Digital Economy Bill

Lord Grantchester Excerpts

Committee: 1st sitting (Hansard - continued): House of Lords
Tuesday 31st January 2017 Lords Chamber

Moved by

[Lord Grantchester]

26: Schedule 1, page 94, line 3, at end insert—
“(4) For the avoidance of doubt—(a) neither the inclusion of such a building within the meaning of a structure, nor anything else in this code, shall prevent any code right for further electronic communications apparatus being conferred on any operator in respect of the roof or external walls of such building; and (b) any structure, whether or not a building, which would not otherwise be considered electronic communications apparatus, shall not be considered as falling within sub-paragraph (1)(d) simply by reason of the installation upon that structure of any operator’s electronic communications apparatus under this Code or other lawful agreement.”

[Lord Grantchester (Lab)]

I am grateful to the Minister for his helpful remarks before the Committee adjourned. I agree that we should not become overly concerned with technical drafting, but in Committee, it is important that we bring out the important issues. Many interested sector representations have been made to us, and the noble Lord, Lord Aberdare, has already raised some of them. I am greatly indebted to Mr Jeremy Moody of the Central Association of Agricultural Valuers, who has immense experience in this field. I shall endeavour to be brief and, as the Minister said, I am sure that a period of reflection and dialogue will become necessary before Report.

In moving Amendment 26 I shall speak also to Amendments 29 to 36 and 41 to 43. It is a huge group, and I will endeavour to be as brief as I can, yet do justice to all the important matters that they raise.

I spoke earlier about the new code, which readjusts the balance of interests in infrastructure between operators and site owners. The code will extend largely untrammelled powers to operate, if the Committee is not careful. The new code makes substantial changes. Operators will have new automatic rights to upgrade and share, and cannot be charged extra for changes where, to their interpretation—the wording is as yet untested—there is minimal adverse visual impact or burden on site providers.

The new code will enshrine reassignment of code rights by the operators to communication providers, with no option for site owners to negotiate new terms for existing contracts. There may be no future bids for further rents to benefit site providers, as well as operators, for new technologies as they come on stream, bringing further income and wealth to operators only.

Code rights will continue to apply on any land transfer without any requirement to register these rights. These are some of the severe implications of all these changes and demand a balance of behaviour reflecting competing responsibilities and objectives in the various rights between the parties which will continue to wish to develop their businesses. The amendments in this group also have the intention of making the code work better in the business environment.

On Amendment 26, the Government’s stated policy intent with regard to the scope of the new EEC is not to disrupt market incentives for investment in passive infrastructure by establishing a legal framework to allow compulsory access to site towns in which infrastructure providers have made a significant investment. The Government seem to look to achieve this through the Bill by developing the definition of land over which operators will have code rights that exclude “communications apparatus” in line 13, page 152. There are questions around whether this does or does not confer mobile operators with code rights over purpose-built masts provided by infrastructure providers as the drafting in line 28 of page 93 goes significantly further than this, creating the risk that non-telecom infrastructures used for fixed-line telephony will fall outside the scope of the code.

On the one hand, I am probing whether it is the Government’s intention to remove a significant proportion of sites from the scope of the code, diluting the impact of the code reforms. On the other hand, it should be made clear that non-telecom structures, such as electricity pylons, water towers, floodlights, church steeples, and so on, do not become electronic communications apparatus when an operator installs a dish or antenna on the structure and is therefore within the scope of the new code, subject to the full force of code powers.

Given the Government’s intention that code operators should be free to assign code agreements between themselves, Amendment 29, replacing paragraph 15(4), would give a better process for the fair treatment of site providers. It does not qualify the intended freedom to assign but it would establish a better process than that proposed by the Government so that, for example, the assignee would have the benefit of the rights only once a site provider is notified by the assignment. Secondly, the notice would state that there is an assignment and to whom and give an address in the United Kingdom for the service of notices on the assignee. The requirement that the address be in the United Kingdom would be consistent with other legislation, such as the Landlord and Tenant Act 1987, which makes rent enforceable against many tenants only when a new landlord has provided such an address. An address outside the United Kingdom would be problematic for many site owners and it would add to a sense that this was opaque.

Amendment 30 is proposed as an alternative to provide a better climate between operators and site providers. Paragraph 16 gives operators substantial but qualified rights to upgrade apparatus where it will have,

“no more than a minimal adverse impact”,

and to share apparatus where this does not impose an adverse burden on the site provider. That, however, could see operators simply proceeding with such plans, careless of the site provider who would only become aware of effects as they arose afterwards, so having to object only when the investment or action has already taken place. Many examples could be provided and I know that the National Trust is very concerned as to what may be interpreted as “a minimal adverse impact” if, in other people’s eyes, the apparatus could be described as a blot on the landscape.

This amendment would resolve this in a practical way, by requiring the operator to notify the site provider beforehand, so that these issues can be considered before the event. It gives a timetabled structure for the site provider to object and refer the matter to arbitration— a more appropriate forum for such an issue than a court or tribunal. Failure to meet that timetable would enable the operator to proceed with the benefit of code rights.

