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

Section 873: next generation access telecommunications networks (NGA)

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

1. Scope

This class encompasses Fixed line Next Generation Access Telecommunication Networks (NGA) located in the Final Third and which are not operating as larger commercial enterprises in the more economically viable areas.

These larger commercial networks are dealt with in Rating Manual Section 871: Telecommunications Fibre Optic Networks: National Scheme Rating manual - Section 6 : Part 3 - Section 871: Practice Note 2017

These NGA networks are gradually being rolled out and primarily are located in rural areas. However during the life of the 2017 list it is anticipated that urban areas which are less economically attractive will also be served by NGA networks.

2. List Description and Special Category Code

Type Description Code Description SCAT Suffix
Next Generation Access Telecommunication Network (and premises) MTX Rural NGA Broadband Network 275 U
Next Generation Access Telecommunication Network (and premises) MTX Urban NGA Broadband Network 275 U

3. Responsible Teams

National Specialists’ Unit, Telecommunications Team (TT) is responsible for this class of hereditament.

4. Co-ordination

TT will co-ordinate as 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 from TT by the Business Units on any matter relating to Next Generation Access Telecommunication Network (and premises) via NSU Inbox

5.1 Cross Boundary Hereditaments

Regulation 6 of the Non-Domestic Rating (Miscellaneous Provisions) Regulations (SI1989/1060) will apply to all Local rating List Broadband Cable TV/Telephony Networks that physically extend beyond a single billing authority boundary.

6. Survey Requirements

6.1 Unit of Assessment

The unit of assessment should include all contiguous cable routes occupied and lit 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.

6.2 Request for Information (VO6006)

A special adapted version of VO6006 has been designed specifically for Next Generation Access Fixed line networks,

The form requests details of all network and network buildings including those built or leased from third parties in respect of the operator’s occupation.

6.3 Cable

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

  • Typical yearly charge per customer
  • Number of connections
  • Number of homes passes
  • Likely penetration rates
  • Date network went Live / completed?
  • If it is a multi-cabinet network – request a schematic of the network?

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.

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 Enquiries on Class

For enquiries on this class contact the Telecoms Team, via the NSU Inbox

7. Survey Capture

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

8. Valuation Approach

These hereditaments are valued individually taking into account the receipts and expenditure of the undertaking as well as the physical extent and nature of the network.

9. Valuation Support

Rating Support application for identified network buildings and land which are within the hereditament.

Cost guide for the Plant and Machinery.

Practice note: 2017 - Next generation access telecommunications networks (NGA)

1. Market Appraisal

This practice note covers Fibre Optic and cable connections (and associated land and buildings) which provide fixed broadband access of at least 2Mbps to harder to reach areas. These are colloquially known as being the “Final Third” and include all of the hardest to reach areas in the last 5% of the UK (in England and Wales).

It is assumed that connection speeds to these harder to reach areas will increase and mirror those identified by the UK Government in its Superfast Broadband Programme. More details of the scheme can be found in “UK Next Generation Network Infrastructure Deployment Plan” published March 2015) by Department for Culture Media and Sport.

This practice note will not be applicable to those networks operating as larger commercial enterprises in the more economically viable areas. These larger commercial networks are dealt with in Rating Manual Section 871: Telecommunications Fibre Optic Networks: National Scheme Rating manual - Section 6 : Part 3 - Section 871: Practice Note 2017

2. Changes From the Last Practice Note

No changes.

3. Ratepayer Discussions

Discussions have taken place with Broadband Stake Holders Group (BGS), which is the principal industry organisation for broadband operators and providers of broadband networks.

4. Valuation Scheme

Next Generation Access Telecommunication hereditaments are valued individually taking into account the receipts and expenditure of the undertaking as well as the physical extent and nature of the network.

Practice note: 2010: Next generation access telecommunications networks (NGA)

1. Co-ordination Arrangements

This Class is dealt with by the National Specialist Unit, Utilities, Telecoms and Transport Team. The Telecoms part of the UTT team are responsible for the network valuations, revisions for Material Changes in Circumstances and appeal settlements. All Business Units and UTT, Telecoms Team are responsible for ensuring effective co-ordination takes place.

The Primary Description Code is MTX.

The R2010 Special Category Code is 275.

As a Specialist Class the appropriate suffix letter is S.

