TMT 2017: Trends
The practice of technology, media and telecoms, once a highly specialised and standalone practice area, is now an important field of expertise among law firms as technology increasingly permeates all areas of business. The growing importance of managing the risks and rewards of the digital age is a great boon for TMT lawyers, as is the ever-changing legislation governing its practice. The best law practices are reactive to this ever-changing market. TMT sector groups are being structured in a way that mirrors industry trends, combining multiple practice areas and substantive areas of knowledge, as well as sensitive fee structures. At the same time, clients are becoming much more aware of the underlying risks and are more sophisticated in their choice of legal counsel. Here we highlight some of the most significant developments in the industry and how it is affecting the legal marketplace.
Data protection and cybersecurity continue to dominate industry dialogue for good reason. Businesses have become mass consumers of data given both its substantial current and potential commercial applications. Huge amounts of data is increasingly accrued and stored for very little cost, and storage is becoming ever cheaper and easier to store as a result of the the enormous capacity enabled by the cloud. As it stands, data volumes are growing approximately tenfold every five years.
However, the commercial benefits of such data storage solutions come with correspondingly significant risks. Numerous high-profile data leaks have made data security a mainstream issue. Given the amount of data companies store about their customers, the risk of any one person being a victim of cybercrime has grown, and news stories are only making the public more aware of this trend. It is now perceived a serious reputational risk for a company to have its data hacked. Enforcement agencies are also taking stronger actions against companies that fail to implement proper cyber-security measures. For example, last year the UK-based telecommunications company TalkTalk received a record £400,000 fine from the Information Commissioner’s office for the security failings that led the company being hacked.
One of the reasons for this increased risk is that hackers are becoming more ambitious and sophisticated; the number of cyberattacks is increasing exponentially along with their scope and effectiveness. Industry research in both the US and Europe suggests that around half of companies have been a victim of cybercrime. A 2016 report by PwC places the global figure at 36 per cent – the second most reported economic crime affecting organisations. The result is that many companies are prioritising data security and are increasingly determined to demonstrate data protection and privacy accountability and consistently apply privacy policies. However, compliance with the ever-evolving regulatory landscape is getting more complex. Governments across the world are creating and updating specific data protection legislation to secure the protection of privacy and tighten regulations surrounding the collection, access, transfer, use and storage of information.
The largest new body of legislation is the EU’s General Data Protection Regulation, which has been agreed upon and will replace the current Directive in 2018 without the need for implementing unilateral legislation within the EU’s member states. Observers point out the European Commission’s clear desire to get the new regulations in play as quickly as possible, and now that the framework has been ratified it is now up to everyone else to prepare for the new regime. Law firms and individual practitioners have been heavily marketing this point and businesses have been listening. Ultimately, adopting the new regulations will clearly be a hugely important area of work for the next few years. New data protection legislation has also been proposed or passed in the last five years in numerous countries such as Singapore, Malaysia, the Philippines, South Korea and China. Meanwhile, countries that do not have specific data protection laws are looking at adapting existing privacy laws. For example, Brazil recently announced a new version of a Bill of Law on personal data that will look to ensure minimum standards for the use and transfer of personal data by organisations.
Keeping ahead of developments in this field is a challenging task for both businesses and law firms. To provide first-class counsel on data protection and privacy, law firms need to have specialists dedicated to its practice. More and more lawyers in today’s contemporary environment are focusing on data protection as opposed to wider areas of technology law.
However, data protection is clearly not the only evolving and growing area in this sector. For one, outsourcing continues to be a major cost and efficiency driver due to the complexity of IT systems nowadays, which is resulting in contracts becoming more detailed and complicated. Respondents commonly point to the disaggregation of large IT contracts, which means that companies are employing multiple suppliers with different tower arrangements to improve specialism among different outsourced roles. Full-service firms who want to excel in this industry often have dedicated TMT sector groups, many of which can be broken down further into outsourcing, data protection, e-commerce and cloud computing components.
These sector groups are also becoming more dynamic as the TMT market continues to broaden, and convergence with other areas of practice is more common. At many full-service firms, cross-practice groups have been established within different areas of law focusing on industry clients. For example, as the regulatory emphasis shifts from sector-specific regulation to a more competition-based approach, the need for lawyers to possess some knowledge of competition law, especially in the telecoms and media sectors, is essential. It is also necessarily the case that some of the most demanding aspects of data protection regulations fall upon service providers in the media and telecoms space. For large international law firms, sources have told us that it increasingly makes sense to create a homogenised TMT practice group that can nimbly and ably use cross-practice platforms to service its clients’ needs.
The advantages of practising technology law at larger law firms are clear. However, there is also a greater body of boutique and niche outfits in the legal market than even a few years ago. Law firms today can be set up with significantly greater IT functionality at a fraction of what it used to cost. This allows specialist practitioners to provide quality services to clients without the costs associated with larger full-service firms. The growing need for high-quality counsel at a lower price point, especially through the bourgeoning start-up market, means that it is a more attractive environment than ever to set up a niche practice. Indeed, respondents have remarked on the rapid increase in the number of boutique outfits in a number of jurisdictions. As one noted, “It is ultimately all about the client and delivering the service they want. As clients get more discerning about the range of provider options they have to choose from for particular kinds of work, I believe we’ll see more niche and boutique firms in the IT area.”
Interviewees were clearly aware of the division of practice between larger and smaller firms but not all market commentators see competition between them as divisive, nor is it as simple as the start-up market being the preserve of niche outfits. Even the biggest global law firms see start-ups as a lucrative source of business, not least because such companies can quickly grow to become multinational tech entities within a few years. Most of the full-service firms have also developed specific practices to deal with and support start-ups, with a differentiated approach and special fee arrangements. However, most agree that there are enough deals in the start-up market for both boutique and established law firms to share. In fact, the greatest issue is the difficulty of building up practices with the expertise on offer. Practitioners we interviewed observed that even though the number of lawyers whose practice incorporates some form of TMT work has without a doubt increased, the number of lawyers who can consider themselves specialists has not grown significantly. Essentially the intricacies and technicalities involved in gaining a comprehensive understanding of the tech market can take many years, or even a lifetime. Only those who have extensive experience of its practice can hope to compete in an increasingly complex environment.