Amendment 31 seeks to underline the Government’s intention that the new code will initially apply only to new sites and new agreements. The Government have yet to clarify the transitional arrangements whereby agreements can be renewed over the longer term, perhaps taking 15 to 20 years to complete. There is a fear that many existing agreements will potentially be exposed to challenge, on what may be considered rather spurious grounds, in order to be superseded by new agreements under the new code. This amendment will ensure that the focus remains on rollout to new sites and increased coverage, rather than operators tearing up current contracts. This will initially avoid network disruption, protect good working relationships and provide clarity and certainty to businesses and communities.

Amendment 32 makes reference to the code of practice which Ofcom is initially consulting on, to clarify behaviour between the parties, and which we will be discussing when we consider paragraph 103. Experience in other sectors, be it the water industry or even retail supermarkets, shows that however good a code of practice may be it has no merit if it is not remembered and respected. This amendment is one of several which seek to achieve that status. It would give the code of practice default status as part of all agreements, save where, and to what extent, the parties or the court decide otherwise. It does not impose the code of conduct where the parties see parts of it as inappropriate to their specific circumstances.

Amendments 33 to 36 are intended to determine that, under the new code, consideration or price is properly based on the market and agreement, taking into account all the relevant features in the wording of the amendment, and from the fact of the date of the occupation being either before or after the introduction of the new Electronic Communications Code. The amendments refer to paragraph 23 of the schedule and are extremely complex on the issues they raise. They are intended to specify that the value of code rights and agreements still have a reference to the established market-value methodology, reversing out the no-scheme approach of the new code until any reference is needed in any court or tribunal. Under Amendments 33 and 34, any move to a new system of compulsory agreement must offer businesses certainty, while at the same time seeking to avoid dispute. These factors are listed, especially regarding future additional burdens as technology advances and greater access is required.

The proposed new code importantly affirms that the payments for rights, taken under the code, are still to 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 that this may on occasion be imposed. In this, we stress that all definitions of market value in professional valuation standards turn on the price expected to be agreed between willing and well-informed parties after suitable marketing and with no compulsion. It is stressed that the concept of market value excludes ransom value—a special category which also includes a marriage value for properties. Market value is the value of a property in a market, not its particular value or worth to any individual. In this case, the market value need not be the value it may have to either the operator or the site provider. This is where the schedule’s current paragraph 23(3) is confusingly worded as it imports a concept that is not market value. Paragraph 23(3) should be deleted as confusing and inappropriate. The Government’s policy, if approved, would be more clearly stated by a straightforward disregard of the use of the apparatus for electronic communications purposes.

There is no requirement for a market value to 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 others and may, according to circumstances, go down. Thus, sites that can serve only 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. Ideally, the policy should, as now, be as simple as that. The consideration should be market value. The present arrangement has worked well and with little litigation for perhaps two centuries, and the core concept is an agreement—with recourse to an agreement being imposed by a court—for which the price is market price and market value. That would remain the most satisfactory answer.

However, the Bill’s proposal in paragraph 23 compromises the market-value approach to an unknown extent by a change in policy announced in May—that the assessment of market value is to be on a no-scheme basis, making it subject to an awkward series of disregards and special assumptions. The drafting needs significant improvement to assist both the parties and their valuers in applying the intended basis. Many in the sector believe that 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 rents paid for masts and cables are a very small share of the operational costs of operators and assist affected owners to view the infrastructure positively.

I have already spoken about costs and their relative size in considering an earlier amendment. The valuation change would have a substantial impact on many site providers who may no longer to 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, for example, 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 the structure. 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 repairs and maintenance. They are deterred from having code apparatus by such events as expensive and frustrating delays to critical repairs that could be needed to a building, caused by an unresponsive operator.

There is concern in professional practice about the artificiality of the assumption to be imposed by paragraph 23(4)(b) that 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. The effect of this is that valuers will be asked to assess the consideration payable for a site on terms that 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 was a detached house, but in a world where no detached house exists; or indeed, as I am advised, to value a horse, whether a racehorse or a nag, by reference to an achieved sale value for a unicorn. I have not seen a unicorn, not even in my dreams.

If agreements are effectively to be all-inclusive on these points, they should be valued as such. Developments in the marketplace may often mean that the current financial conditions or bars on site sharing in agreements are already ineffective, meaning that rental differences between the regimes may, in reality, be less marked than might have been supposed. To expressly recognise the proposed inability to bar assignment, site sharing and upgrading would remove an assumption that is not only artificial but 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.

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Again, I apologise for the length of my response, but in the light of these explanations, I hope that the noble Lord will feel able to withdraw his amendment.

[Lord Grantchester]

I am very grateful to the Minister for his reply. This group hangs together as quite a difficult jigsaw of amendments. To go through them again in replying to his reply would be excessively tedious, I am sure, because they interrelate in many different ways. We are happy to look at the Minister’s reply and, no doubt, will meet later to try to understand our way through it all.

