The 50p broadband tax

APRIL 11, 2010
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Among the 14 Bills given a hasty passage at Westminster this week, to be nodded through in the so-called “wash-up” procedure before parliament is dissolved, was the much-revised Digital Economy Bill. What started as a reasonable basis for discussion has been cobbled together in an attempt to please everyone.

As Wokingham MP John Redwood said in the debate, “Clauses 10 to 18 … are a blank cheque saying that orders will be laid in due course. We have no idea whether they would work or how they would be constructed.”

This digital dog’s dinner will make it hard for a new government to come up with a well thought out strategy for the future of Digital Britain, given the baggage that it will inherit. The good intentions evident on all sides when the Digital Britain report was published last year have unravelled into a hell of poorly drafted laws that could prove unenforceable in practice, whatever road the electorate may take on May 6.

Something that failed to make it through was the 50p “phone line levy”, which had been introduced in an ill-starred attempt to fund a broadband infrastructure worthy of the name.

Shadow Treasury Minister Mark Hoban, quoting from the government’s own regulatory impact assessment, said in the debate that the tax might have driven up to 200,000 homes to abandon broadband. He noted that Virgin Media was vehemently against the tax, suggesting that it would distort the market, penalise fixed line broadband and potentially disrupt next generation broadband investment plans.

Take away the tax, however, and what could be put in its place? It’s all very well to let “the market decide” but, as Australians have already discovered, private enterprise will always follow the money. “Fibre to the outback” is not a sufficiently lucrative proposition to ensure that telecommunication companies will rush to deliver broadband to outlying areas. The same might be said of the United Kingdom in “remote” rural areas in Kent.

Last year’s decision by the Canberra government to bypass proposals from existing operators and establish a public and private partnership to construct Australia’s super fast National Broadband Network (NBN) was a bold step, which will eventually connect 90% of that nation’s households at up to 100 Mbps. The new company, owned jointly by the government, as majority shareholder, and the private sector will invest up to A$43 billion over eigh years to build a national network.

The scheme will be partly funded by “Aussie Infrastructure Bonds” to be sold to householders and financial institutions alike, and the government expects to sell its assets back to the private sector on completion at a substantial profit for the Australian taxpayer.

NBN also guarantees it will provide the remaining 10% of premises in Australia with “next generation wireless and satellite technologies that will deliver broadband speeds of 12 megabits per second”. Something equivalent to that NBN guarantee has been missing from UK proposals so far and now it has to wait for the attention of the incoming government.

In the debate on the Digital Economy Bill in the Commons, outgoing Treasury Financial Secretary Stephen Timms told MPs “about 10% of homes still cannot get a 2 megabit-per-second broadband service.” Even this figure might not be entirely correct since it is believed to refer to “10% of broadband connected homes”, and does not include the larger proportion of the country who live outside existing broadband service areas altogether.

Just as Australia plans to use wireless and satellite technologies to reach the “final 10%”, WiMax operator Clearwire in the United States delivers an average of 7GB of data a month to each of its “unlimited broadband” subscribers in 80 markets across the country. As with the competing “Long Term Evolution” (LTE) technology, which brings speeds of between 20-80 Mbps to Scandinavian users, mobile broadband is helping to bridge the gaps that neither copper nor fibre can reach economically.

The success of broadband dongles, even in the restricted and relatively slow-speed context of the UK’s 3G phone network, should demonstrate the folly of taxing all landline telephone users in order to provide high speed connections for a lucky few. Compulsory funding for faster broadband using money from pensioners, the poor and the underprivileged is never going to prove popular, even at 50p a month plus VAT.

Whatever route is taken to financing the installation of an appropriate high-speed broadband infrastructure in Britain, it is unlikely that we’ll follow the lead of Google in the USA, though the company was granted a two-year moratorium on paying tax in the UK by the Treasury.

In the Digital Economy debate this week, outgoing Kent MP Derek Wyatt drew attention to an earlier statement from ITV that said, “Google will take more advertising revenue this year in the UK than the whole of commercial television”. Perhaps the new government should look beyond a “phone tax” for funding and consider instead who stands to benefit most from faster broadband connections.

The suggestion might not be entirely without merit, although in some parts of the world Google is already contributing. In February this year, the company announced a competition between cities in the US, with lucky locations winning free installation of ultra-high-speed 1 gigabit per second fibre broadband to homes and businesses in neighbourhoods of between 50,000 and 500,000, paid for entirely by Google.

It is part of a long-term plan to find out if access to virtually unlimited broadband will generate wealth in the community and lead to the development of bandwidth intensive applications that are currently unimaginable. Although the tech-savvy West Coast cities are drooling at the prospect, Google is thought to favour the run-down and almost bankrupt cities in the mid-west and south of the country.

The company has promised open access to the system, so presumably other search engines will be allowed. In the announcement they promise, “We'll test new ways to build fibre networks to help inform and support deployments elsewhere, and we’ll share key lessons learned with the world.”

The UK will probably have time to analyse these results before implementing the measures in the Digital Economy Bill, especially since, at gigabit speeds, a Blu-ray 3D HD title could be downloaded in just four minutes, making it very difficult to identify as an illegal act.

Whatever priorities the incoming UK government might have, sorting out the future of broadband in Britain must be a top priority, starting on May 7. The electorate can only hope that the influx of new MPs will bring some fresh thinking and a House of Commons more digitally literate.

Once the new intake settles in, maybe a good first step in finding the funding for superfast broadband would be to look at those Google advertising revenues. In searching for ways to pay, our decision makers should also consider the vested interests that other parties might have in creating the infrastructure needed to build a successful Digital Britain. The licence fee, anyone?