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Tax Blow to Broadband Britain

22 February 2010

Government ambitions for Broadband Britain, with everyone having access to high speed networks within two years, have been dealt a blow by the Court of Appeal.

The dominant company in the laying of fibre-optic cables to homes and businesses, BT, can continue to enjoy a tax advantage over Vtesse and other rivals, following the ruling.

Vtesse was appealing against being taxed at 20 times more than the former nationalised telecom company.

In a recent judgement, the Court ruled that the Valuation Office Agency, which sets the business rates tax by setting rateable values, can continue to use different methods for calculating the charge for BT and Vtesse.

In a statement Vtesse said it was disappointed by the Court of Appeal ruling. The company plans to appeal to the UK Supreme Court.

Yet again the court did not fully engage with the effect on competition where new entrants are taxed at 20 times or more than BT for the use of fibre.”

However, the Court of Appeal ruling was not unanimous. Lord Justice Sedley said in a dissenting opinion: “There is arguably a gross disparity in BT’s favour between the rateable value of its and Vtesses’ cables (which) may be a radical inequity in the rating system.”

Tony Ballard, partner at London media and entertainment law firm Harbottle & Lewis, who represents Vtesse, said: “We are determined to pursue this. Broadband Britain is not going to happen if competition does not flourish and the infrastructure market will not be competitive if those that provide the infrastructure are taxed in a discriminatory way.”

We are seeking leave to appeal to the Supreme Court in a matter of great public importance, given how damaging we believe the current situation is for the Government’s ambitions to foster investment in next-generation networks.”

Vtesse has been battling for more than five years to challenge what it argues is an unfair advantage that BT is given by the current rating system.

At issue is the notional rental value given to optical fibres once they have been lit, the basis on which business rates for the operating companies are assessed.

Under the system, Vtesse pays business rates on its fibre on the basis of a tariff that does not apply to BT. BT itself pays rates on a basket of network assets, including both its fibre and its historic copper wires, and the rental value is calculated on the basis of its receipts and expenditure. When the fibre content is disaggregated from the basket, the rates it pays are around a twentieth of the tariff that applies to other operators, for whom the rental value is calculated on the basis of the length of its lit fibres.

The result for BT is a huge competitive advantage for BT in the provision of fibre-based services, not only because it pays less on a disaggregated basis but also because its liability does not vary with length of fibre. Vtesse argues that its liability per km should at least reflect BT’s disaggregated charge but the courts have not yet upheld that argument, notwithstanding European telecommunications Directives and case law designed to end advantages for the old incumbent PTTs.

Separately, Vtesse is appealing to the European Court of Justice against the European Commission’s failure to find any evidence of state aid in these arrangements.

The situation has not improved since the events that are the subject of the UK litigation. In the period 2005 to 2010, the rateable value of BT’s basket of assets has actually fallen by 54% whilst its fibre estate has increased by 50%. No explanation has been forthcoming from the authorities. No other operator in the UK could conceivably increase its fibre estate at this rate whilst enjoying a decrease in the rates attributable to it. Some downward adjustment might be made to reflect the number of fully unbundled copper wires that have been taken over from BT by other operators but even without any offset for the additional fibre it could not account for the change.

The Shadow Culture Secretary, Jeremy Hunt, used his speech at the Oxford Media Convention last month to highlight impediments to investing in spreading digital technologies.

He said: “We need to tackle the barriers to this investment head on. Barriers like the lack of access for other operators to BT’s ducts, dark fibre and other infrastructure; a failure to make any progress on allowing the use of telegraph poles for overhead delivery of fibre; and business rates anomalies that favour incumbent operators.”

ENDS
22/02/10

For further information contact Lisa Foot, Head of Marketing, on +44 (0)20 7667 5000.

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