This Class is dealt with by the National Specialists, Telecoms Team, CEO Rating Directorate. All Groups and CEO Telecoms Team are responsible for ensuring that effective co-ordination takes place.
a) a) Groups are responsible for advising the Telecoms Team National Specialists on the values adopted for the buildings element, where requested.
b) b) The Telecoms Team National Specialists to be responsible for the network valuation and reviewing the network assessments periodically for Material Changes in circumstances.
A Primary Description Code of MTX and a standard description of;
"Telecommunication Fibre Optic Network (and premises)" should be used.
The R2005 Special Category Code is 275. The appropriate suffix letter should be N.
In the event of any queries being received by the Groups, the query should be referred to the Telecoms Team, National Specialists via the “Mast Advice” in-box, titled “Fibre Optic query”.
For further information on co-ordination, see Rating Manual - Volume 2: Section 1: Practice Note 2005.
See section 870 for Cable TV networks, section 860 for Masts and Communication Stations and section 872 for Telecommunications Switching Centres.
A scheme of valuation was agreed for the 2000 rating list with several major rating agents who represented the majority of fibre Optic network operators. The 2000 scheme valued the "fibres" on a rental tone basis with additions for network buildings based on rental value and an addition for other rateable plant and machinery based on decapitalised cost.
The 2000 list fibre rent tone was arrived at by analysing passing fibre rents (1 to 12 fibres) around the AVD (1 April 1998), looking at the Wayleave payments and decapitalised cost of construction for the top end of the scale at 48 fibres, then scaling the middle part of the table. This was necessary as there were no fibre rents available at the top and middle of the scale, very few rents above 6 fibres and almost none above 12 fibres. Adjustments were made to reflect that not all the fibres were lit on the own build sections and for repairs and maintenance, where they are included in the fibre rents. A discount of 10% was applied when the total fibre kilometres exceeded 3,000 km in line with a framework fibre rental agreement. An uplift of 20% was applied to the London Metropolitan Area Networks (MAN) to reflect the higher value area in London and this looked at wayleave payments in the London underground and the higher cost of own build.
Vtesse Networks Ltd challenged the VO’s 2000 list fibre rent tone at a Lands Tribunal hearing held in May and July 2008. The Lands Tribunal confirmed the VO’s construction of the fibre rent tone in its decision dated 7 November 2008 (RA 50 & 63 2004), rejecting Vtesse’s arguments completely.
The VO has adopted a similar scheme for the 2005 rating list, reflecting the fall in fibre rental values from 1998 to 2003. It was estimated that fibre rents fell up to 50% between the 2000 and 2005 list AVD’s. The 2005 fibre rental scale has not yet been established by agreement and it may or may not be subject to further adjustment following discussions with agents acting for the fibre operators.
The telecommunications industry has undergone major changes over the last decade from the days of fibre optic network investment, build and growth in the late 1990’s to the dot com and telecoms crash in the early 2000 years. Problems in financing and intense competition with network oversupply were evident in 2002. 2001/2002 was perhaps the bottom of the market but a number of operators had committed to dark fibre leases or network build that came on line up to 2002. There was little market activity for a few years from 2002 but some indications that it was slowly picking up were evident approaching 2005.
The telecoms industry has been particularly active in the litigation of rating appeals, which has lead to a number of decisions that clarify the rating of fibres and the valuation methodology.
Own build and leased fibres were held to be rateable to the occupier of the network by the President of the Lands Tribunal in Alan Roy Bradford (VO) –v- Vtesse Networks Ltd [2005] RA/50/2004. This was subsequently confirmed in the Court of Appeal in Vtesse Networks Ltd –v- Alan Roy Bradford (VO) [2006] EWCA Civ 1339.
The Vtesse 2000 rating list appeals were sent back to the Lands Tribunal to determine the valuation issues. The case was determined in November 2008, fully justifying the VO’s fibre rent tone approach to the valuation and rejecting Vtesse’s case that they should be valued based on a diss-aggregation of BT’s network RV. The Lands Tribunal also rejected Vtesse’s European Law arguments. Alan Roy Bradford (VO) –v- Vtesse Networks Ltd [2008] RA/50/2004 RA/63/2004. It is believed that Vtesse are considering a further appeal to the Court of Appeal.
In addition to the domestic UK litigation, Vtesse complained to the European Commission in 2004, claiming that BT was in receipt of illegal State Aid. Following a very detailed investigation, the Commission found in its decision dated 12 October 2006 (2006/951/EC) that there was no State Aid and the rating system had been correctly applied to the valuations of BT, Kingston Communications and other competing telecommunication network operators. Vtesse have appealed the Commission’s decision to the European Court of First Instance and this appeal is still outstanding.