The Standard Description is:

“Next Generation Access Telecommunications Network (and premises)”

All VO Notices should be sent to the operator’s registered address.

For further information on co-ordination, see Rating Manual – Section 6 - Part 1: Practice Note 2010.

See Section 870 for Cable TV Networks,

Section 871 for Fibre Optic Networks (Backbone and Point to Point),

Section 872 for Telecommunications Switching Centres,

Section 860 for Masts .

2. General

The UK is currently in the midst of a once in a generation upgrade to its access network. The UK Coalition government announced its aim to have the best superfast broadband network in Europe by 2015. .

BT is making a significant investment in deploying fibre in the access network to 66% of the UK, either to the cabinet (FTTC) or the home (FTTH). BT has committed £2.5bn to accelerate the upgrade its network to superfast broadband in the UK by 2014.

Virgin Media have upgraded their network by using DOCSIS 3.0 technology (FTTC), which covers nearly half of all homes in the UK, to offer speeds of 50Mbps and beyond. In addition, other operators have made smaller deployments of NGA technologies, such as Rutland Telecom, H2O Networks, and new build developers.

This privately funded market investment is primarily focused on more densely populated, mainly urban areas comprising two thirds of potential customers. To complement this private investment, on 20 October 2010 the coalition government announced £530m of public money would be made available to subsidise spent on capital investment in rolling out superfast broadband in the final third to ensure that 90% of every County in the UK has access to superfast broadband services by 2015. These funds are being administered by Broadband Delivery UK, an agency of DCMS, and the networks are being procured by the relevant local authorities. BDUK announced four rural broadband pilots in the Highlands and Islands in Scotland, North Yorkshire, Cumbria and Herefordshire. BDUK announced funding allocations to 45 areas in England in August 2011, and further procurements are expected in 2012. BT have also invested £78.5m in superfast broadband in Cornwall in a joint venture with the European Commission who committed an additional £53.5m (Regional Development Fund) and with Cornwall Council and local businesses. The Cornwall NGA network is planned to be delivered in 2014.

Initially fixed line NGA networks were taken to be the replacement of the “last mile” copper loops by fibres to promote the roll out of high speed broadband services, mainly to residential premises. However, it is clear that a number of NGA fibre operators are targeting business parks, business premises and local authorities who have higher bandwidth service requirements rather than providing residential services. There are two basic network architectures being considered, fibre to the cabinet (FTTC) and fibre to the home or premises (FTTH,/FTTP). A third system, Gigabit Passive Optical Network (GPON) involves a pair of fibres from the exchange to the street cabinet over which the signals from the individual customer connections are multiplexed. The final drop from the cabinet to the customer premises can be provided over BT’s copper (Unbundled Local Loops) or by the installation of new fibre or copper lines by the operator.

This updated Practice Note is to clarify the VO’s valuation approach to the new NGA networks.

3. Operators

There are currently two major national NGA operators, who are:

a) BT; and

b) Virgin Media

There are a number of other smaller network operators looking to roll out NGA networks on a more local or regional basis.

It should be noted that BT’s NGA network is included in the BT Central List assessments in England and in Wales, valued by an overall Receipts and Expenditure basis. Virgin Media’s NGA network is included in their Cable TV network assessments, valued on a RV/Homes Passed basis.

4. Background Information

The government set out its strategy for delivering the Best Broadband in Europe by 2015 in a paper titled, “Britain’s Superfast Broadband Future”, published in December 2010. This provides an overview of the BDUK programme to deliver superfast broadband to 90% of the UK by 2015. Further information can also be found in BDUK’s published “Delivery Model”, and other associated supporting documentation.

5. Survey Requirements

As most of the NGA network is installed in underground ducts, a schematic diagram and a plan of the network should be requested from the operator, along with details of the architecture employed, network lengths, number of lit fibres and the number of NGA exchange lines or customer connections including numbers of customers connected to the network by wireless link. Costs and rental details should be requested.

6. Valuation Considerations

Following consultation with industry it is clear that a number of approaches are required to reflect the different types and locations of new NGA networks and in particular the approach on NGA broadband networks in “the final third” where public subsidy is necessary.

Urban and sub-urban, mainly residential, NGA networks – the first two thirds

As NGA will be mainly the replacement of existing copper infrastructure, the VO considers that the level of value for residential NGA connections in urban and sub-urban areas (the first two thirds) will be similar to the rate 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 NGA.

