Brexit series: Brexit sector briefing: telecommunications

The telecommunications sector has seen enormous growth over the past 30 years, driven largely by the twin demands for mobile telephony and internet access. The EU has been at the forefront of many market developments, experiencing notable successes such as 3G. In terms of regulatory implications, there are a number of reasons to be optimistic that Brexit may have less impact on the telecommunications industry than in other sectors.

Professor Ian Walden, Baker McKenzie

The telecommunications sector has seen enormous growth over the past 30 years, driven largely by the twin demands for mobile telephony and internet access. The EU has been at the forefront of many market developments, pursuing market liberalisation and harmonisation since 1988 and experiencing notable successes such as 3G.

In terms of regulatory implications, there are a number of reasons to be optimistic that Brexit may have less impact on the telecommunications industry than in other sectors. Certain features of telecommunications law are likely to militate against any need for a radical overhaul of the current regime after Brexit.

WTO and EU law

One key area in which the EU has been particularly successful is in exporting its regulatory framework to the rest of the world. The most notable example is the World Trade Organization's (WTO) 1998 Basic Agreement on Telecommunications, made under the General Agreement on Trade in Services (GATS), to which 99 countries have since adhered. One unique component of the Basic Agreement on Telecommunications is a reference paper detailing a series of pro-competitive regulatory principles for the telecommunications sector (the reference paper). The reference paper can be described as EU law "writ large" because it so clearly aligns with EU law at the time, but is equally applicable today.

On the presumption that the UK remains a member of the WTO, it seems highly likely that the UK will submit a schedule of commitment under GATS in respect of telecommunications services, which will be largely similar to that currently submitted by the EU. A schedule of commitment is an undertaking to provide market access and national treatment for a specific activity on the terms and conditions specified in the schedule. Given that the Communications Act 2003 embodies the requirements of the reference paper, it is likely that the current statutory framework will be retained after Brexit (for background, see News brief "Communications Act 2003: the highlights ( www.practicallaw.com/7-102-4186) ").

No single market

A second reason for relative regulatory stability is the fact that the telecommunications sector, in stark contrast to other related sectors such as audiovisual media services (regulated by the Audiovisual Media Services Directive (2010/13/EU)) and over-the-top services (regulated by the E-Commerce Directive (2000/31/EC)), has not been subject to harmonisation through the country of origin principle. Under this principle, a business established in one EU member state is free to supply services into the other 27 member states without further authorisation or regulatory control from the recipient state, except in limited and procedurally controlled circumstances.

The country of origin principle is seen as conferring a significant benefit on market participants wishing to offer services into the 28 national markets in terms of compliance obligations and cost. However, in the telecommunications sector, this principle has never been adopted, so an operator must be authorised and must comply with national conditions in each and every member state in which it has networks or into which it provides services. Therefore, operators continue to have to think and act on a distinctly national basis, subject to oversight and intervention by national regulatory authorities, such as Ofcom.

Over the years, the European Commission has repeatedly attempted to move towards the country of origin principle for the regulation of telecommunications, such as the one-stop shopping procedure under the Directive on a common framework for general authorisations and individual licences in the field of telecommunication services (97/13/EC), and the proposal for a regulatory passport that would allow operators to deal with one authority in their country of origin with regard to, for example, licensing and data protection compliance.

Yet, to date, member states have steadfastly resisted the adoption of the country of origin principle for telecommunications. While the reasons for this are diverse, they can be viewed as being centred on the public interest nature of aspects of the telecommunications sector. These public interest features not only interfere with a fully competitive single market, but also disrupt efforts to establish a coherent regulatory regime across the EU.

Public resources. One public interest component is the use of public resources. In telecommunications this is manifest most starkly in the belief that the electromagnetic spectrum is the property of the state, as well as a scarce resource. As a state resource, it is subject to controls to ensure that it is used for the maximum welfare of all. In terms of economic value, some member states have taken contrasting positions with respect to the award of spectrum. For example, the UK has auctioned electromagnetic spectrum for maximum revenue, while other member states, such as Finland, have awarded spectrum on the basis of a beauty parade.

Utility perspective. Telecommunications can also be seen as residing uneasily between the utilities and IT sectors. As a networked utility with substantial infrastructure, it can be viewed as a supplier of an essential service akin to electricity, gas and water companies. The regulatory framework for telecommunications can therefore sometimes appear incongruous; switching between deregulation initiatives and politically charged interventions in market conduct, such as Regulation 2015/2120 on net neutrality. These measures can be viewed as representing a utility perspective of the telecommunications sector.

