A network shared is a cost reduced? Network sharing gains momentum across Europe
In the face of decreasing voice revenues and increasing data demands and the need to roll-out 4G networks, mobile operators in Europe are looking at new ways of sharing networks and infrastructure. In the latest network sharing deal, Telefónica and Vodafone have combined a towerco deal with a ground-breaking active radio access network ("RAN") sharing collaboration, demonstrating that the synergies of a total RAN share can be achieved without a legal merger.
Network sharing deals have become increasingly popular in Europe over the last year, with mobile operators looking to share both passive and active elements of their networks.
In the last year alone, Polska Telefonia Cyfrowa (T-Mobile), and PTK Centertel (Orange) formed a 50:50 joint venture ("NetWorkS!") to manage an infrastructure and RAN sharing arrangement in Poland. In Denmark, TeliaSonera and Telenor also agreed to give each other access to their respective network towers in areas where they would otherwise have had to build their own. The two companies also agreed to establish a common infrastructure company that will operate the joint network.
The Telefónica/Vodafone deal
In the latest big network sharing deal, in June 2012, Telefónica and Vodafone announced a sharing deal in the UK (on which Herbert Smith LLP was sole legal advisor to Telefónica UK). Under the arrangements, the operators have agreed to pool their basic network infrastructure to create one national grid of 18,500 sites, and to transfer all of their sites and passive assets (including towers) to a new joint venture company. They will each retain ownership and complete control over their radio spectrum, intelligent core networks and customer data.
The deal is expected to lead to improved reception for the customers of both operators and provide indoor 2G and 3G coverage for 98% of the UK population by 2015 (therefore closing the digital divide between rural and urban areas). It also lays the foundation for the two competing 4G networks to deliver the capability for a nationwide 4G service faster than could be achieved independently.
Over time, the number of sites held by the joint venture company will also be reduced by more than 10% through a comprehensive decommissioning programme. This will result in significant cost and environmental savings whilst increasing the number of sites for each operator by 40%. Analysts estimate that both parties can expect to save approximately 25% of their network costs.
Network sharing challenges
Network sharing is not however a simple solution. These sorts of complex deals are not without their challenges, and there are numerous obstacles which operators wanting to share will need to overcome, including issues such as:
- Real estate:Real estate is a key component of any network sharing arrangement. When creating a towerco, the parties will need to structure the transfer of their sites to the new company in a way which preserves the accounting treatment of sites and passive assets and minimises tax, whilst permitting roll-out and service continuity in a manner which complies with their lease/licence terms.
- Tax structuring:To achieve the transfer of their business in a tax-efficient manner, operators will need to consider creating and analysing multiple tax structures and mapping them onto the commercial and real estate drivers for the deal.
- Competition and regulatory compliance:If the parties are major competitors in a regulated market, it is imperative that the industry regulators and competition authorities are comfortable that the arrangements will not adversely affect competition in the market or result in anti-competitive behaviour.
- Contractual terms: Inevitably, certain contractual terms such as liability, termination and exit will be key terms of any network sharing arrangement. Given the business critical nature of the operators' services to each other, it is important to identify the full range of failure scenarios and to track through the potential effect of such circumstances on the parties' arrangements. Operators will need to seek to react quickly to issues arising in order to resolve them and continue the project, whilst preserving their ability to exit and return to two separate networks if necessary.
Next generation network sharing
To date, most network sharing deals in Europe haven't included spectrum sharing. Many commentators believe this could be the next logical step to "deeper" network sharing between operators since, given the value of mobile spectrum and its scarcity, operators are seeking to increase their spectral efficiency. Spectrum sharing, though, generally requires laws to be amended and regulatory authorities to change their approach. In the UK, 2G and 3G licences were made fully tradable in 2011, and the 4G licences due to be auctioned later this year will also be tradable (subject to Ofcom's consent). The trading mechanisms introduced by Ofcom would permit spectrum sharing. Nonetheless, operators in the UK have not yet chosen to include their spectrum in their network sharing arrangements, with the exception of the legal merger of T-Mobile and Orange UK (conditional to the regulatory approval of which, the resulting company "Everything Everywhere" is required to divest some of its spectrum).
In a different permutation of spectrum sharing, in advance of the planned re-auction of 2G spectrum in India, the Department of Telecommunications has plans to enable licensees to pledge their spectrum to banks or lenders in order to raise money. This type of spectrum mortgage could also have an impact upon the development of network sharing, although it remains to be seen whether or not the proposal is implemented in India. It also remains to be seen as to whether other countries also make changes to allow such spectrum mortgages.
Must try harder? European Commission publishes annual report on the electronic communications market
The European Commission has published its annual report on the current state of the electronic communications market in Europe. The report provides a useful insight for stakeholders in the electronic communications market into the issues currently being prioritised by the European Commission.
