After many years of reviews and negotiations, reforms to the electronic communications code are nearing finalisation. These reforms are expected to make it quicker, easier and cheaper to build, upgrade and share sites and are estimated to save the mobile industry over 1bn over the next 20 years. However, there are still issues to be worked through including whether the savings will be passed through to mobile operators and whether they will result in consumer benefits for example better coverage, better data provision or lower prices.


Almost 5 years after the initial review commenced, reform of the Electronic Communications Code ("the Code") is now part of Government policy.

The Code facilitates the installation and maintenance of electronic communications networks. Initially put in place to facilitate landline provision, it is now widely used by mobile operators who need to erect sites. Under the Code, operators are permitted to construct infrastructure on public land and have rights to install equipment on private land. On private land, the Code requires operators to contact the land owner before installing equipment but provides that when permission is not granted an operator can apply to the County Court to allow them to undertake the work. However, in contrast to the rights conferred on other types of utility provider, the Code does not tightly regulate the price that may be charged by the landowner for access.

The market for land for mobile sites

Mobile Network Operators (MNOs) require a large number of sites to locate their network equipment and there are currently around 36,000 mobile sites in the UK.

Site locations are provided by a range of entities including individual landowners, private companies, Government departments, other public sector providers and major infrastructure providers. Arqiva is a key infrastructure provider who operates many sites. In some cases, the infrastructure provider may own the site location; however mostly it rents the land from the underlying owner and sublets it to the MNOs.

  • In urban areas: planning restrictions and environmental concerns limit the choice of suitable sites and many prime locations are already being used as sites. The supply of additional sites is limited.
  • In rural areas: there are fewer sites within a particular area although the open nature of land suggests there may be alternative site locations to choose from. However, these are often owned by the same party.

Site location is determined by a wide range of technical factors and by the planning law regime. Factors to consider when installing new sites include:

  • The site has to be integrated into the existing network.
  • A clear line of sight is required.
  • Deploying power from far off can be expensive.
  • Sites built further away from existing transmission links are more costly since they require a large amount of new backhaul to be built.

The complexity of the site location decision means that operators are often constrained in their choice of site locations. These network and technical restrictions may result in landlords holding local monopolies over the operators, resulting in a landlords being able to extract monopoly profits from MNOs. Once established in a location, moving a mast from one location to another involves a number of steps:

  • Site selection: including project management, radio planning, site design, site acquisition, and search fees.
  • Planning and legal consent.
  • Site negotiation: the same negotiation process is used for relocated sites as for new site acquisitions.
  • Minimising coverage and customer impacts: customers may lose coverage until a replacement site can be acquired and built.
  • Reconfiguring network capacity: surrounding sites will be required to carry additional traffic.
  • Relocating equipment and undertaking new build.

The initial lease is usually signed for a period of approximately 8 to 10 years. However, once established it is typically prohibitively expensive to relocate a site, even where there is an alternative location that is technically suitable.

The combination of mobile operators being limited in their choice of locations and the prohibitive cost of site relocation, once established, means that land and building owners may be able to extract high rental values from operators. This situation is exacerbated in rural areas by the fact that the same landowner often owns the land surrounding any particular site.

Impact on meeting the increasing demand for mobile data services

Demand for mobile services and particularly data services, is increasing and to meet demand the MNOs must upgrade sites and add new sites, often by sharing a site with another operator. Currently mobile operators enter into commercial negotiations with the landlord both when a site is established and also when it is upgraded for additional equipment, for example to provide 3G or 4G and also when it is opened up to network sharing. Upgrading sites provides another opportunity for landlords to increase rental prices.

Comparison to the market for land for use by other regulated utilities

Energy and water companies benefit from legal frameworks that constrain the prices that landowners are permitted to charge them for land use. The Water Act (1991) and the Electricity Act (1989) provide guidance on the price that can be charged for land which they use for laying network infrastructure. The basic principle for determining compensation to landowners is that rents are set to match the economic loss to the landowner which is calculated on the basis of the underlying value of the land. In practice most payments are set through commercial negotiations with additional disturbance payments being made, however payments are still significantly below the market price being charged to mobile operators.

Concerns raised by DCMS and Ofcom

Mobile penetration stands at over 145%1 and as of January 2014 at least 90% of UK homes were covered by 3G by at least three operators.2 However, both Ofcom and the DCMS have raised concerns around mobile coverage, noting that some areas continue to have no mobile coverage ("notspots") and other areas are not covered by all the MNOs ("partial notspots"). This is an important issue for both consumers and the UK economy. For example:

  • A DCMS commissioned broadband impact study predicted that every 1 of public investment would result in around 20 of net economic impact.3
  • Ofcom has noted that "improving mobile quality of service for consumers is a priority area".4
  • A recent study by Ofcom5 revealed that UK consumers now consider mobile and Internet services to be essential, with 59% of consumers classifying mobile voice or text services as essential and 57% consider personal internet access essential.

