UPD Virgin Media Warn Hike in Business Rates to Hurt Broadband Rollout

The Government’s Valuation Office Agency (VOA) has published its proposed non-domestic business rates this morning, which has caused cable operator Virgin Media to warn that it will hamper the laying of new broadband infrastructure by forcing a “steep increase” in related costs (aka – Fibre Tax).

The new draft, which stems from a recent revaluation of 1.96 million non-domestic properties, applies to anyone in England and Wales who pays business rates. The VOA generally sets its business rates (charges) using a complicated system of either revenues and costs (e.g. BT pay tax based their profits (arrears)) or via one that examines how active a network is.

Obviously any hike in charges is a problem for broadband infrastructure builders and some, such as Virgin Media and Cityfibre, look likely to be stung more aggressively than others. All of that could create an obstacle for Virgin Media’s recently mooted proposal to further expand the planned reach of their FTTP and Hybrid Fibre Coax (HFC) network (Project Lightning).

Tom Mockridge, CEO of Virgin Media, told ISPreview.co.uk:

“The Chancellor Philip Hammond is choosing to side-step responsibility for a huge increase in infrastructure taxes at the very moment after the Brexit vote the UK needs to maximise investment into its digital fibre network.”

At present Virgin Media is working to expand the reach of their network to an additional 4 million UK premises by 2019, although they have recently hinted that their planned coverage could go beyond the 4 million mark. However the VOA’s move to make such developments more expensive will surely be a hindrance to that aspiration and it also affects other operators in a similar way.

We should add that BT are also likely to be hit by the latest rise and said it considers the new values “to be excessive and will challenge the VOA on its method and assumptions.” Virgin Media also expressed to us that the change amounts to a “quadrupling of our rateable value” (this is the value attributed to VM’s assets at which the eventual rate will be set against them). Ouch. As one of Virgin Media’s spokespeople told ISPreview.co.uk, it’s a “kick in the cabinets.”

UPDATE 1:19pm

Some more disapproving comments have come in.

Julian David, techUK CEO, said:

“Broadband is now the most important service delivered to home or business premises and jobs and growth depend on investment to boost digital connectivity.

This Government has recognised that, and has invested a significant amount of public money in improving broadband availability, speed and quality to more consumers.

Yet with these proposals, the VOA aims to increase the cost of better broadband right across the board: all providers, all technologies.

Whichever superfast broadband delivery technology businesses and consumers choose to connect with – these huge business rate rises will be passed onto them.

This not only undermines the Government’s digital strategy so far, but will also discourage investment. Additionally, it calls into question the potential for the UK to be a leader in 5G.

Consumers cannot stop using broadband. And we wouldn’t want them to. This is little short of a connectivity tax. It will hit everyone hard – businesses large and small and significantly it will significantly impact price sensitive consumers.

The Treasury needs to tell the VOA think again.”

Richard Hooper, Chair of the Broadband Stakeholder Group, said:

“The Government and industry are clear that we want to continue to invest to support the world-class connectivity that our economy needs to succeed. This huge increase in business rates on broadband networks by the VOA goes against that objective and introduces instability and risk at a time that we need it least. The Government needs to consider how to mitigate this impact and work to ensure that the whole of the public sector is working to encourage rather than deter investment.”

Mark Collins, Cityfibre co-founder and INCA Chair, added:

“At a time when both the Government and Ofcom are seeking a strategic shift to more investment in fibre optic broadband infrastructure, the VOA and DCLG must establish a business rating policy that encourages this aim.

Form today’s announcement it is very clear the current system is broken. This issue does not effect just BT and Virgin, but all builders of communications infrastructure.

Current VOA policy taxes the fibre connections of smaller operators at a considerably greater rate than BT and Virgin. This is a massive institutionalised distortion of competition, out of step with other Government policy and a barrier to investment in the UK’s broadband infrastructure. Major reform to the business rating of broadband infrastructure is essential, and it must come quickly.”

UPDATE 3:24pm

Now the UK Internet Service Provider’s Association has chimed in.

James Blessing, UK ISPA Chair, said:

“ISPA is extremely disappointed that the Valuation Office Agency has decided to significantly increase rateable values hitting companies that delivering superfast broadband hard. The Government rightly wants the UK to continually improve its digital infrastructure and our members are investing heavily in their networks. Significantly raising rates in this way is only going to put up barriers to investment and make bills more expensive to consumers and businesses.

Brexit means the UK needs to show it is open for business, for Government to meet this challenge it needs to create a better environment for investment based on certainty and stability.”

UPDATE 3:50pm

The Broadband Stakeholders Group suggests that the move will push major infrastructure providers’ bills from £165m to £743m from 1 April 2017, although it’s not clear if they mean annually or something different (we assume per year). Now that’s quite a hike!

UPDATE 11pm

The BSG informs that the increase mentioned above is just BT’s annual costs in England alone.