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Caution required as infrastructure sharing deals

In the current economy, proven benefits and technological advances are underpinning the rise of shared infrastructure models across business sectors.
© Olivier Le Moal – za.fotolia.com
The contractual terms that inform these models require careful deliberation in order to ensure each party's investment and contribution is optimised and that the potential benefits of the collaboration are achieved within the applicable regulatory requirements.

Nowhere is this more evident than in the telecommunications and technology sectors. Network operators globally have become accustomed to managed network and joint venture infrastructure sharing models, and IT service providers are riding the wave of software and platforms as a service. The outcomes for each industry participant or end user, in theory, should be dramatic cost-savings and increased efficiency of services.

Competitors collaborate

Within the telecommunications industry the high cost of deploying, maintaining and operating passive infrastructure has compelled former competitors to collaborate and has even resulted in operators utilising non-telco utilities' infrastructure. It is estimated that up to 80% of the roll-out costs of a network are attributable to the deployment of passive infrastructure and related civils work (trenches, ducts, dark fibre etc), with an estimated payback period of 15 years (The Broadband Commission Annual Report: International Telecommunications Union (Geneva, 2012)).

Statistics such as these make the financial incentives of sharing existing or simultaneously deployed infrastructure appear pretty stark, but the other upsides, including sharing of expertise, increased coverage and geographical reach and the capacity of operators to focus on product innovation and service level differentiation, should not be deprived of the limelight.

Whilst the benefits to private industry may be front of any telco executive's mind, the increased coverage, competition and freeing up of operator resources may result in tangible improvements for South Africa's broader economy - studies conducted in the United States show that between the period 1998 - 2002 areas in the United States with broadband access experienced faster job growth, had higher rental rates, and experienced a favourable shift toward higher value added ICT-intensive sectors (Measuring Broadband's Economic Impacts' (Lehr, 2006)).

But where there is a carrot, there must be a stick, and statutory regulation has also come to bear on operators. In terms of the Facilities Leasing Regulations published under the Electronic Communications Act 36 of 2005, electronic communications network service licensees are compelled, upon request, to lease their electronic communications facilities to other licensees.

Room for commercial terms

Even within this regulated environment there is room for commercial terms to be agreed between parties, and whether a particular infrastructure sharing deal falls within or outside the scope of the Facilities Leasing Regulations the terms upon which such deals are concluded are material to the viability of the venture and the infrastructure.

Although broad infrastructure sharing models have emerged in the industry over the years, the peculiar synergies between the contracting parties, territorial legislation and the circumstances of each party inevitably result in highly negotiated agreements. Traps to avoid and issues peculiar to this area of law include the impacts of the Facilities Leasing Regulations, (limited) ownership, liability and maintenance of the assets - who has what access?, the nature of the agreement (lease vs licence vs service vs IRU - what is the difference?), loss of control, exit management, service levels and credits, employment considerations occasioned by duplication of resources, and of course competition considerations.

Any infrastructure sharing arrangement needs to be future-proof - we may not know what tomorrow holds, but a shared infrastructure agreement and the business critical infrastructure and technology that underpins it, needs to be able to adopt, adapt and improve if our connectivity and telecommunications industry is to do the same.
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About Harriet Beamish

Harriet Beamish is a senior associate in Bowman Gilfillan's Corporate Department, practising in the firm's technology law practice group. She has worked on the supplier and customer side of transactions regarding the provision of services, software and IT solutions and software development and licensing agreements, and has advised international and local clients on general corporate matters, as well as advising and assisting local telecommunications companies commercially.