CMS Cameron McKenna
WWL: Several contributors have highlighted the increasing demands placed on telecoms lawyers as a result of the sector’s overlap with areas such as competition and M&A. Is it necessary to develop a broader practice in the telecoms field in order to maintain a strong practice?
Chris Watson: In my view it has never been possible to be a telecoms regulatory lawyer without a decent knowledge of competition and EU law. Beyond those basics, I personally believe that a knowledge of IP law is probably more valuable than M&A since the biggest development in the communications sector is the convergence of media content and delivery. I would agree, however, that it is very important for any M&A practitioner who wants to operate in the field of telecoms to have a decent amount of sector knowledge, particularly in relation to technology, and to some degree, in relation to regulation. Another visible change over recent years has been that far more legal work is retained in-house – especially by the larger telcos, who do a lot of their own regulatory, competition, M&A and other work. Some people have therefore found it necessary to develop a broader practice in order to survive in such an environment, but I do not think it is essential.
Peter Alexiadis: A handful of practitioners have always approached the problems of telecoms clients by wearing multiple hats. That includes an understanding of regulatory policy, competition law expertise (including M&A), some litigation savvy (especially in the realm of administrative appeals) and even intellectual property laws. More recently, a working knowledge of data privacy/data protection rules has assumed much greater significance. The primary building block, of course, is regulatory policy, because that skill allows an attorney to get close to the technology and business sides of the sector. As the traditional practice silos of telecoms, broadcasting and the internet collapse into one another, the need for an integrated approach becomes even more necessary. The tendency for conflicts to arise, however, also rises exponentially for the unwary. At the end of the day, those practitioners that can bring the complete skill set together are in a small minority.
Malcolm Webb: I think that’s right, but I also think it’s probably always been the case that telecoms lawyers have needed both transactional and regulatory skills. The deals and the regulatory environment are so interwoven in this sector, particularly in these times where operators are wrestling with controlling their capex and opex spend and creating structures (such as tower deals or network sharing) which require lawyers to have strong transactional capabilities set against difficult regulatory issues.
WWL: Technological advances relating to high-speed internet and broadband and network sharing continue to outpace the law. Have there been any recent legislative changes in your jurisdiction to combat recent technological changes, and what challenges are presented by advising clients in areas of telecoms where the law is currently unclear?
Chris Watson: I do not think it is the job of legislation to combat technological change, but it is true that certain technological changes are hard to accommodate within the existing regulatory environment. For example, the range of new IP-based communications services have tended to outflank the traditional telecoms regulation structures, and we have received a lot of requests for further analysis on these matters. Data protection is one of the biggest areas where the law is often made to look an ass by the speed of technological change, but much of this has to do with the fact that technology allows criminals to do things they could not previously do.
Peter Alexiadis: We are currently on the verge of a new raft of legislative changes at EU level, which are in part designed to address the broadband phenomenon. Whether or not they are successful will be something that we will know more about some time down the track, after the next wave of national market reviews, including the detail to be associated with net neutrality principles which cut across most forms of access regulation. What is important about the EU regime is, however, its in-built flexibility in the way it addresses telecoms “markets”, leaving the devil in the detail to be worked out by national regulators, while at the same time envisaging an evolutionary approach which mirrors technological change. The overarching concern today, however, is how the traditional world of telecoms is to coexist with the emerging world of value-added services and “over the top” services. The former are stubbornly national in scope, whereas the latter are truly international, while in the eyes of the consumer they do compete for at least parts of their business in an increasingly interconnected world where the range of available communications services has evolved rapidly. The concerns for policymakers and advisors alike in such environments are best reflected in the complex competition law/public policy trade-offs being considered in a behavioural case such as Google; those commentators who assert mischievously that European Commission intervention is “anti-American” are missing the point and are merely swirling already muddy waters unnecessarily.
Malcolm Webb: In my home jurisdiction of New Zealand, there have been enormous changes in the broadband market, with government-led initiatives to drive fibre and high-speed wireless network roll-out. PPPs have been created and the incumbent operator has been structurally separated. Substantial changes were made to the legislative environment to facilitate these developments, but difficult issues have arisen that require attention, particularly related to the transition from a copper to a fibre-based world. These developments have included open access fibre and high-speed wireless networks, which is a sharing of sorts.
