Consultation on 50p broadband tax begins

Business secretary Lord Peter Mandelson has, today, started the 12 week consultation on the next generation broadband fund to be used for building high-speed networks in rural Britain.

The 50p broadband tax on all UK landline users would raise over £1bn, which along with private investments from BT and Virgin Media, can help more than 90% the UK to get access to faster broadband services.

The new levy has been suggested by the government’s Digital Britain campaign which promises minimum 2Mb broadband for every UK resident by 2012.

Last month, Chancellor Alistair confirmed the inclusion of the tax proposal in the Digital Economy Bill in his pre-budget speech as the government is keen on passing it into a law before its term ends in May.

However, the opposition, the Conservative party announced it would shelve the tax proposal if it comes to power. Providers like BT and TalkTalk have also opposed the levy, saying it would burden the low-income groups.

Private investers have always been hesitant, when it comes to spending on buidling super-fast broadband networks for rural communities. With the private funds, only 70 % of the UK will get fibre based broadband by 2017 according to many analysts.

The government believes that the funds raised by the levy would help extending the reach to 90%.

“Already the market is delivering superfast Internet speeds of 50 megabits per second to half the country but we cannot be certain that it will reach the communities that are not currently served,” Mandelson said.

Britain also fared poorly in recent global broadband speed surveys despite the improved performance of service providers over the last two years. Only two ISPs – Virgin Media and O2 could offer an average speed of over 5Mbps to their customers. In July 2009, Ofcom’s speed report showed an average 4.1Mbps speeds received by UK broadband users.

While fibre based broadband networks have improved download speeds dramatically in countries like Japan, South Korea, Sweden and France, UK has been slower to adopt to this expensive technology. BT’s fibre to the cabinet (fttc) broadband network, for instance, would cost £1.5bn to bring superfast broadband to 40% of UK homes in 2012. Another major private invester on fibre optic broadband networks, Virgin Media already offers its 50Mbps broadband in selected, urban areas and expects to extend the coverage across the UK in the coming years.

The consultation is open to the UK telecom companies and broadband service providers who can offer their comments and suggestions on how the tax money can best be spent on building future broadband networks across the UK.