Telecoms Disputes Over Wayleaves, Rents Threaten to Become Toxic

A few months ago the Government’s Digital Minister, Margot James MP, warned that some UK telecoms (mobile and broadband) operators were pushing land / building owners into accepting “derisory payments” for access to install their infrastructure (wayleave agreements). Today the situation is still far from resolved.

In previous years it was landowners who took much of the blame for disrupting the roll-out of new broadband and mobile networks, not least by creating disputes over complex wayleave agreements, which could sometimes make it far too difficult or far too expensive for operators to expand their coverage (particularly when targeting digitally disadvantaged rural communities).

However the reformed Electronic Communications Code (ECC), which was introduced at the end of 2017 (here), was supposed to change all that by making it easier and cheaper for telecoms operators to access public or private land in order to build new networks. All of this is necessary in order to help the Government reach their goals for better 4G / 5G mobile coverage and “full fibre” (FTTP) availability (here).

Initially there was some push-back by landowners, many of which were wary of being forced into accepting much lower rents (i.e. closer to what utility providers pay today), but eventually most of the key players appeared to reach a shared position (here and here).

Starting to Go Wrong

Everything appeared to be moving along normally until it became clear during the autumn that some telecoms operators were dramatically cutting the rents they pay on infrastructure. For example, some rents on greenfield sites that would have previously attracted c.£5,000 a year or more have been cut to under £10 and other farmers have seen deals fall from £12,000/year to £50/year.

A near identical situation has been occurring on some rooftop sites (usually large buildings), where once again annual rents of £5,000 to £7,000 are being replaced with ones worth just £50/year. As one senior industry source told ISPreview.co.uk: “Operators rely on landlords to insure their buildings, keep them repaired, facilitate access and expect them to be liable if they fail to do so. It is unlikely that [they] will be happy to do this for £50 or less.”

Sample of Recent Rent Changes

At present some of the most publicly known cases link back to Cornerstone Telecommunications Infrastructure Limited (CTIL), which is a joint venture between Vodafone and (O2) Telefónica that works with over 12,000 individual landlords and most major property portfolio organisations. But they are by no means the only organisation involved and we have a growing list of examples, most of which involve mobile operators.

The UK Digital Minister, Margot James MP, said in October 2018 that she was keen to resolve the issue (here). “I have heard about some really derisory payments being offered to farmers. They were probably earning more than was reasonable before, but that does not mean to say we need to go to the other extreme,” said Margot.

Nevertheless the problem was again highlight in November 2018 by a court case between the University of London and CTIL that sought to test the code (here). In this case CTIL had requested a limited right to access some roof space in order to conduct a survey, with a view to possibly installing new mobile network equipment at a tiny rental, but their request was refused.

The University strongly felt as if no such right existed under the Code for one of their private buildings, while the Upper Tribunal disagreed and ruled that they could gain access as part of the code’s right to “install“. The court also strongly supported CTIL’s public interest point (i.e. the goal of improving mobile connectivity for all) and the need for flexibility in related agreements.

The case highlighted the difficulty with finding a good balance and expecting all sides to play fair.

The Situation Today

As we approach the end of 2018 it’s fast becoming clear that the current situation is not getting any better. ISPreview.co.uk recently had the pleasure of discussing this with the Legal Director for one of the UK’s biggest owners of telecom sites, which has a vested interest in the rents paid by operators.

Due to their involvement in an on-going tribunal case (related to this matter) we cannot name the company, but we have been allowed to share what was discussed.

Question 1) Have you noticed a trend in terms of specific areas where this is occurring?

This is impacting on landlords across the UK. Operators have issued Landlord’s with letters on any leases/agreements which are coming up for renewal. Those letters will typically include a valuation at around 1-10% of the current passing rent. They are using the Government’s desire to reduce roll out costs as justification for their move but without providing the full details.

This is because the Government’s own research suggested reductions potentially of up to 40% on what was previously being paid but only where there had been a ransom element. Not the 99% currently being demanded across the board. The letters also carry a threat of lands tribunal action if the landlord does not agree.

So the operators are mixing a ‘misquoting’ of Government policy with the threat of legal action to force landlords to accept the massive reduction. A toxic combination for anyone on the receiving end.

Question 2) Are there any particular operators involved (can you name them) or is it more generalised?

All of the operators have issued the type of letters referred to above. There appears to be a concerted effort by all the operators to be the first to obtain a favourable tribunal decision to reduce their costs. Clearly, the idea behind this is that, if and when a favourable decision is received, then the letters which go out to landlord’s can reference such a decision and it is more likely that landlords will accept.

This may fail to miss the point that the message it will send to landlords is to avoid offering or allowing their sites for telecoms unless they are forced to do so and if they have an existing site then to look to alternative uses. That would certainly not be good for connectivity in the long run.

Question 3) At what sort of scale would you say this problem is currently occurring?

We believe that there are around 80 ongoing cases at the Lands Tribunal but many more letters were issued to landlords so it is likely that this number will increase if terms cannot be agreed which is likely given the initial reductions demanded by the operators.

