TELECOMMUNICATIONS: An Introduction

PREISKEL & CO LLP 

Chambers & Partners Telecoms Overview Introduction Section

Preiskel & Co’s Views on the European Telecoms Market and Significant Legal Developments

Overview 

Society at large owes the telecommunications and technology industry a great deal for providing the connectivity enabling businesses and governments to function during the COVID lockdowns, whilst enabling consumers to order food and other goods whilst stores were closed. Thanks to the combination of fixed and mobile broadband connectivity, together with cloud hosted telephony systems, many individuals and businesses (and dare I say governments) have been able to function surprisingly effectively away from the physical office

ESG in the Telecommunications Sector 

The COVID related pandemic brought into sharp focus the need for broadband connectivity as part of broader welfare and there has rightly developed a move for “digital inclusion” and an emphasis on connecting the unconnected.

ESG is certainly entering the telecommunications industry lexicon and indeed Danny Preiskel was pleased to be a judge for the brand new ESG in Telecoms Award at the Capacity Carrier Awards, the “Telecoms Oscars”. Given the extent of new telecoms infrastructure being constructed throughout the globe to carry the exponentially increasing volumes of data across the planet, it was most welcome and even heart-warming to read of some of the carbon neutral and other ESG beneficial approaches adopted for new telecoms infrastructure.

As of March 2021, 159 mobile operators had committed to the GSMA Humanitarian Connectivity Charter, an initiative to strengthen the resilience, preparedness and response capability of connectivity systems in well over 100 countries, to help save lives where natural disasters strike, whether caused by global warming or otherwise.

The Race for Digital Inclusion Continues Deep into Space 

Whilst there are more mobile connections than humans, and over 5 billion unique mobile subscribers, further progress is still required and being made to improve digital inclusion and achieve a world where everyone will be connected to everyone and everything. 

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. 2020 was a landmark year in this front with two major satellite deals making national headlines, namely (i) the USD6 billion acquisition of Inmarsat by a private equity consortium; and (ii) the acquisition of OneWeb by a USD1 billion consortium comprising the UK Government and Bharti, which has enabled it to continue with its ambitious plans and OneWeb is, as of late 2021, over halfway to achieving its 648 LEO (Low Earth Orbital) satellites in space target. 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 has already launched 1400 small satellites for its Starlink “mega-constellation” of approximately 12,000 low earth orbit satellites that is intended to 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 minimise pollution and reduce fuel consumption.

While the vast number of billions invested in launching satellite connectivity is to be welcomed, IMSO, the de facto satellite regulator in terms of safety via global coverage, will have to play an increasingly important role in ensuring that global satellite coverage will be provided across the oceans and sparsely populated regions, even where uneconomical.

EU Roaming Charges Are Back Thanks to Brexit 

With thanks to those who voted for Brexit, MNOs are grateful to be able to once again charge UK subscribers when they roam in the EU. In fact, it is also good news for the EU based MNOs, who will no longer be capped by the EU Roaming Regulations for their wholesale mobile roaming services to UK customers. The UK MNOs will be faced with those increased charges but in turn will be passing them on to their UK customers, no doubt with a decent margin on top. Not only will UK subscribers have the joy of Brexit-provided roaming charges, they will now find that, thanks to Brexit, they can no longer watch BT, Sky or other paid-for content services anymore in the EU as the UK no longer benefits from the EU Portability Regulation.

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 2022, the CJEU 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 CJEU 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 CJEU 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 (e.g. 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 2022 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 was 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 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

Despite the excitement and potential, basic connectivity even in the UK needs to be addressed

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. This is 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 seized the initiative from Ofcom and has sought to address mobile coverage through DCMS Infrastructure Reviews. This resulted in a £1bn deal with the MNOs designed to eliminate ‘Not Spots’ and the work of the National Infrastructure Commission.

Concluding Remarks 

In 2022 we can look forward to an increasing number of successful and innovative IoT deployments, especially given the improvements in mobile broadband connectivity and the staggering amount of investment being ploughed into AI and IoT companies more broadly.

Let’s hope we will during 2022 be witness to a significant take up of satellite internet connectivity being provided by the various consortia, especially in the areas of the world with no fixed or mobile broadband.

On the regulatory front, the reimposition of roaming charges will be a reminder (painful perhaps) of the UK no longer being strictly bound by EU Regulations and it will be interesting to see to what extent the UK regulatory position diverges from the EU.

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, we 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.

And finally, telecoms deals over the years have traditionally been struck at or made thanks to conversations at the major international telecoms conferences, so the resumption of executives attending these conferences in person, will hopefully stimulate further interesting developments to be reported on next year.

Danny Preiskel 

Senior Partner

PREISKEL & CO LLP

www.preiskel.com                                                                       16 October 2021