Telecoms upheaval - economic pressures and legal changes

Telecoms upheaval - economic pressures and legal changes

Published:

Author: Andrew Farmery

At Mobile World Congress in Barcelona this year, leaders from the telecoms sector gathered to discuss pressing issues, conduct business - and launch their latest products.

A consistent message heard from those in Barcelona is that there is a rapidly approaching 'data capacity crunch' and that major investment in telecoms infrastructure is needed.

The Teleport chief executive has estimated that, globally, mobile network operators will need to invest $1.7 trillion by 2020 to meet demand.

In the UK market, EE and H3G have announced that they will share the £1billion cost of completing their basic 4G networks. That will include sharing mast infrastructure.

Another shared infrastructure project, Cornerstone, has picked up pace in the last 6-9 months, with Shoosmiths representing a number of site providers covering significant portfolios of sites.

Pressures

Whilst needing to invest heavily in infrastructure, operators are facing new challenges to their revenue streams:

  • Revenues received from text messaging have fallen by tens of billions of pounds through the rise of instant messaging apps such as WhatsApp.
  • Days after their acquisition by Facebook, WhatsApp has announced that they intend to offer voice calls for free over the same data networks.
  • Research by the business advisory group Alix Partners has suggested that the European telecoms sector needs to cut 100 billion euros from costs to achieve revenue growth.

Against this commercial background, there is a political imperative at play - the government has committed to making broadband infrastructure easier to deploy by removing barriers that may slow or prevent its construction.

Changes

A review of the Telecoms Code is set to shake up the legal framework for operators and landowners. The Code, originally issued in 1984, was designed to facilitate the installation and maintenance of fixed line communications networks. It has long been problematic - it was written with very little consideration of property law.

It can be extremely difficult for a landowner to move an operator off land at the end of an agreement period with the result that many landowners will need to think carefully about this risk if they anticipate wanting to recover possession of it - a position which is at odds with the commercial and political need to make more sites available.

The Law Commission report which contains recommendations to overhaul the Telecoms Code was issued in 2013. One contentious area between landowners and operators has been the basis on which payments should be made by operators to landowners. The latest development has been a review of alternative means of calculating rental payments for telecoms occupancy.

This was commissioned by the Department for Culture, Media and Sport and carried out by Nordicity.

A way forward?

Three pricing structures were considered: market value (the model recommended by the Law Commission), the regime employed by the energy sector and that employed by the water industry. Essentially both the energy and water regimes charge according to land value meaning that a landowner could recover only a compensatory amount.

Nordicity's conclusion was that the Law Commission's proposal would result in a decrease of 10% in rent costs (this takes account of recommended safeguards for operators recommended by the Commission) but a considerably greater reduction if the pricing models for the energy or water sector were to be adopted. Statistically this sounds impressive but statistics are notoriously misleading.

Nordicity recognises that rent costs represent only a portion of the cost of deploying and operating new infrastructure. The impact of the reduction in rental costs is tiny compared to an operator's infrastructure costs and the relative savings of these 3 models would, in real terms, be considerably smaller.

Most significantly, Nordicity fails to recognise that the need for increased telecoms infrastructure means the need for more sites. More sites mean more landowners making those sites available.

A pricing structure based on loss of land value would essentially wipe out income revenue for a building owner allowing an installation of infrastructure on the building's exterior. Larger site providers make enormous investments in infrastructure which benefit mobile operators. If a pricing structure were to be introduced which essentially removes revenue from land owners it stands to reason that there will be no incentive for sites to be made available or for investment to be made. This is in no-one's interests.

Faster broadband and improved infrastructure will have positive benefits for the economy at large. Reforms need to take account of the competing commercial interests at play and where land is an essential ingredient to this provision, the impact of suggested reforms on the business of land owners cannot be overlooked. The Law Commission has sought to balance these interests in an informed manner and following extensive consultation.

Clearly the Government is continuing to look at proposed reforms to the Telecoms Code.

Interested parties agree that most of the Law Commission's suggested reforms would be very useful but the fact that the Government has focused on rents suggest that the delay in reform revolves around that issue. It would be a pity if those deliberations were to delay reform unduly.

A sensible approach to pricing coupled with other reforms should lead to an increase in land supply to operators. In turn, this will help the government to achieve its broadband infrastructure aims.

About the author

contact photo

Andrew Farmery

Partner

03700 86 8885

Andrew specialises in property investment, landlord and tenant and telecoms infrastructure work. He leads teams in delivering full service advice to clients with large property portfolios. Andrew is recognised as a leading expert on the property aspects of the Telecommunications Act 1984 and has assisted the Law Commission in its review of the Telecoms Code.

Share this page