Compulsory Purchase & Compensation - Telecoms Network Sharing Agreements

The telecommunications market, like the economy is experiencing a period of considerable change. Recently, Orange announced a merger with T-Mobile. Earlier this year, Vodafone announced a network sharing agreement with O2, which follows a similar arrangement between Hutchinson 3G (3) and T-Mobile. In addition, Vodafone and O2 have made separate approaches to acquire T-Mobile. What are the implications locally?

For the operators, the benefits of these deals are clear – greater market share & lower costs. If the Orange/T-Mobile deal is approved, they will have almost 40% of the market. With a lesser number of competitors in the market, there is concern that prices and charges may rise. That remains to be seen. In any event, there will be a cost saving for the operators – usually through a reduction in the number of telecoms masts.

There are some 53,000 masts around the Country. When 3 and T-Mobile commenced their sharing agreement, they anticipated 5,500 sites would be redundant – and the lease either surrendered or sold to a 3rd party. It remains to be seen how many the others no longer require. For property owners who provide sites or roof space they could see their tenants leaving if the site is being decommissioned, or being asked to permit sharing.

Network sharing is a new, different concept to the typical sharing arrangement. Previously, different occupiers could piggy-back on anothers mast and paid the landlords for the privilege, usually between 30-50% of rent passing. With Network Sharing (or RAN sharing), the parties effectively share frequencies and therefore equipment, in different locations. No money changes hands between them as it is a reciprocal arrangement. Consequently, there is nothing available to pay landlords. However, many leases do not permit this form of sharing, or indeed the transferral of the lease to the name of both joint venture partners.

“When H3G and T-Mobile started their new operation, they wrote to landlords suggesting they had the right to transfer the lease to their new joint venture company. In many instances, they did not. Where property owners have not sought advice on this transfer, they have missed out on valuable improvements to the lease terms and payments worth several thousand pounds”.

For landlords who provide sites to both parties to these new joint ventures, the likelihood is they will lose one tenant. These co-location sites can be the most valuable. However, the potential benefits can only be realised with close scrutiny of the lease terms.

It remains to be seen which sites H3G and T-Mobile will select to “de-commission”. The implications, however, are that site providers are likely to lose at least £5,000 p.a. in rent or often much more, particularly if site sharing is already occurring. With property costs being one of a businesses’ most significant, after wages, any reduction in additional income may be sorely felt.

The ability to break a lease early will depend upon a number of factors and each site will be different. There is however currently much debate as to whether a lease can be broken early for purely economic reasons, as opposed to operational. In any event, landlords would be well advised not to readily agree any approach from their telecom tenant and to seek advise.