It is clear from the report that superfast broadband remains a top priority, with a number of initiatives being planned by the European Commission to ensure the fast and smooth roll-out of next generation broadband networks.
The report highlights areas where the European Commission believes further measures are needed to make the most out of the EU regulatory framework:
- Transposition of the revised EU framework: Some Member States still need to implement the updated EU telecom rules which were agreed in 2009. To date, four Member States (Belgium, Poland, Portugal and Slovenia) have not yet transposed these rules into their national legislation. This is well beyond the 25 May 2011 deadline set by the European Parliament and Council. The European Commission has therefore launched infringement proceedings against these Member States, referring them to the Court of Justice of the European Union and including a request for financial sanctions. These proposed financial sanctions take the form of daily penalties and range from €13k per day for Slovenia, up to €112k per day for Poland.
- Broadband access products: There are major variations in the price of key broadband access products, such as traditional local loop and bitstream products, across Europe. This is despite previous calls by the European Commission for national regulatory authorities to apply cost methods in a more consistent manner. For example, the monthly average wholesale price for access to the 'local loop' varies from €5.3 in Poland and Slovakia to €14.4 in Finland. As a result of these discrepancies, the Commission is preparing further guidance to regulators that it plans to issue in 2012.
- Rights of way and measures to facilitate broadband roll-out:According to the report, it is estimated that up to 80% of the costs of rolling-out high speed broadband networks are related to civil engineering, such as the digging up of roads to lay down fibre. The Commission believes this high percentage shows a need for harmonised measures to reduce such costs. The Commission is therefore proposing an EU initiative on reducing civil engineering costs for high speed broadband roll-out in the beginning of 2013. It is not clear from the report how the Commission proposes to reduce such costs. However, in the report, the Commission states that the lack of specific legislation to facilitate next generation access deployment, difficulties in obtaining permits, conditions for road excavations, and health consideration of electromagnetic fields are often reported as significant obstacles to roll-out. Although certain Member States have initiated various measures, beyond rights of way, aimed at facilitating broadband roll-out, the Commission believes that best practices should be combined and scaled up, so that their effect can be maximised.
- Net neutrality and quality of service: In 2011, several regulatory measures on net neutrality and quality of services were developed by Member States at a national level. These ranged from non-binding instruments and more elaborated guidelines, to the enactment of specific legislation on net neutrality in the Netherlands. The Commission believes this divergent approach by Member States shows a need for co-ordinated action to ensure better consumer information and choice of internet services. It therefore remains to be seen how the Commission will take into account the results of BEREC's investigation into traffic management practices in Europe (as discussed in the following article).
Click here to view a copy of the European Commission's report.
Still sitting on the internet fence? BEREC publishes results of net neutrality investigation
The Body of European Regulators in Electronic Communications ("BEREC") has published the results of its investigation into traffic management and other practices potentially resulting in restrictions to the open Internet in Europe.
According to the traffic management data gathered by BEREC, the majority of ISPs in Europe offer internet access services with no application-specific restrictions. However, specific practices, such as blocking or throttling of peer-to-peer traffic or VoIP (which occur more often in mobile than in fixed networks), could create concerns for end-users. According to the reports, at least 20% of mobile internet users in Europe experience some form of restriction on their ability to access VoIP services, although there are differences by country (depending, for example, on the number of operators providing unrestricted access).
BEREC's conclusions on the issue of net neutrality include the following:
- Competition is expected to discipline operators, and ensure the best offers for consumers, but this relies on effective transparency and the ability of end-users to easily switch service providers.
- Both national regulatory authorities and end users should be able to monitor the performance of internet access services, and of the applications used via such internet access services.
- Where competition and transparency are inadequate or insufficient to address concerns, existing regulatory tools (including quality of service requirements) should enable national regulatory authorities to address net neutrality related concerns for the time being.
BEREC has now published various documents for consultation, including its proposals on advising national regulatory authorities on when and how to exercise powers to impose minimum quality of service requirements on operators in order to prevent traffic degradation. This includes guidance for national regulatory authorities on how to assess the nature of traffic management practices, and how to reflect the particular context of the national market in question.
Responses to the consultation are required by 31 July 2012 and it will be interesting to see what (if anything) the European Commission intends to do next about net neutrality and traffic management practices given the divergent approaches currently being adopted by various Member States across Europe, as highlighted in the Commission's annual report into the state of the electronic communications market in Europe (see previous article above). Although the European Commission has yet to publish any official report on the issue, the Commissioner for the Digital Agenda Neelie Kroes, recently confirmed that she didn't propose to force each and every operator to provide full internet. According to Ms Kroes "it is for consumers to vote with their feet". However, Ms Kroes did also confirm that the European Commission plans to issue limited recommendations to address a problem of effective consumer choice highlighted by BEREC's investigation.
