Insights Communications & Competition newsletter – July 2022

Welcome to the fourth edition of our Communications & Competition newsletter – a place where we collate the most interesting developments for the communications sector.

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EU Digital Markets Act finalised

On July 18, the EU’s Digital Markets Act (DMA) received final approval from the Council of the EU, following the European Parliament’s final approval on July 5. The DMA was originally proposed by the Commission in December 2020, alongside its sister legislation, the Digital Services Act. The DMA will ex ante apply to those defined as “Gatekeepers” under the Act – i.e., companies caught as one of the core platforms services listed in the Act, such as social media platforms, number-independent interpersonal communication services and operating systems. The Act provides criteria for identifying gatekeeper companies, based on quantitative thresholds (namely, turnover and active users) and qualitative conditions (namely, its impact on the internal market, the connection between business and end users it provides and the durability of its position). Once a company has been designated a gatekeeper a number of obligations will be placed on it which are intended to mitigate identified weaknesses in EU antitrust enforcement.

Examples of these obligations include restrictions on the combination and cross-use of personal data, the enablement of data portability for that provided by end users, interoperability for third-party service and hardware providers, a prohibition on treating own offerings more favourably in ranking than similar alternative offered by third parties as well as transparency requirements in relation to advertisers and publishers. The Commission can impose a fine of up to 10% of the designated gatekeeper’s worldwide turnover in cases of non-compliance, and up to 20% and the ability to impose behavioural/structural remedies in cases of repeated/systematic non-compliance.

The DMA will now be published in the EU’s Official Journal and enter into force 20 days thereafter (this is expected to be in October). There is then a six-month transition period before most of the DMA’s provisions will apply, following which companies that believe they meet the gatekeeper thresholds will be given an additional 2 months to notify the Commission. The Commission will reach a decision on whether it agrees with this position, and any companies identified as gatekeepers after this review will receive a further 6 months to comply, meaning the effects of the DMA will unlikely be seen until late 2023/early 2024. To find out more, please see here.

Data Governance Act comes into force

 On 23 June the EU’s Data Governance Act (DGA) came into force following its publications in the Official Journal on the 3 June. The DGA sets up mechanisms to; (i) facilitate the reuse of certain categories of protected public sector data; (ii) increase trust in data intermediation services; and (iii) encourage data altruism across the EU. It aims to create a single European market for data to promote trusted data sharing and will allow organisations to access and use non-personal protected data from the public sector under certain conditions, such as for the development of new services and products. It comes into effect on 23 September 2023. To find out more, please see here.

New Ofcom licensing regime proposed for drones using mobile or satellite technologies

On 10 June, Ofcom published a Consultation proposing a new spectrum licensing regime which will enable new commercial service opportunities to be delivered by drones. Ofcom has been working with the UK government and the Civil Aviation Authority (CAA) to design a new way of authorising the radio equipment required for drones. This would allow drone providers to obtain a licence to use mobile and satellite networks to enable certain services. This will enable technologies that have not been permitted to date to be used by drone providers such as mobile and satellite terminals for control and transmission of data and video; and safety equipment to enable the drones to avoid collisions and integrate safely into the UK’s airspace. Several new opportunities will be created under the proposals, from doorstop deliveries to machinery maintenance. If a drone provider obtains one of the spectrum licence concerns and wants to use mobile technology connecting a public mobile network provider, they will of course also need to obtain that network provider’s permission before doing so. Drone providers will also need to comply with UK air safety requirements set by the CAA.

Stakeholders have until 5 September 2022 to respond. To find out more, please see here.

Ofcom has opened a compliance monitoring programme into access to emergency services during power outages

On 11 July, Ofcom opened a new monitoring programme to check on how telecoms providers are ensuring access to emergency services during power outages. Ofcom is focusing on assessing compliance with General Condition A3.2(b) (which seeks to protect consumers from harm by requiring providers to take all necessary measures to ensure uninterrupted access to emergency organisations as part of any voice communications services offered) as the migration to VoIP services takes place. Ofcom published guidance in October 2018 on how VoIP providers could meet this obligation during a power outage. In the first stage of the programme, Ofcom will be seeking information from alternative network providers and VoIP providers to understand what action they are taken to ensure compliance in this area. Ofcom will also be contacting industry to ensure providers of fibre to the premises services are aware and understand their obligations in this area. To find out more, please see here.

