Why is the new Code not working and what should be done about it?

Why is the new Code not working and what should be done about it?

There has been so much hype over the last 10 years or so about a thing called 5G. The last time the telecoms industry caused so much chatter was in the late 1990’s early 00’s when 3G was being launched. That resulted in huge over bidding (£22bn paid in total) on the five 3G (UMTS) operating licences which were auctioned off by the UK Government. This was money which, instead of being spent on infrastructure investment, was sucked into government coffers and never heard of again.

For a summary of this post, please go here. For the whole picture, please read on.

This is when the financial pressures on UK networks really began. On top of the huge sums spent on 3G licences, massive investment in towers and sites was required to support 3G networks. Competition for sites was fierce and one new starter (H3G, later the three network), had to start from scratch. It was able to piggyback on another operator’s network to begin with. However, that was always a short-term strategy and one that 3 had to plan without after a few years.

In 2007/08 3 and the predecessor to EE (T-Mobile – remember them?) entered into a radio access network (RAN) sharing agreement. This was a piece of simple, but very clever thinking – one that financial consultants really earn their money for: 3 and T-Mobile were struggling to match the UK-wide coverage of Orange, Vodafone and O2. They only had 8000 to 9000 sites each. Many of those were in similar locations, very close to each other. So take a huge chunk out of the network where these co-located sites were and combine both operators on to one of them. The result was a coverage-record-smashing network of 13000 sites, but each operator only paid half the cost (equivalent to 6500 sites each). The result was a Ferrari network for Ford money.

But this only went part of the way to making up for the lost £22bn. A merger between Orange and T-Mobile soon followed and EE was born. Telefonica and Vodafone started their Cornerstone business, branded as a tower company which managed its owner’s networks.

In 2011 an arbitrator made an award in a case involving a route across the Bridgewater Canal in Manchester. The award was appealed and eventually one of the senior members of the Judiciary commented that the legislation behind telecommunications infrastructure (the telecoms code – then Schedule 2 to the Telecommunications Act 1984) was one of the least coherent and well thought out pieces of legislation on the statute book.

The Law Commission was asked to look at reforms to the telecoms code. As part of its initial review, the Commission concluded that the market was not perfect, but just about functioning and the legislation was outdated and not fit for purpose. Everyone agreed that the infrastructure required for the latest communications networks is absolutely essential for a successful UK. This importance has only increased since then. Society’s reliance on good communications infrastructure is greater now than it ever has been. However, the infrastructure should not be installed if it involves the gross-expropriation of private property.

So, in 2014 the Law Commission proposed many changes to the telecoms code, including, most critically, that the existing market value-based rents paid for sites should continue. The Government took the Law Commission’s findings on board and drafted a detailed bill to go in to the 2015 Infrastructure Bill. This appeared to be progressing well, until it was suddenly removed from that Bill at the last minute.

A further consultation was held, which delayed a new code. In mid 2016, the UK Government announced in a fanfare of glory that a new electronic communications code was on the way. The new bill was published as part of the Digital Economy Bill. It was very similar in wording to the attempt which was made to incorporate it into the earlier Infrastructure Bill, but for one crucial change: The market value assumptions were changed to take account of the value of the site to the site provider, rather than the value to the operator. This more or less killed the site provider/operator rental market over-night. The previous willingness of property owners to make their land and buildings available to operators was all-but destroyed.

The argument was that Site Providers had had it too easy for too long. Some were abusing the market and holding operators to ransom. Much of this was to do with an inappropriate dispute resolution system. If terms for a new lease couldn’t be agreed, the parties had to go through the county court process. This was expensive, slow and often decided by judges with almost no experience of that market. They were more used to deciding family disputes or commercial lease renewals under the Landlord and Tenant Act 1954. A renewal under the telecoms code was unfamiliar territory for them.

