British Telecommunications is the incumbent operator in the UK  telecommunications market, Kingston Communications is the incumbent  in the region of Hull.

The base of the business rates tax is determined for each telecommunications operator by the Valuation Office Agency (VOA), an executive agency of the UK’s central government. The VOA applies various valuation methods to assess the economic value of telecommunications networks. The VOA applies a certain asset valuation method to BT and Kingston, while it applies other methods to their competitors. The application  of different methods may favour BT and Kingston resulting in a

disproportionate tax burden for other companies competing in the market for electronic communications services. State aid is in principle forbidden by the EC Treaty. Tax benefits restricted to some undertakings may under certain conditions distort competition and constitute illegal State aid. However, the presence of aid may be ruled out where the differential treatment is justified by the intrinsic features and inherent logic of the tax  system.

In view of the complexity of the case, the Commission has decided that an in-depth inquiry is necessary to analyse the justifications  for applying different valuation methods to BT and Kingston in comparison with other telecommunications operators. This inquiry  will run in parallel with an ongoing review undertaken by the UK Department of Trade and Industry which is examining this tax system as it applies to telecommunications companies, including its effects  on competition.