U-turn on fibre tax is bad news for UK broadband

The Government's U-turn on a promise to review tax on fibre optic networks is putting smaller companies at a disadvantage, and risks stifling the very rural expansion it has pledged to support, a UK network service provider has claimed.

Broadband minister Ed Vaizey last week announced that the Government would not be reviewing the current rules that determine how much network providers pay in business rates for their fibre infrastructure.

Hugo Harber, director of network strategy at UK managed service provider Star, told THINQ that the backtrack was bad news for the economy.

"The future of business lies in things like cloud-based services - and all of those are underpinned by good connectivity. The cost of bandwidth is a major factor in the IT industry's ability to grow. Anything that discourages expansion is bad for the IT industry."

Before the election, the Conservative party had made a review of the existing rules a key plank of its manifesto pledges on broadband.

Under the current rules, BT is taxed on the basis of the profit it makes from the whole of its network - and pays that tax after it has received revenues from its customers.

Companies seeking to set up new, smaller networks have to pay in advance, per kilometre, for each fibre they light - even if they're renting that fibre from BT. Harber called the current tax regime "prohibitive" for small providers.

Harber also criticised the coalition's unambitious targets for rural broadband. He called the goal of providing two-megabit broadband across the country by 2015 "poor" - but said that the Government risked failing to achieve even that unless it created a level playing field for new providers.

"The existing rules don't tax bandwidth. Providers are just taxed on the number of doorways they cross, so it's easier for incumbent providers like BT and Virgin to make their existing networks faster, rather than extending their geographical reach," he said.

Referring to recent figures that revealed the UK's failure to make the top 100 fastest broadband cities in the world, Harber labelled the current state of British broadband "pathetic".

"What we really need is to remove tax on the laying of any fibre," he said.