Digital Economy Bill

Written evidence submitted by the Central Association of Agricultural Valuers (CAAV) (DEB 88)

DIGITAL ECONOMY BILL

PART 2, SECTIONS 4 - 7

SCHEDULES 1, 2 AND 3

THE ELECTRONIC COMMUNICATIONS CODE

INTRODUCTION

1. Introduction

1.1 This paper is a briefing on the proposed new Electronic Communications Code in the Digital Economy Bill.

1.2 The three key issues which we highlight at this point are:

· Paragraph 23 – Consideration: the artificiality of the valuation proposition

· Part 16 – Enforcement and Dispute Resolution: the importance of effective and affordable dispute resolution procedures

· Paragraph 99 – Codes of Practice.

2. The Central Association of Agricultural Valuers (CAAV) and the Electronic Communications Code

2.1 The CAAV represents, briefs and qualifies some 2800 professionals who advise and act on the very varied matters affecting rural and agricultural businesses and property throughout the United Kingdom. Instructed by a wide range of clients, including farmers, owners, lenders, public authorities, conservation bodies, charities, utility providers, government agencies and others, this work requires an understanding of practical issues. The CAAV has many members who advise landowner clients on telecommunication mast issues and a smaller number who work for or advise telecommunications operators and specialist providers of masts and other relevant infrastructure.

2.2 The CAAV does not exist to lobby on behalf of any particular interest but rather, knowing its members will be called on to act or advise both Government and private interests under developing policies, aims to ensure that they are designed in as practical a way as possible, taking account of circumstances. The CAAV’s role is to support its members, whoever their clients may be, in giving practical and sensible advice on any legal regime, so that they can give best service to those clients in the decisions they must make.

2.3 With the issues found and to support these members, the CAAV published the only known text on the law and practice on the Code and property issues with telecommunication masts in 2010. The CAAV engaged closely with the Law Commission in its work and was pleased that our input was extensively recognised in the Law Commission’s final report, published in 2013. Since then we have continued to engage with the Department for Culture, Media and Sport civil servants to discuss issues in more detail as well as holding meetings with members and other interested practitioners to test, explore and gather views on the emerging text, including that tabled for the Infrastructure Bill in January 2015.

2.4 We support a reform of the Code broadly based on the Law Commission’s 2013 report, "The Electronic Communications Code", which made some very sound and practical recommendations and we support much that is in the present Bill. In particular, we welcome:

- a new Access Test that can technically be failed.

- the creation of timetabled procedures in which operators have to act to govern the renewal, temporary removal or termination of agreements as well as redevelopment. This should assist with a major area of practical difficulty where an operator, having secured possession under the Code, then ignores any further interaction with the landowner. These are usefully extended to existing agreements as well as new ones.

- the transfer of dispute resolution in England and Wales from the County Court to the Tribunal which is more likely to be an expert forum.

- the exclusion of Code leases from Part II of the Landlord and Tenant Act 1954 and the equivalent provision in Northern Ireland so that they are subject to a single security of tenure regime.

2.5 However, we also have concerns over:

- the lack of a prior notice to aid procedure for upgrading and sharing apparatus or assignment

- the assessment of the consideration to be paid for a Code agreement

and consider that the intended Codes of Practice will only be useful if the Code ensures there are sanctions for breaching them.

3. The Electronic Communications Code – Core Principle

3.1 The Code (and its predecessors over the last two centuries) has at its heart the longstanding, very simple, practical, effective and commercial principle that infrastructure is only to be sited on land by agreement. Where that infrastructure has to be imposed in the public interest, then that is to be after due process and on the terms of reasonable agreement. That principle is firmly endorsed by the CAAV and is generally carried forward by the proposed Code.

3.2 That principle informing the Code is very different from that for compulsory purchase, the principles of which are of similarly old origin stemming from the laws for canals and railways. Among the points of practical difference are that:

- successive waves of communications technology have developed successfully in the market place

- this has been done with very little litigation

- the relationships between owners and operators under the Code are continuing ones, generally having legal effect as tenancies, while much compulsory purchase is about outright acquisition in which the former owner then no longer has an interest.

3.3 All involved have recognised that this is a particularly complex area of law and policy, very vulnerable to the risks of unintended consequences, in which unconsidered changes in one area will have unforeseen damaging effects in another part of the Code. Reform has to be achieved with a coherent package, building on the basic strengths of the underlying principle but taking proper account of the issues of today and tomorrow.

4. The Need for Reform

4.1 Despite the clarity of its informing principle, the detailed provisions of the Code, last overhauled in 1984 and interacting with rapidly developing technologies and business structures, have become an impediment, hampering its practical operation. The judge’s comments in the Bridgewater case:

"The Code is not one of Parliament’s better drafting efforts. In my view it must rank as one of the least coherent and thought-through pieces of legislation on the statute book. Even its name is open to doubt."

were so well taken that they have been part of the background to the current reform.