Click here to view a copy of the consultation documents.
Three strikes and you (could be) out: Ofcom publishes online copyright infringement proposals
Following legal challenges and lengthy delays, Ofcom has now published a statement on its proposed measures to reduce online copyright infringement, as required by the Digital Economy Act 2010.
The Digital Economy Act received Royal Assent in the UK in April 2010. It imposed a number of responsibilities on Ofcom to implement and administer measures aimed at significantly reducing online copyright infringement. These requirements have been the subject of various legal challenges and delays as two ISPs in the UK (BT and Talk Talk) initiated a judicial review process, claiming that the provisions of the Act relating to online copyright infringement were unlawful. These challenges were largely unsuccessful, meaning that, over two years following publication of its initial consultation document, Ofcom has now published its draft initial obligations code setting out the process by which ISPs must notify their subscribers regarding online copyright infringement.
The Digital Economy Act inserted amendments to the Communications Act 2003 to create two new obligations for ISPs. These are referred to as the "initial obligations". They are to:
- notify subscribers if the IP addresses associated with them are reported by copyright owners as being used to infringe copyright; and
- keep track of the number of reports about each subscriber, and compile, on an anonymous basis, a list of those subscribers who are reported on above a certain threshold. This list is referred to as a "Copyright Infringement List". The Digital Economy Act further provided that the implementation and regulation of these initial obligations must be set out in a code.
Ofcom's draft code will initially cover ISPs with more than 400,000 broadband-enabled fixed lines – currently BT, Everything Everywhere, O2, Sky, TalkTalk and Virgin Media. The draft code requires these ISPs to send letters to customers informing them when their account is connected to reports of suspected online copyright infringement. If a customer receives three letters or more within a 12-month period, anonymous information may be provided on request to copyright owners showing them which infringement reports are linked to that customer’s account. The copyright owner may then seek a court order requiring the ISP to reveal the identity of the customer, with a view to taking legal action for infringement under the Copyright Designs and Patent Act 1988.
Importantly for ISPs, the draft code doesn't require them to monitor or police their networks – that burden remains with copyright-holders. It also doesn't require them to disclose subscriber information (unless compelled to do so by court order) or take any punitive action against subscribers.
Ofcom is now consulting on the draft code and, following a further review by the European Commission, it will be laid before Parliament around the end of 2012 with the first customer notification letters expected to be sent out in early 2014.
Ofcom will review the criteria for applying the code to ISPs once the obligations have been up and running for six months. In addition, the Digital Economy Act included a process for measures which the Secretary of State might consider to help further reduce online copyright infringement in the event that the code is not successful. For example, requiring ISPs to take steps to block internet access for certain subscribers. However, such measures can only be considered once the code has been in force for at least 12 months and would require further legislation and approval by Parliament, meaning that no such measures can, as yet, be introduced.
Responses to Ofcom's consultation on the draft code are required by 26 July 2012.
Click here to view a copy of the draft code.
Government publishes draft Communications Data Bill
The UK Government has published the first draft of its controversial Communications Data Bill, significantly increasing the amount of communications data potentially required to be held by telecoms operators providing services in the UK and made available to law enforcement agencies.
Under the current law in the UK, the Data Retention (EC Directive) Regulations 2007 and 2009 require communication service providers ("CSPs") to retain certain communications data (as set out in a Schedule to the Regulations) that they have business reasons for generating or processing for a period of 12 months. Access to such retained communications data is then regulated by the Regulation of Investigatory Powers Act 2000 ("RIPA").
However, the Data Retention Regulations do not cover more modern forms of communication such as social network sites (e.g. Facebook) or VoIP call facilities (e.g. Skype). The Government is therefore proposing new legislation in response to its belief that terrorists and serious criminals exploit all modern forms of communications and that the police and security authorities must have the capability to keep up.
The new draft Bill extends the scope of communications data which may need to be retained. It divides this data into three categories:
- Subscriber Data:Information held or obtained by a provider about the subscriber (e.g. the name and address of the person who has subscribed to a particular phone number).
- Use Data:Information about the use made by any person of a telecommunication service (e.g. itemised telephone call records or itemised records of connections to internet services).
- Traffic Data: Data that is comprised in or attached to a communication for the purpose of transmitting the communication (e.g. the location of a mobile phone).
The detail of exactly what is required to be retained and by who is left to secondary legislation, with the Secretary of State having the power to grant an order requiring CSPs to make certain communications data available to public authorities. This includes the power to impose obligations on communications service providers to:
- generate certain communications data, even if they do not require that data for their own business purposes;
- collect communications data where it is available but not yet retained; and
- retain the communications data and process it to facilitate access to it by the relevant public authorities.
