The International Who’s Who of Regulatory Communications Lawyers has brought together four of the leading practitioners in the world to discuss issues concerning the cross-over between law and practice, the relationship between the law and regulatory authorities, technological dominance in the market and the changing face of regulatory law practices.
CROSS-OVER IN LAW AND PRACTICE
Who’s Who Legal: A number of our contributors remarked on the recent activity in network-sharing between radio, mobile phone, television and internet companies, such as Skype. Do you consider this to be the next big topic in regulatory communications work? And what does this mean for lawyers and the scope of their practices? Is it possible to be a “pure” telecommunications lawyer anymore?
Malcolm Webb: Network sharing generally is a key trend and I don’t see it slowing down any time soon. This is mainly because the civil engineering cost savings are significant in network roll-outs, but there are also efficiencies to be gained from sharing backhaul costs and spectrum. Network sharing is mature in the mobile sector and has progressed from passive infrastructure sharing into the sharing of active network elements as well – although active sharing is more likely to attract the attention of regulators and competition authorities. We are also seeing network sharing arising in fixed networks, with some of the models being promoted for new network fibre builds involving co-investment between industry participants.
Telecoms law has for years been a mixture of commercial, regulatory and competition law elements. To be effective in this sector, lawyers need to be skilled across these areas, as well as being across industry developments (which change with lightning speed) and, increasingly, having good technical knowledge.
Robert Bratby: Crossover is not new – if you look back 15 years you can find many articles on convergence.
What is different today is that technology is unlocking the potential for “martini access” of content, services and applications – anything, anywhere, anyplace, on any device. However, the paradox is that end-user simplicity is only delivered through legally complex arrangements across areas including rights, carriage and licensing.
This platform delivery crossover has resulted in content which was traditionally delivered over dedicated broadcast networks increasingly being delivered “over the top” via telecoms networks – both broadband and mobile. As consumer demand and data volumes increase, current data pricing practice means that many network operators are struggling to effectively finance the network upgrades and investments needed to meet that rising data demand.
In turn, growing data volumes are leading to more network-sharing deals as a way for network operators to decrease both their opex and capex requirements. I only see this trend accelerating in both developed and developing jurisdictions.
This also means that lawyers need to follow their clients’ needs and ensure they have an understanding of the pressures on their businesses. As clients cease to become “pure” telecoms, their lawyers inevitably have to follow them.
Bernard Amory: “Pure telecommunications lawyers” do not really exist. Telecommunication lawyers are those lawyers with expertise in other areas (eg, corporate, antitrust, commercial, or administrative law) that they apply to the telecommunications sector. In addition, with the increasing convergence of services, telecommunications lawyers are no longer confined to telecommunications, but also cover media and IPR issues.
We can indeed expect more network-sharing activity in the years to come. Network sharing is likely to become increasingly technologically agnostic, particularly in relation to ducts, tower and masts sharing. Furthermore, network sharing is not new: when mobile operators first started to share networks and to engage in national roaming in the UK and Germany, such activities were subject to scrutiny by the European Commission. So in addition to the commercial lawyers who put the agreements in place, European competition lawyers with expertise in telecommunications had a key role to play. The fact is that you cannot be a “pure telecommunications lawyer”, but companies and the law firms that advise them require teams with relevant expertise in relevant areas, who together can act as a telecommunications legal team.
Chris Watson: It has not been possible to be a telecommunications lawyer for some time; we are all communications lawyers now. The scope of our practices is evolving as innovative uses of communications constantly emerge.
The network delivery mechanism to access applications and content applications is ever-less important to the consumer, and the sector will continue to see the convergence of services over the various communications platforms. In this environment, technology neutrality will be fundamental to good regulation. Inconsistency of regulatory treatment across platforms distorts competition and regulation needs to move beyond the historical differences between the broadcasting, mobile and broadband models.