The planning system also did not help network roll-out. Faced with a renewal demand from a site provider which seemed out of kilter with the market, operators had few options other than pay the price demanded or move off site. The planning system wouldn’t let them do that though. It was and still is, so difficult to get planning permissions for new sites that operators and infrastructure investors couldn’t properly consider the option to move from one site to a cheaper replacement.

This inadequate support from the planning and judicial systems gave site-providers an opportunity to exploit the operators’ need to remain on a site, almost no matter what the cost. Most people in the sector agreed that something needed to be done.

The proposed change to the valuation regime was heralded by those in Government as a pioneering way forward. One which would redress the balance between site providers and operators. Site providers would receive a fair value for their land or buildings being used for telecoms installations. Compensation would be available for costs, losses and damages incurred by site providers in hosting a site.

Those who understood the market could see what was likely to happen. This was pointed out to operators and Civil Service staff on various occasions: The supply of available sites would dry up. Wiling site providers would almost cease to exist. Instead of heeding the warnings, Government continued with the legislation and brandished the sceptical ones as nay-sayers and obstructions to be overcome.

This has resulted in a broken system and less than four years after the legislation was introduced, more reforms are proposed to the code. It doesn’t work. It’s still too inflexible and expensive to resolve disputes which arise in negotiations between site providers and operators.

Take the case of Cornerstone telecommunications. Infrastructure Limited V London and Quadrant Housing trust. The Upper Tribunal in England heard that case in 2020. It awarded a site payment of £5000 per year. One aide argued for an annual site payment for £1000 or so and the other for £16000. The costs. Incurred by both sides amounted to over £300,000. As it happens, subsequent checks to assess the structural integrity of the building’s roof concluded that the proposed apparatus cannot be in safely installed. The site cannot be built or operated. There will continue to be a coverage hole in the area for Cornerstone’s owners’ customers and the site provider has been left hundreds of thousands of pounds out of pocket.

So what went so wrong in the UK that we’ve ended up here in 2021 with a serious shortfall in network infrastructure roll-out?

Everyone seems to agree that the new code doesn’t work, but what should be done about it? I have read some proposals to encourage site providers to be more engaged in the process of making sites available to operators. This involves offering them some sort of incentive, whether that is a cheap or discounted mobile phone contract or even shares in the operator itself. In the early days of site roll-out, the former was often used as an incentive. Once the initial contract ended though, there were often issues with renewing it on the same terms. As for offering shares in the operator, this is an innovative solution but unworkable. The underlying theme though is money. Site Providers don’t generally want to see a consumer-based business profit at their expense.

In most other countries, there is nothing akin to the Code. Australia has some regulatory legislation but this doesn’t interfere with the market. Across Europe there is an EU wide code being introduced, but again this doesn’t go near the rental market. There is a functioning market which enables operators to move swiftly from one site to another. Planning regulations work in favour of operators and enable easy sharing of sites. The infrastructure installed is also much simpler.

In the Netherlands and Germany for example, the majority of towers are slimline lattice or monopoles, 25m or taller. They usually have multiple tiers of antennas installed – three and four tiers are very common. In the UK there are very often clusters of three or four 15 m tall masts and towers, because sharing has not been permitted on the sites.

Recently the UK government has “relaxed” its planning legislation, to allow towers up to 25m high to be permitted development. The process to go though is still long and cumbersome, with much public involvement and consultation. Proposed new sites are often headline news in local press and media with scare stories still spreading misinformation about the risks between radio base stations and health. Politically this makes it difficult to get the message down to a very local level that there is very little risk.

The planning laws could be relaxed further with a shorter timescale for the approval of permitted development applications. In the late 1990’s this was extended from 4 weeks to 8 weeks. This is really too long.

All of these factors make for a woeful planning regime applicable to telecoms infrastructure, which discourages Operators from freely moving from one site to another. The Code only adds to this lack of network “mobility” and the two factors create a self-perpetuating circle of delay. Let’s look at a fairly typical example of a new site requirement as a result of an owner’s development intentions.

