Why Britain's broadband tax is worth considering here

The 'Digital Britain' plan just released calls for a 50p-per-month tax on all telephone lines to fund the roll-out of high speed broadband everywhere in the country. In my view, it's an idea worth considering.

Obviously, this is not a popular view. But the author of the Digital Britain report, Lord Carter, makes the point that without some form of public intervention, serious next-generation networks will never be made available to rural areas. He says that private companies will only ever be interested in populated, urban areas.

Basically, this is the same principle as any public utility. Which rural bus routes pay for themselves? Not many. They're subsidised by other routes. In fact, if you want to be brutally honest, few counties in Ireland actually support themselves financially: Dublin subsidises many of them.

In Japan, which invested in high speed networks, the average speed is 90Mbs. Without some form of public nudge, that's just not going to happen here.

Comments

[Tom B]

The main problem with a tax like this is you can expect it will get absorbed into the blob at the Dept of Finance and never seen again

Even if it does get ringfenced, if you look at the US example (bunch of weird extra taxes on the phone bill), a small 'independent' number of telco's end up with the money providing a poor service (from a broadband perspective) to people in the boondocks

Frankly I have no faith in any irish government - of whatever persuasion - ring fencing the money and with the awarding of a 3G broadband contract to 3 for rural areas you really wonder if the frames of reference for broadband provision will provide anything useful

[Jason O'Mahony]

Tom B makes a fair point about the ability of any Irish government to deliver having collected the tax. It's the reason why the left has never done very well in Ireland, because they have always failed to convince the majority that the state can deliver as opposed to enrich those who work for it. Perhaps a deadline followed by a promise of a rebate if it isn't delivered?

[Adrian]

Tom,

That's a very fair point.

However, I would suggest to you that, if you believe that, you are in favour of abolishing our taxation system based on the incompetency of Irish people (our government) to administer funds properly.

I would also suggest to you that the majority of people who give out about "the lack of ubiquitous broadband" often come with lots of excuses why they should not have to pay for the provision of just such a service.

[Padraig McKeon]

Adrian,

I would happily pay it but hold the fear, as I'm sure do many others, that the income will get wasted away... same as I feel about any tax (increase).

Padraig

[Adrian]

Padraig,

Again, a very fair point.

Except that if that is your view, surely we should not fund the exchequer at all. ie If they are incompetent and just waste money.

That means shutting down hospitals, surely.

[pk]

Adrian,
It is my understanding that Finance is very much against linking a tax with a spend. Therefore, the introduction of a new tax doesn't necessarily lead to the development of new services.

If the tax builds necessary infrastructure then I believe that makes sense. Unfortunately, the two would be treated seperately - Spending (bad - 'cut that') and Revenue (good - 'keep that').

I'm glad that you mentioned that currently urban users are subsidising rural users, which isn't quite fair and has lead to this crap network. Edgar Morgenroth, ESRI, found that in 2004 that each person in both Dublin and the South-West subsidised the other counties €2,000! Solving those kind of inefficiences would more than make up for the 50p a month.

[Tom B]

Adrian,

I didn't say I was against a levy, what I said was that I couldn't see it being ring fenced

Obviously pk illustrates one of the problems here, but if the levy
- was ringfenced
- allowed a reserve to deal with the troughts and peaks of economic activity
- didn't become a M50-toll-increases monster

then yeah, bring it on...

P.S. From my experience the fibre networks in homes in Japan are fantastic!

[Luke]

Main concern with a tax on phonelines is that it'll speed up the migration of consumer from ADSL to cheaper cable broadband (UPC Chorus/NTL) and wireless broadband (Digiweb) options. So I would be against a tax on phonelines, could really screw up ADSL investment here as consumers move away.

Another idea is to take the 21.5% VAT* the gov already charges on broadband in Ireland and put it into an investment pot for broadband. The problem is how to divide up that pot of gold. ADSL gets it all? We could base it on platforms open to competition, Eircom phone lines being the only. So the money would go to improving the Eircom network only, moving over to VDSL2 technology and enabling all exchanges in Ireland.

Digiweb and UPC won't be happy with this, but if they wanted to open their infrastructure to competition, they too could get a slice.

Or another option would be to spread it based on the percentage of the market? This would benefit Eircom and UPC, but at the expense of great small providers like Magnet, who have invested millions.

It's a difficult position, as any investment in one form over another could really screw over competitors who have invested millions into building services that compete with Eircom.

Something else that could work is a line rental charge based on where you live. So urban customers would pay less line rental than rural customers. As far as I know this is what happens in Finland, if you want to live in the sticks, you should be expected to pay more for your broadband.

Also planning permission in rural areas could include a broadband tax at time of applying, or put this onto a possible future property tax (if that happens). This tax would go towards to providing broadband in rural areas. This would work very well as the biggest problem to broadband roll out in Ireland is one off housing developments.

*I note that the tax on services in Ireland is 13.5% but for some reason the Irish gov charges it like a product at 21.5%, compare your ESB & Gas bill to your broadband bill, why the difference? But that's another story.

[Adrian]

Luke, you raise a number of good points. Just to deal with one of them, though:

"As far as I know this is what happens in Finland, if you want to live in the sticks, you should be expected to pay more for your broadband."

I can see the logic to this (I live in Dublin). However, that's not the model we use in Ireland. Otherwise, people in the sticks would have to pay for roads upgrades, telephone services, electricity networks etc. As a country, we choose to subsidise those service for rural dwellers.

[Luke]

True, but broadband is not part of the USO ( Universal Service Obligation) and is not considered a core utility by the government so currently it can be charged at different rates depending on distance from exchange or for rural areas.

Electricity, basic phoneline (data @ 28.8kbps) and water are required to any home in the state. Roads, well not into private land, that is up to the home owner to build and connect up to the road network.

Broadband is considered an optional utility, maybe we couldn't apply a charge on line rental, as it operates under the USO. Instead a charge on broadband if you're not living in an urban area is possible. This would be just like Argos charging more for home delivery of items the further from the store you live.

Anyway just a muddle of ideas on getting money into wired broadband infrastructure as wired is a far better option for urban areas than wireless will be for another decade.

[Peter]

"Except that if that is your view, surely we should not fund the exchequer at all. ie If they are incompetent and just waste money"

Bit of a drastic response to some well founded concerns. It's probably more reasonable to suggest that they'd be in favour of fixing the problem we currently have and spending the money more effectively, before lumping more tax into to a broken system.