4.2 The sector, both operators and site providers, has made the Code work as electronic communications have developed rapidly over the last thirty or so years. This has been done as a commercial process, establishing over 50,000 masts and hundreds of thousands of miles of cable essentially by agreement and not by confrontation. It is a key point that the sector has developed more through the market than by statutory imposition. Changing that would be likely to lead to much greater resistance by those affected.

4.3 However, as that process of development has become mature and new developments are underway, so there are real practical problems over the Code’s operation in a number of areas. In summary, commercial practice has been very good at establishing necessary infrastructure but the Code has been found not to offer the tools or effective remedies to govern those relationships thereafter as, for example:

- when an agreement has come to an end, the operator’s Code rights continue. The means for an owner to seek renewal and updating of the agreement is by seeking the removal of the equipment. That has the problems of:

o not being what is really wanted

o procedurally difficult (and so also costly)

o easily trumped by the operator

leaving a very frustrated owner and many years until a new agreement is in place

- where the owner wishes to repair property supporting a mast. In one case an operator refused to move temporarily for a rotting roof supporting the mast to be replaced.

- where property is to be developed.

4.4 Market Concentration of Operators - Especially for masts, operators represent an enormous concentration of economic power, more concentrated than even the supermarkets with two groups of two operators each handling 40,000 of the nation’s masts. Yet most owners may only have one mast and few will have more than a handful. As very large organisations with their infrastructure, once in place, having the statutory protection of the Code, operators can in practice be very careless of the interests of the site providers on whom they depend. That makes effective, accessible and skilled dispute resolution very important. The proposed Code does assist this in separating out some of the issues and providing timetables for action. The proposed Codes of Practice (see below) can assist this also, but only if they have effective weight in the system.

KEY ISSUES

5. Procedure for Assignment, Upgrading and Sharing Apparatus (Paragraphs 15 and 16)

5.1 Recognising that the Government policy here is that operators should have wider powers to assign, upgrade and share apparatus, this is still a significant intrusion on the ability of land and building owners and occupiers to know who their tenants are and who has access to their land.

5.2 It is important that conditions regulating access are not voided by these provisions. This important for many occupiers and owners from schools and hospitals through police stations and government departments to farmers with fields of cattle.

5.3 The proposals would work better procedurally if any such change were only protected if a prior notice had been served on the landlord so making him aware and also allowing objections (as over the effect of an upgrading) to be heard before the event rather than fought over afterwards.

6. Paragraph 23 – Assessment of Consideration

6.1 The proposed new Code importantly affirms that the payments for rights taken under the Code are still be assessed as a price and not as compensation, as market value not recognition of loss. That maintains the consistent principle that the Code operates on the basis of agreement (albeit agreements may on occasion be imposed). In this, we stress that all definitions in valuation standards of market value turn on the price expected to be agreed between willing and well informed parties after suitable marketing and with no compulsion: the concept of market value excludes ransom value.

6.2 There is no requirement that a market value needs be a high price or one that always goes up. Properly functioning markets will see prices reflect their realities and so the value of some sites will be less than the value of other sites and may, according to circumstances, go down. Thus, sites that can only serve distinctively small or remote areas or those with low populations may naturally have a lower value than ordinary masts, but that is to be found in the market.

6.3 Ideally, the policy should, as now, be as simple as that. Consideration should be market value.

6.4 However, that market value approach has been compromised by the change in policy announced in May that the assessment of market value is to be on what is loosely described as a "no-scheme world" basis. That raises a number of problems not only of principle but also of practice. We believe it would be more rational and practical to stay with the present basis and do not see that that impedes the development of the sector as the rents paid for masts and cables are a very small share of the operational costs of operators while assisting affected owners to view the infrastructure positively. In responding to the Law Commission and then on reviewing the later Nordicity report for DCMS, the CAAV identified that the maximum entire potential sum at stake should a compensation approach finally come to apply to all agreements lies between 0.05 and 0.07 per cent of operators’ annual turnover. However, such a change would have a substantial impact on many site providers who may no longer wish to have their land used in this way and create issues that operators may not yet have foreseen. It may be much harder for school governors, a village hall committee or a church council to explain why they should enter into an agreement affecting their property if they are not to be properly paid for it, especially if they are aware that it may complicate future plans they may have for it. That issue is equally critical for those with valuable buildings offering good sites for infrastructure but for whom it can simply be an ancillary inconvenience, impeding redevelopment or even necessary maintenance.

6.5 Even given the policy stated by the Government, we fear that the present wording of paragraph 23 may not properly deliver the official objective. The drafting here represents the transfer of parts of the alternative paragraph 24 in last year’s Infrastructure Bill into its paragraph 23. As such, it results in confusion which would be allayed by drafting afresh. In particular:

- as a technical matter, 23(3)(a) refers to the value to an individual, not to the market, so moving from what valuation standards would recognise as Market Value to Worth or Investment Value. This should be deleted.