The owner of Site A wants to demolish their industrial units, with a mast on top of the plant room, and develop the site for housing. They have to go through the code agreement termination regime, which is a minimum of 18 months notice. The Operator on Site A sees a site close by (Site B), which could be acquired as a replacement, but the owner doesn’t want it. There’s no incentive for them to host it. They see Owner A’s plans for development and think they could do something similar in five or ten years’ time. Site C is a farmer’s field which adjoins a school playing field. Site C’s owner doesn’t want to host the site because they get no incentive for it.

Site D is a streetworks site located outside the entrance to the school. The school doesn’t want it because it will interfere with comings and goings of pupils, parents, teachers etc. And there are still many people out there who think the sites are going to fry their brains.

So the planning authority has to deal with a hundred objections to the chosen site D. Local councillors get involved. The local press and media do to. The resources to deal with one single new site application are huge. It should be a much more straightforward process.

Across the road from D is site X. It’s a three-storey office block. The site can be accommodated nicely on the roof. The Operator approaches the Owner and withdraws the application for Site D.

The Operator offers X’s Owner £1000 a year for a new Code agreement, plus £3000 for his legal and valuer’s/surveyor’s fees. The Owner’s business is the management of an office building and they use a commercial real estate legal practice to advise them.

The Operator has requested 24/7/365 access, the right to use and share the site with any operator, to transfer the lease by assignment to any other operator without a guarantee. The Owner is concerned that the agreement could be assigned to a code operator without the resources to cover the removal or one that doesn’t have the same level of concern for its site providers as the initial operator. Owner X is also concerned the equipment may overload the rooftop. He has plans to resurface the roof in a year or so’s time. The negotiations might go something like this.

“Don’t worry!” says the operator. “We’ll covenant not to overload the roof.”

“OK, can I have your structural report please, to show what you’re proposing doesn’t impact on the roof?”

“No. We haven’t done that yet, but we will do. Please agree our Code agreement or we’ll have to consider taking this to a tribunal to fix the terms.”

“OK, but my legal fees for dealing with this are likely to be more than you’re offering to cover them. And what about my re-roofing in a year or two’s time? It’s going to cost me £50,000.”

“Ah, yes, it will cost us £20000 to move our equipment so you can do this. You’ll have to pay for that too”.

“I really need to think about this.”

“We need to get our site in place soon, so unless a deal is agreed next week and completed by the end of next month, we’re pursuing this to the Lands Tribunal.”

“My lawyers have told me that’s likely to cost me at least £50,000. Can you give me a structural report please? That will help me decide?”

“No we still haven’t done that. We’re applying for interim rights so that can be done.”

“I’ll let you in to do the report inspection. There’s no need to apply for interim rights. But I want to be able to respond to the structural report if it’s inconclusive. And can we come to some arrangement on the lift and shift, so it doesn’t add to the cost of my re-roofing please?”

“We’d love to, but this is all taking too long. We’ve applied for an interim rights order and a full tribunal hearing!”

So Owner X is now expected to consensually host a tenant who’s taken this approach. The agreement will be at least 10 years. He’s going to be left at least £50,000 out of pocket for having had to respond to the tribunal application and receive a payment of £1000 a year.

The operator has to weigh this all up and decide whether to persist with X and serve notices under the Code to force the issue. In the meantime planning permission has to be sought. If this is refused then the appeal will take six months or more and assuming it’s granted, the operator can continue with its negotiation of terms for a new lease.

A’s owner in the meantime is getting ever more frustrated at the delay to their development scheme. They can’t get a developer to commit to a purchase until the Operator has left. They’ve spent £20000 so far on legal and valuation advice to progress this and they’re likely to have to spend a further £20k before the site is finally removed. This has swallowed up the last five years’ worth of rent that A’s owner received from the original telecoms site lease.  Additionally the date of sale of their development has been put back 18 months. So they have missed out on the benefits of investing the likely £2m sale proceeds. At returns of 8% this is £160,000.