There is a paucity of new and reliable evidence as at 1 April 2003. A general view of the market and how it had changed from 1998 to 2003 had to be taken. It was assumed that the fibre rents had fallen from 1998 to 2002 by 50% and for the 2000 list half of this fall was allocated to the physical oversupply with an agreed 25% allowance applied from 1 April 2002. The other half was attributable to economic circumstances and no allowance made for 2000 list assessments. The market was assumed to be in a similar position in 2003 and therefore a 50% reduction from the original 2000 list fibre rent tone was used to form the basis of the 2005 list fibre rents adopted by the VOA.
The falls in fibre rental value were not reflected in the rents being paid for network buildings as these competed with other non-telecoms occupiers and rents of buildings continued to grow in line with general market trends. As the networks failed to grow at the rate originally predicted, there is an excess of unoccupied space in some network buildings. Allowances for this unused and excessive space have been applied on the same basis as for the 2000 list. An end allowance on the building based on half the excess and unoccupied space has been applied. Inspections are required to verify that the space is in fact unused and not being used for storage or any other purpose.
A special form of return, VO6053, has been designed specifically for fibre optic networks.
A copy can be viewed on the VOA website at: http://www.voa.gov.uk/business_rates/forms/VO6053.pdf
The return request details of all network and network buildings built or leased from third parties in respect of the operator’s occupation. It also requests similar details in respect of all network infrastructure and buildings let out to other operators where the operator is in effect a landlord or fibre provider. Let outs are requested in order to identify new networks and extensions to existing networks.
Updated details should be requested informally at least on an annual basis and if necessary a follow up VO6053 should be sent out if information is not provided within 56 days of the informal request.
Fibre Networks:
The unit of assessment should include all contiguous fibre routes and spurs that are occupied by the operator as one network and include all connected operational network buildings such as transmission, switching, relay sites and points of presence (POP) sites. However, contiguity does not include network routes or network buildings connected by leased capacity on another operator’s backbone fibre optic network or leased capacity on BT’s telecommunications network.
It is acceptable to assume small breaks of less than say a hundred metres in network infrastructure, where connections by leased capacity exist to bridge the gap, do not affect the contiguity and unit of assessment on the basis of the functional essentiality of the whole network. However the “spark plug” principle should normally be considered as too weak to create contiguity when the gap exceeds a hundred metres. Cases on unit of assessment have to be considered on their individual facts. It is not necessary to consider contiguity in respect of any central list telecom networks or any designated on a particular local list as set out in 8.a) and 8.b) below as all their designated network is to valued as one hereditament.
Where an occupier of two or more buildings connects them by building or leasing and lighting their own dark fibres, rather than taking a serviced capacity from a network operator, the service connection is not considered to create contiguity between the buildings for rating purposes. Consideration should be given to the main purpose of the occupation of the buildings, for example as offices or educational use, rather than for telecommunications transmission and switching as part of a network. If the fibres are occupied for a subsidiary purpose they are not to be treated as creating contiguity between the buildings. An example of this would be fibres connecting separately rated university campus buildings. The fibre network will be valued separately to the university buildings. However, if the University is all on one campus, and the building are connected by their own fibres, the fibre network should be reflected in the valuation of the university campus, providing it is contained wholly within it and it is assessed as one hereditament.
For the 2005 rating lists, Regulation 6 of the Non-Domestic Rating (Miscellaneous Provisions) Regulations (SI 1989/1060) applies to all fibre optic networks that are not:
a) Designated on the 2005 Central Rating list for England and for Wales by;
The Central Rating List (England) Regulations 2005 (SI 2005/551) and
The four designated operators in England and in Wales are:
British Telecommunications plc.
Cable and Wireless UK.
Global Crossing (UK) Telecommunications Ltd.