The VO will therefore benchmark NGA residential connections in the first two thirds on a similar basis to that adopted for the Cable TV assessments for the duration of the 2010 rating lists. However, the RV will be grossed up to a “Rateable Value (RV) per end user” rather than “RV per home passed basis”. The end user basis will reflect both the initial low take up and penetration of new NGA networks and their success at achieving customer connections. Small and Medium Enterprise (SME) connections that do not take high bandwidth will be included at the same RV/connection as residential premises. Large business connections or high bandwidth customers and direct point to point business connections will have to be considered individually on their merits but they will not be valued any higher than the fibre optic network rents based on the number of lit fibres and the network route kilometres.

This approach is only applicable to NGA networks in the first two thirds that are primarily serving residential customers with business connections limited to under 14% of the total connections. The 14% figure is based on the overall maximum number of business connections compared to the total connections achieved by CATV networks during the 2005 list period, as published by Ofcom.

Urban and sub-urban non-residential NGA networks – the first two thirds

The VOA is investigating the costs of providing new urban and sub-urban NGA networks that are primarily designed to service business, commercial and public authorities with superfast broadband. These NGA networks do not provide connections to residential premises. More information is required on these types of NGA network before a valuation scale can be produced. It is hoped that information will be provided by at least one city based NGA network early in 2012. Non-residential NGA networks will be considered on the evidence available from the individual networks or based on the fibre optic rental scale.

NGA in the final third

The VOA has been working closely with the Broadband Stakeholder’s Group (BSG) in order to develop a new valuation model for NGA networks in the final third (mainly rural areas) where public subsidies are required for the capital expenditure. These areas are defined as “white areas” for State Aid purposes The BSG has been collating information from the industry in order to inform the VO’s valuation process. A receipts and expenditure based valuation model has been developed by the BSG with input from the VOA and industry over the past 12 months. The valuation model has been run to produce a scale of rateable values per connection that will be applied to the NGA final third networks. The factual data of the individual NGA final third networks will inform the choice of the “Rateable Value (RV) per end user selected from the scale, , with consideration being given to the high capital cost, low potential returns and pioneering nature of the developments. That scale is set out below and extends from £13 to £2 per connection.

7. Valuation Guidance - NGA 2010 List:

Urban and sub-urban mainly residential NGA networks – the first two thirds.

Proposed £20 RV/Home or SME (less than 14% of total connections) premises connected.

This includes the backhaul to a local exchange or Point of presence (POP), the street cabinets and the final customer connection, other than a BT local loop.

If the final connection from the cabinet is by an unbundled BT sub-loop, the proposed RV is £18/connection. This reflects that BT retains the rates liability on the sub-loop.

Large business connections and high bandwidth SME’s are to be considered on their individual merits. Consideration will be given to the evidence available for large business connections or to the fibre optic scale set out in the Rating Manual, Section 871, 2010 Practice Note.

Urban and sub-urban non-residential NGA networks – the first two thirds.

These will be considered on either:

a) The fibre optic scale set out in Section 871, 2010 Practice Note or

b) The decapitalised cost of construction, rental evidence, if available, or

c) A full receipts and expenditure valuation based on the long term business plan – if available.

Rural NGA in the final third

Each rural NGA network will be considered on the RV scales produced by the Receipts and Expenditure model developed with the BSG and on the facts of each case. This includes the backhaul to a local exchange or Point of Presence (POP), the street cabinets and the final customer connection.

The NGA final third scale is expressed as four different amounts of RV per end user: £2 , £6.50, £10 or £13 per end user, having regard to the factual data for each network. The model developed by the BSG and VOA will be used in order to determine into which of these four value bands a particular NGA network falls. The extent to which other operators provide NGA has been predicted within the modelling developed by BSG, but outturn may differ from prediction and it is not possible to be definitive as to which of the above bands will apply to a particular NGA network.

