Businesses that have had the Electronic Communications Code (“ECC”) applied to them pursuant to s.107 of the Communications Act 2003 (“Code operators”) are required under Regulation 16(1)(b) of the Electronic Communications Code (Conditions and Restrictions) Regulations 2003 (“the Regulations”) to file their annual certificate pursuant to that provision with Ofcom by 1^st April 2023, unless exempt from that requirement (see below for more detail).  

Ofcom provide on their website a specimen certificate that might be used or adapted. They also have guidelines on assessing funds for liabilities, which may be of assistance.

This note provides:

1. Some suggested action points; and
2. A General Background section, which provides additional explanation and context.

Suggested action points

1. Ignore this note if this is already being dealt with!
2. Commence review for purposes of determining the appropriate amount of funds for liabilities.
3. Determine how the financial provision is made.
4. Complete certificate and other required actions and file the certificate (together with additional required documents) with Ofcom by 1^st April 2023.
5. Diarise to repeat process in time for 1^st April 2024.
6. Contact us if it would be helpful to discuss the points raised in this email.

General background

Where a Code operator is subject to the requirement to provide the Regulation 16(1) certificate, failure to do so by the deadline can result in enforcement action being taken by Ofcom. It has been notable over the past 12-18 months that Ofcom has increased its enforcement investigation of Code operators, particularly where the certificate filing requirement has not been met.

The annual certificate is more than just a ‘tick box’ exercise. What the certificate does is require the Code operator to confirm, amongst other things:

1. How and on what basis the Code operator has assessed its potential specified liabilities for purposes of Regulation 16 of the Regulations;
2. The amount of funds for meeting liabilities that has been provided for; and
3. How that financial provision is being made (with evidence of the same).

In the case of a limited company, the certificate requires board resolution approval and also requires the board to state in its reasonable opinion that it has complied with its obligation under Regulation 16(1). This does potentially create wider risks to directors, particularly if it was subsequently determined that no reasonable director could have reached the opinion that the amount of funds for meeting specified liabilities was sufficient or the obligation satisfied on the information which was considered. This situation might only arise if the company suffered a “relevant event”, as defined in Regulation 16(10) of the Regulations.

The annual certificate provided to Ofcom can be subject to scrutiny and question by Ofcom. If Ofcom is not satisfied that the Code operator has met its obligations under Regulation 16(1) it may direct further action be taken by the Code operator to satisfy Ofcom that Regulation 16(1) has been complied with. 

With the economy and the communications sector currently facing some notable challenges, aspects we consider it is possible that Ofcom may pay increased attention to are:

1. the amount of funds for meeting liabilities detailed within the annual certificate; and
2. the means by which that provision is being made.

Whilst Ofcom does not prescribe the amount of funds for liabilities, it may start to ask questions if the amount of funds for liabilities made does not appear to them to be reflective of the potential risks attaching to the scale and nature of build works being undertaken or they are not content with the method of provision of the funds.

It is also the case that the amount of funds for liabilities that may have been entirely appropriate at the time Code powers were obtained may no longer be reflective of the potential specified liabilities risk that the Code operator might now face, particularly after several years of active and extensive ongoing network build.        

The requirement to provide the annual certificate under Regulation 16(1) only applies if the Code operator has exercised rights conferred by the Electronic Communications Code (“ECC”). If no such rights have been exercised, the annual certification obligation is not generally triggered (although it may still be, if a Code operator has acquired relevant apparatus and/or infrastructure from a 3^rd party where that apparatus/infrastructure would be subject to this requirement). Where however a Code operator intends to start exercising its rights under the ECC, it must provide the same certificate to Ofcom not less than 2 weeks before it exercises its right to install apparatus (and then annually thereafter by 1^st April). 