This issue received significant press attention6 and proposals were set out by Government, Ofcom and the MNOs to tackle the coverage issue. Reform of the ECC being one of them.

Previous attempts to reform the Code

The Code has long been considered over complicated and in need of reform. In the words of Mr Justice Lewison in Geo

Networks Ltd v The Bridgewater Canal Company Ltd: "The Code is not one of Parliament's better drafting efforts. In my view it must rank as one of the least coherent and thoughtthrough pieces of legislation on the statute book."

In 2011, the DCMS asked the Law Commission to undertake an independent review. In 2013 the Law Commission set out its recommendations7 and temporary amendments (lasting five years) were made to the Code in 2013 as part of the Growth and Infrastructure Act. With regards to pricing, the Law Commission stated: "Landowners should continue to be paid a market price for the right to use land, but the revised Code should provide a definition of market value that is familiar to valuers and conforms to their professional standards."

In 2015 an amendment was tabled to the Infrastructure Bill (now the Infrastructure Act 2015) which would have substantially reformed the Code along the lines of the Law Commission's recommendations. This was dropped following criticisms that the revised Code would be unworkable and did not take into account a number of economic concerns, specifically with regards to calculating price.

New Proposals for Reform

In the Queen's Speech in May 2016, the Government indicated it would bring forward a Digital Economy Bill that will contain reform of the ECC. This will address both the issue of Code rights and the price that can be charged by landlords for to mobile network operators to site equipment on private land.

The proposed system is based on compulsory purchase principles as it is for other utilities such as electricity. The value of the land will be assessed based on its value to the landowner (opportunity cost) and not on its value to the network operator as it is under the current code. This is estimated to reduce the wayleave costs to MNOs by 40%. This proposal goes beyond the Law Commission recommendation with the Government stating that the reform is necessary to reduce the cost to network operators of rolling out infrastructure.

The Minister of State for Culture and the Digital Economy, Ed Vaizey MP, stated that the new Code will improve on the existing Code and help deliver mobile coverage in hard to reach areas: "The new Code will vastly improve on the existing Code. It will make major reforms to the rights that communications providers have to access land moving to a "no scheme" basis of valuation regime. This will ensure property owners will be fairly compensated for use of their land, but also explicitly acknowledges the economic value created from investment in digital infrastructure. In this respect, it will put digital communications infrastructure on a similar regime to utilities like electricity and water. This will help deliver the coverage that is needed, even in hard to reach areas. [The proposals] recognise that the provision of electronic communications is as important to that of utilities such as water or gas."

The Government estimates that these changes will save the communications sector over 1 billion over a 20-year period.

What can we expect next?

No doubt there will be some disgruntled landlords across the UK who will see a profitable income source significantly reduced by these measures. There also remains a question over whether intermediaries, such as Arqiva, will pass through the rental reductions to mobile operators. Further clarification may be required in this area.

However, if the Government's 1bn figure is correct, this will provide significant opportunities to MNOs, particularly when considered alongside the predicted reduction in backhaul costs resulting from Ofcom's business connectivity market review ("BCMR") which will further lower operating costs.

One potential use of the saved expenditure would be to lower prices to consumers. However, site rentals maybe considered to be fixed costs and economic theory suggests that in a competitive market, prices are set by reference to marginal cost and not to fixed cost.

Another impact may be increased expenditure on new sites. Considered alongside lower backhaul costs, site locations that were previously unprofitable may now be profitable in their own right. However, it is hard to calculate marginal revenue resulting from new sites since mobile deals are mostly sold as packages rather than on a per unit basis and competition takes place on a number of factors, not just coverage. It is possible that the MNOs informally committed to Ofcom to reduce partial and total not spots in order to persuade Ofcom to drop its proposed national roaming plans and instead to support revision of the ECC. So we may expect to see additional sites being rolled out and existing sites being shared by multiple operators.

The reform may facilitate investment in 3G and 4G. This occurs through two avenues first a general reduction in costs. Second, through reducing the additional rents that can be charged when a site is upgraded or shared.

The Code reform could also potentially raise the value of spectrum in the forthcoming spectrum auctions8 in which the mobile operators are expected to be the main beneficiaries. However, Ofcom's modelling indicates this is unlikely.

The positive economic impact of modern telecommunications is widely accepted. Improvements to coverage and capacity are likely to have a positive effect on the UK economy and improve service provision to areas of the country that currently suffer limited mobile connectivity.

However, it should be cautioned that the cost of site rental is only one barrier to network expansion and that further reforms around planning regulations and the rights of intermediaries may be required before these benefits are fully realised.

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