Covid-19 has changed our daily lives in ways previously unimaginable. As with online shopping, the increasing popularity of online gaming, TV streaming and the ability to work from home have, since March 2020, propelled the need for fast, reliable telecom services with essential elements of our economy reliant on the necessary infrastructure being in place. It was good timing perhaps that two years previously, we were presented with a revamped electronic communications code, by way of the Digital Economy Act 2017 (“the new Code) that promised to overhaul existing telecoms legislation which, as one judge had opined was “in my view ….. one of the least coherent and thought-through pieces of legislation on the statute book”. However, the new Code has been seen as grossly weighted in favour of the telecoms operators. Our previous article (https://www.brecher.co.uk/news/2017-electronic-communications-code/ ) explains the key changes. Briefly these were:
Upgrading and Sharing: Previously, operators would only be permitted to share and upgrade their apparatus (key issues for moving the country from 4G to 5G and beyond) if such rights were specifically granted in their agreements (be it in the form of a lease, licence etc.). Operators would often have to pay an uplift in rent to do so.
The new Code removed this hurdle and gives operators automatic rights to upgrade and share their equipment (subject to certain conditions) and without having to pay land owners for the privilege.
In addition, the new Code permits operators to assign its leases without consent of the land owner (“site provider”).
Termination: Before the new Code, a site provider needed only provide 28 days’ notice, requesting the operator vacate from the land, once its agreement expired. The operator could then challenge this via the Court process, on the basis that the services provided were required for the benefit of the wider public. The new Code has increased the notice period from 28 days to 18 months, meaning developers could be significantly hindered if telecoms equipment is in use on land earmarked for development.
Rent: Previously, site providers with urban rooftop sites could demand rents in the tens of thousands of pounds, as these were of particular value to operators. Valuation would be based on “real world factors” such as the coverage the site could offer and the scarcity of alternative sites in the vicinity.
The new Code changed this. Rents would now be based on a “no scheme” basis akin to compulsory purchase. In addition, rents could not take into account the wider rights referred to above and would be valued on the basis that alternative sites were available. Rents under the new Code would now drop significantly; sometimes to just hundreds of pounds.
Good fortune indeed for the operators…..or was it?
Since then, debates around telecoms have centred on the geopolitical role of Huawei, as a physical infrastructure provider. However, a less publicised war is being waged in the Tribunals between site providers and telecoms operators and which poses a far more formidable threat to the continued digitalisation of Britain than any potential backdoor the Chinese military may or may not have to our networks.
Since the inception of the new Code, we have seen a raft of cases referred to the Lands Tribunal from site providers irritated at the over-exuberant exercise by operators of the generous new Code provisions. It is fair to say that the new Code has stirred the pot rather than finessing the peculiarities of the old Code. Operators may be forgiven for thinking it would have been better to let sleeping dogs lie.
So much so, that barely 3 years on from the introduction of the new Code, the Department for Digital, Culture, Media & Sport (“DCMS”) is undertaking a consultation process on further changes. The aim is to introduce amendments to the new Code by removing any ambiguity of who can grant Code rights and clarifying the parameters operators may upgrade and share their equipment. It is hoped that such clarity will reduce antagonism between site providers and operators and thus reduce the number of cases ending up in the Tribunal, which is seen as hampering efforts to “5G Britain”.
Who can grant Code rights – Cornerstone v Compton Beauchamp
Under the new Code it is the “occupier” of the land who is able to grant Code rights to an operator. This may not therefore be the person who owns the land. Such confusion led to a Tribunal hearing in 2019 involving Cornerstone (a joint venture vehicle of Telefonica and Vodafone).
Cornerstone had sought to impose Code rights on the owner of farm land in Swindon. However, Vodafone was already occupying the land under a ten year lease granted in 2004 under the old Code. Negotiations for a new lease stalled and the site provider subsequently served notices on Vodafone to terminate its tenancy and remove its equipment. Vodafone then exerted its rights under the old Code for a new lease. Cornerstone subsequently asked the Tribunal to issue an order binding the site provider to a new Code lease. The Tribunal ruled that it could not do so, as the “occupier” in this instance was not the site provider but Vodafone itself, who had protected its position under the old Code to a new lease. The site provider was therefore not in a position to grant a new Code lease as it was not the “occupier” of the land.
The Tribunal in this case adopted a strict interpretation of the new Code. In another case involving Cornerstone, a similar interpretation by the Tribunal meant that as it was already occupying the site under an existing lease, it could not obtain a new Code lease.