But on current information the following project areas will be valued on £2 per end user:

Bedfordshire
Hertfordshire
North Yorkshire
Northumberland
Oxfordshire
Shropshire
Suffolk
Surrey
Tees Valley
West of England

Those within the £6.50 band will be:

Berkshire
Buckinghamshire
Cambridgeshire
Cumbria
Greater Manchester
Herefordshire and Gloucestershire Borders
Lincolnshire
Norfolk
Northamptonshire
Nottinghamshire
Wiltshire
Worcestershire

Those within the £10 band will be:

Cheshire
Derbyshire
Devon & Somerset
Durham
E Sussex
Essex
Merseyside
Tyne & Wear
Warwickshire
West Sussex

Those within the £13 band will be:

Dorset
Hampshire/IOW
Humber
Kent
Lancashire
Leicestershire & Rutland
South Yorkshire
Staffordshire
West Midlands
West Yorkshire

The extent of the network(s) in Wales has not been defined but the NGA network will fall into one or more of the categories in the above tables.

Large business and high bandwidth connections to be determined on local evidence or on the fibre optic rental scale.

The rural subsidised NGA network hereditament includes all rateable local access assets, including cabinets, backhaul from the cabinets to the local exchange and to the operator’s core network and local drops (if not a BT unbundled local loop). Due to the built in pioneering allowances, the valuation approach above is irrespective of whether the backhaul is by own build, leased fibre, leased capacity or Passive Infrastructure Access (PIA) in/on BT’s ducts and poles and the final drops by own build or BT’s sub-loop unbundling. Radio sites delivered as part of the network for wireless end user connections and are physically connected to the NGA network by exclusive fibre are included in the valuation, unless they are used for mobile backhaul services. Stand alone radio mast sites will be assessed as a separate hereditament based on local evidence. The valuation is per connection, regardless of fixed line technology. The VOA has come to this view due to the dynamic nature of the investment in the two main technologies FTTC and FTTH. In the early years of deployment the FTTC network produces in most project areas a higher RV according to the R&E valuation model than the FTTH alternative, but this distinction is driven by differentials in the capital costs of extending the networks rather than in the intrinsic values of the two technologies after installation, when the relationship is reversed. While the networks are still being installed, and at least for the duration of the 2010 Rating Lists, the VOA will not distinguish between the rateable value of a FTTH or FTTC connection in the final third.. .

The NGA subsidised rural (final third) valuation model has been developed based on the application of a full R&E valuation method to a hypothetical tenant operator that does not currently operate any assets that serve residential end users within the footprint of the new NGA network. Existing fibre that is currently lit will continue to be valued as it currently is in accordance with the Rating Manual Practice Notes.

The detailed NGA architecture scenarios and the VOA’s approach to valuation, as previously discussed with the Broadband Stakeholder’s Group (BSG), is included in Appendix A: Valuation Office Agency – Guidance to Industry, Next Generation Access Networks (NGA).

8. Unit of Assessment:

All contiguous network is to be treated as one assessment. If the NGA network is contiguous with long distance fibre network (LDN) occupied by the same operator, the value of the NGA network is to be added to the LDN network (see Rating Manual, Section 6 part 3, Section 871). Any network buildings or other exclusive accommodation containing network equipment will also form part of the network assessment and be valued on a rental basis and added to the network value.

Regulation 6 of the Non-Domestic Rating (Miscellaneous Provisions) Regulations 1989 (SI 1989 No. 1060) – the Cross Boundary regulations, should be considered where appropriate when determining which Billing Authority rating list the network valuation is to be entered into.

9. Modern Developments and Process for Review

The VOA will monitor the development of NGA and seek further evidence from operators and network developers. The approach set out in this Practice Note will apply to NGA networks for the life of the 2010 rating list which ends on 31 March 2015 in England and in Wales. Since the approach is based on RV per connection, there will be revisions as end users are connected.

The 2015 revaluation will have an Antecedent Valuation Date (AVD) of 1 April 2013 and comes into effect from 1 April 2015. Any evidence available between 2011 and 2015 can be considered for the 2015 revaluation and used to refine the valuation approach, except that economic conditions must be taken as they actually will be at 1 April 2013. If the NGA networks in the “final third” have not been completed or reached maturity at 2015, it is likely the 2010 list valuation approach will be updated and followed for the 2015 list for the “final third” NGA networks. And in any event the VOA will be ready to consider updating the model jointly developed with the BSG , by substituting assumptions consistent with the 1 April 2013 AVD in place of those adopted for the current rating lists, and with the physical extent of the networks at 2015 and subsequently.

