Rating success or land-grabs?

Published on August 31, 2010 in Adrian's tech blog. 1 Comment Tags: , , , , , , , , .

I’ve one final piece to get off my chest about the VOA’s “clarification” on business rates applied to fibre networks, and its about the upside-down nature of the rules and how the new framework exacerbates an already difficult situation.

The old rules taxed fibre owners for homes passed regardless of whether anyone bought a service. The new rules almost triple the tax but apply it only to homes connected.

So the old rules penalised investment but the tax could be mitigated against a successful drive to build take-up. The new rules still penalise take-up but now mitigate in favour of land-grabs to keep other providers out rather than in driving take-up – and the ones which are most heavily penalised are likely to be companies specialising in green field developments where they are unlikely to achieve much less than 100% of the homes as the default telecoms infrastructure. (remember BT has special treatment, so this only applies to alternative providers).

The new VOA rules would seem to imply an almost tripling of the tax bill for green field network builders.

The new Government made it clear it wanted to encourage, enforce if necessary, infrastructure sharing but these new rules encourage a more monopolistic mindset – build to stop others building, and make just enough revenue to cover the costs – oh, and make the architecture so esoteric it could never support infrastructure competition anyway.

The VOA has shown no signs that they are even beginning to understand anything the Government has said since coming to power. Had they chosen to develop rules which moulded the rates system around Government policy they might have recommended a system which:

  • Reduced or eliminated business rates on new fibre investments in Ofcom Market 1 areas where there is currently no investment rather than the opposite
  • Favoured community led “Big Society” smaller-scale networks over national carriers rather than the opposite
  • Penalised idle assets and favoured shared and used assets rather then the opposite

I try to avoid clear attacks like this my blog but the VOA appears to have worked against the key policies of BIS, DCMS, DCLG and DEFRA, while creating a framework so arbitrary and complex that the Treasury can’t possibly have any confidence in any figures estimating the revenue it will generate.

The National Audit Office was scrapped for a less fulsome opposition – can we hope the VOA has a similar fate awating?

Rant over.

I’d really like to thank Pauline Rigby for joining me on our journey to understand the VOA rules. We both felt uncomfortable writing politically charged articles like this one of mine but it was clear this was a major issue for the industry we both care about.

Rating the big society

Published on August 17, 2010 in Adrian's tech blog. 1 Comment Tags: , , , , , .

I’ve already written about the impact the clarification by the VOA has on technical decisions and network architecture, but there is a wider impact and one which suggests the civil servants at the VOA haven’t really understood the new Government’s Big Society agenda.

By way of an example I’ve attempted to work through a typical rural project and see what the impact the VOA rules will have.

In this hypothetical community lives around 2,500 people in 1,000 homes with 20 shops and businesses along the main street, mostly cafés and family businesses.

Lets say that an NGA project for the area has a single point of presence, and for simplicity that all the shops on the main street average 1km from the PoP and that each take a broadband service over a single fibre. This project is then connected to a neighbouring scheme 25km away using a direct fibre connection the scheme owns. So in total they have 45km (20 x 1km businesses plus 25km backhaul) of rateable fibre and 1,000 domestic customers.

All the tables of what rate what length and capacity are taxed at is here but this is a quick summary for this village:

  • The domestic access network element is rated at £20 per home connected, so we have an immediate £20,000 to consider.
  • Then we have 20km of business access with a single fibre lit, so this adds £6,600
  • And the 25km of backhaul adds a further £16,750 because they lit 4 fibres

A total rateable value of £43,350, which is rounded down to probably £43,250 and a multiplier is applied to calculate the payable rates. I understand the current multiplier is 0.417, so the rates payable by this community is £18,035.25 – or almost £18 per customer per year.

To add further complexity to this, I’ve assumed this project was an isolated community wanting to help themselves but if they had accepted an offer from a much bigger commercial company who had more than 1,000km of fibre, they might find the rates bill drop to a little over £13 per subscriber because scale, for the Valuations Office, matters.

There are any number of lessons to be learnt from this. Firstly that the additional rates for migrating a corner café shop from first generation broadband to a fibre-based connection costs as much as they may be currently paying for their broadband connection which seems to counter the ambition of the Government to unlock the potential of small businesses.

But equally curious is the disadvantage a self-help Big Society community is being asked to endure over a larger corporation through the business rates system. In my hypothetical village, a Big Society community would be asked to pay almost 40% more in business rates than Major Plc (setting aside the special treatment of BT which further exacerbates the problem).

It seems the VOA have created a very unique landscape for the UK to overcome. The UK has neither the appetite nor the money to fund a Da Wo top-down national fibre network, but the VOA rules means we also have a tax system which penalises grass-roots developments as well.

So who is encouraged to build if macro and micro approaches are being discouraged?