Energis Communications Ltd.
b) Designated on a specified local rating list by The Non-Domestic Rating (Communications and Light Railways) (England) Regulations 2005 (SI 2005/549)
Operator: Designated Billing Authority:
Colt Telecom Group Common Council of the City of London
Easynet Telecommunications Ltd London Borough Council of Tower Hamlets
Fibrenet Group plc Reading Borough Council
Gamma Telecom Holdings Limited Trafford Borough Council
Kingston Communications Ltd Kingston upon Hull District Council
KPN Eurorings B.V London Borough Council of Tower Hamlets
Level 3 Communications Ltd London Borough Council of Tower Hamlets
MCI Worldcom Ltd London Borough Council of Camden
NTL National Networks Ltd Bedford Borough Council
Surf Telecoms Ltd Bristol City Council
Telewest Communications Group Ltd Tewkesbury Borough Council
Teliasonera International Carrier UK Ltd London Borough Council of Tower Hamlets
Telstra Europe Ltd London Borough Council of Tower Hamlets
Thus plc London Borough Council of Tower Hamlets
VTL (UK) Ltd Runnymede Borough Council
Your Communications Ltd Manchester City Council
Designation on the England or Wales Central lists or the Local Rating lists allows the networks of the designated person to be treated as one network even if parts of it may not be contiguous in rating terms, although in fact most are contiguous in the main. There is no requirement to determine which Billing Authority contains the greatest proportion of RV under Regulation 6 (SI 1989/1060) in the case of these designated operators as they are entered into the named Billing Authority or Central rating list.
The Billing Authority rating list in which a Non-designated operator’s network has to be entered at the 2005 rating list compilation date has to be determined in accordance with Regulation 6 (SI 1989/1060). The VO has to determine where in his opinion the greatest proportion of value lies. The assessment then remains in the same Billing Authority list until the next revaluation unless it becomes part of a new hereditament. If the position cannot be reasonably ascertained the assessment should remain in the same Billing Authority list as for the 2000 rating list. However, the interpretation of Regulation 6 is currently being considered in the light of the recent Lands Tribunal decision in Donald Malcolm Baker (VO) –v- Citibank NA 2007 RA/66/2004. Any queries on the application of the Cross Boundary Regulations should be referred to CEO via the “Mast Advice” inbox.
Any new network hereditament coming into being after 1st April 2005 will be entered into the appropriate rating list, at the appropriate Material Date for a new list entry, in accordance with the above cross boundary regulations.
It should be noted that the cross boundary regulations do not distinguish between English and Welsh Billing Authorities and they do not apply to Scotland. Any network crossing from England to Wales or visa versa will lead to that network being assessed where the greatest proportion of value lies, irrespective of whether part is in England or part in Wales. Any network crossing from England to Scotland will be rated in England up to the border with Scotland. Fibre optic cables that continue as submarine cables for international connections are rateable down to the administrative boundary of the Billing Authority, this is usually to the low water mark unless special circumstances occur that extends the BA boundary.
Central discussions with the main rating agents took place on 8 July 2008 but the VO’s fibre rent scale has not been agreed for the 2005 rating list. Discussions have been delayed due to the Vtesse 2000 list Lands Tribunal case heard in 2008 and the subsequent clearing of outstanding 2000 list appeals. The fibre rent scales adopted by the VO for the 2005 rating list are set out in Appendix A and are approximately 50% of the 2000 rating list scale as set out in Appendix B. However, some smoothing and fine-tuning of the scales is likely to be required as they become established through discussions and agreement. The overall RV/Route km increases as more fibres are lit up to a cap of 48 fibres. There are three 2005 list fibre rent scales set out in Appendix A, as there were for the 2000 list:
1. Long Distance Network (LDN) less than 3,000 fibre km in length
2. Long Distance Network (LDN) greater than 3,000 fibre km in length
3. London Metropolitan Area Network (MAN)
Long distance networks that pass through London as a through route, rather than a Metropolitan ring are valued on the LDN scale.
This is considered to be a Material Change in Circumstances and the network valuation will be revised by adding the new route based on the relevant number of lit fibres from the appropriate VO fibre rent scale. The revised overall fibre kilometres should be considered to see if the over or under 3,000 fibre km rate is applicable to the whole network valuation.
This is also considered to be a Material Change in Circumstances. Where an operator lights additional fibres on an existing route, the revised number of fibres should be taken from the appropriate fibre rent scale and applied to that route. For example, originally 2 fibres lit on route A valued at £500 /route km replaced by 4 fibres lit on route A at £668/route km.
Worked examples of the application of the fibre rental basis are included in Appendix C.
Older fibres installed pre 1995 are likely to have greater attenuation properties and less capacity to more modern fibres due to the degradation of the more frequent joints in the fibres and the lower fibre quality. In addition transmission capacity has changed with technological developments such as Dense Wave Division Multiplexing (DWDM) for example, where a single fibre is now capable of taking the same traffic as many fibres would have taken a few years ago. However, the new technology is more expensive and is believed to be less versatile for individual breakouts and customer connections. Obsolescence allowances for the age of fibres should be considered. However, insufficient evidence has been produced to consider technological obsolescence allowances to date as many of the older networks continue to use the older, more versatile and cheaper technology they originally installed. When considering any allowance for technological obsolescence, regard should be had to the total cost of the modern substitute, including the cost of non-rateable parts, and the cost of operating the modern substitute in relation to the total costs of the older technology.