Who’s Who Legal: Sources stated that with the introduction of stricter regulations, particularly relating to data protection and transparency, the regulatory authorities have become more aggressive and in some cases less cooperative. How has the relationship between the regulatory bodies and the legal marketplace changed in the last two years in your jurisdiction? From a procedural perspective, is collaboration proving harder or easier nowadays?
Chris Watson: Privacy regulations exist in the same form as they have for some time now, requiring specific, informed consent for use of data. What has changed is that regulators have begun to investigate long-standing breaches, as seen in CNIL’s recent investigation into Google’s policies on privacy and combination of data. It is clear that abuses are deeply rooted in the business models of some operators. While the change in approach may be portrayed as aggression or lack of cooperation on the part of the regulator, it is because the exploration of the relationship between business and fundamental rights will never be painless.
Robert Bratby: We have found an interesting (and not terribly surprising) correlation between data protection enforcement and the mechanism used to fund the regulator. In jurisdictions where data protection fines finance the regulator we see much more aggressive enforcement.
Conversely, some jurisdictions with (on paper) more stringent data protection regimes are often more interested in protecting data subjects’ interests and so are open to a collaborative approach which seeks to fix issues.
Bernard Amory: At the EU level, we have seen some changes in industry’s relationship with “regulators” (the Commission, the Parliament and the Council of Ministers). Whilst in the past, these institutions cooperated closely with industry (operators, equipment manufacturers, etc) to create and liberalise the markets, more recently they have been more focused on two things: firstly, responding to consumer demand and political considerations; and secondly, inter-institutional relationships, not only between the various bodies of the European Union, but between them and member states. Good examples of this are the EU regulation on roaming, regulating both wholesale and retail prices for mobile services, and the increased importance of Article 7 procedures leading to the regulation of certain markets by NRAs.
DOMINANCE IN THE MARKET
Who’s Who Legal: There has been an increase in the number of mobile networks and operators in recent years, yet major companies like Apple continue to dominate a number of technological markets. Is this kind of multi-technology dominance good for the market and for lawyers? Has the whole regime changed because of it?
Malcolm Webb: It is becoming clearer that dominance in this sector is no longer just confined to network owners and this reflects the changes brought about by the shift to IP networks. Device and application providers and content players are capable of achieving market power, which can be driven by network effects and sometimes intellectual property rights. This requires greater regulatory focus, which we are seeing in the EU and US in particular. However, the problems can be more transitory as compared to, say, market power arising from access networks. Times of enormous change are always good for lawyers!
Bernard Amory: Dominance is not necessarily bad, and in fact seeking dominance is a stimulus for competition. Of course, any company that acquires a dominant position has a special responsibility towards its customers and competitors. This has been the case since the liberalisation of the telecommunications sector and continues to be true, whether the dominant players are incumbents or newcomers. Consequently, the role of lawyers, and more particularly competition lawyers, will continue to be essential.
Robert Bratby: This question highlights the interplay between ex ante regulation and ex post competition law, and their application in the adjacent sectors of telecoms and technology.
As telecoms markets in many jurisdictions started from a position where liberalisation from the starting point of state-owned dominant incumbent operator required regulation to faciliate market entry, telecoms is a sector with a tradition of ex ante economic regulation. With increasing competition, competition principles-based market reviews in the EU and elsewhere have (in theory, if not always in practice) allowed regulation to be rolled back, and for market conduct then to regulated solely by ex post competition law. However, in general regulation persists and it is difficult to see it being totally withdrawn.
By contrast, technology as a sector has not had a tradition of regulation, and as companies have grown their conduct has traditionally been regulated by ex post competition (antitrust) law. Whilst there have been some very high-profile antitrust cases, history suggest that dynamic innovation in the market often leaves these interventions appearing somewhat irrelevant by the time the last appeal has been heard. Against this backdrop, I doubt that we will see the imposition of widespread ex ante economic regulation in the wider technology sector anytime soon.
Chris Watson: In fact there has been a substantial consolidation of mobile network operators and the mass market tends to be served by only three or four operators. Numbers of MVNOs may have increased but they are not showing great market power.
