Monthly Archive for August, 2010

Rating success or land-grabs?

Published on August 31, 2010 in Adrian's tech blog. 3 Comments Tags: , , , , , , , , .

I’ve one final piece to get off my chest about the VOA’s “clarification” on business rates applied to 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 “” 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 , but there is a wider impact and one which suggests the civil servants at the VOA haven’t really understood the new Government’s 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 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 service over a single . This project is then connected to a neighbouring scheme 25km away using a direct connection the scheme owns. So in total they have 45km (20 x 1km businesses plus 25km backhaul) of rateable 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 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 and the impact they may have.

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

  • 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- 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.

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