As a general rule of thumb, unlit fibre in the ground is treated as network under construction and therefore not rateable. It is usual to accept the date the fibre is lit as evidence of the existence of a rateable network and this is normally taken as the effective date for the assessment. However, the strict approach is that any fibre connection that is completed and capable of being lit, without a further material change in circumstances, is considered to be capable of being a rateable hereditament. The testing of fibres by the operator before services are offered to customers is also considered to be evidence of rateability. Each case should be considered on its merits.
The switching off of the fibre at non-rateable equipment is not a material change in circumstances and the fibre will remain assessed. In order to take the switched off fibre out of assessment there must be a physical change such as the removal of the patch cord and physical breaking of the fibre and removal of the non-rateable equipment. Written confirmation must be obtained from the operator before a deletion is considered.
All network buildings, occupied with the fibre optic network are to be valued on local rental tone levels for similar premises reflecting any rateable tenants improvements such as raised floors, suspended ceilings etc. Regard should be taken of the actual rents passing on the buildings as a stand back and look. Some relay sites and points of presence can be no more than a steel portacabin type building resting on a concrete base, these are valued on a decapitalised cost basis for the cabin plus a site rent for the land. Further guidance on the value of network buildings is contained in Rating Manual Volume 5, Section 872. GVO's are on request, to advise the National Telecoms Specialists on the values of the buildings associated with the fibre optic networks. When a local rental tone is not available, the building should be valued on the rent passing, suitably adjusted to the AVD and adjusted as necessary or on decapitalised cost basis if the site is freehold.
Where a network includes several network buildings a 10% end allowance on the buildings values should be applied to reflect aggregation and discount for size, as it is assumed that; all of the network buildings together with the network infrastructure, are let by one landlord to the tenant operator. All networks should be considered on their own merits but as a rule of thumb a discount should not be applied where there are less than 4 buildings or if they are of a minor nature. The 10% allowance should only be applied to buildings occupied with telecom networks and not to buildings connected merely by network service connections.
Some network buildings were procured during the anticipated “boom” period in the late 1990’s to 2001 and therefore can contain a significant amount of empty space as demand failed to materialise. A stand back allowance can be considered where it is clear that excessive space has been taken. As a rule of thumb the allowance should be no more than 50% of the full value of the unused space, after allowing for normal circulation and service areas etc.
For example; 100 sqm network building of which 40 sqm is completely empty and unoccupied and is unlikely to become occupied in the foreseeable future. The allowance will be equivalent to half the unused area (50% of 40sqm) = 20 sqm. This allowance replaces the general 10% allowance for size and aggregation, it is not in addition to it. Common sense should be applied to this allowance and each case looked at on its own merits, it is not meant to be an exact mathematical apportionment. Plans should be requested from the operator, showing the racks and equipment installed at the relevant and current dates and if necessary confirmed by a site inspection. The allowance should be reviewed when list alterations are made for Material Changes in circumstances.
Additional rateable plant and machinery (P&M) should be reflected where appropriate by adopting a decapitalised cost, on the VO 2005 cost guide basis, at the statutory decap rate of 5%. Rateable P&M typically includes electrical transformers, switches, UPS, batteries, Generators, cctv and security systems etc. Air-conditioning P&M is not included if it’s sole purpose is to cool the process plant and machinery. Air-conditioning P&M associated with cooling office accommodation should be valued. Similar consideration should be given to fire protection P&M as is given to the air-conditioning P&M. It is normally assumed that the fire protection, gas type systems are mainly to protect non-rateable P&M and are therefore not valued. Age related allowances should be considered for Plant and Machinery where appropriate.
There has been some rationalisation of networks with a number of operators taking over other operators networks. Global Crossing took over the Fibrenet network in Decemeber 2006, NTL and Telewest were purchased by Virgin Media and is now operating as Telewest Communications Group Ltd, C&W UK have taken over Energis and then Thus (details still being sought). Some of the routes have therefore been duplicated in the mergers of the network infrastructure. The VO’s policy on duplicated routes is set out below:
1. Where fibres are taken in the same duct route we value based on the RV/route kilometres for the total merged number of lit fibres on that route from the VO fibre scale.