- The use to be disregarded in 23(3)(b) needs to be more clearly defined. We understand that it is intended simply and only to be the use for electronic communications purposes.

- 23(3)(b) removes the need for the anti-ransom provision of 23(4)(a) which now simply adds a further analytical confusion and so 23(4)(a) should be deleted as redundant.

Redrafting is necessary to enable the Government’s own approach to be delivered in the new Code in a way which was clear and comprehensible to valuers and the Tribunal that is to decide disputed cases. We also suggest further clarifications to affirm that the full physical and legal impact of the rights taken are properly assessed.

6.6 Interaction with Paragraphs 15 and 16 - More generally, we are concerned as a matter of professional practice about the artificiality of the assumption to be imposed by Paragraph 23(4)(b), which requires the parties (or their valuers) to disregard the statutory limitations which the Code will apply to agreements in permitting assignment or the sharing or upgrading of equipment.

6.7 The effect of this is that valuers will be asked to assess the consideration payable for a site on terms which cannot exist in practice because they are not permitted under the Code. This is akin to asking for a semi-detached house to be valued as if it were a detached house, but in a world where no detached houses exist.

6.8 If agreements are effectively to be "all inclusive" on these points, they should be valued as such. Developments in the market place may anyway now often mean that apparent financial conditions or bars on site-sharing in agreements are already ineffective, meaning that rental differences between the regimes may be less marked than might have been supposed. Expressly recognising the proposed inability to bar assignment, site sharing and upgrading would remove an assumption that is not only artificial, but one that is contrary to practical and commercial reality. That would enhance transparency with the use of direct comparables and aid the functioning of the market that delivers this infrastructure.

6.9 Paragraph 23(4)(b) should not be enacted so that the consideration payable for an agreement is based on the actual terms agreed. There would be no disadvantage in doing so because all agreements will be treated on the same basis, but the valuer can assess what actually exists instead of a hypothetical agreement which can never exist.

7. Paragraph 99: Codes of Practice

7.1 Paragraph 99 of the Code requires that Ofcom prepare and publish Codes of Practice addressing the following issues:

a) the provision of information by operators to those with an interest in the land on which the communications apparatus is sited

b) the conduct of negotiations between the parties

c) the conduct of operators in relation to those with an interest in the land on which the communications apparatus is sited

d) such other matters as Ofcom deem necessary.

7.2 It is clear that the Government sets considerable store by the potential for these Codes of Practice to lubricate the operation of the statutory Electronic Communications Code in practice. By setting out expectations on behaviour and conduct, the Codes of Practice are intended to address concerns that many stakeholders expressed about the imbalance of power between operators, which are usually very large corporations, and those with an interest in the land on which the apparatus is sited – who may be individuals, small businesses or property landlords.

7.3 The CAAV supports the proposal for a Code of Practice and is represented on the working party of industry representatives which has already begun drafting, under the guidance of Ofcom. However, we have concerns that any Code of Practice will prove useless unless there are sanctions in place for those who do not observe it.

7.4 We have some experience of a parallel situation in the water industry. Water and sewerage undertakers have very strong statutory powers to enter onto private land to lay, maintain and repair water pipes and sewers. Those powers are accompanied by a statutory Code of Practice for Pipelaying Powers in Private Land which provides clear and practical guidance on how the parties should behave. Written in the early 1990s, its guidance is still very relevant and practical today, yet it is very largely ignored in practice meaning that much work results in damage to the property and business of the affected landowners and farmers.

7.5 That problem arises in part because of the strength of the water companies’ statutory powers and in part because the work is often carried out by contractors and sub-contractors who are either not aware of the Code of Practice or whose contracts do not make reference to it. Breaches of the Code of Practice can only be taken to Ofwat (after exhausting the water company’s own complaints procedure) which will occasionally uphold a complaint and issue a minor financial penalty. In practice, few complaints are made to Ofwat as the result is not seen to be worth the effort involved. We are currently in discussions with Water UK – the industry body – on ways to improve voluntary take-up of the Code of Practice.

7.6 That experience with the water industry shows that however well written a Code of Practice may be, it will fail to be useful in practice unless there is a clear and meaningful sanction for failure to abide by it. Consumers already have the benefit of referral to one of two Ombudsman Schemes if telecommunications companies do not deal with their complaints, but there is no parallel scheme in place for those whose land is used (or abused) by telecommunications operators. We suggest that referral to an independent person who has authority to hear complaints and adjudicate on them, with powers to make awards and impose financial penalties, would be a reasonable option. The schemes for consumers are with Ombudsman Services: Communications (https://www.ombudsman-services.org/communications.html) and Communications and Internet Services Adjudication Scheme (https://www.cedr.com/cisas/). Failure to follow the Code of Practice could also be taken into account as a material consideration by the Tribunal and the courts when hearing cases concerning the Electronic Communications Code.

November 2016

 

Prepared 1st November 2016