TELECOMMUNICATIONS: An Introduction to UK-wide
Chambers & Partners Telecoms Overview Introduction Section
Preiskel & Co’s Views on the European Telecoms Market and Significant Legal Developments
It is impossible to underestimate the importance of telecommunications and technology as we head into a new year with the COVID cloud hanging over the world at large. Thanks to a combination of fixed and mobile broadband connectivity, together with cloud hosted telephony systems, many individuals and businesses have been able to function surprisingly effectively away from the physical office.
Just mobile connections as of October 2020 stood at 8.8 billion, with 5.1 billion unique mobile subscribers, with one billion people having been covered by mobile broadband networks over the last five years.
With the exponential growth of IoT devices being connected, the planet is moving towards a world where everyone will be connected to everyone and everything, much to the no doubt delight of the GSMA (who supplied the above statistics).
At Preiskel & Co, having been actively involved throughout recent developments in this ‘connectivity ecosystem’, we are pleased to share some of our insights in this short article.
Yet for all this incredible growth connecting the planet’s population to the internet, my particular UK mobile operator still has ‘Not Spots’ in central London with no coverage at all, whilst many areas of rural Britain remain without coverage by all or indeed any of the UK mobile networks, particularly problematic in the absence of national roaming, given the reliance on mobile connectivity, such as for navigation or simply working from home in the absence of fixed broadband. The poor mobile connectivity in the UK has been viewed by many as a failure by Ofcom. Over recent years, the UK Government has sought to address mobile coverage through DCMS Infrastructure Reviews, leading to a £1bn deal with the MNOs designed to eliminate ‘Not Spots’, and the work of the National Infrastructure Commission.
The Space Race for Global Broadband Connectivity
The race to provide broadband coverage across the globe has seen billions of dollars ‘launched’ into space over recent years invested in a range of satellite systems designed to bring internet connectivity across vast areas of land and sea. Two of the satellite deals in the last year or so making headlines were (i) the $6bn acquisition of Inmarsat by a private equity consortium; and (ii) the ongoing refinancing and acquisition of One Web and its 74 launched satellites by a $1bn consortium comprising the UK Government and Bharti. News reports state that OneWeb has filed with the FCC for permission to deploy 48,000 satellites, providing a sense of the enormity of the investment to come and expectation of the scale of satellite connectivity usage anticipated across the globe in years to come.
Meanwhile in the space race, Elon Musk's company SpaceX launched 60 small satellites from a single rocket. The satellites were the first in what is planned to be its Starlink “mega-constellation” of approximately 12,000 low earth orbit satellites that will bring internet coverage to the entire planet.
Global connectivity from outer space can bring many benefits and save lives, whilst also reducing pollution, for example using satellite to ship connectivity to ensure that tankers and cargo vessels travel at optimum speeds to minimises pollution and reduce fuel consumption.
Mobile Network Operators' Investment in 5G and Broader Connectivity
With mobile network operators (MNOs) spending billions for 5G spectrum and on the cost of rolling out 5G networks, there are three aspects that I would like to draw the reader’s attention to.
1. The Cost of a Huawei Ban: The extent to which MNOs are to be allowed to use Chinese owned Huawei equipment (due to security concerns), which for many MNOs is significantly cheaper and more efficient than the leading European alternatives of Nokia and Ericsson. This uncertainty makes it especially difficult for those MNOs that are already using Huawei equipment to plan future network deployment, whilst any future requirement to replace installed Huawei equipment would I expect be additionally expensive and disruptive. Needless to say there has been a great deal of lobbying by the interested equipment providers. Ultimately, if MNOs are prohibited from using Huawei entirely or as is currently the UK position, just for certain aspects of 5G, that is in effect a further government imposed significant expense and disruption for MNOs.
At the same time MNOs are seeing revenues from traditional calls and SMS declining in mature markets, whilst COVID-19 travel restrictions have significantly reduced lucrative roaming revenues.
2. MNO Consolidation: On the plus side for MNOs as we progress into 2021, the EUCJ handed down a significant judgment, albeit ‘after the horse had bolted’, approving the merger in the UK of O2 and 3UK, owned by Telefónica and Hutchison respectively. The deal had crucially been blocked by the EU Commission in 2016 and this was viewed by the investment banking community and others as the death of 4 to 3 MNO consolidation in major markets, without significant divestiture conditions being imposed.