The VOA is committed to continuing to discuss NGA and fibre rating on an ongoing basis with the industry.

7. Enquiries

Any queries on the contents of this practice note should be forwarded to “nsumailbox@voa.gsi.gov.uk” – headed NGA.

8. Appendix A: Valuation Office Agency – Guidance for Industry, Next Generation Access Networks (NGA) (in conjunction with the BSG)

Appendix A: Valuation Office Agency – Guidance for industry Next Generation Access Networks (NGA)

Introduction

The Valuation Office Agency (VOA) is an executive agency of HM Revenue & Customs (HMRC) that, amongst other functions, compiles and maintains the business rating and council tax valuation lists for England and Wales (in Scotland council tax and business rates are dealt with by the Scottish Assessors). This includes the application of business rates to telecoms assets, and specifically in this case the next generation access network infrastructure (NGA).

The VOA is committed to ensuring that its guidance is widely understood by potential investors. The VOA has provided guidance on its Internet site which addresses the problems of clarity over business rates on backbone fibre optic networks and the VOA will maintain clear, helpful guidance in respect of NGA.

In April 2009, the VOA attended a workshop with industry, facilitated by the Broadband Stakeholder Group (BSG), in order for the VOA to further explain their thinking. As a result of this, it became clear that more work was required to provide the VOA with the information and evidence it needed to provide greater clarity to industry, in order that industry could address and resolve the uncertainties in their business planning concerning business rate liabilities.

In order to move this issue forward, BSG worked with industry stakeholders to devise a range of fibre-based next generation broadband deployment scenarios. These scenarios cover a range of technologies, topologies, and ownership structures, although they are representative scenarios only and they are not meant to reflect actual deployments.

The VOA agreed to review these scenarios and explain how they would assess networks built and operated in these ways for non-domestic rating liability. The remainder of this document represents the response of the VOA to these scenarios.

General rating terminology and principles

Prior to an examination of the scenarios, it is useful to set out the terminology and principles that will be used throughout the VOA’s response.

  • Hereditament is a unit of assessment/rateable property. In telecoms, a hereditament is a single contiguous network asset, which would be assessed as a whole. Network assets include, exchanges, points of presence (POP), equipment cabins, street cabinets, duct, fibres, wires, etc. Where an operator has networks that are not contiguous, each separate network is treated as a separate hereditament. Contiguity in rating means physically touching or within the same curtilage. Dark fibres or own build network lit by an operator can create contiguity but capacity used on another operator’s fibres will not create contiguity for rating purposes as the occupation has to be exclusive.
  • Rating list is the list on which the hereditament sits to be assessed. These are defined by local billing authority boundaries. Where a network crosses such boundaries, it is entered as a single hereditament in the rating list for the billing authority in which it appears to the Valuation Officer that the greater value lies. In respect of the 2005 and 2010 rating lists, three operators (BT plc, C&W UK, Global Crossing (UK) Telecommunications Ltd) appear on central (England and Wales) lists due to their designation by regulation. A further 7 operators were designated on the Central List for England with effect from 17 December 2010 by the Central Rating List (England)(Amendment)(no.2) Regulations 2010, SI2010/2692; Exponential-e Limited; Easynet Telecommunications Limited (now BSkyB); Cogent Communications UK Limited; Level 3 Communications Limited; Sohonet Limited; Colt Technology Services Group Limited; T.M.I. Telemedia International Limited. Two additional operators were designated on the central list for England with effect from 22 December 2011 by the Central Rating List (England)(Amendment) Regulations 2011, SI2011/2743; JNT Association; London Internet Exchange Limited.
  • Rateable Value (RV) is the annual rental value for the whole hereditament, which can be calculated in a number of ways, as is explained below.
  • Antecedent Valuation Date (AVD) is 2 years before a list goes live (1 April 2008 for the 2010 list). Each list lasts for five years, and has its rateable values set as at the AVD.
  • Rateable Occupier is the person entitled to occupy the hereditament. This is usually the tenant but can be the owner when owner occupied or unoccupied. This is a matter of fact, irrespective of the terms of any licence or agreement. The rateable occupier of a telecommunications hereditament is usually the entity entitled to control or switch on and off the infrastructure. In the case of fibre, this is the entity responsible for lighting the fibre.
  • Rateable Value (RV) is based on annual rental value as at the AVD. Rateable Value is applied mainly to the passive infrastructure. The active equipment is not-rateable. Where no rental evidence exists, the VOA will use alternative methods established in case law to determine annual rental value. In the case of fibre in the access network, this would either be based on a comparison with similar existing networks, such as CATV, or on an assessment of the decapitalised cost of installing the fibre network. A Receipts and Expenditure method is usually only applied to an established network with positive EBITDA. Both the method of valuation and the valuations themselves can be challenged and appealed on the basis of evidence that emerges.
  • All rateable telecoms infrastructure is assessed to an annual rental value for the same assets; there is no discrimination between operators, and there are no exceptions. The RV applies to the line when it is available to be powered (if copper) or lit (if fibre). For practical reasons, rateability for fibre networks is usually determined at the point the fibre is lit. Unlit fibre is not rateable per se as it is considered to be a network still under construction. However, once a fibre is lit it is rateable, even if it is subsequently turned off, unless there is a physical intervention to the fibre which makes it incapable of being lit or occupied.
  • Network buildings such as exchanges and Points of Presence (POP) are subject to business rates and a rental addition is made to the “network” value for contiguous network buildings. The cabinet (but not the equipment in the cabinet) is rateable and will usually be included within any RV based on a per home passed or connected calculation. Outside of this, the 2010 list RV contributed by a cabinet, based on current information, is estimated to be £50, and therefore not likely to significantly impact the RV of the network hereditament. Active network equipment is not rateable.
  • The above applies only to non-domestic premises. Residential accommodation is subject to Council Tax and not non-domestic rates. However, residential connections are controlled by the infrastructure operator up to the wall socket on the premises and are therefore not domestic until beyond the wall socket.
  • Business connections are rateable to the operator, up to the wall socket on the premises. As a general rule, any infrastructure beyond the business premises wall socket will be included in the customer premises hereditament.
  • These principles will be applied to the general approach set out below, and in response to the scenarios.