A model being championed by Rory Stewart MP for his Cumbrian constituency, part of which falls within the Big Society pilot area, is the idea of a village pump for broadband – a high-speed backhaul connection delivered to the heart of the community. If this is delivered by an large organisation then they may also benefit from lower business rates than the community itself would.

This then leaves the community to pick up the rates on the access network element for which there is less discrimination. As I coved in a previous article, if the community opt for a PON network rather than point-to-point then they can argue that the businesses can’t be isolated from the domestic customers, which limits their rates liability to “just” £20 per subscriber, business of domestic.

This seems such a complex, arbitrary model which serves to further contort the market rather than open and improve it. Somehow I don’t believe that Rory’s Village Pump concept was at the heart of the civil servant’s thinking when they “clarified” the rating system – its one of the many unforeseen outcomes.

VOA views on network architecture

Published on August 16, 2010 in Adrian's tech blog. 3 Comments Tags: , , , , , , , .

The Valuation Office’s clarification on rating fibre networks seems to have aroused much debate – I decided not to publish my own piece on the general tone of the clarification as much has been said before, and none better than this: as clarification goes, this does seem to be a unique piece of work.

However, there was one aspect I didn’t think had been explored yet.  It’s worth understanding the VOA’s position on network architecture and the impact they may have.

On the access network piece they have two means of calculating rateable values:

  • For domestic users there is flat rate of £20 per home connected
  • For businesses there is a table which relates to the distance, amount of fibre in the scheme and the number of fibres lit

However, the VOA has this to say in their worked examples:

The following scenarios are intended to provide clarity to the approach the VOA would adopt when applying the approach set out above. The scenarios cover FTTC, FTTH-GPON and FTTH-P2P, and have the following assumptions underlying them.

  • The end users in each case are a mix of residential and business customers; the identity of the end users as either residential or business users will not necessarily be available to the organisation liable for the rates on the asset (particularly if they are providing wholesale access to other service providers).

The implications of this are that if business customers can’t readily be singled out then they will be rated as domestic customers at £20 per connected premise. This really only applies to PON networks (not just GPON as the VOA asserts) where customers share a single splitter, while in an Ethernet overlaying a point-to-point network each customer will always be identifiable.

I calculated that the additional rateable value for connecting a corner café in a small town network might be in the order of £330 per year depending on all sorts of variables but as an order of magnitude it will do. This would be unavoidable if the network used a P2P Ethernet but if the café happened to share a PON splitter with some domestic customers then the rateable value might be reduced to £20 per year.

If I were designing a network today this would certainly influence my choice of technology, and if I were a member of the Metro Ethernet Forum or a manufacturer of fibre I’d be rather concerned that I’d been singled out in this way.

** UPDATE ** But this has wider implications than just prejudicing the technology choices of network owners. For it to be reasonable to claim that its not possible to differentiate between business and domestic customers, the PON splitters would really need to be buried in the network and not in the point of presence; the deeper the splitters are embedded the more reasonable the claim.

However this reduces the openness of the networks and the degree of infrastructure competition that can be developed. So adding to the clamour of the MEF, fibre manufacturers and network owners should be Ofcom – the VOA’s guidance as it stands impacts competition and choice.

Perhaps rather than a little more clarity, a simpler, fairer mechanism is called for!

It would be so much nicer if the civil servants behind this work sat back and took a long, deep look at what they are actually trying to achieve and designed a framework which did that simply and directly, rather than adding more caveats and “clarification” to an already over-complicated morass.

Ubuntu or Windows?

Published on July 20, 2010 in Adrian's tech blog. 0 Comments Tags: , , , , , , , .

While clearing down my info emails this morning there was an entry on the daily slashdot digest about Dell’s new advice to people torn between using Windows or Ubuntu on their computers. Like everyone else I suspect, I was expecting a checklist which helped differentiate the two operating systems and guide their customers to the right choice for them. Instead, it came down to - if you program or don’t fancy Windows, use Ubuntu, otherwise use Windows.

My take? I did a trial with my family four or five years ago to see if they missed Windows. For about a year they had Fedora inflicted on them and to be honest I don’t think they really noticed. They used Openoffice instead of MS Office, Evolution and Thunderbird instead of Outlook or, er, Thunderbird for email, and Firefox instead of, well, Firefox. For those irritatingly proprietary websites we even had Internet Explorer running under Wine.

Today, my main business machine is now running Ubuntu and probably 75% of my work is still done under Linux – its very fast, reliable and has a very slick user interface almost on a par with a Mac but not quite, and some distance ahead of Windows. For technical work, like the mapping, its streets ahead, and even for a lot mundane stuff like editing pictures and playing music its at least as good. And its simple “app store” model for just about very application type you can think of makes it so easy to find, install, and update applications (for free of course!).

My son has a netbook and he loves Ubuntu NBR – its quicker and easier to use than Windows on such small computers (screen and processor). And it seems he’s far from alone as Linux on netbooks has become mainstream.

