Taxing Digital Britain into the slow lane?

The UK was one of the first countries in the world to invest heavily in optical fibre, and for a while we led the world with our digital connectivity. Unfortunately, a series of political decisions in the early 1990s saw the fibre-to-the-home (FTTH) programme cancelled.

Since then we have slipped far down the connectivity league table. Figures from the Fibre To The Home Council Europe show that fewer than one per cent of UK homes are connected with FTTH and that we are one of only two nations in the G20 not to make this meagre threshold.

The government wishes to establish “the best broadband network in Europe” but with the caveat that solutions must be “Treasury neutral”. Consultations have begun with industry to encourage private sector investment but there is a stumbling block: the tax on fibre.

Operators have long been charged for every fibre laid and operated, but recent proposals may see this fee rise. According to guidance from the Valuation Office Agency (VOA), smaller ISPs may be charged 10 times as much tax as they are now for the first kilometre of fibre. The VOA is also mooting a £20 tax on ISPs for every house they connect to a next-generation, fibre-based network.

Most people in the UK live within 1km of an optical fibre that has been installed for at least a decade, which will not be operating at a bit rate capacity close to the limit of practical and economic capacity. How tantalising: digital nirvana is that close!

The solution does not lie solely in taxation; new regulation would offer new options. We just have to unbundle the fibre, free the wavelengths and open the extensive duct network, in the same way we have for copper. A future scenario might go like this:

• If Ofcom is powerful enough to regulate channel allocations and radio spectrum, why not the wavelengths on optical fibre and the nation’s ducts?
• For rural communities, housing developments and industrial estates, why not provide optical hotspots where local groups can access the bandwidth to provide their own net?
• Providing tax breaks and incentives would help new companies and groups, including those with charity status.
• We should also look at fibre-to-the-premises – getting fibre to a cluster or block will work.

We must not repeat the mistakes made by Labour when it auctioned the 3G spectrum for far too many billions. That short-term decision left industry without the capital to invest.

While it is sensible for the telecoms industry to contribute to the public finances, this must not be to the detriment of next-generation network investments that will enable new industries, improve the UK’s competitive position and facilitate more cost-effective running of the country.

Peter Cochrane is CEO at Cochrane Associates