Three top specialists discuss regulatory changes, the effects of convergence and emerging markets from the perspectives of practices in Belgium, Washington, DC, and Italy.
Gibson Dunn & Crutcher LLP
Who’s Who Legal: What do you consider to be the most significant regulatory changes taking place, or due to take place, in your jurisdiction, and how are they affecting your regulatory communications practice? How have the levels and strengths of regulatory control changed in the last year? How is this affecting the levels and sources of foreign investment in your jurisdiction?
Marco Dalla Vedova: In terms of the most significant regulatory changes taking place or due to take place in Italy, we may mention the regulation of Next Generation Network and spectrum allocation, as a result of spectrum being freed by local TV switching to digital transmission and the Ministry of Defence rendering available unused or partially used portions of spectrum, as well as a substantial review of the National Numbering Plan.
Such new developments, namely NGN and spectrum (re)allocation, are attracting relevant interest from both national and international investors. One main issue which can be easily anticipated is the reciprocity issue in terms of foreign investors (both WTO and non-WTO) having to deal with their national legislation often not allowing for foreign (and in this case Italian) investors to carry out in their jurisdiction the same investment structure which such investors are willing to carry out in Italy.
Such issues, especially when spectrum investments are considered, are going to be a discriminating moment in the preliminary clearance.
The levels and strength of regulatory controls deepened in terms of quality of investigation and have expanded to further fields, sometimes following the request of the Antitrust Authority.
Andrew Lipman: The single most important item that will likely establish a regulatory roadmap in the US for the next several years is the FCC’s National Broadband Plan, released in March 2010. Its six broad goals (which were endorsed unanimously by the FCC) and dozens of specific recommendations address the entire “broadband ecosystem”: networks, devices, content and applications. Broadly speaking, it provides for:
• Competition policies: regulatory actions to encourage investment in broadband networks;
• Infrastructure policies: spectrum reallocation and access to government-owned, -regulated, and -funded property;
• Universal availability and adoption: Universal Service Fund reform (subsidies for network deployment and operation and subsidies for low-income subscribers); and
• Achieving national priorities: recommendations for using broadband to improve health care, education, public safety, and other areas.
The FCC has also been active in pushing for network neutrality on the internet and is expected to continue being active in spectrum policy as part of the plan. These are all areas in which investors, foreign and domestic, can be expected to take a strong interest.
Peter Alexiadis: On the fixed side, the policy change of greatest impact will undoubtedly be the way in which EU member states adopt the specific principles of the European Commission’s Next Generation Access Recommendation. Given the mixed signals in that Recommendation, this will surely be a difficult task which will lead to much friction between the Commission and National Regulatory Authorities (NRAs).
On the mobile side, the progress of spectrum re-allocations, re-evauations and re-farming policies will be at issue. As member states are forced to eke out more value (rather than efficiencies) from such interventions because of their budgetary constraints, conflict with operators might be unavoidable. The increasing challenge of allocation and valuation decisions under state aid principles, the terms of the GSM Directive and general principles of fairness and non-discrimination, are not likely to disappear. In addition, the new round of 2G licence renewals is occurring across the EU at present, and many NRAs will be tempted to make their renewal subject to an MVNO obligation. Running these policy challenges in tandem with existing 3G re-allocations and 4G licensing, coupled with concerns about the Digital Divide, will pose real challenges to regulators and legal advisers alike. From a competition law point of view, mobile concentration is likely to receive added interest.
At a more general level, the institutional interaction of NRAs, on the one hand, with BEREC and the European Commission, on the other, raises a number of question marks as to whether the harmonisation goal can be achieved. As regards the development of a net neutrality policy, all the current signs are that it will be dying a slow death at EU level as there is growing consensus that the impetus for change in the US is not warranted in the EU.
Under competition law, most of the Commission’s attention will focus on bottleneck issues much higher up the multimedia value chain than tradional networks. The acceptance by the Commission of the complaint against Google in the market for online searches is only one of many instances of such a growing trend. The recently resolved concerns regarding Apple and interoperability are another example of such a trend.
Finally, there will be renewed interest in the role of the state in encouraging broadband deployment, and in the role of state aids rules in appraising those initiatives. Now that state coffers are bare, however, the emphasis might shift more to an appraisal of the particular forms of non-price “aid” likely to be provided.
Who’s Who Legal: It has been reported that regulatory agencies are increasingly seeking to converge the provision of all telecommunications services. How have your government’s licensing practices impacted the level of competition in the market? How is this affecting M&A levels?
Marco Dalla Vedova: The government (and special regulatory bodies) licensing practices have had an impact in terms of the level of competition on the market in terms of reallocation, refarming or new allocation of spectrum. Both from the incumbent and from the mobile operator’s point of view, a number of parameters in the licensing process have been changed not affecting and not resulting in a discriminating factor with regard to current M&A.
Andrew Lipman: Convergence is clearly the wave of the future, but deals to achieve convergence can be expected to draw close oversight. Some FCC commissioners have expressed concerns over leverage ratios of private equity-backed telecom properties and lack of disclosure. Closer scrutiny, and possibly additional conditions, can be expected in the approval process for new deals in this sphere.
