definition of new fibre is “fibre that was not laid, flown, affixed or attached before 1st April 2017”. This it seems would require the VOA to make subjective assessments on what infrastructure would qualify. For example it is not clear how this would apply to infrastructure which was under construction before April 2017 but was completed after it. Some of the fibre might have been in place prior to the 1st April but if the build was completed after 1st April the VOA will have to assess when the infrastructure was constructed and possibly determine how much of it qualifies for relief. We do not think it is practical for the VOA to undertake such a role. Our proposal that the relief be applied to fibre which was first lit after the start date would be simpler to operate and would reflect the reality of how communications providers construct networks. The VOA could be provided with evidence in terms of invoices or contracts which define when the fibre was lit and service provided. If this occurred after the 1st April 2017 relief would be applied.

Another difficulty with the approach proposed by Government is that it would disproportionately benefit BT since BT would be able to benefit from rates relief immediately while most of its competitors would not face a rates liability until their newly constructed fibre is lit. The relatively short nature of the period for which the relief will apply and the finite amount of money set aside for relief mean that BT’s rivals are likely to see less benefit from this relief. UKCTA believes that in order to allow all providers to benefit from the relief, and to encourage as much fibre deployment as possible, the Government should extend the term of the relief from five to ten years.

Even leaving aside the distortions as between BT and its rivals, the application of the relief according to the date of construction might cause providers to alter their behaviour.

Typically, there is a delay between build and lighting of the fibre. The most common approach used by industry is to build network and install greater capacity than can be justified by confirmed orders at that point. It is cheaper and less disruptive to install additional capacity to enable the network to respond quickly to meet future demand. Creating a disincentive to operate in this way (i.e. future-proofing capacity demands) would be highly inefficient, because it would encourage industry to install just enough fibre to meet demand meaning that subsequent orders could not be met without further works, delay and disruption.

Another possibility is that the proposed approach would encourage companies to overbuild existing unlit network in order to qualify for the relief. This is inefficient and makes no sense.In the simplest case a network provider would be incentivised to blow new fibre through ducts alongside existing dark fibre. This is neither efficient for the network provider nor a sensible use of public funds. In the worst case where a communications provider has no ducts of its own it might be persuaded by the availability of the relief to install its own infrastructure rather than purchase existing dark fibre from another provider. Again, this would not be an efficient use of public funds. The policy objective is surely to extend fibre to unserved areas rather than to encourage overbuild in areas which already have fibre infrastructure. In this last case there would also be traffic disruption caused by fresh streetworks.

The Government’s acceptance of a need to encourage greater fibre rollout is welcome but UKCTA has concerns about the efficiency and ability to deliver of the current proposals. There are a number of unintended consequences which will flow from these proposals and there is potential for taxpayers’ funds being used to overbuild existing fibre infrastructure rather than rolling out fibre to areas which currently have no fibre. There is also a strong likelihood that this initiative will disproportionately benefit BT.

UKCTA also seeks clarification of the extent of the relief:- the definition of the hereditament that qualifies for business rates assessment includes also wayleaves and ducts. UKCTA would like to confirm whether it is the government’s intention to extend relief to these areas.

Domhnall Dods UKCTA