Developments in the Telecoms Markets - The Cornerstone Project

The Cornerstone Project

The telecoms market is maturing.  As the operators fight amongst themselves for market share it appears that their margins are falling and as a result need to explore every avenue to reduce their costs.  With rents for mast sites a large contributor to costs this is an obvious first target – particularly with some 53,000 masts around the country.

The Cornerstone Project is Vodafone and O2’s means of tackling this problem.  It follows H3G(3) and T Mobile’s joint venture arrangement which created the new company MBNL.

In contrast to MBNL the Cornerstone Project is not a new organisation.  It is simply a sharing of minds by the 2 operators to help in the drive to reduce costs.  The aim of Cornerstone is ‘to reduce network operating costs and development costs ……. whilst providing the best network’.  Consequently landlords with a Vodafone or O2 mast will continue to have the same tenant, but could be approached to allow ‘sharing’ with the other operator.

If your lease is part way through its term there is unlikely to be any change now.  If, however, your lease is near to expiry, or has expired, the situation is quite different.

On lease renewal, the operators are making their position clear – accept a lower rent now or it will be imposed by Court later, or the operator will vacate and go elsewhere, with the resultant loss of income for the landlord.

These changes may not happen immediately.  If a landlord is unwilling to accept the reduction in rent and the site is required by the operator it is conceivable the operators will wait until they have amassed enough new agreements at reduced rents.  This will then provide the evidence to their claim of new market evidence for a lower rent.

As a result of these developments, it remains to be seen what other aspects of cost reduction will fall in the spotlight.  It is entirely conceivable the practice of ‘pay away’ will be looked at.  This is where an operator shares another mast and in return the landlord received an additional payment – usually between 30-50% of the passing rent.  However, these early sharing agreements involved the sharer erecting their own equipment on a mast.  Under the new ‘joint venture’ arrangements no new equipment is installed and as a result nothing is likely to be paid.

These developments are currently happening.  Landlords who are approached to share, or have their site decommissioned should seek advice.  In some instances the operators would like to limit their decommissioning costs by leaving some equipment – which could pose a number of issues for landlords.