2. Where different diverse routes are used between the same end points the VO policy is to treat each duct route as a separate route. Most networks have this type of diversity for network integrity reasons.
3. When an old route is replaced by a new route between two end points on a different diverse route and traffic is transferred over to the new route and the old route decommissioned we treat this as a single route, providing all customers can be serviced from the new route and the old route is decommissioned within a reasonable period of time.
BT has some 23 million Local Loops in the UK. Non-Domestic Rating LLU regulations are currently applicable to BT’s hereditaments only. A local loop is the metallic path between the telephone exchange and the customer’s premises, consisting of a pair of copper wires. Full unbundling allows another operator to take over the occupation of BT’s Local Loop and offer their services to the customer. In effect BT has let out the Local Loop to another operator. After a period of consultation BT were designated as the occupier of all their Local Loops, including the fully unbundled loops in England:
The Central Rating List (England) Regulations 2005 (SI 2005 No 551)
The Central Rating List (England) (Amendment) Regulations 2006 (SI 2006 No 495)
The Central Rating List (England) (Amendment) Regulations 2008 (SI 2008 No 429)
The Non-Domestic Rating (Communications Hereditaments) (Valuation, Alteration of Lists and Appeals and Material Day) (England) Regulations 2008 (SI 2008 No 2333)
and in Wales:
The Central Rating List (Wales) Regulations 2005 (SI 2005 No 422 (W.40))
The Central Rating List (Wales) (Amendment) Regulations 2008 (SI 2008 No 2672 (W.236))
The Non-Domestic Rating (Communications Hereditaments) (Valuation, Alteration of Lists and Appeals and Material Day) (Wales) Regulations 2008 (SI 2008 No 2671 (W.235))
Therefore, all BT’s Local Loops in England and in Wales, including the unbundled loops operated by other telecoms operators, are included in BT’s 2005 Central Rating list assessments in England and in Wales. Unbundled local loops should not be included in any operator’s network hereditament, other than in BT’s.
NGA networks are basically the replacement of the “last mile” copper loops by fibres to promote the roll out of high-speed broadband services. Although initially they will be rolled out in new developments like Ebbsfleet in Kent, the aim is to eventually replace existing copper access network with fibre optics. There are two basic network architectures being considered, fibre to the cabinet (FTTC) and fibre to the home (FTTH). Some CATV networks already have FTTC. Both BT and Virgin Media have announced they will be upgrading some of their local access networks to NGA from 2008. However, NGA will probably be developed towards the end of the 2005 rating list and therefore no real evidence of value is currently available.
As NGA will be mainly the replacement of existing copper infrastructure, the VO considers that the level of value for residential NGA connections will be similar to the £7.50 per home passed adopted for cable TV access networks, the nearest comparable network currently offering broadband services. The additional value generated by the increased Broadband capacity will be initially offset by the high investment costs and pioneering nature of FTTH. The VO therefore proposes to value NGA residential connections on the same basis as the current Cable TV assessments for the duration of the 2005-rating list, up to 31 March 2010. Business connections will have to be considered on their individual merits but they will not be valued any higher than the fibre optic network rents based on the number of lit fibres and the route kilometres.
As no evidence of value is available to the VOA as at 2008, the AVD for the 2010 revaluation, this approach will also be adopted for the 2010 rating list but at the revised Cable TV value for the residential NGA connections and at the revised fibre rent basis for business connections, which have yet to be determined. In order to assess any change in value, the VOA will monitor the development of NGA and seek further evidence from operators and network developers.
Further background details on NGA can be found in Francesco Ciao’s independent report on Broadband Britain, “Review to Barriers to Investment in NGA – Final Report”, published September 2008 and sponsored by the Department for Business, Enterprise and Regulatory Reform (BERR). The VOA provided a detailed briefing report to the Ciao review team on non-domestic rates and how they apply to telecommunications infrastructure. It was the VO’s intention to publish a Practice Note on Fibre Optic networks and NGA but this has been brought forward following the recommendation in the Ciao report at page 63 e) “to provide clarity over application of business rates to fibre.”
The issue of a Transitional Certificate should be considered as soon as is practical under the provisions of the Non-Domestic Rating Chargeable Amounts (England) Regulations 2004 (SI 2004 No 3387). Certificates should be issued Certifying the RV that would have been in the 2000 rating list as at 31 March 2005 when the RV actually in the list is inaccurate because it does not reflect the physical extent of the hereditament at that date.
Enquiries about this Practice Note to CEO Rating, Telecoms or to the “Mast Advice” inbox headed Fibre Optic Networks.