Question 4) How concerned are you about the impact upon your business?

All landlords of telecoms sites should be concerned. However, with 5G about to hit the shelves, more sites will be required and existing sites upgraded. There is a certain amount of supply and demand here. If landlords withdraw from the market then fewer sites will be available.

The operators are the first to point out that we are behind in terms of connectivity and other countries are ahead of us. When one looks at the amounts of rent paid by operators in those countries, very few of them, if any pay to landlords the type of rents that the operators are now demanding. Clearly, the casual link between low rents and increased connectivity is a difficult one to make.

Question 5) Do you feel as if Margot James is doing enough to help resolve it?

We were reassured by Margot James’ recent comments and it is clear that it is on her agenda to tackle the issue. We also know that DCMS did not expect rents to be reduced by 90% across the board. The 40% figure in the consultation reports was no magic figure but we doubt any party has seen an offer around that level of reduction. If the UK is to lead the way in connectivity then all parties need to work together.

Clearly dragging landlords through the tribunal will not achieve the desired result. Unlike utilities where a company may lay a water pipe or electricity cable, the operators rely on landlords to insure their buildings, keep them repaired, facilitate access and expect them to be liable if they fail to do so. It is unlikely that a landlord will be happy to do this for £50 or less.

Question 6) Do you have a view on how this could realistically be resolved?

If the government’s intention was to make roll out easier and cheaper then this is clearly not happening. There is a need for government intervention and for it to be made clear that the tribunal should be a last resort where open negotiations have failed, not where one party has made an offer which they know wont be accepted.

The joint statement earlier this year needs to be adhered to rather than the current adversarial approach being pursued. No-one is going to come out of this well.

Elsewhere the Senior Rural Business Adviser to the Country Land and Business Association, which represents owners of land, property and businesses from across rural England and Wales, similarly informed us that the revised ECC appears to be “leading to major market disruption” and that a “more balanced approach” must be adopted.

Dr Charles Trotman, CLA Senior Rural Business Adviser, said:

“It is not fair for mobile operators to offer significantly less now than previous payments for mast sites. We recognise that rents will be reduced but the value of a site is determined by a variety of factors and the current low offers are not in the landowners’ interest.”

The CLA added that they’re currently working with the Government and the wider telecoms industry to reach an agreement on the “principles of valuation and a methodology,” which they say could help to secure a “fair and equitable” outcome.

Admittedly landowners often represent the opposite extreme to mobile operators, but in this case the language being adopted appears to reflect a conciliatory tone. Happily one of the country’s largest mobile networks, EE, has shown a similar desire to find the right balance and this has been echoed by the wider Mobile UK trade association.

A Spokesperson for EE told ISPreview.co.uk:

“We recognise that we have an important role in ensuring our communications to landlords are clear and the offers made are fair, in the context of the rights provided under the Code and the ever-growing demand for mobile connectivity. To support the Code, Ofcom has produced a Code of Practice which sets out the behavioural expectations of both operators and landowners through the life cycle of a site and we’re fully committed to following these principles.

We believe that the new legislation will deliver on the Government’s objectives and that we’ll reach a happy medium, where quick deployment of new technologies is enabled. However, this will take some time while the Code beds down and precedents are set.

It remains early days to know what the impact of the Code will be, but we’re positive that it sets out an effective framework for the efficient deployment of infrastructure and helping to bring coverage to the most remote parts of the UK.”

Hamish MacLeod, Director of Mobile UK, said:

“As the mobile industry readies itself for 5G it is crucial for the business case that sites can be rolled out quickly and cost-effectively. The reformed Electronic Communications Code is an essential piece of this puzzle. While there has been some inevitable uncertainty, and even misunderstanding, about how the new process works, progress is being made, and agreements are now being concluded on mutually agreed terms.”

A Three UK Spokesperson added:

“The new Electronic Communications Code seeks to strike a fair balance between the rights of landowners and the economics of rolling out mobile infrastructure to improve connectivity for UK consumers and businesses. The new code is not delivering on its objectives since it came into force last year.

However, Three UK is committed to paying a fair value for its sites aligned to the new code principles and are keen to enter into consensual terms with landowners on what the appropriate price should be for such new code rights.”

Meanwhile a spokesperson for the Department of Digital, Culture, Media & Sport (DCMS) said: “We are monitoring the impact of the Electronic Communications Code reforms closely and the way the new code is being applied by landowners and the telecoms sector. We are holding regular meetings with stakeholders to understand what is happening in the market and to encourage collaborative engagement and negotiation.”

ISPreview.co.uk understands that the first Lands Tribunal decisions on the valuation regime introduced by the reformed ECC are expected sometime early next year, which may either set the stage for further disputes or help to resolve the current situation.

At the end of the day it’s still early for the reformed ECC and many of the agreements mentioned in this piece haven’t yet had enough time to bed in within the industry, ideally by enabling more agreements that are to the satisfaction of all parties. Signs of progress do exist but it remains to be seen how far that spreads.