Application of non-domestic rating to BT

BT’s network is a single hereditament on the central lists for England and for Wales, which by special regulation, includes all unbundled local loops – this is an exception to the normal principle that the tenant of a rateable asset is liable for the non-domestic rates on that asset. BT is rateable for the same infrastructure as any other network operator. The entire BT network hereditament is considered as a Cumulo assessment. The BT valuation is based on an examination of BT’s receipts and expenditures in line with current rating law and precedent. The value of BT’s NGA network is included in the central list RVs for England & Wales ..

VOA approach to the treatment of fibre in the access network

What is important to understand, however, is that the industry sets the levels of value through the market. The VOA gathers this market evidence, analyses it to the statutory definition of RV and applies it to the telecoms infrastructure. Operators control the market rents and costs, and so the RVs applicable for the current 2010 list and future lists are in principle a reflection of the market as set by the industry itself. The next revaluation in 2015 will take account of any new market evidence as at the new AVD, 2 years before the new list goes live.

As fibre-based next generation access networks are only in the early stages of being rolled out, the VOA has no rental available to it. The VOA therefore proposes initially to use a similar approach to that adopted for cable TV (CATV) networks in urban and suburban areas which comprise predominantly residential connections, and which are already fibre to the cabinet (FTTC). NGA networks that are predominantly business, commercial or local authority connections will be looked at based on the rental and cost evidence available or on the VO’s fibre optic rental scale. Other NGA networks in the “final third” are proposed to be valued based on a projected Receipts and Expenditure based valuation model developed by the BSG in conjunction with the VOA. This would apply to all fibre-based next generation access networks (FTTC and fibre to the home or premises (FTTH)), excluding BT’s NGA installations, regardless of architecture,from the POP or exchange to the customer premises. This proposed solution is the best option available based on current evidence.

The approach to CATV on the 2010 list is to apply an RV of £7.50 per home passed by the network. However, the VOA has determined that it would be more appropriate, given the nature of the investment and longevity of payback, for a more easily scalable figure to be used based on homes connected. Scaling up the CATV scheme of £7.50 RV per home passed, with a service take-up at 38%, the equivalent RV per home connected is proposed at £20. This is the RV that the VOA initially proposes to use for all fibre-based next generation access networks outside the “final third” ,in the 2010 list, (other than BT), pending the availability of other evidence. It should be noted that the value proposed has been developed having regard to the 2000 and 2005 list assessments for CATV, adjusted to reflect market conditions at 2003 and 2008. However, the 2005 list CATV valuation is subject to appeal and may be considered by the Valuation and Lands Tribunals in 2012/2013. The outcome may or may not require the 2010 basis for CATV to be revisited.

