Government backtracks on broadband promise and "creates imbalance"

19 Aug 2010 View Comments
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The government's taxation policy on fibre is unfair to small providers, says Star

Before its election, the Conservative Party promised to reform the taxation of high-speed fibre-optic networks in the UK. However, Ed Vaizey, minister for culture, communications and creative industries admitted last week that no such review would take place.

"The decision not to conduct the review creates an imbalance," said Hugo Harber, director of convergence and network strategy at Star, a UK-based provider of cloud services. "If you're running a small network, and you're not one of the big two [BT and Virgin Media], then it's going to cost you more to run fibre to a local area."

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Harber explained that there's a steep discount policy when it comes to laying fibre; whilst laying the initial fibre is very expensive, economies of scale dictate that it is far more cost-effective to lay additional fibres.

A large company will be able to justify the initial fee as it will be more likely to be laying a substantial amount of fibre, leading to higher revenues.

"It's a barrier to entry in the market," commented Harber.

Rural areas will suffer the most, as there is little incentive for companies to roll out expensive fibre to sparsely populated areas.

"Current taxation makes it more expensive to deliver to the extremities," Harber stated. "The government is increasing the burden of cost. It has stated that a level of broadband connectivity is a right, well there has to be a subsidy. And this subsidy has always existed."

Copper wires present in areas currently without end-to-end fibre connectivity were effectively subsidised by networks in metropolitan areas, Harber explained. The cost for a copper install in the Scottish highlands is the same as it is in the centre of London.

"As you roll out fibre, there isn't that subsidy now, you pay more as you get further away from metropolitan areas. And now you're paying a tax on top of that. As you go through more local authority areas, you pay more tax," commented Harber.

Harber concluded by admitting that it would be unlikely that the government would want to lose the revenue from this tax during a period of austerity, but that it needed to be implemented in a different way.

"It is a blatantly unfair tax that favours the larger operators. The investment in laying those fibres is being hampered by the tax. Small businesses aiming to invest in fibre rollout are being restricted. We should tax the revenue, not the investment. It should have been reviewed as they promised it would."

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