New commitment from Ofcom to work with the CMA

On 14 July, following the ICO’s commitment, Ofcom and the CMA released a joint statement outlining their joint aim to ensure that they take a coherent approach when dealing interactions between competition and online safety. Recognising that online services are fundamental to the majority of people’s personal and working lives, with digitalisation enabling new and varied ways to engage more easily with others and with businesses, the two bodies acknowledged that with this comes a number of new risks and challenges, particularly where competition is weak and user safety is therefore insufficiently invested in. This has led to the development of the Online Safety Bill making its way through Parliament, as well as a new pro-competition regime for digital markets, for which the government published its consultation outcome in May. Ofcom and the CMA have made a number of commitments to their joined-up approach, including knowledge sharing, synergised competition interventions for online platforms, and collaborative and clear online safety standards. Both organisations have noted that the goals of online safety and competition regimes may not always be complementary and have stated they will work together to identify and mitigate situations where interventions may have adverse impacts on the objectives of the other regime. To find out more, please see here.

Ofcom has called on Tech firms to start getting ready for new Online Safety Regulation

On 6 July, Ofcom called for tech firms to start preparing for the Online Safety Bill making its way through Parliament, which is expected to pass by early 2023 at the latest, with Ofcom’s powers coming into force two months later. The first 100 days will be used by Ofcom to get the new regulations ‘first phase’ up and running. The first phase focuses on protecting users from illegal content harms, including child sexual exploitation and abuse, and terrorist content. To help with compliance, Ofcom will publish a draft Code of Practice on illegal content harms, as well as draft guidance on how it expects services to assess the risk of individuals coming across illegal content on their platforms, both of which will be consulted on and finalised by 2024. A sector-wide risk assessment approach will also be published to help companies identify and understand the risks their users may face.

As part of this, Ofcom has published its Online Safety: roadmap to regulation, which contains detailed plans for implementing the new online safety rules during these first 100 days. Ofcom has launched a call for evidence for this first phase, focusing on mitigations around illegal content, assessment of the risk of harm from illegal content, child access assessments and transparency requirements. The consultation closes on 13 September 2022. To find out more, please see here.

First deal blocked under new National Security and Investment rules

The first deal has been blocked under the rules laid out by the National Security and Investment (NSI) regime. The deal in question was between Beijing based company, Infinite Vision Technology (BIVT) and the University of Manchester, through which BIVT planned to purchase vision sensing technology that the University had developed, specifically, a type of smart camera which can screen out irrelevant visual information, that the University had developed. The deal would have given BIVT a licence to develop, test, manufacture, use and sell licenced products through the transfer of the IP. The government found that there was a dual-use risk that the technology could be used for both civil and military purposes, and that broadly “the technology could be used to build defence or technological capabilities which may present national security risk to the United Kingdom”. The Secretary of State therefore issued a final order pursuant to section 26 of the National Security and Investment Act 2021. To find out more, please see here.

CMA carries out inspections at sport broadcasters

On 12 July, the CMA announced that they are carrying out an investigation into sports broadcasters relating to suspected cartel type breaches of competition law. The broadcasters being investigated include BT Group, ITV, Sky and IMG Media. The broadcasters are being investigated under section 25 of the Competition Act 1998 into suspected infringements of the Chapter I prohibition, which “prohibits agreements, decisions and concerted practices between or among undertakings or associations of undertakings which have as their object or effect the restriction, distortion or prevention of competition within the UK and which affect trade within the UK”. Specifically, the investigation relates to the purchase of freelance services, which support the production and broadcasting of sports content in the UK. The CMA has not yet decided if there is enough evidence to take further action. To find out more, please see here.

Vertical Agreements Block Exemption guidance published by the CMA

The CMA has published the final version of its guidance to accompany the Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022 (VABEO), which replaced the retained EU Vertical Agreements Block Exemption on 1 June 2022. The guidance supersedes the 2010 EU Guidelines on Vertical Restraints in the UK and the 2004 OFT guidance on Vertical Agreements. The guidance provides an overview of the steps in the assessment of vertical agreements under the Chapter I prohibition and the VABEO and addresses the CMA’s assessment of vertical practices such as:

  • dual distribution: extension of the block exemption to cover dual distribution by wholesalers and importer
  • resale price maintenance: further guidance in particular on possible efficiency justification
  • geographical area and customer group restrictions: clarification of the boundary between active and passive sales and providing additional flexibility for businesses to design distribution systems according to their needs
  • indirect measures restricting online sales: removal of the prohibition of dual pricing and the requirement for overall equivalence from the list of hardcore restrictions
  • parity obligations: guidance on the treatment of wide retail parity obligations as hardcore restrictions and the assessment of other parity obligations, and
  • agency agreements: clarification that providers of online intermediation services are suppliers for the purposes of the VABEO and clarification of other issues relating to online platforms, fulfilment contracts and dual role agent.

To find out more, please see here.

