Warren Gordon

Warren Gordon

Head of Real Estate Know How

More from Warren

02 June 2016

A New Electronic Communications Code – the Government’s position

Summary

The Government has provided its response to the views of stakeholders on its consultation on a new Electronic Communications Code. The standout point is the new approach to wayleave valuation which will favour operators. This is a key plank of the Government’s strategy to incentivise investment in digital infrastructure. There is no fixed date for when the new Code will take effect (we have as yet not seen the latest form of the new Code as part of the Digital Economy Bill), but the Government is committed to implementing the new regime through primary legislation at the earliest possible opportunity. 

Context 

The Electronic Communications Code was created over 30 years ago. There has been considerable dissatisfaction with many aspects of the existing legislation. It is widely agreed to be out of date with current technology and the evolution of the electronic communications market. Although the Code's terminology was updated in the Communications Act 2003 to reflect European harmonisation of the telecoms regulatory framework, the amendments made to the Code in 2003 did not address technological progress or anticipate the change in structure of the relationships between landowners and Code operators, such as the development of the wholesale infrastructure provider sector or tripartite arrangements between a landowner, a number of Code operators and a wholesale infrastructure provider. 

The current Code is complex and unclear in a number of important areas, which causes problems between site providers and communications providers and this is compounded by an inefficient dispute resolution process. For the Government, the key reason to change the Code was to regulate the wayleave valuation market (the value of the right to maintain infrastructure on private land), in order to incentivise investment in the UK’s telecommunications infrastructure.

The Law Commission proposed changes to the Code back in 2013 and in February 2015 the Government issued a consultation on a new draft Electronic Communications Code with accompanying draft Bill.

In May 2016 the Government issued its response to stakeholders’ comments on the consultation. At the time of writing, the proposed new Code has yet to be published, although the Government commits to implement the new regime through primary legislation at the earliest possible opportunity.

Key points in new Code

The Government’s purpose behind reforming the Code is to increase and incentivise investment in digital infrastructure, which will help communications providers to extend coverage, improve connectivity and allow better quality of service for consumers. There will be increased rights for communications providers, in order to facilitate and make more cost effective the deployment and maintenance of the UK’s digital infrastructure. The overarching policy objective is to future proof the Code (so that it is technology neutral) and make it fit for purpose as a framework that supports the rollout of modern communications technology. 

A critical aspect is the reform of wayleave valuation, which will lower the cost of infrastructure rollout and incentivise investment. The Government proposes the introduction of a valuation system based on compulsory purchase principles (“no scheme” rule), which will mean that the value of land is assessed on the basis of its value to the site provider, rather than the communications provider, a system analogous to that used for domestic utilities. This will reduce the cost to communications providers. The Government calculates a 20 year net present value benefit to communications providers of £1.02bn with a balancing cost of £709m from lower rents and potentially up to £307m through an indirect impact on business rates. So while site providers should continue to receive fair payment for the use of their land (in addition to simple compensation for any damage or loss of value to the land), the fair value should not, as a matter of principle, include a share of the economic value created by very high public demand for the communications provider’s services. 

Additional clarity and certainty in the Code will ensure efficient operation of the market and facilitate agreement. On dispute resolution, the forum for almost all Code disputes will be the Lands Chamber of the Upper Tribunal, which has the necessary specialist expertise to ensure effective and speedier dispute resolution.

The Government acknowledges the importance of the revised Code needing to strike a balance between enabling Code operators to roll out and maintain their telecommunications services, and the property rights of landowners. However, operators benefit more than landowners from the changes to the Code especially in relation to valuation and given that a primary Government aim is to reduce the barriers to infrastructure investment, this outcome is expected.

Further details

 Also in relation to the proposed new Code:

  • Given the rapidly evolving nature of the telecommunications technology, operators will have a new automatic right to upgrade apparatus. There will also be an automatic right to share apparatus, allowing operators to make more effective use of sites across their portfolio and reducing their infrastructure footprint and cost base without impairing network provision. These new automatic rights will ensure that communications providers cannot be charged extra for changes where there is minimal adverse visual impact or burden on site providers. The new Code will enshrine reassignment of Code rights, which means that as infrastructure assets are sold and acquired by communications providers, under infrastructure sharing arrangements for example, there will be no option for landlords to negotiate new terms for existing contracts. 
  • The new Code will prohibit the ability to contract out of the Code’s provisions and stop parties making private agreements capable of excluding Code provisions. The prohibition is necessary, according to the Government, if the Code is to be truly effective. 
  • Code rights will continue to apply to land when it is bought and sold, without any requirement to register those rights. 
  • Given the significant impact of the valuation change, the new Code rights will only apply to contracts signed after the law has come into effect and will not apply to existing contracts retrospectively. There will be transitional arrangements as to how and when existing agreements transition to the provisions of the new Code. This enables a move to the new legal framework over the next 10 to 15 years as existing contracts come up for renewal, while simultaneously creating an incentive for new investment. 
  • The new Code will allow fast interim access to sites for communications providers in appropriate circumstances, enabling them to access sites more quickly, even while a valuation is still being resolved. Government does, however, have a clear policy only to introduce new powers of entry in exceptional circumstances. At present criminal penalties for denial of access and associated stronger powers of entry are not warranted.
  • More generally, there will be Government encouragement to industry stakeholder groups to work with Ofcom to develop a Code of Practice to facilitate implementation of these reforms.

 Conclusion

The key point to note is the change in the basis of valuation to a “no scheme” rule reflecting the underlying value of the land. This will limit the value of consideration that the site provider receives for granting the wayleave, but this change is not surprising in view of the Government’s firm commitment to incentivise investment in digital infrastructure. Some will be frustrated by the prohibition on contracting out of the Code on the basis that professionally advised site providers and operators should be able to come to their own agreement. The Government is concerned, however, that this will undermine the Code’s effectiveness.