The VOA realises that this is the best available option for valuation for next generation access networks based on the available evidence, but considers that the £20 RV per home connected is likely to be below the full decapitalised cost of the cheapest infrastructure option available to an operator and the proposed value reflects the pioneering or new venture nature of NGA networks. However, if new evidence of rent or cost comes to light that indicated that £20RV/HC is incorrect or unreasonable, it can be taken into account. Similarly, once established a full receipts and expenditure method of valuation could be applied to next generation access networks, if no rental evidence is available.

The scenarios

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

  • The end users in each case are a mix of residential and business customers; the identity of the end users as either residential or business users will not necessarily be available to the organisation liable for the rates on the asset (particularly if they are providing wholesale access to other service providers).
  • In each scenario, it is assumed that a number of different service providers will provide retail services to end users over the network via wholesale access, but responsibility for lighting the fibre will be with the operator (not necessarily a provider of retail services themselves) as set out in each scenario.
  • For each scenario the VOA will be asked to provide advice on the following:
  • who is responsible for the rates on each rateable network asset
  • what the anticipated approach is likely to be to assessing the rateable value of those elements, taken together, given current knowledge
  • indications, if possible, of the likely rateable values for the combination of rateable assets for each hypothetical operator.

The scenarios presented do not represent an exhaustive list, nor do they represent accurate deployment models. These are hypothetical models and do not imply any intention on any market operator to offer specific products, deploy particular technologies, or follow particular architectures.

Fibre scenarios for BT

The scenarios below in figures 1-3 reflect situations where BT is responsible for operating the fibre-based access network asset. As discussed above, BT’s network assets are assessed as part of their Cumulo assessment on the Receipts and Expenditure basis by the VOA. Therefore, any scenario where BT operates the fibre-based next generation access networks will be part of the Cumulo assessment also; the following scenarios are included in this document for completeness.

Each scenario assumes that the fibre is lit by BT, although end users could be served by a number of retail service providers that BT would wholesale to. There is no provision here for a dark fibre product, which would see the altnet be responsible for lighting the fibre. At this time, we understand, BT has no plans to introduce such a product.

Where sub-loop unbundling from the cabinet is undertaken by an altnet, the same provisions as for local loop unbundling would apply: BT would be liable for the unbundled sub-loop. The altnet would be responsible for their network assets up to the BT cabinet, including any cabinet installed by the altnet, and their tie-cables to the BT cabinet. Active equipment, such as the equipment within the cabinets, is not liable for business rates and would not be included in the assessment.

Fibre scenarios for altnets

As discussed above, these scenarios cover a range of technology choices and topologies. They reflect possible, and likely, network topologies, although are not complete network scenarios, which in reality could involve more complex topologies.

In this scenario, the BT copper from the BT cabinet to the end user falls under the BT hereditament, including when the lines are being unbundled through SLU to the altnet. This is also the case for the BT copper connection between the altnet cabinet and the BT cabinet. If the connection between the altnet and BT cabinets is the altnet’s and not BT’s, the altnet would be liable for the rates on this link but it is likely to be deminimis in RV terms and is unlikely to affect the overall liability of the altnet.

For the altnet’s fibre from the PoP to the altnet cabinet, the VOA propose to use the RV of £20 per home connected, but apportioned to take into account BT’s liability for the sub-loop. The VO propose to use an averaged figure for the apportionment of all sub-loops with £18.00 per home connected (or 90% of whatever may be suggested by a R&E analysis of the effect of BT’s roll out of NGA) apportioned to the altnet. However, the VOA is open to alternative suggestions if supported by evidence, that operators may wish to submit.

The PoP is treated as part of the altnet’s network hereditament and its rental value is added to the network assessment. The cabinets are considered as part of the £20 RV per home connected for the local loop and no further addition will be made. Active electronics within the PoP and cabinets are not liable for rates. Where n gets very high the evidence of rental values from the market will need to be considered.

