The big winners from Digital Britain: BT and the telecoms sector

BT making the most of Digital Britain broadband 'tax'

The government's intention to levy a 50p per month "tax" on most UK phone lines to fund the country's broadband expansion has one big winner in BT. But there are also hundreds of thousands of small losers among telephone subscribers uninterested in using broadband services.

Ostensibly, the levy is intended to make sure that everybody in the UK that wants it will have access to next-generation superfast broadband services. But it effectively represents the subsidy long sought but never received by telcos, which will help them roll out a high-speed fibre-optic network more or less directly to UK residents' doors, something BT and others could never previously afford to do.

Current xDSL technology based on local "last mile" copper cabling which connects most homes and offices to the telecommunications backbone is unlikely to deliver broadband speeds beyond 22Mbit/s. By contrast, fibre-optic networks can deliver in excess of 100Mbit/s, enough to deliver a wide range of digital content, including TV, video and radio, to UK homes.

Industry analysts agree that BT, as the incumbent telecommunications operator, has more to gain than any other company. The telco's share price rose by more than three per cent on the news, according to analyst Bernstein Research.

"Certainly this was a surprise and a slight change in direction from [government] reports that went before, which concluded something quite different – that fibre had not been a market failure and the government could not see any reason for state investment," said Matthew Howett, senior analyst at Ovum.

"BT was looking for some sort of assistance in ensuring blanket fibre coverage, so it will be reassured that the government is committed to that ambition."

According to the Digital Britain report, published earlier this week, the 50p per month tax (£6 per year from the date legislation is passed) will be applied to any telephone using a copper cable. Specific details remain unconfirmed, but the levy may also include telephone services delivered by companies such as Virgin Media that use fibre cables into street cabinets, then either their own or BT-owned copper cables from the cabinet into the home or office to carry those phone calls.

It will however, be levied irrespective of whether the customer currently subscribes to a broadband service or has any intention of doing so in the future.

Speaking to the Financial Times, BT chief executive Ian Livingston estimated that the monies derived from the levy - estimated at anything from £150m to £175m per year - will allow BT to expand its superfast broadband network to run past 90 per cent of UK homes by 2017 – the telco had previously estimated it could only manage 40 per cent. By that time, BT could have made up to £1.4bn out of the deal, enough to fund a significant part of its planned fibre-optic-based broadband rollout.

“What this might well do, and has a good chance of doing, is providing enough support to make the risk and rewards of doing this programme acceptable,” Livingston told the FT.

Though it is by far the most likely beneficiary of most of the cash raised by the levy, BT will not be alone in fighting for money. Rival operators and smaller internet service providers may all apply to the government for grants towards their own broadband expansion in the interests of making Digital Britain a reality.

"Obviously BT and Virgin will want their share, but there will be an opportunity for smaller ISPs with aspirations to apply for funding. Wireless organisations such as The Cloud will be able to apply for wireless deployments, " said Datamonitor principal broadcast and media analyst, Adrian Drury.

Howett added: "A consortium of other telcos who between them might find it viable to deploy fibre or municipalities may also benefit, but the devil will be in the detail."

If BT does achieve 90 per cent fibre-optic broadband coverage in the UK, its scope to establish and profit from wholesale agreements with rival broadband providers such as BSkyB, Carphone Warehouse and others is greatly augmented.

The levy will sit alongside other government plans to introduce more digital content to the internet, most notably digital TV and radio, which will require higher-speed network bandwidth to ensure its quality.

For those unconvinced by their need for broadband internet access of any sort, and feel themselves unfairly made to pay for it, the Digital Britain report also references a "National Plan for Digital Participation", which will use community based training programmes to increase their motivation to get online.