Rating Manual section 6 part 3: valuation of all property classes

Section 871: telecommunications fibre optic networks

This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.

1. Scope

This section gives guidance on the approach to this class; for specific valuation guidance see the current practice note.

It applies to fibre optic telecommunications networks including; backbone, trunk, backhaul, point to point networks and service connections.

This section does not apply to

1.BT, Kingston Communications or any other network valued on a full receipts and expenditure basis. 2.Cable TV networks 3.Next Generation Access (NGA) networks

In general the network fibres are valued on a rental tone basis with additions for any network buildings, radio sites and rateable plant and machinery.

2. List Description and Special Category Code

List Description: MTX, Telecommunications Fibre Optic Network (and Premises)

SCAT code: 275

SCAT Suffix: U

3. Responsible Teams

The valuation and referencing of this class is the responsibility of the National Specialists’ Unit Telecoms Team (NSU Telecoms Team)

4. Co-ordination

The NSU Telecoms Team is responsible for this class. However co-ordination is required with the business units, in particular

1.Seeking advice on building values 2.Ensuring splits and mergers of network buildings are completed by the business unit.

Advice should be sought by the Business Units on any matter relating to fibre optic networks via the NSU Inbox.

5.1 Cross Boundary Hereditaments

Regulation 6 of the Non-Domestic Rating (Miscellaneous Provisions) Regulations (SI1989/1060) applies to all fibre optic networks that physically extend beyond a single billing authority boundary, except in the following circumstances

1.Those fibre optic networks covered by the Central Rating List (England) Regulations 2005 (SI 2005/551), or the Central Rating List (Wales) Regulations 2005 (SI 2005/442, W40) 2.Those fibre optic networks covered by the Non-Domestic Rating (Communications and Light Railways) (England) Regulations 2005 (SI 2005/549)

Designation in this legislation 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.

5.2 Litigation

Own build and leased fibres were held to be rateable to the occupier of the network by the Lands Tribunal and confirmed by the Court of Appeal in Vtesse Networks Ltd v. Alan Roy Bradford (VO) [2006] EWCA Civ 1339.

As a general rule of thumb if a person owns and/or leases from a provider, dark (unlit) fibre, and lights it themselves, they will be in rateable occupation. In short the person who lights the fibre is the rateable occupier.

6. Survey Requirements

6.1 Unit of Assessment

Fibre Networks

The unit of assessment should include all contiguous fibre routes occupied by the operator as one network as well as all connected operational network buildings such as those used for transmission, switching, relay, points of presence and data centres. However contiguity does not include network routes or buildings connected by leased capacity on another operator’s network.

It is not necessary to consider contiguity in respect of any Central List or designated local list telecoms hereditament as the whole network is valued as a single hereditament.

Service Connections

Where an occupier of two or more buildings connects them by building or leasing and lighting their own dark fibres, rather than taking a managed telecom service 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 for office 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 and so they should appear as a separate hereditament.

6.2 Request for Information (VO6053)

A special Request for Information (VO6053) has been designed specifically for fibre optic networks.

The form requests 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.

Updated details of the physical extent of networks are requested from operators on a periodic basis on a simplified VO6005 Request for Information where a copy of the current valuation is attached asking for any changes to be declared. This is necessary in order to keep the rating list maintained and factually accurate.

6.3 Fibre

It is practically impossible to physically inspect network fibre. Details should be obtained from the form of return or directly from the operator. These include;

1.Start and End points of the routes 2.Route length in km 3.The number of fibres lit for each route section

6.4 Network Buildings

Generally network buildings are converted industrial or office properties. These should be surveyed and valued in accordance with the normal provisions for that class of property.

It is important to separately note the areas of the transmission/switching rooms, as the value of these areas is uplifted to reflect the fact they have been improved.

Floor plans showing the installed non-rateable transmission equipment should be obtained to confirm actual used areas in the event a superfluity allowance is applied.

Plant rooms and loading bays are usually outside of the main switching pod. These will generally be found to occupy unimproved space.

Ancillary office space should be measured and valued according to the applicable scale relativity. Improvements such as raised floors and air conditioning should be noted.