With the addition of the fibre to the home connections from the splitter to Figure 4, the altnet becomes fully liable for the RV of each home connected with FTTH (again, £20 RV, or whatever may be suggested by a R&E analysis of BT’s roll-out of NGA). This would be additional to the apportionment of the altnet’s share of the RV for the FTTC connections through BT’s copper infrastructure where the altnet is providing the end customer with a service through sub-loop unbundling of BT’s copper from the BT cabinet.

In this scenario above, there are three variations that should be considered:

i) where the fibre between the two BT exchanges is altnet trunk fibre currently used within the altnet’s wide area network (WAN), and has its rateable value assessed as such already on the backbone fibre rental scale;

ii) where the altnet fibre is new fibre;

iii) and where new fibre is laid, or an unlit fibre is lit, alongside existing used fibre.

For i), as the altnet trunk fibre is already assessed on the fibre rent scale for backbone networks, it would not be assessed again as part of the access network infrastructure. The connections between the DWDM unit and the altnet cabinet and the altnet cabinet to the BT cabinet (as discussed in response to Figure 4) are likely to be deminimis and so are unlikely to affect the overall assessment of the altnet’s network hereditament.

For the end users served by FTTC through BT’s copper, the copper is part of BT’s Cumulo assessment and so would not be assessed separately, even if it has been unbundled. For the end users served by FTTH, the altnet would be liable for £20 RV (or whatever is suggested by R&E analysis of BT’s roll-out of NGA) for each customer connected for the local access network fibre; this is the case regardless of the number of fibres provided between the splitter and the end user.

In ii), where the trunk network fibre is newly installed by the altnet or where dark fibre has been rented by the altnet between the two BT exchanges, and the altnet has lit the fibres to provide services to end users, the altnet will be liable for the newly-lit fibres. For consistency, the fibre will be valued on the fibre rent scale for backbone networks. Therefore, the length of the fibre and number of fibres lit will affect the RV between the two BT exchanges. The treatment of the network from the DWDM unit to the end users is as per case i).

Where a new trunk network fibre is lit by the altnet alongside existing lit altnet trunk fibre in situation iii) the fibre between the BT exchanges will be treated as part of a single altnet hereditament, and will be assessed as per the fibre rent scale. If, for example, the original trunk has 2 lit fibres and 2 new fibres are lit, the rental value will be determined as for 4 lit fibres on that route. Again, the treatment of the network from the DWDM unit to the end users is as per case i).

Where the above scenario is found, the altnet is wholly liable for the local access network fibre; the RV will be £20 per home connected (or whatever is suggested by the R&E analysis of BT’s NGA roll-out). This will be constant regardless of the length of the fibre from the cabinet to the PoP. As before, the cabinet is accounted for within that RV, while the active electronics such as the splitter are not rateable.

If alternative evidence is provided by the altnet based on the projected receipts and expenditure of the FTTH, the cost of installing the fibre or actual rental values, the VOA would be in a position to reassess the value based on this evidence. Rental evidence would be likely to exist particularly in a scenario where the altnet was renting dark fibre from another operator, as a rental value is clearly established. A caveat to that is that if a situation arose whereby two altnets were wholesaling dark fibre to each other across a number of areas, it may be that accurate market evidence would not be provided as the ‘fibre swap’ could be accounted for by the altnets at artificially levels, making the evidence unreliable.

As in previous scenarios, the altnet is liable for the PoP as an addition to its network hereditament. If the altnet PoP is located within a BT exchange, however, the altnet will not be liable for rates on the PoP providing that BT retains overall control of the space within the exchange. This would not affect the RV per home connected for the access network.

As with the FTTH GPON scenario, the altnet is wholly liable for the local access network fibre, and the RV would be £20 per home connected (or whatever is suggested by the R&E analysis of BT’s NGA roll-out). This would be constant regardless of the length of the fibre or the number of fibres. Again, there could be the possibility of alternative R&E or rental approaches, the latter in a situation where the altnet is renting dark fibre from another operator, although the caveat discussed in response to Figure 7 also applies here.

If an altnet were to seek a review of the valuation based on an alternative methodology to the home connected approach, other factors – such as length of fibre, number of lit fibres, dark fibre rents, cost of installation etc – may play a role in any new calculation of the liability.

Similar examples of Rural NGA (final third) networks will be provided as soon as possible.