Universal service. Universal service is the embodiment of the public interest in telecommunications, with the desire to ensure that all citizens have access to telecommunications networks at an affordable price. Here again, while EU law provides minimum obligations, member states have the freedom to define higher standards in pursuit of varied domestic policies. The government is currently in the process of introducing a universal service obligation (USO) through the Digital Economy Bill to facilitate broadband access. In the UK, there is no mechanism for financing the USO because BT and KCOM, the two providers subject to the USO, have been held not to be subject to an unfair burden (www.ofcom.org.uk/consultations-and-statements/category-2/btkcom09). Therefore, Brexit should mean no change for UK law on universal service.

Law enforcement. Another element of the public interest nature of telecommunications is the role of service providers in law enforcement and national security matters. Historically, telecommunication operators have been required to build an intercept capability into their networks to enable law enforcement access, as well as provide associated traffic and subscriber data. After the Snowden affair, in which Edward Snowden made a number of revelations in 2013, these practices have become increasingly transparent, as governments have been forced to publicly acknowledge these activities and impose obligations on a broader range of services than traditional communication services, such as through the Investigatory Powers Act 2016. The desire to retain control over these matters has limited the enthusiasm of governments to accept the country of origin principle for telecommunications.

Taken together, these public interest components have prevented the establishment of a truly European market. Were the EU, after Brexit, to finally achieve a single market for telecommunications, then the position of UK companies would be likely to be disadvantaged but, until then, operators are likely to experience little change.

Under national control

A final reason for expecting little change after Brexit is because responsibility for key areas of the telecommunications sector have been retained under national control, rather than handed over to the EU. As noted already, with respect to wireless communication services (for example, mobile and satellite) the control and management of spectrum has remained the exclusive property of the state. While spectrum usage requires co-ordination and co-operation, this occurs at an international level, within the International Telecommunications Union (ITU), as much as at an EU level. As with the WTO, the UK's membership and participation in the work of the ITU will continue after Brexit.

With regard to constructing telecommunication networks, laying cables and installing masts, rights and obligations concerning building invoke issues of property and planning law, which operate at both a local and national level. The forthcoming Digital Economy Bill will reform the electronic communications code that governs network operators to facilitate more rapid network roll-out (see News brief "EU telecoms reform: ready for the next generation? ( www.practicallaw.com/2-501-3100) ").

Uncertain implications

The implications of Brexit for the UK, the EU and the international community as a whole, will take a considerable time to be fully realised. The legal complexities involved are of a scale that has not previously been experienced. Although there are some areas of the UK telecommunications market on which Brexit may have a negative effect, the peculiarities of telecommunications law will potentially mean less change to the current regulatory regime than that expected in other sectors (see box "Potential issues after Brexit"). However, as the process of Brexit has not yet even begun, only a limited amount can be opined before entering a legal and regulatory fog.

Professor Ian Walden is Of Counsel at Baker McKenzie.

 

Potential issues after Brexit

Certain areas of the UK telecommunications regulation will, or may, differ following the UK's departure from the EU:

Merger control. After Brexit, the UK will no longer be part of the EU one-stop shop for merger control. At present, if a deal is notified to the European Commission (the Commission), it does not need to be separately notified to EU member states' national competition authorities. When the UK leaves the EU, the EU and UK merger control regimes will run in parallel so that a transaction that meets the EU merger notification thresholds may also be notifiable to the Competition and Markets Authority (CMA) if the relevant UK filing thresholds are met. This means that large deals with substantive UK issues, such the planned merger between Three and O2, will face two filings by both the Commission and the CMA, with the potential for divergent outcomes.

Roaming charges. The progressive reduction of roaming charges for consumers within the EU, and their eventual abolition from June 2017, may be disapplied to UK users, leading to higher prices when UK citizens roam in the EU. Given that operators have complained that the abolition of roaming charges will have a significant impact on their revenue streams, they may view UK consumers as an opportunity to claw back some of this revenue. Conversely, current market trends and consumer behaviour (for example, buying local SIMs) may convince operators that the opportunities for raising tariffs are limited.

Net neutrality. The recent net neutrality measures, and indeed any broader reform of the EU telecommunications market, may offer potential long-term advantages to operators within the EU to the extent that they level the regulatory playing field with over-the-top service providers and reduce barriers to market entry.


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