So why do we still have a Windows computer as well? For two reasons:

  • Openoffice seems to have made no real progress in recent years while MS Office has been revolutionised since their 2007 version. The Oo interface is a ’90′s throwback – I’ll be the first to admit is probably got more features but you have to go searching for them and frankly I just want write reports not study word processing. Why is it taking so long? The OpenOffice Renaissance project seems to have been under-way for ages now; in the mean time Oo stands-out on my desktop like a sore thumb against all the other applications I use.
  • Secondly, schools seem obsessed by Microsoft. If we didn’t have a Windows computer its not clear my kids would be able to finish their homework.

So hats off to Microsoft - Windows 7 is a huge improvement and Office 2010 is great – for lots of people Windows is just right for them. If OpenOffice could get their collective heads around just how far their interface has fallen behind, then those same people could equally be using Linux, and schools might be able to save a pile of money. In the mean time Ubuntu will very comfortably dominate a growing number of niches, like netbooks and high-end workstations.

Still not sure? If you have some spare disk-space then try WUBI – “Windows Ubuntu Installer”. It installs Ubuntu under Windows and if you don’t like it, just remove it like any other application. But if you do, you have a dual-booting machine which is able to run both without formatting disks and all the messy stuff associated with installing a new operating system. Well worth a try.

Ambition is the new agenda

Published on July 18, 2010 in Adrian's tech blog. 1 Comment Tags: , , , , , , , , , , , , , , , , .

Last Thursday I attended the Government’s Industry Day where they laid out their key policy framework and work programme for broadband and the internet. If you hung around just long enough to hear Jeremy Hunt, Ed Vaizey and Caroline Spelman speak, and with only one ear on what was being said while you rushed to submit your copy you might be forgiven for thinking this was another platform where the new government blames the old for a delay in delivering on a promise – BUT you’d be VERY wrong.

Before the election two phrases kept cropping up – “We’re in this together” and “Big Society”. For me, Thursday’s event was possibly the first time I’d seen a concrete example of what that meant in real terms. What was announced wasn’t a policy which handed large sums of money to a semi-state organisation to proscribe how better broadband would be delivered from on high. Instead we heard from Ministers explaining what their role was in defining and delivering the future, what we could reasonably expect from central Government, and what needed to come from others.

We heard how the Government will remove barriers to investment and create the structures necessary to support local communities in defining their own broadband futures, and how industry would be encouraged to support that process, enabling a smart division of skills that could solve all but the most intractable of broadband problems.

And we heard from a Minister with a vision of 50 Mbps symmetrical services reaching most people by the end of this parliament delivered by the combined efforts of Government, industry and communities. I suspect that sent a few shivers through Whitehall but knowing the people involved I’m sure they are universally excited by the challenge.

Starting immediately is a month long consultation seeking paper solutions to three paper broadband problems. These will be used to shape the Government’s support programmes, ensuring both commercial and community organisations receive the right kind of support in the right manner. At the same time, the English regions and the devolved assemblies are each being asked to construct a long-list of areas they want to benefit from next generation broadband. From this, Broadband Delivery UK (BD-UK) will announce the location of three real market testing projects in September and begin a tendering process to find the right mix of commercial and community players to make them a reality. From these projects they aim to learn about the impact of state aid, forms of broadband registration and demand stimulation, and infrastructure sharing open access models.

While this is going on, BD-UK will be negotiating with the EU towards a national state aid agreement which for the first time since dial-up modems were in short trousers will provide clear guidance to local authorities on what they can and can’t do.  State Aid legislation has been a bigger block to UK investment in broadband than almost any other, with state sponsored projects crippled by fear of challenge or paralysed by years of rulings before they can begin work. The first roadblock gone – and with it gone, a new process will be in place to unlock the public networks which already reach many of our most remote communities.

Secondly work will push ahead on infrastructure sharing including the opening up of BT’s ducts as well as other assets like the sewers and culverts. This is a knotty problem and not a panacea but an important element in making the UK an easier place to invest in. Second roadblock going.

With all this work hopefully complete – the lessons from the market testing projects learnt, infrastructure hopefully opened up, and state aid put to bed – the Government will announce the main programme of work next year to support local delivery of super-fast broadband, supported by what they termed “mid-level aggregation” to make it easier for the service providers to link to homes and businesses. This time next year we will be well prepared for the main challenge ahead.

Did I hear all the answers on Thursday? No
Does that worry me? Quite the opposite – I’m relieved!
Am I excited? Absolutely!

For the first time in a long while, ambition is back on the agenda. Whether we actually achieve at least 50Mbps symmetrically to every corner of the UK doesn’t matter nearly so much as the way it will change the shape and aspirations of an industry, and the people and businesses that it serves. The journey matters as much as the arriving, and we are on our way.

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