WWL: Lawyers have spoken of a trend for consolidation by firms in the telecoms and media legal market over the last two years. Is this the case in your jurisdiction and how difficult is it for the younger generation looking to break into the telecoms field?
Chris Watson: I am not sure this is the case in my jurisdiction. The status of communications lawyers, and the ability for younger lawyers to break in, have been somewhat like the tide: coming up or going down over different seasons. In the late 1990s there was a huge proliferation of telecoms lawyers and a vast number of people rebadged themselves accordingly. With the dotcom bust, many of those went back to their original skill base and have not returned to telecoms since. One or two have been survivors and it is true that it has been harder for newcomers to overcome the knowledge gap in certain areas; however, the speed of technological advance is so great that the survivors themselves have a continuing challenge to keep up with the technology changes so it seems to me that it is as difficult to stay in the telecoms field as it is to break into it.
Peter Alexiadis: That consolidation within the profession is little more than a reflection of changes within the sector itself. As products become commoditised – driven by both competitive forces and technological change – and margins are necessarily cut, economies of scale are required in order to survive, and industry consolidation is therefore necessary as a means to achieving scale. That need to consolidate is felt more deeply by local, national or regional operators, who are finding that they are increasingly dealing with market actors at a higher level in the marketplace who operate at a truly global level. The result is a reduced need for external counsel, especially as smaller alternative operators are no longer able to be economically viable because of the Commission’s recently announced policy of favouritism for large broadband investment projects. Similarly, as much of the regulatory work has become commoditised over time, there is less need for operators to outsource the bulk of their legal requirements to external counsel. But it is not all doom and gloom for young telecoms lawyers – because of technological and commercial convergence, the conflicts being generated are such that niche specialisations are developing, which might in turn generate a need for a broader degree of representation among more legal practitioners. Moreover, matters important enough over which one goes to court will always require the engagement of litigators with sector-specific expertise.
Malcolm Webb: We haven’t really seen consolidation in the markets in which we mainly operate (Australasia and South East Asia). We have seen general corporate law firms making progress, as a lot of the developments that are taking place in the sector at the moment involve consolidation or quasi-consolidation and so have an M&A component. However, there are still plenty of opportunities for specialist telecoms lawyers and firms that focus on the sector. I think telecoms is one of the best sectors for young lawyers to be involved with as it is so dynamic, and that’s not going to change.
WWL: The growth of in-house legal teams has arguably reduced the market for traditional regulatory telecommunications work. Has this been reflected in increased competition among firms, and what can firms and individual lawyers do to set themselves apart from the rest?
Chris Watson: This is certainly true and the strength of the regulatory teams in major telcos is something remarkable – very hard for external lawyers to match. What externals can do is supplement in-house teams with their specialist knowledge in relation to litigation practice, EU law or related disciplines such as IP or data protection, and generally to ensure that the in-house legal teams do not end up somewhat isolated from the broader fields of law by their intense specialisation. This can be a valuable function.
Peter Alexiadis: This is undoubtedly the case, prompted by a combination of the maturity of the industry, the impetus for industry consolidation and the commoditisation of certain legal work streams. Those who are able to bring the client as full a skill set as possible will always be in an advantageous position. Whereas the halcyon days of telecoms sector advisory work and the large legal teams built around that work are long gone, the complexity and quality of the legal issues at stake are higher than ever. In that sort of environment, there will always be room for the all-rounders who have various strands of key expertise to contribute.
Concentration in the market for legal services will not necessarily be a bad thing, especially given the openings made available by new disruptive market actors whose origins lie in the internet space. More worrying is the tendency of large firms to hold on to sector-specific work by offering parts of the overall package at highly subsidised rates (or even free). Hopefully clients will recognise that good legal advice is not necessarily free advice.
Malcolm Webb: A lot of the regulatory work is now handled in-house, but there is still a fair bit of regulatory work to do for external advisers. We are seeing crossovers between the regulatory environment for telecoms and energy and other utilities, which are presenting opportunities for regulatory-focused telecoms lawyers in other sectors. Competition is fierce, but that’s good! It keeps us all on our toes.