6.5 Rateable Plant & Machinery

Full details of rateable plant & machinery should be noted. These will typically include.

i. Diesel Generators (Note kVA)

ii. UPS Systems (Note kVA)

iii. Batteries (Note voltage and number)

iv. Primary Transformers (Note range of voltage transformation)

v. Primary Distribution Boards and Switches

vi. CCTV

Ideally an electrical schematic plan should be obtained to confirm the rateable plant & machinery.

Air Conditioning systems should be noted

Fire protection systems should also be noted

6.6 Radio Sites

A number of the larger networks include radio sites. These should be surveyed and valued in accordance with Rating Manual, Section 6 - Part 3: Section 860 Radio and TV Transmitting/Receiving Stations and Masts (Including Microwave Masts).

6.7 Enquiries on Class

For enquiries on this class contact the Via the NSU Inbox NSU Telecoms Team.

7. Survey Capture

Plans and surveys should be stored in appropriate property folder within the Electronic Document Records Management (EDRM) system.

8. Valuation Approach

The valuation approach is a rentals basis for the fibre, buildings or land, with additions for rateable Plant & Machinery based on decapitalised cost at the statutory decapitalisation rate.

8.1 Fibre

Fibre is valued at an amount per route km depending on the total length of the network and the number of lit fibres.

Whilst all fibre shares the same physical characteristics national networks can be divided into Trunk and Access.

The Trunk fibre network comprises of fibres that link towns and cities directly.

The Access fibre network runs from switch buildings around a local area and will physically connect with a customer’s premises. Its purpose is to collect traffic from customers and deliver it to the nearest network building. There is a greater number of fibres in an Access network as each customer’s premises must be separately connected to the network.

The scale of values is derived from available rental evidence submitted in Requests for Information.

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 fibre and lower quality. Obsolescence allowances for these older fibres should be considered.

Transmission capacity has changed with technological developments such as Dense Wave Division Multiplexing (DWDM) leading to a single pair of fibres on trunk networks taking the same traffic as many fibres would have previously taken. This aspect was addressed in the 2005 VT case, Cable and Wireless UK v. Subacchi. It was determined the value of a modern national trunk network should be capped at 6 fibres complying with a so called “Modern Industry Standard” (MIS). Routes lit by non-MIS equipment should still be valued but capped at 2 fibres. This allowance does not apply to access or wholly urban networks where multiple lit fibres are still required in order to connect with customer premises.

Where networks are merged the circumstances of each case will be investigated to determine whether there is duplication of routes in the same cable or duct, or whether the routes are diverse. Diversity is often required for network integrity reasons and to access a greater number of customers.

Full details of the approach for the relevant Rating List will be found within the Practice Note for the class.

8.2 Unlit Fibre

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.

8.3 Switched Off Fibre

The switching off of the fibre is not considered to be a material change in circumstances and the fibre will remain assessed.

8.4 Buildings

All network buildings, occupied with fibre optic networks are to be valued on local rental tone levels for similar premises reflecting any rateable tenant’s improvements such as raised floors, suspended ceilings etc. Regard should be taken of the actual rent passing on the buildings as a stand back and look.

Following the 2005 Rating List VT case, Cable and Wireless UK v. Subacchi a broad brush 20% uplift was adopted for switch rooms with raised floors and it is proposed this uplift should be generally adopted. For superior fit out the guidance provided in the Rating Manual Section 6 - Part 3: Section 281 Computer Centres, should be referred to.

Where a network contains 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 in the valuation that all of the network buildings together with the network infrastructure are let by a single landlord to a 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 service connections.

In the case of older networks some buildings were procured during the dot com boom period in the late 1990s – 2001 and can contain a significant amount of empty space as demand failed to materialise. A superfluity allowance for such buildings taken on prior to 2001 can be considered where it is clear excess space has been taken. This is a replacement allowance for the general 10% for aggregation mentioned above and not in addition to it. No such allowance is given to buildings acquired from 2002 onwards.

In addition where technological developments such as Dense Wave Division Multiplexing (DWDM) has led to smaller and fewer amounts of equipment being required to transmit and switch telecoms traffic this has led to less building space being required. Following the 2005 Rating List VT case, Cable & Wireless v. Subacchi, older networks which have pre DWDM equipment lighting the trunk network, can attract a further allowance on buildings procured prior to the introduction of this technology. No such allowance is given to buildings acquired after the introduction of DWDM.