It should also be noted that the requirement to make provision of funds for liabilities (and provide the Regulation 16(1) certificate) will generally only be triggered where the Code operator has or is exercising its rights under the New Roads and Street Works Act 1991 that the ECC confers (but note the point in the paragraph above about acquired apparatus and infrastructure that might still be subject to the requirement). Those Code operators who undertake works solely in private land might not be subject to the requirement to make such provision.   

Where we might assist

We are experienced in advising:

1. New entrants to the sector and obtaining Code powers on their behalf;
2. New and existing Code operators on the amount of funds for meeting liabilities for purposes of Regulation 16 and on how it is provided;
3. Code operators on Code power rights and obligations;
4. Code operators on enforcement investigations and action by Ofcom; and
5. Code operators in respect of the wider regulatory framework, including the New Roads and Street Works Act 1991 and how that impacts on them.  

Contact us if we might assist you in relation to anything addressed within this briefing note.

Under regulation 16(1) of the Electronic Communications Code (Conditions and Restrictions) Regulations 2003, an Electronic Communications Code Operator is required to provide Ofcom on 1st April every year a certificate confirming how it is achieving its funds for meeting liabilities (“funds for liabilities”) obligations.

Non-compliance with the annual certification requirement can result in Ofcom issuing a direction against the the Code Operator.

This previous article provides a link to the Ofcom issued guidance on funds for liabilities.

Do note the point in our previous article that the level of funds for liabilities provision that may have been appropriate for a start up with no cable or apparatus in the ground may be significiantly different 3 or 4 years down the line when there may be significant amounts of cable and apparatus deployed in the public highway.

Contact us if you need any asistance with reviewing your funds for liabilities provision or preparing your annual certification.

One of the more complex aspects for applicants seeking Code Powers from Ofcom to consider is that of funds for liabilities. The idea behind funds for liabilities is that there is financial provision made by the applicant prior to it commencing operations against the possibility of it subsequently going ‘pop’, leaving other parties facing liabilities arising from its acts/omissions. Its aim is to avoid some of the problems that arose with the UK cable boom in the 1990s and its subsequent bust which saw various operators going to the wall with unfinished works and apparatus and infrastructure in need of removal.

For many start ups giving consideration to the possibility of failure and making provision for it before they can even commence operations is an unattractive proposition. No one wants to start a business by considering its possible failure. It is however something that has to be done as part of the application under s.106 of the Communications Act 2003 for a direction applying the Electronic Communications Code. The requirements for funds for liabilities arises under Regulation 16 of the Electronic Communications Code (Conditions and Restrictions) Regulations 2003. Those regulations detail the potential liabilities and circumstances that need to be addressed.

Ofcom does have Guidelines on Assessing Funds for Liabilities under Regulation 16 of the Electronic Communications Code (Conditions and Restrictions) Regulations 2003 that can be found via this link. These guidelines are a useful starting point for an applicant considering this aspect.  

Determining what may be an appropriate level of funds for liabilities provision and how it should be made is something that requires careful consideration of the nature and scope of the proposed operation. One also has to take account of financial reality in terms of what provision a potential start up business might afford to make. There is not therefore a ‘one size fits all’ funds for liabilities provision and each application needs careful consideration to ensure that an appropriate level of provision is made.

There is no requirement that funds for liabilities are in place before the grant of Code Powers. However, provision of those funds does have to be in place before Code Powers are exercised.

Another aspect that does occasionally appear to get overlooked is that the funds for liabilities need to be reviewed on an annual basis by a party holding and exercising Code Powers. If an applicant has been successful in its roll out, the appropriate level of funds for liabilities provision in year three of its operation may be significantly different in terms of amount and method of provision.     

We:

• advise companies on whether they are eligible to secure Code Powers;
• advise on funds for liabilities requirements;
• apply to Ofcom and secure Code Powers on behalf of companies; and
• advise new and existing Code Power operators on the extent and operation of their Code Powers and their wider regulatory responsibilities.

Contact us if we can assist you in respect of the Electronic Communications Code.