I say to the noble Lord, Lord Foster, that my brief did not come only from the Country Land and Business Association. I am glad that he received its communication, just as I did, but he may not have received the much wider range of submissions I did from many others who have to adjudicate between interests en masse, in urban and rural areas, including local authorities, health authorities and many more. If one of their buildings hosts such an apparatus, they may face many complexities in wanting to develop their operations and around the rights that operators will have in determining how that apparatus is maintained. The CLA did not endorse any of my comments in the amendments on the market value. Like Members from all around the House, it wishes the rollout of communications to proceed as fast as possible.

I merely wished to draw out some of the difficulties in the Government’s drafting. That has been achieved tonight, but I would be very grateful to the Minister if we could look at it all again to make sure there are no unintended consequences in any of the provisions. I am very glad of his clarifications and notifications—for example, on Amendment 31—which were very helpful. With those comments, I am very happy to withdraw the amendment tonight.

Amendment 26 withdrawn.

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Moved by

[Lord Grantchester]

44: Schedule 1, page 149, line 4, at end insert—
“Code of Practice Adjudicator
The Secretary of State must appoint a person who shall act as an adjudicator with the powers—(a) to determine the validity of complaints as to breaches of the code of practice; and(b) on finding a breach of the code of practice, to determine whether it warrants an award of compensation, costs between the parties or a penalty as the adjudicator shall deem appropriate and proportionate.Status of the Code of Practice
Compliance with the Code shall be a material consideration—(a) by the court in considering disputes referred to it under this Schedule as may be relevant to both the determination of the dispute and any ancillary matters including the award of costs between the parties; and (b) by the adjudicator in considering any question arising over the grant or retention of a licence to Operator enabling it to have the benefit of Code Rights under this Schedule.”

[Lord Grantchester]

My Lords, I will move Amendment 44 and my noble friend Lord Stevenson will speak to Amendments 47 and 48. Paragraph 103 requires Ofcom to ensure the preparation of a code of practice as to behaviour regarding information in negotiations and operations under this schedule. Ofcom, new to this level of detail in this sector, has commenced that process and a working party is well advanced in drafting. It is clear that the Government set considerable store by the potential of 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 site on which the apparatus is sited, who may be individuals, small businesses or local authorities.

I am reminded of the Groceries Code Adjudicator, where the Government were resistant to introducing the power to fine transgressions, believing that reputational damage was enough. I am pleased to reflect that the Government reconsidered and, in that piece of legislation, allowed supermarkets to be fined for unfair practices.

There is also a parallel in the water industry. Written in the early 1900s, its guidance is still relevant and practical today. It is very largely ignored in practice, meaning that much work results in damage to property and business. The problems arise in part because of the strength of the water companies’ statutory powers and in part because the work is increasingly 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, which will occasionally uphold a complaint and issue a minor financial penalty. In practice, few complaints are made to Ofwat, and as a result, it is not seen to be worth the effort involved.

I am concerned here that we draw lessons from both these codes as we try to decide how the Electronic Communications Code can operate effectively. In the communications industry, consumers already have the benefit of a referral to one or two ombudsman schemes if telecommunication companies do not deal with their complaints, but there is no parallel scheme in place for those whose land or buildings might be used or abused by telecommunications operators and their contractors.

With the model of the Groceries Code Adjudicator in mind from a sector with similar imbalances of power, our first proposed paragraph would provide for an adjudicator to hear complaints about breaches of the code of practice, with powers to make awards for restitution or penalties. Such a forum—especially if it is, as suggested, independent and accountable to the Secretary of State—would give all the more confidence that the code might be remembered so that it can, as intended, support better behaviour.

The second proposed paragraph would make compliance with the code a material consideration when awarding licences to a code operator or determining the grant or renewal of a code agreement. I suggest that the harder it is for these issues to be referred to independent resolution, the worse the operators will tend to behave. This perspective should also apply in this sector. I beg to move.

[Lord Ashton of Hyde]

My Lords, we are now in our final group on the Electronic Communications Code, so I will spare noble Lords further explanation of what the code seeks to achieve. Amendment 44 is similar to Amendment 41, which we recently discussed. It seeks to create a code adjudicator to examine breaches of the code of practice and impose sanctions. I repeat that I will examine what the noble Lord, Lord Grantchester, said. However, we do not consider that a costly and resource-intensive statutory code of practice and adjudicator are necessary, for the reasons that I outlined on the last but one group.

Amendments 47 and 48 relate to points made by—

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[Lord Grantchester]

I thank the Minister for his reply and in doing so, recognise his answer to Amendment 41. On Amendment 44, I will further draw out that there are many issues involved with this code which give operators quite extensive powers to assign without recognising or even informing site owners. They could lead to many problems further down the field. At some point, a code of practice might need a body other than Ofcom, which has no experience of any adjudication in this field.

Nevertheless, the Minister has replied extensively. We will look at all our amendments and, as I said in withdrawing my earlier amendments, take due cognisance of his remarks in considering how we might propose amendments on Report. If we can secure some agreement with him to some of our more challenged considerations, it would be much the better way to proceed. We shall see how we proceed. We will have the opportunity to look at these issues again on Report. With that, I beg leave to withdraw the amendment.

Amendment 44 withdrawn.