The superfluity and MIS building allowances are only to be applied after the switch room value has been uplifted for fit out and floor plans detailing the extent of occupation have been provided.

8.5 Radio Sites

The valuation of any masts may be carried out within the MAV application (see Rating Manual, Section 6 - Part 3, Section 860, Telecommunications Masts) but note that the address created should match that in the central database, and include the operator’s name.

In line with the building valuations a 10% allowance is given to reflect aggregation.

8.6 Rateable Plant & Machinery

Rateable Plant & Machinery should be valued in accordance with the VOA Rating Cost Guide and de-capitalised at the statutory rate.

9. Valuation Support

MAV

Rating Support application for the buildings

Cost guide for the Plant and Machinery.

Practice note: 2017: Telecommunications fibre optic networks

1. Market Appraisal

The period 2008 – 2015 has seen significant changes in telecom networks with a number of acquisitions leading to fewer national networks. E.g. Level 3 acquiring Global Crossing, Vodafone acquiring Cable & Wireless and Zayo acquiring Geo.

The requirement for faster services and greater capacity has led to improvements in non-rateable transmission equipment to keep pace as has the growth in data centres operated by the main networks.

There is some evidence of operators disposing of larger switch buildings when the opportunity arises and replacement new acquisitions are in the main smaller units.

2. Changes from the last Practice Note

There are no fundamental changes in the valuation approach from the 2010 List Practice Note for this class of property, however the requirement for fewer trunk network fibres and less building space compared to the amount required for the old multiple fibre networks is acknowledged in valuing these older networks to a “Modern Industry Standard” (MIS). The practical implementation of this is described below.

3. Ratepayer Discussions

To date general discussions have taken place with industry representatives and agents. As at the date of writing no agreement on valuation has been reached.

4. Valuation Scheme

This practice note applies to fibre optic networks valued on a rentals based approach. Please refer to the Rating Manual section for the full scope of the class.

4.1 Fibre Rental Evidence

Rental Evidence for national networks is limited due to the fact many are own build or have been, leased historically for a long period. There are however rental transactions on significant lengths of fibre in excess of 500 kilometres (km).

For shorter lengths below 100 km there is good rental evidence which shows higher amounts per route km are paid.

4.2 Valuation Basis

4.3 Fibre

Valuations for this class should be on a rentals comparison basis, in line with the scale of values which are set out in Appendix 1.

There are 2 scales of value.

1.2017 Fibre Scale (excluding London) 2.2017 Fibre Scale London MAN

Each individual section of route is valued separately but the figure to be used is determined by the following.

1.Total route length of the network. This is the starting point for the valuation. The amount per route km is always determined by the total length of the network not the length of an individual section. The value per route km to be used should always be from the row corresponding with the total route length (or by interpolation if between two distances). 2.Number of lit fibres. The value should be taken from the column corresponding with the number of lit fibres.

Worked example:

Total network length 1,000 km

Section 1, 500 km, 2 lit fibres

Section 2, 500 km, 4 lit fibres

Valuation would be:

Section 1; 500 x £250 (the distance of section 1 multiplied by the 2 fibre rate for the entire route length 1,000 km)

Section 2; 500 x £340 (the distance of section 2 multiplied by the 4 fibre rate for the entire route length 1,000 km).

Access network fibres are valued on this basis up to a maximum of 48 lit fibres.

Trunk fibres between towns and cities are valued according to the Modern Industry Standard (MIS) as determined in the Cable & Wireless 2005 list case where the valuation was capped at 6 fibres. See 4.4 below for a full explanation.

The lighting of new fibres on new or existing routes is a material change and a revised valuation would be required taking account of the additional route length and lit fibres.

For networks extending beyond England & Wales, the entire route length is taken in calculating the valuation. E.g. A network of 1,000 km of which 500 km is in England and 500 km via the Channel Tunnel into France. The values would be taken from the 1,000 km row on the scale.

For South East regional networks where routes are located both within and outside London a value between the 2 scales should be applied on a stand back and look approach. E.g. A network from the Docklands to a data centre in Slough.