Another case involving Arqiva (a telecoms infrastructure provider) found that as it was already occupying the site under a tenancy at will, it would not be permitted to seek new Code rights. The ramifications were far reaching in that Arqiva had been occupying the land under a 1954 Act excluded lease which had come to an end. The Tribunal found that as negotiations were deemed to be continuing, it was subsequently occupying under a tenancy at will. Such tenancies are not catered for under the transition provisions of the new Code and therefore Arqiva (and any operator in the same situation) found themselves prevented from obtaining a new Code lease (with all the benefits that would bring).
The DCMS is therefore looking to clarify the position as to who can grant a Code agreement addressing situations where the site may already be occupied by an operator or where an operator is occupying under an expired agreement entered into before the new Code came into force. The DCMS is looking to remove such hurdles so that such operators are permitted to apply for a new Code agreement and will not be tripped up by technicalities.
Rights to upgrade
As mentioned above, the new Code grants operators automatic rights to upgrade and share their equipment without having to seek a site provider’s consent. These rights are however subject to the equipment:
- having “no adverse impact, or no more than a minimal adverse impact, on its appearance”; and
- imposing no additional burden on the site provider.
The DCMS is however looking to review the ability for operators to use these rights by:
- clarifying how such automatic rights would work in practice. For example, clarifying whether such rights would permit operators to add further equipment on site, where a site provider may have concerns as to the quantity of equipment installed;
- clarifying when the exercise of such rights would not amount to an adverse impact. An example of this would be the installation of underground ducts, cables or fibre lines; and
- whether such automatic rights should be granted retrospectively to those agreements entered before the new Code came into force.
The DCMS is cognisant that upgrading and sharing are key features of increasing 4G and 5G capability and can be more cost efficient than operators having to find new sites. Sharing in itself would also reduce the demand of requiring more sites with a knock-on effect that operators can then spend more time and money on improving network connectivity as opposed to physical infrastructure investment. In addition, the DCMS is mindful that many operators are still occupying under agreements in place before the new Code came into place and therefore are unable to take advantage of the enhanced rights that the new Code offers.
Ok, so is there any upside for the site provider?
Site providers should adopt the brace position.
Site providers will already have their backs up, given the new Code had eroded its previous bargaining position. The consultation document discusses trying to balance the needs of the operators with that of the site providers but, frankly, we have heard this before. If the launch of the new Code in 2017 is to go by, then site providers should brace themselves for even more one-sided changes. The consultation has stated that it will not look into the valuation mechanism for new Code agreements and therefore has chosen to ignore the elephant in the room. It may be a coincidence but disputes between site providers and operators had never materialised until the new Code significantly reduced what site providers could charge. The significant reductions have meant that there is almost no point in rentalising “dead space” on rooftops for example, given the headaches that telecoms agreements can bring. On the other hand it has incentivised site providers to resist by any means the imposition of Code agreements on their land. The DCMS clearly has a mandate to remove all obstacles placed in the way of operators since 2017. Whether it will actually listen to the concerns of site providers or just pay lip service remains to be seen.
The telecoms industry have been at pains to argue that site providers should accept the changes brought by the new Code and in particular the new world of lower rents on the basis that “we are all in this together” given the future benefits connectivity can bring to a development and the wider area. However, either operators are naïve on how the real estate world works (the promise of “jam tomorrow” will get you nowhere in this world – money talks!) or they are simply being disingenuous. Unless, operators recognise that there has to be enough skin in the game for site providers, there will always be ways of slowing the rollouts and keeping the Tribunals busy. Teams of lawyers up and down the country are after all always on hand to find ambiguities in the most well drafted legislation.
That said, perhaps a shift is also needed from site providers to recognise that a more flexible and fast reacting digital framework is needed to give the country an edge not just in terms of 5G but further rollouts. In a post-Brexit world this is all the more important to give us a competitive edge on our slow moving bureaucratic neighbours in the EU. In addition, greater connectivity can help facilitate the rise of the Britain’s proptech and fintech industries and generally provide a wider array of commercial benefits to local communities up and down the country.
As with most things in life, a fair balance is what is probably required. A post-Covid and post-Brexit world can bring great innovative change to Britain and our digital infrastructure is a vital cog in that wheel. If the Government can reverse some of the perceived injustices created in 2017, then perhaps site providers and telecoms operators will finally be able to find that connection. Time will tell.
The DCMS consultation ends on 24 March 2021.
This article is for general purpose and guidance only and does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered. No part of this article may be used, reproduced, stored or transmitted in any form, or by any means without the prior permission of Brecher LLP.