The whole system is then reported in local media outlets and property press. Telecoms operator holds up A’s development to bring much needed housing to an area. Telecoms operator proposing massive mast next to school.

So is it surprising that telecoms installations are now about as welcome as a quart of curdled cream? They make absolutely no sense to owners or investors. The risks they present to an owner’s asset management strategy, the day-to-day disruption of hosting the site itself and the time, effort and expenses associated with claiming compensation from an operator make this vital infrastructure a serious burden to a property owner.

So what can be done to remove these barriers to roll-out?

First of all, introduce an assumption in favour of permitted development for well-designed masts and towers, subject to some periods of consultation up to 25m or 30m if they are shared. What constitutes good design is quite subjective? Relax constraints relating to installations on buildings. Any installation within a certain volume of radio cabinets and antenna/dish steelwork installations protruding no greater than 5m above the highest point of a building should be permitted where there is no other special designation to the site such as listed building (grade 1, 2 or 2* only), conservation area or world heritage site.

Applications to add further equipment to an existing tower should be permitted unless that tower needs to be replaced due to over-loading. If a height increase is required this should be permitted up to 30m total height or 25% of the existing tower height if it is more than 25m.

All applications should be determined within 28 days of submission to the local planning authority. Full disclosure with planning/licence notifications should be required of the emissions levels and how they relate to ICNIRP permitted levels.

On public highways land (including special roads such as motorways and trunk roads) introduce permitted development rights for “streetworks” sites up to 25m height (or 15m in residential/suburban areas).

Secondly, revise the electronic communications code in ways which addresses the main barriers to roll-out i.e. the shortfall in the supply of available sites and the length of time that site providers have to wait to terminate a code agreement. This dreadful piece of legislation has been an albatross around the neck the UK telecoms industry since the first draft of the final bill was introduced in mid 2016. Introduce an assumption in favour of site providers being paid at the outset of an agreement, for all reasonably foreseeable losses, costs and damages and make operators responsible for all costs arising from their occupation of the building, such as ongoing management costs, increased operational costs allowing for any reasonable changes that the owner has to make because of the presence of the apparatus. Reduce the period of time for an agreement to be terminated, to six months maximum.

Operators need to be encouraged to take a less aggressive approach to new Code valuations and applications to the Lands Tribunals. More clarity is needed on the values to apply to the Site Provider’s land and a presumption in favour of burdens they will reasonably and foreseeably incur.

Other barriers include the strange definitions in paragraph 17 of the Code, relating to upgrading and sharing equipment. If there is an equipment addition which is permitted by planning legislation, it should be permitted in the agreement with the site provider. Any sharers on site should not have rights under the Code. If the Owner serves a single notice on the Operator named on the Code Agreement, that notice should bring to an end all operator and sharers equipment serving or using that site at the date of its expiry.

The dispute resolution process is also prohibitively expensive. Many disputes could be resolved by alternative methods of resolution, such as arbitration or mediation. An arbitration process may take a month or six weeks to conclude. A mediation even less. The two methods could be used to resolve valuation or commercial issues. In the above scenarios Site Owner X might ask for the process to be resolved by mediation, so his concerns on rooftop repair costs and structural loading could be properly addressed. If the valuation is disputed, this could be referred to arbitration. Instead of paying six figure sums for each case by each side, the matters could be resolved for fractions of that amount.

So where do we go from here? Well the industry is so badly polarised just now, that any thinking which is not seen as 100% neutral is viewed with huge scepticism by one side or the other. 49/51 in favour of the Operator means being pilloried by the site providers market and vice-versa. DCMS is running a series of workshops to try to reach consensus on how to reform the code and make the industry work better. Many experienced industry practitioners are investing a great deal of time in these workshops. Whether they provide any real steps forward remains to be seen. For them to be effective, all parties with an interest in the market have to buy in to the reforms and proposals.

For a conversation about how we can help you with your electronic communications code issues, whichever part of the market you’re involved with, please get in touch with us here at 4M info@4mpropertiesgroup.com .

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