Long distance networks that pass through London as a through route, rather than a metropolitan ring are valued on the 2017 Fibre Scale (excluding London).

Route lengths of less than 1 km will be assessed on the scale value for 1 km or the actual rent paid whichever is the lowest.

The scales of values are in Appendix 1 of this Practice Note.

4.4 Application of the Modern Industry Standard on trunk networks

Following the 2005 rating list case, Cable & Wireless UK v. Subacchi it is acknowledged that trunk (intercity) networks are capable of using modern, non-rateable, DWDM transmission equipment which no longer require multiple fibres to increase capacity. This technology was available at the AVD and vacant and to let a prospective tenant would utilise this equipment. Therefore all older multiple fibre networks are capped at a maximum of 6 lit fibres. The maximum value per route km for networks in excess of 1,000 km is therefore £250.

This allowance does not apply to access or urban networks where the scale up to 48 fibres remains.

4.5 Allowance for pre 1995 fibres

In line with previous rating lists a 36.5% allowance is given to lit fibres that were installed up to 1995. This only applies in a few circumstances over short distances as virtually all fibre post-dates 1996.

4.6 Buildings

Network buildings are to be valued on local rental tone levels for similar premises reflecting any rateable tenant’s improvements such as raised floors, suspended ceilings etc. Regard should be taken of the actual rent passing on the buildings as a stand back and look stage to the valuation.

Following the 2005 Rating List VT case, Cable and Wireless UK v. Subacchi a broad brush 20% uplift was adopted for switch rooms with raised floors and this uplift will be adopted for 2017.

For superior fit out the guidance provided in the Rating Manual Section 6 - Part 3 - Section 281 Computer Centres, should be referred to where a 50% uplift is applied for a modern data centre.

Where a network contains several buildings, a 10% end allowance on the buildings values should be applied as described in the rating manual for this class.

4.7 Superfluity Allowance for buildings taken prior to 2001

The basis for a superfluity allowance applied to buildings taken on prior to 2001 is described in the rating manual for this class.

Evidence submitted in the 2005 rating list case Cable & Wireless v. Subacchi suggested telecom operators look for 50% expansion space within buildings and this should be taken into account when determining an allowance.

The allowance is determined by calculating the amount of unused switch room space and dividing it into the total area of the building. The allowance is 50% of the amount of vacant space up to a maximum for an individual building of 37.5% of the full value.

4.9 Network buildings occupied post 2001 and the advent of DWDM technology

No allowances are to be given on the 2017 rating list for buildings acquired after the dot com crash or the advent of DWDM technology as the operator would have taken on the building in the full knowledge of the market and available technology.

4.10 Radio Sites

Radio sites should be valued in accordance with the guidance provided in the Rating Manual and 2017 Practice Note, Section 6 - Part 3 Section 860.

In line with the building valuations a 10% allowance should be given to reflect aggregation.

4.11 Rateable Plant & Machinery

Rateable Plant and Machinery should be valued in accordance with the 2017 Rating Cost Guide and de-capitalised at the prescribed statutory rate.

Practice note: 2017: Appendix 1: Fibre Rent Tone

Practice note 2017: Appendix 1 - Fibre Rent Tone

Practice note: Telecommunications fibre optic networks National scheme - Group 5

1. Co-ordination Arrangements

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. are responsible for advising the Telecoms Team National Specialists on the values adopted for the buildings element, where requested.

b. Telecoms Team National Specialists to be responsible for the network valuations 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 for networks and;

“Telecommunication Fibre Optic Service Connection (and premises)” should be used for individual service connections that are not part of a network.

The 2000, 2005 and 2010 rating list Special Category Code is 275.

The appropriate suffix letter should be S. (from 2010)

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 - Section 6 - Part 1 Practice Note 2005.

Fibre Optic Telecommunications Networks

2. General

This Practice Note applies to fibre optic telecommunications networks including; backbone, trunk, backhaul or point to point networks and service connections. Next Generation Access (NGA) and Cable TV (CATV) networks are primarily local access networks and are dealt with in separate Practice Notes set out below. This Practice Note does not apply to BT or KCOM networks, or any other network valued on a full Receipts and Expenditure basis.

