An argument has been rumbling on for several years about the level of business rates that telecoms operators should pay for their communications links. Currently, the UK has a very complex system that takes into account the ductwork, poles, types of cables and other variables to calculate rateable values.

On the face of it, cable routes are commercial property and should be included in the calculation of rates. However, the level of charges seems very high and the rules penalise new entrants.

It's hard to find accurate information on how much firms pay, but BT's business rates bill is about two percent of its revenue, whereas newer companies may pay up to 10 percent. BT pays less because it has negotiated a special deal with the government.

Aidan Paul, chief executive of Vtesse Networks, is livid and says this arrangement is destroying competition. He has taken the matter up with the EC, arguing that BT's special arrangement breaks the rules about state aid. The initial response from the EC is largely supportive of Vtesse, but it is seeking more information before reaching a decision. If it finds the UK has broken state aid rules, the government will need to resolve the matter.

Setting aside the BT argument, it is interesting to look at how the rules about fibre-optic cables work. Ducts are not rated until they contain cables; fibres are not rated until they carry traffic.

When a fibre pair is taken into use it is rated at a value of £1,000 per kilometre (more in London). There are some discounting factors but a company could expect to pay at least £300 per kilometre per year. Firms have to inform the authorities whenever they start to use a particular fibre. Surely there must be a simpler and fairer way of organising things?

Last year, the DTI commissioned an investigation into the rating system as it affects telecoms firms. The report has still not appeared, and the word on the streets is that it was suppressed due to its criticisms of the current system.

The level of charges is high and causing unwelcome distortions in the way telecoms networks are developed. For example, where cellular operators have a technical choice between radio links or fibre interconnects to their base stations, the extra tax rules out fibre in almost every case. Fibre is much more flexible and allows extra bandwidth to be easily added, so this rating system is forcing operators to make essentially bad business decisions.

The long-term dream is fibre to every UK household, but this will be economically impossible for anyone except BT and, to a certain extent, the cable TV companies. This really must be changed or the UK will fall behind the rest of the world and we'll be back to a monopoly situation in mainstream telecoms.

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