Ofcom consultation on more spectrum for satellite services

On 21 June, Ofcom launched a consultation proposing to allow satellite operators to access more spectrum so they can provide a wider range of broadband services, including in hard-to-reach areas. The consultation follows the ever-increasing demand from consumers for satellite services, with Ofcom wanting to therefore support innovation by extending spectrum access under the Earth Station Network licence to include the 14.25-14.5 GHz band (or the “Ku band”). Such an extension would double the capacity available at present to satellite operators and would improve the availability of broadband in rural areas, as well as on planes and ships. The consultation on these proposals is open until 31 August 2022. For the full article, please see here.

On 4 July, Ofcom also published a statement on how it will protect radio astronomy and earth exploration satellite services against harmful interference from new mobile technology, including 5G services. This follows on from Ofcom’s plan to authorise 5G services in the 26 GHz band, despite a risk that this could interfere with sensitive uses in the nearby 24 GHz band (namely by radio astronomers and climate and weather scientists). Ofcom has stated that it will implement limits on out of band emissions from services operating in the 26 GHz band. This will include limitations on the number of outdoor base stations allowed in any 300 km2 area in the lowest 800 MHz of the 26 GHz band and by applying exclusion zones around the six radio astronomy sites that form the “e-MERLIN” telescope network. For the full article, please see here.

Commercial considerations for communications infrastructure arrangements

Digital infrastructure remains attractive for investors and infrastructure players capitalising on telecoms operators freeing up their balance sheet to fund costly network upgrades, spectrum rights or new infrastructure into further service areas. This continues as many telecoms operators are looking for new sources of growth for their core businesses, including through consolidation, diversification and focusing on strategic higher-value services or tie ups with hyperscalers.

Key commercial agreements between investors, infrastructure owners, their operator customers as well as specialist suppliers are critical to creating and securing value and delivering new digital infrastructure over the relevant horizon. For example, a wholesale or master services agreement between the InfraCo and anchor customer is the primary services agreement between the InfraCo and its key customer generating value for the InfraCo. A WSA / MSA is typically long term with minimum commitments and other commercial restrictions, together with pricing controls and service standards for the services provided by InfraCo. In many markets the WSA / MSA is subject to regulatory approval and must be offered on an open access basis, or otherwise key components or inputs may be governed by regulated offers.

The ongoing integrity and future expansion capacity of the underlying digital infrastructure asset, together with any accompanying monitoring, maintenance and upgrade procedures or requirements, is also crucial to delivering revenue-generating services. The technical, operational, historical and regulatory reality on the ground and the parties’ respective business plans will dictate how the primary agreements required between the parties need to allocate risk, generate value for the InfraCo and deliver required services and infrastructure access to customers.

Potential digital infrastructure stakeholders should also be alive to commercial and technical issues that are unfortunately common in these arrangements, spanning network design and construction, network performance and upgrade cycles through to maintenance, service assurance and personnel expertise.

While these issues are not usually fatal, critical issues that affect current asset performance and future scalability and development may have business plan and valuation impacts that need to be addressed in proposed pricing or risk sharing arrangements to properly incentivise the participating parties. For the full article, see here.

Blockchain and the decentralised mobile network model

Realising 5G’s full potential requires confidence in the security, resilience and performance of the infrastructure that underpins it. The UK Government’s decision to ban Huawei from UK 5G networks has highlighted the current resilience risk of having few suppliers for critical network equipment and infrastructure. Addressing this requires a comprehensive strategy to encourage innovation for new and existing vendors, open-interface solutions and diversified yet interoperable supply chains from the ground up.

While mobile network operators (MNOs) are already applying disaggregated network models to facilitate 5G roll-out by lowering total cost of ownership, another version of this is happening but from a very different style of network operator – completely decentralised (not just disaggregated) wireless networks comprised of a multitude of peer-to-peer individuals hosting compatible small cells, who earn cryptocurrency rewards for “proof of coverage” and via carrying data packets. Customers pay using cryptocurrency for data transmitted over the network to and from their connected devices, which figures into the reward to hosts responsible for transmitting those data packets.

These decentralised networks potentially offer an alternative solution to the last mile issue where new infrastructure is prohibitively expensive, such as new 5G cell sites in urban environments. They also address resilience risk (supply issues aside) by involving multi-vendor interoperable antennas combined with crypto miner and can connect to any broadband connection (fixed or wireless) for backhaul. Blockchain is also used to ensure transparency, security and reliability via “proof of coverage”, which also tangibly supports propagating a functioning network.

This model does give rise to a number of legal, regulatory and commercial challenges. These include compliance with the General Conditions due to the scale of players within the network, the use of retail broadband services for wireless backhaul, ensuring minimum security requirements are met across multiple hardware vendors, the need for the enablement of lawful intercept as well as considerations in terms of spectrum licencing for LTE and 5G frequency bands. For the full article, see here.

To find out more on any of the above updates or other communications provider requirements please get in touch.