See section 873 for Next Generation Access (NGA) networks

section 870 for Cable TV (CATV) networks,

section 860 for Masts and Communication Stations,

section 872 for Telecommunications Switching Centres.

The network fibres are valued 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.

3. Background Information

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. Apart from short distance fibre connections, mainly within London, activity remained subdued up to 2008/09. Some network consolidation was evident from 2006 with a number of take-overs and mergers.

4. Litigation

Litigation of rating appeals has lead to a number of decisions that clarify the rating of fibres and the valuation methodology. The rating of fibre optic networks is now well established in case law.

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. As a general rule of thumb, the person who lights the fibre is considered to be in rateable occupation.

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 by the Lands Tribunal who confirmed the VO’s fibre rent tone approach to the valuation and rejected Vtesse’s case that their network 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. Vtesse appealed the LT decision to the Court of Appeal who dismissed Vtesse’s appeal on 28 January 2010, refusing Vtesse leave to appeal to the Supreme Court. Alan Roy Bradford (VO) –v- Vtesse Networks Ltd [2010] EWCA Civ16 Vtesse petitioned the Supreme Court who dismissed the case on 17 June 2010.

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.

5. Information Required

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.mycounciltax.gov.uk/business_rates/List-of-Forms-Requesting-Information.html

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 of the physical extent of networks and network buildings are to be requested from the operators on an annual basis on a simplified VO6005 form of return. This is necessary in order to keep the rating list maintained and accurate.

6. Unit of Assessment

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 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.

Service Connections:

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.

7. Cross Boundary Hereditaments

For the relevant 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 Central Rating list for England and for Wales by;

The Central Rating List (England) Regulations 2005 (SI 2005/551) and
The Central Rating List (Wales) Regulations 2005 (SI 2005/442, W40);

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.

a) 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 previous rating list. However, the interpretation of Regulation 6 is will need to be considered in the light of the 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 2010 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.

8. Valuation Guidance

2010 Rating List Fibre Rents; Appendix 1:

Following the 2005 list discussions and the provision of further but limited evidence, the original compiled 2010 list fibre optic rental scale has been reviewed and the revised scale is set out in Appendix 1. The evidence shows that there has been little rental change for the long distance networks, over 1,000 kilometres route length, but new evidence of higher rents on the short network lengths, less than 10 route kilometres, has been incorporated into the scale. The VOA will consider any new rental evidence which is brought to its’ attention and review the scale if appropriate. There are two scales based on the total route kilometres of the network;

a. 2010 Fibre Scale (excluding London MAN) b. 2010 Fibre Scale London MAN

2005 Rating list Fibre Rents; Appendix 2:

Central discussions with the main rating agents took place on 8 July 2008 and continued in 2009/2010 with the provision of new rental evidence and more details of the prime transactions being provided. Although the VO’s revised 2005 fibre rent scale has not been agreed for the 2005 rating list, the VO has applied the reduced fibre rental scale to all 2005 list network valuations. The revised 2005 list scale is 40% - 50% of the original compiled 2005 list scale which had to be estimated due to a lack of reliable rental evidence being available at the time the 2005 list was compiled. Discussions on the 2005 list have been delayed due to the Vtesse 2000 list Lands Tribunal case heard in 2008, the subsequent Court of Appeal case in 2009 and Supreme Court petition in 2010. The revised fibre rent scales adopted by the VO for the 2005 rating list are set out in Appendix 2. 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 2, as there were for the 2000 list:

a. Long Distance Network (LDN) less than 2,000 fibre km in length b. Long Distance Network (LDN) greater than 2,000 fibre km in length c. London Metropolitan Area Network (MAN)

2000 Rating list Fibre Rents; Appendix 3:

The 2000 rating list fibre rental scale in Appendix 3 has been agreed with the main telecoms rating agents and was subsequently accepted by the Lands Tribunal in 2008 and the Court of Appeal in 2010 in the Vtesse decisions.

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 evidence from 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. This was benchmarked with wayleave payments in the London underground and the higher cost of own build in the London Metropolitan Area.

