(Redacted) - Responses 105 to 130 - Law Commission

Consultation response 113 of 130
10.16 We ask consultees:
(1) whether the ability of landowners and occupiers to prevent Code Operators from
sharing their apparatus causes difficulties in practice;
(2) whether Code Operators should benefit from a general right to share their apparatus
with another (so that a contractual term restricting that right would be void); and/or
(3) whether any additional payment should be made by a Code Operator to a landowner
and/or occupier when it shares its apparatus.
Consultation Paper, Part 3, paragraph 3.83.
(1) The ability of SP’s to prevent CO’s from sharing their apparatus does not cause difficulties
in practice. When negotiating terms for an agreement, the parties will address the ability
for the CO to share (with specific named third parties, third parties in general and with
group companies). The inclusion of a right to allow sharing is common and will generally
impact on the level of consideration (either by an increase in the main rent or fee or by
way of site share pay-away – the payment by the main CO to the SP of a fixed percentage
of the fee it receives from the sharer).
Where sharing is precluded in an agreement and the CO contacts the SP to advise of a
requirement for sharing from another CO, the parties are free to negotiate a settlement for
a variation to the agreement to allow such sharing to proceed. This generally results in
agreement of market terms based on a multitude of available comparable transactions and
the CO is given a right to share. The SP will receive additional payment from the CO
either by way of a fixed increase or percentage pay-away.
For example, in the last two years, Vodafone Limited and Telefonica UK Limited (“O2”)
have been progressing their agreement to share their combined mast sites (a project
called “Cornerstone”). In numerous cases, the ability to share was embedded in the
agreement so the other operators’ equipment was installed and the SP may have been
paid an additional annual sum based on the specifics of the agreement. In other cases,
the agreement precluded the ability to share and the incumbent operator sought a right
from the SP by negotiation. Due to the sheer number of cases, the market generated an
“acceptable value” for such transactions at an increase for the SP equivalent to 15% of the
main rent passing, payable in addition to the rent. For instance, where a passing rent was
£5,000 per annum for the right for Vodafone to operate, an additional right for Vodafone to
share with O2 was granted and, for the period O2 operates, Vodafone is obliged to pay
the SP and additional 15% of £5,000 (£750 per annum). Vodafone and O2 have an
agreement to pay each other 50% of the passing rent in such situations so the amount of
“pay-away” in this scenario is 30% which aligns with the general site share market which
has been established over the last three decades. Where the Cornerstone arrangement
differs from the established site share market is in the agreement between Vodafone and
O2 to pay one another licence fees for sharing at a prescribed rate which is substantially
less than explicit in the “rate cards” they have with other CO’s (and vice-versa) and
between infrastructure providers such as Arqiva and the CO’s. Put in other terms, the
payments agreed between Vodafone and O2 are viewed by many as being at less than
market value. The possibility that Vodafone and O2 may agree not to pay each other a
licence fee to share has resulted in the market response to replace of the old “pay-away”
regime with a site share payment based as a percentage of the passing rent.
Generally, a SP benefits from the negotiation of a sharing arrangement where such a right
does not exist. The CO’s also benefit as they are provided with the right to share on a
freely negotiated basis. Thus, in practice, the ability for SP to prevent CO’s from sharing
causes no difficulties.
(2) It would be unreasonable to grant CO’s a general right to share their apparatus with
another (so that the contractual term restricting that right would be void). The ability for a
CO to share is a valuable right. If the value derived from this right is removed due to a
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