The politics of access and wayleave charges

The difference between the costs quoted by BT for upgrading its legacy network and those quoted by its competitors for building new fibre networks puzzles those in Devon and Somerset who compare the compare the deal their council was being pressured to accept with those made by Gloucestershire and Berkshire with Gigaclear. They are right to be puzzled. It is not just because BT is saddled with cross-subsidising UK Sport and overhead charges which can treble its civil engineering costs. It is also at a massive disadvantage when it comes to access and wayleave charges, It is not easy for an outsider to unravel its costs but it appears these may well account for over half of them (and those of Virgin, Vodafone, EE or the other Mobile Operators) when it comes to new build, whether urban or rural.

Hence the pressure to update the Electronic Communications Code. But this will address only a fraction of  the difference. The national agreement with Country Land and Business and the National Farmers Union, allows farmers to waive charges in return for services to themselves or the local community. This has been used by at least one of the “great estates” to provide better (fibre-based) services to rural business parks and other tenants than is available to its inner London properties. Far sighted local councils may allow similar uncharged use of their wayleaves, buildings, street furniture and in-house communications infrastructures (including CCTV, traffic management etc.)  in return for service. Until Ofcom allows BT to exploit the opportunities available to its rivals, cannot match such deals. Its only option is to form partnerships with those who can. I hope to hear something of its plans to do so when I attend the INCA event in Bristol on the 15th and 16th September.

Even where BT has existing infrastructure sharing arrangements, as with the electricity companies, and wants to replace copper with fibre, it is charged fancy prices – because the electricity companies do not wants its engineers up their poles. There are similar problems with access to city centre rooftops on the part of mobile operators – because the risk of business disruption caused by damage to the equipment already there, perhaps serving high value applications in the building below, far outweighs any revenue.

Hence the need for a new look at the constraints on BT and go beyond “one size fits all” access and wayleave arrangements. When that happens we can cut the current estimates of the capital cost of replacing copper by fibre and of replacing mobile and wifi notspots by ubiquitous high bandwidth mobile (4G and 5G) by at least 50%, perhaps by as much as 75%.

The good news is that much of the necessary spadework in already under way. back in February I referred to the first meeting of a group of property owners and network operators to look at wayleave and access agreements that are suitable for inner city buildings in multiple occupancy. There are a number of issues to be addressed but the core message was that the value of giving tenants a choice of world-class services was far greater than any likely rental, but so too was the cost of any disruption to the services used by existing tenants. Several operators had, however, already agreed contracts with some some of the “great estates” and were willing to share these. With support from DCMS (a most helpful letter from the Minister commending the approach to other relevant players), a subsequent meeting decided to pool efforts with an exercises being organised by some of the London Local authorities consortium and the result is an exercise to use the BSI PAS approach to produce a package of agreements and clauses that will, hopefully, meet most situations and be suitable for adoption as guidance by players like the Law Society, the RICS and RIBA. If so, co-operation – with Ministerial support – will have achieved far more than legislation or regulation.

I am hopeful that the same group will also take a look at producing similar guidance for landlords and property developers regarding the equipment and cabling space they should allow for for the communications networks that will be needed to serve the tenants of “future proof smart buildings” – including rolling upgrades as tenants change, not just renovations and new build.

I hope that some of the great estates and landlords, not just property owners, will use the opportunity of the INCA event in Bristol to explore the potential for also co-operating with network operators and local authorities outside London so as to get better connectivity for their tenants at lower cost. In this context I include social as well as commercial and industrial landlords because providing low cost, high reliabllity fibre connectivity can help slash the cost of overcoming social exclusion and bring employment back to sink estates.            

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People would be more willing to give free wayleaves if openreach went everywhere, but currently they only go in lucrative areas, which they can well afford to pay wayleaves for because of the profit. If they ran the business properly there is more than enough profit there. If B4RN can do the final 3% and still see a return on investment, then BT surely can. The golden goose is dying, they need to feed it properly instead of continuing to leach the assets and stamp out competition. They did not need a penny of government funding from BDUK to do their rubbish FTTC. They just had to make sure no altnet got any. Having done the easy bits, now they will whine on for even more money cos the hard bits are hard. Well if B4RN and gigaclear can do them, the facts speak for themselves.

They say:

"BT is saddled with cross-subsidising UK Sport and overhead charges which can treble its civil engineering costs."
This was BT's own commercial decision, presumably to try to improve the attractiveness of their product. If this messes up their pricing, I have little sympathy.

This article reeks of special pleading. Gigaclear etc. just do it better and cheaper.

These might well be within BT's control. Its inability to enter into more attractive deals with property owners over access and wayleave agreements is, arguably, less so.

Either way, local authorities and ministers seeking best value for public funds and regulators who should be preventing cross subsidy from monopoly services for which they have just agreed price rises, need to better understand the reasons why the numbers with which they are presented (and as analysed by Mike Keily and others for the National Audit Office or by investment analysts like Redburn for their clients) are as they are.

My commentary in July on the current Ofcom consultation, gave another perspective. It summarised how BT's previous investment model was destroyed and its very survival depended on cutting back on investment, playing regulatory games over semi-fictional calculations for "cost of capital" and "return on investment" and getting state aid to underpin what it could no longer afford.

Having studied under Micheal Beasley many years ago and having spent a couple of decades creating or unravelling such fictional calculations, depending on who I was working for at the time, I have strong views on the need to focus on where and when the cash comes from and where and when it goes to, ignoring almost all the flummery in between (save for a few very explicit calculations regarding unknown risks and uncertainties). That flummery is nearly always designed to impress, mislead and/or both. The audiences it is a intended to impress are many and varied, from taxmen and regulators to lenders, shareholders, customers and suppliers. My own professional background centred on removing or avoiding unnecessary risk.

Central to the current accelerating changes in the UK communications market is the confidence of a number of major investment fund mangers that new build operators can contract a couple of years revenue in advance and get cheap/free access/wayleaves in return for service - while BT cannot. In consequence they expect to make serious returns for the venture capital arms when the new build operators subsequently sell out to the utility operations backed by the pension funds with whom they also work.