Limited rental evidence indicated that fibre rents had fallen from 1998 to 2002 by up to 50%. For the 2000 list, half of this fall was allocated to the physical oversupply of fibre in the ground and a 15% oversupply allowance was agreed and applied from 1 April 2001, increased to 25% from 1 April 2002. The other half of the fall in rental value was attributable to economic circumstances which could not be reflected in the 2000 list assessments.

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 Court of Appeal dismissed Vtesse’s challenge in January 2010 and subsequently the Supreme Court rejected Vtesse’s petition in June 2010.

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)

Worked Examples; Appendix 4:

Worked examples of the application of the fibre rental basis based on the current rating list scale are included in Appendix 4.

Long Distance Networks that traverse London:

Long distance networks that pass through London as a through route, rather than a Metropolitan ring are valued on the Fibre Rent Scale (excluding London MAN).

Lighting of new fibres on new routes:

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 what scale values are appropriate to the whole network valuation.

Lighting of new fibres on existing routes:

This is also considered to be a Material Change in Circumstances. Where an operator lights additional fibre 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 (2010 list), originally 2 fibres lit on route A, valued at £250 /route km, replaced by 4 fibres lit on route A, at £340/route km.

Fibre Allowances:

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 believed to be more expensive and 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.

Unlit Fibre:

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.

Switched off Fibre:

The switching off of the fibre at non-rateable equipment is not considered to be 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.

Network Buildings:

All network buildings, occupied with the fibre optic network are to be valued on local rental tone levels for similar premises reflecting any rateable tenant’s 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 cabin 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 Section 6 part 3, 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 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 in the valuation 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 (or 20%). 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.

Rateable Plant & Machinery:

Additional rateable plant and machinery (P&M) should be reflected where appropriate by adopting a decapitalised cost, on the relevant VO cost guide basis, at the statutory decap rate (5.5% for the 2000 rating list and 5% for the 2005 and 2010 rating lists). Rateable P&M typically includes electrical transformers, switches, UPS, batteries, Generators, cctv and security systems etc. Air-conditioning P&M is not included if its 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.

9. Duplicated Routes on Merged Networks:

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. 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 on 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.

10. Local Loop Unbundling (LLU):

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 and in Wales from 2005:

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 and 2010 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.

11. Transitional Certificates:

The issue of a Transitional Certificate should be considered as soon as is practical after any change is made to the RV in the current list. See the “Transitional Relief” Link on the Rating Homepage. Certificates should be issued certifying the RV that would have been in the previous rating list as at 31 March at the end of the list, when the RV actually in the previous list is inaccurate because it does not reflect the physical extent of the hereditament at that date and the VO is unable to amend the previous list.

12. Enquiries

Enquiries about this Practice Note to CEO Rating, Telecoms or to the “Mast Advice” inbox headed Fibre Optic Networks.

Practice note: Fibre optic networks - Appendix 1, 2, 3 and 4

Appendix 1 and 1.2

Appendix 1:1: 2010: Fibre rent scale (Excluding London MAN)

Appendix 1:2: 2010: Fibre rent scale (London MAN & service connections)

Practice note: 2005 Telecommunications fibre optic networks - National scheme - Group 5

1. Co-ordination Arrangements

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 - Section 6 - Part 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.

2. General

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.

3. Background Information

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.

4. Litigation Update

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.

5. 2005 List Valuation Considerations

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.

6. Information Required

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.mycounciltax.gov.uk/business_rates/List-of-Forms-Requesting-Information.html

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.

7. Unit of Assessment

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.

8. Cross Boundary Hereditaments

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.

9. Valuation Guidance 2005 Rating List

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 Section 6 part 3, 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.

10. Duplicated Routes on Merged Networks:

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.

11. Local Loop Unbundling (LLU):

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.

12. Next Generation Access Networks (NGA)

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.”

13. Transitional Certificates:

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.

14. Enquiries

Enquiries about this Practice Note to CEO Rating, Telecoms or to the “Mast Advice” inbox headed Fibre Optic Networks.

Practice note: 2005 - Appendix 1, 2 , 3 & 4

Appendix 1: 2010: Fibre optic scale

Appendix 2: 2005: Fibre optic scale

Appendix 3: 2000: Fibre optic scale

Appendix 4: 2005: Worked examples