Over the next few years, we also expect more stringent Department of Justice review of telecom mergers than had been the case under the previous administration. The regulators (including the FCC) have expressed concern over increasing concentration in the telecom and media industries and with the rise of the telco/CATV duopoly as a hindrance to competition. Here, too, additional conditions, such as divestitures or conduct restrictions, could be imposed by either the DOJ or FCC.
Peter Alexiadis: The spread of fibre has given a real impetus to the commercial drive for convergence, as more and more infrastructure will be “common” to both the fixed and mobile market players. The signs are also clear that many mobile players are investing in fixed broadband operations.
Beyond these trends, players are increasingly entering the traditional telecoms space from their advantageous positions in neighbouring markets such as digital media (eg, BSkyB) or the internet (eg, Google). In this sort of environment, much of the conventional wisdom about network operators holding market power will need to be revised; the danger of them being a “dumb pipe” is arguably greater in this sort of environment than is the spectre of their abuse of market power.
As the phenomenon of convergence is synonymous with the commercial practice of bundling, we are likely to see increased interest in bundling practices, both in their own right and as vehicle for affecting a possible margin squeeze.
Who’s Who Legal: It has been reported that ‘4G’ networks will be the next step in the advancement of telecommunications; what do you consider to be the emerging markets and products at the moment? What work do you expect to see more of in the near future?
Marco Dalla Vedova: In terms of emerging markets we see the combined provision of electronic communication services, IT platforms and payment systems as a major driver of innovation. While we are not sure that the “web is dead” we are convinced that the grouping of new platforms (social networking – social gaming – purchasing groups) are going to be the filter between the consumer and business needs and the market. Such growing paradigm is going to involve a new set of contractual approach and regulatory disciplines which are still in their infancy.
In terms of modality of delivery of services, the cloud computing modality is gaining grip both at consumer and at business level but the alleged contractual simplification will work in our view only for the entry level consumer and will not be as easy for major institutional Fortune 500 services delivery.
Andrew Lipman: Technological dynamism in the telecommunications industry continues to increase. With the proliferation of smartphones, more and more innovative applications for both consumer and business use, and governmental emphasis on increasing broadband ubiquity, 4G will certainly continue to be a central development as it is rolled out. Business-to-business uses of wireless technology will also continue to expand.
Cloud computing is another wave that many companies are riding. It shows promise for mobile applications as well as stationary use. At the same time, it raises a number of difficult issues involving privacy, reliability, availability, security and legal compliance that both users and providers will be grappling with for quite some time.
Voice over Internet Protocol (VoIP) will also continue to grow, for both fixed and mobile uses. Business users in particular are increasing their use of both VoIP hosted PBX systems and on-premise IP telephony solutions, to cut costs and make more efficient use of their resources.
Peter Alexiadis: I think that the bulk of emerging markets will be derived from the effects of convergence. Most of those will provide different bundled combinations.
One can envisage that the twin deployments of 4G and fibre might result in new market lines might be drawn around broadband access for business and private customers respectively (both fixed and mobile).
It also seems only a matter of time before private email communications give way to the social networking phenomenon, leaving the competitive space for business communications to operate under a different dynamic.
Finally, the cloud computing phenomenon will occupy much of the time of policymakers and private sector lawyers alike, at least when it comes to the practice of the more “dark arts” of data protection and privacy. Whether it leads to different emerging markets appearing is another matter, upon which commercial people are no doubt better equipped to take a view.
Who’s Who Legal: Do you consider it more profitable to operate as a full-service firm which diversifies into pure competition matters, or operate as a boutique with a specialist practice?
Marco Dalla Vedova: In terms of modality of operating of the firm we believe that subject to a willingness to develop a deep understanding and a effective practice of the corporate, regulatory and litigation aspects of a certain industry, and subject to the capacity of attracting and continuing to attract large consistent clients, the flexibility and the cost and structure of a boutique firm are still having a margin.
Andrew Lipman: At Bingham McCutchen, we find that a large, full-service firm gives us the best of both worlds. Our telecommunications, media and technology group provides the specialised expertise and individualised attention of a boutique. But our position within the larger firm enables us to bring to bear our technological infrastructure, our colleagues’ expertise in other specialised fields and our geographic presence in various cities around the world. Thus, we can call on our firm’s resources in corporate, litigation, tax, bankruptcy and many other areas whenever our clients need them. Likewise, our colleagues can call on our specialised expertise when their clients need our help.
Peter Alexiadis: There is no ideal model of a law firm. Niche boutiques and multinational practices can practise side by side. A multinational firm arguably brings greater opportunities for the striking of a commercial/regulatory balance of work, while at the same time raising the stakes as far as potential conflicts of interest are concerned.
With telecoms sector clients having developed large legal and regulatory in-house teams over the past decade, the nature of legal services provided has become ever more specialised and the role of the legal adviser has come to resemble the traditional role played by a barrister. In parallel, the practice emphasis has become more oriented towards competition law advice and litigation expertise. In that respect, Gibson Dunn is well placed.