However, whilst the EUCJ decision has come far too late to revive that merger, the significance should not be underestimated for European MNOs. In each market a likely purchaser of a small MNO is a larger MNO in its own market and the ability for such a merger to be completed without divestiture of significant assets ought logically to increase the value of both MNOs.
The EUCJ decision significantly raised the evidential burden upon the EU Commission in blocking future MNO mergers. That having been said, the 4 to 3 MNO consolidations that have been approved in the last two years have been of a large MNO acquiring the smallest one in its market (eg T-Mobile NL/Tele2 in the Netherlands) so we are some way from the top two MNOs in a market obtaining merger approval without being required to divest.
However, in the UK, the Enterprise Act provides the UK with more flexibility to block arguably harmful deals that are still short of a dominant position, it being enough for there to be lost competition between the merging parties.
3. EECC Mandating Regulators to allow Network Sharing for Incentivising Very High Capacity Networks: Another positive for MNOs and indeed fixed broadband providers as we head into 2021 is the regulatory shift away from pure competition law, brought about by the new European Electronic Communications Code (EECC). The implementation date for the EECC is 21 December 2020 and it is the most important regulatory change in the EU for some time, so merits particular attention for the remainder of this overview article.
The New European Electronic Communications Code (EECC)
On 11 December 2018, the European Commission published the new Directive establishing the European Electronic Communications Code (EECC) in order to revise and update the current EU communications regulatory framework.
The EECC merges and updates the existing Framework Directive, Authorisation Directive, Access Directive and Universal Service Directive (being the four main Directives of the current regulatory framework). The EECC should be considered in association with the BEREC Regulation, which formalises BEREC as a fully-fledged EU Communications Regulatory Agency with broader powers.
This new legal framework is of utmost importance for the communications sector and has as a number of core objectives including: (i) facilitation of the roll-out of high capacity networks throughout Europe; (ii) consumer protection; (iii) new regulation of OTTs; and (iv) efficient use of spectrum.
Notwithstanding the BEREC Regulation, the emphasis of regulation and enforcement still rests largely in the hands of the Member States.
Summary of the Key Changes and Objectives of the EECC
The following is a short summary of the above four core objectives, which will be covered in more detail further on in this Chapter.
Incentivising very high capacity networks: The EECC is intended to make it easier for telecoms providers investing in 5G and very high capacity fixed infrastructure to fulfil their business plans and investment objectives. A key difference to help achieve this is a shift from the pure competition law based approach to regulating network roll-out and instead focussing upon the infrastructure layer and encouraging co-investment. The thinking is that if the new regulatory approach will provide potentially higher returns for investors, this would in turn facilitate the roll-out of high capacity networks.
Regulation of OTTs: Traditional telecoms providers will be pleased that the EECC also widens the definition of electronic communications service, to include certain internet phone and messaging services within the scope of telecoms regulation. The intention is to help level the playing field for competition, so for those services which will now be subject to telecoms regulation for the first time, this will represent a significant change.
Consumer Protection: Consumers are to benefit from a whole series of measures, including Mobile and Fixed Termination Rates (Union-wide voice termination rates). This should not be confused with the 19 euro cents (+VAT) cap on the retail cost of international calls within the EU for consumers effective as of 15 May 2019, already in force under The Roaming Regulation.
Efficient Use of Spectrum: This will include new 'use it or leave it' provisions, simplifying and harmonising spectrum licence conditions and providing a minimum 20 year licence period for wireless broadband service provision.
Other areas addressed by the EECC
1. Licensing - Simplification to general authorisation by means of a basic notification process
2. Universal Service Obligations - to include affordable and adequate broadband internet service
3. Numbering - to include allocations to non ECS/ECN providers
4. Porting - Gaining provider carrier switching (of most relevance in the UK)
5. Network Security and Resilience
The EECC implementation marks a distinct shift away from a pure competition law approach to the regulation of the telecoms industry. Coupled with the recent 4 to 3 MNO merger clearances, I would expect to see significant industry mergers and infrastructure sharing deals being completed and cleared in the race to roll out 5G and fixed high capacity broadband connectivity throughout the EU.
These are certainly fascinating times to be a telecoms lawyer, even though we have been sadly missing out on live attendance and speaking at the major telecoms conferences in the calendar.