A dropped Tory tax pledge and BT's drive to spread high-speed fibre-optic broadband are resulting in a monopoly
The Conservatives' abandonment of a manifesto tax pledge is set to cement BT's position as the dominant provider of next-generation broadband via fibre-optic cable, because it makes it prohibitively expensive for rivals to compete in laying new cable – which can be charged thousands of times more in tax than BT is.
BT says it will carry out a 'nationwide survey' to establish the demand among communities for high-speed broadband based on fibre-optic cable – setting areas in competition against one another, with the prize being an upgrade to faster internet connectivity.
The company will be running the survey as a competition, which will continue to the end of the year: BT says it will 'enable communities to express their desire for the service. This will help BT identify 'hot spots' where demand is high and influence the company's future deployment plans.' So far, 4m premises are 'within reach' of BT's fibre broadband, but that must grow beyond 16m for BT to reach its target of delivering high-speed fibre-optic broadband to two thirds of the UK by 2015.
But the effect, with the abandonment of the Conservatives' manifesto tax pledge, may be to cement the telecoms operator's monopoly in the provision of next-generation broadband, because of the way that rivals are charged for laying new fibre-optic cable.
BT's move looks calculated to drive adoption of, and interest in, its fibre-optic broadband in order to avoid forced deregulation by the coalition government. The Conservative party, in its technology manifesto published in March, promised to drive the adoption of 'superfast broadband' with connection speeds of up to 100 megabits per second (Mbps)- by breaking BT's 'local loop monopoly'.
In January, the then shadow chancellor, George Osborne, said that the Conservatives would allow other operators to lay their own cables to get fibre-optic systems: 'I think the best way to deliver this is by breaking up the British Telecom monopoly at the moment, which holds back companies such as Carphone Warehouse [owner of Talk Talk, one of the UK's biggest internet service provider] or Virgin [the UK's only fibre-optic network provider].'
But since taking office, the Conservatives have reneged on a key manifesto pledge that could affect competition in the fibre-optic market: a commitment to review the taxes imposed on new fibre-optic cables by the Valuation Office Agency (VOA) – which presently favour BT hugely over would-be rivals – has been dropped. That gives BT a financial edge over rivals in laying new cable: at present the VOA assesses business rates on non-BT companies that lay short stretches of new fibre-optic cable outside London at £2 a metre – £2,000 a kilometre – plus £20 per home attached to the cable.
By contrast BT is charged about £15 a km by the VOA for its fibre. A number of court cases are now in progress challenging the VOA's approach and valuation scale, alleging that it unfairly favours the incumbent operator. The VOA recently proposed an additional £20 a month levy on properties that receive fibre-optic broadband from a non-BT provider.
Fibre-optic cable is assessed for business rates on the basis of its usefulness to businesses. It is charged per 'pair' of connections. If a company first lays a length of cable to connect a number of premises – say, 20km – it is treated as a significant addition to its network. But BT already has a large fibre network, so that a 20km addition is treated as unimportant and the incremental difference in taxes due, where it already benefits substantially, can be rounded down under VOA rules.
Fibre-optic cables carry signals using light and are not affected by distance in the way that standard copper cables, presently used to distribute broadband signals from exchanges to homes and premises, are. But replacing copper cables to every home with fibre-optic would be enormously expensive; even replacing the copper cables from exchanges to the 'cabinets' in every street, as BT appears to be suggesting, requires huge capital investment. That has to be recouped by charges to the user.
The problem is greater for rural areas, where larger distances between premises means that there are fewer potential subscribers per kilometre of cable, in effect increasing the investment per user.
BT Retail, the ISP arm of BT, says it will promise funds 'if needed' to help enable the five exchanges where people show the highest demand.
BT pledged in May this year that, subject to there being 'an acceptable environment for investment', it would spend £2.5bn on rolling out fibre broadband to two thirds of UK premises by 2015. This is one of the most ambitious fibre programmes in the world that isn't reliant on public sector support. Such support will be required, however, for exchanges in the 'final third' of the UK where deploying fibre is commercially not viable.
The 'Race to Infinity' will run from early October to the end of December 2010, with the five winning exchanges being enabled by early 2012 at the latest. The competition will be supported by a marketing campaign that will direct participants towards a web page at bt.com/racetoinfinity where they will be able to register their interest in fibre broadband. This will enable BT to contact them as soon as the service is available in their area.
BT Group is also pledging to engage with any community that gathers 75% of possible votes for their exchange but hasn't won the competition. This is in the hope that those exchanges can either be included in future commercial phases – if the exchange is deemed commercially viable – or enabled as a result of either public sector or community support as has already happened in some parts of the UK.
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