Meanwhile Apple has demonstrated that it is essential to create consumer-friendly devices. As a result of its success it has transformed the hardware and access market, which is now driven by competition, improvement, price decreases and shifts in market power.
Who’s Who Legal: What do you consider to be the major challenges in the telecommunications field in the jurisdictions in which you practise?
Robert Bratby: A key challenge for the telecoms sector is increasing data volumes – particularly mobile data – against a backdrop of continued pricing pressure which is stressing operator business models and pressuring margins. As a result operators are looking to both find additional revenue streams and reduce costs.
To increase revenue, we see operators looking at how they can offer and monetise content and applications to consumers and offer them adjacent services, such as mobile payment and location-based services. In the enterprise space, we see operators offering more IT services particulary from the cloud where they are able to bundle the service with connectivity.
To reduce cost, we see both network-sharing arrangements and the consolidation of platforms for multi-jurisdictional operators.
As with other industries, we see players thinking about how to use big data most effectively and how to partner with complementary entities in order to increase customer value and reduce churn.
Malcolm Webb: The single most important challenge in the sector is the investment that is required to be made in high-speed broadband networks. This is an issue we face in all of the developed and developing countries we are involved in, as governments strive to achieve universal broadband access. Broadband networks are very expensive, particularly if deployed on a widespread basis – returns for operators are uncertain and may be limited, and construction costs are unpredictable and can blow out. The challenge is to find ways of encouraging investment in these new networks, while at the same time allowing competition to flourish and removing obstacles to workable competition. This requires the wisdom of Solomon.
Chris Watson: A serious challenge is the force of free-to-consumer models, which is distorting the communications market. Free services are expected and liked by consumers but that does not necessarily mean that the model has created the optimum market outcome. Exacerbating the situation is the concept of net-neutrality, which attempts to make the distortions respectable.
Infrastructure investment is an immediate challenge, as it will is required to support mobile data and to meet the vast, and often symmetric connectivity requirements of cloud computing and video traffic. Among other things, regulators will finally have to address the requirements of competition and investment in fibre access networks.
Bernard Amory: The most important regulatory challenge for the industry is to ensure, at a global level, the sustainability of the internet model. It is essential to have clear rules to ensure that industry continues to invest so that the network has the capacity to absorb increasing demand. The EU has in the past played a leading role in shaping the regulatory framework across the world. It should continue to do so at this important juncture. A level playing field is also needed between all actors and intermediaries. It is necessary to ensure that regulation is strictly limited to instances where there is a need to redress market failure.
LAW FIRM ADAPTATION
Who’s Who Legal: With the rapidly changing telecommunication and technology markets it appears that lawyers are required to know more and provide more advice – but for less. How has your firm adapted to the changes and what do you expect to see in the medium-term future?
Malcolm Webb: The TMT industry as a whole is under considerable cost pressure – and that includes legal services. This is not unique to TMT obviously, but the strategy for lawyers servicing this sector has to be a continual move up the value chain, which is getting more and more challenging. Our firm has moved into regulatory consultancy services as a way of broadening our offering to TMT clients, and we have focused on international coverage. We see scale becoming increasingly important for law firms servicing this sector, with larger and more complex transactions taking place under greater time pressure.
Robert Bratby: Lawyers are not immune from the pressure common to all industries: to provide more for less.
In order to do this and prosper, lawyers need to think very carefully about what they are really selling. Clients are not prepared to pay for legions of junior lawyers producing mountains of paper.
In my view, our value proposition is to provide insight, innovation and influence to help clients acheive their strategic objectives. This inevitably leads to more partner involvement and lower associate leverage to deliver valuable strategic advice, but with the use of IT and LPO to deliver routine commoditised activities cost-effectively.
Chris Watson: Across all fields in the legal practice, not just in the CMT sector, lawyers are expected to provide more for less – and why not? We have a strategy of outsourcing business services, efficient sourcing, efficient use of our international network and using lower cost centres. The profession is being forced to innovate and a challenge is no bad thing.