Although this power is subject to a consultation requirement and the affirmative parliamentary procedure for secondary legislation, there is no limitation on the type of data the Secretary of State may order CSPs to retain.
The definition of CSPs has also been extended under the Bill. At present, only public communications services are covered by RIPA, but the drafting of the Bill gives the Secretary of State the power to order any business that transmits communications by any means involving the use of electrical or electro-magnetic energy to retain data on web communications. In effect, any organisation could be ordered to collect information about communications made using webmail, internet telephony, or instant messaging over its networks, and to retain it for 12 months.
As with the existing legislation, designated senior officers of relevant public authorities will be able to self-authorise to gain access to communications data if necessary for a permitted purpose. The relevant public authorities are the police, SOCA, HMRC, any of the intelligence services, and the permitted purposes include the interests of national security, the prevention and detection of crime, or in an emergency preventing death or injury. Local authorities must, in contrast, have their authorisations judicially approved.
The Bill will now be considered by a Joint Parliamentary Committee and the Intelligence and Security Committee.
Click here for a copy of the draft Bill.
UK Communications Reform: Red Light for Green Paper
The UK Department of Culture, Media and Sport ("DCMS") has abandoned its plans to publish a Green Paper on the wholesale reform of the media and communications sectors in the UK, instead announcing a series of seminars to gain the views of interested stakeholders prior to publication of a White Paper.
In January 2011, the Secretary of State for Culture, Media and Sport announced a thorough review of UK media and communications which was intended to lead to a new Communications Act. The Government published an open letter in May 2011 inviting views on what the communications review should focus on. According to the DCMS, the responses to the open letter showed there was no need for a complete overhaul of the legislation but they did recognise the need to update regulations to ensure they are "fit for the digital age".
Plans to publish a Green Paper have now been abandoned and the DCMS has instead announced that it is to hold a range of seminars in order to gain views to help to shape the eventual Communications Bill. The seminars will take place over the summer months and will cover the following issues:
- the consumer perspective;
- competition in the content market;
- maximising the value of spectrum;
- driving investment in TV content; and
- supporting growth in the radio sector.
A White Paper is expected to be published in early 2013 with a Communications Bill introduced by the final session of this Parliament.
Click here for further details regarding the proposed seminar series.
Fall-out from Sky? Ofcom publishes media plurality report
Ofcom has published its report on measuring media plurality in the UK. The report follows a request, in October 2011, from the Secretary of State for Culture, Olympics, Media and Sport for Ofcom to answer five questions relating to media plurality.
Plurality is defined by Ofcom as:
- ensuring there is a diversity of viewpoints available and consumer across and within media enterprises; and
- preventing any one media owner or voice having too much influence over public opinion and the political agenda.
Media plurality in the UK came under scrutiny recently as a result of the proposed takeover by Rupert Murdoch's News Corporation of the remaining shares in BSkyB that it didn't already own. In the context of that proposed transaction, Ofcom was required to consider media plurality in the UK and, in its December 2010 report, Ofcom suggested that the existing framework for considering plurality might no longer be equipped to achieve Parliament’s policy objective.
In October 2011, the Secretary of State for Culture, Olympics, Media and Sport therefore asked Ofcom to provide advice on the feasibility of measuring media plurality across platforms. He requested answers to five questions: (i) What are the options for measuring media plurality across platforms?; (ii) Could or should a framework for measuring plurality include websites and if so, which ones?; (iii) What could trigger a review of plurality in the absence of a merger, how might this be monitored and by whom?; (iv) Is it practical or advisable to set absolute limits on news market share?; and (v) Whether or how should a framework include the BBC?
In its report, Ofcom concludes that an effective framework for measuring plurality is likely to be based on quantative evidence and analysis wherever practical. However, there are also areas where a high degree of judgement is required. The appropriate approach to exercising such judgement is ultimately for Parliament to debate and determine. Further highlights of the report include the following:
- Ofcom believes that a periodic review of plurality every 4 or 5 years is the best approach.
- Further consideration is needed as to whether the existing media merger regime should sit within a new proposed plurality regime or continue in parallel.
- Ofcom does not believe that a prohibition on news market share is currently advisable and plurality concerns brought about by high market share should instead be addressed through a periodic plurality review.
- Ofcom considers that the case for retaining or removing the current cross-media ownership restrictions is a matter for Parliament.
- Ofcom believes that online media should be included in a plurality review as online news sources are used by a significant and growing proportion of the UK population.
- Ofcom believes that the BBC should be included in any plurality review.
Ofcom has already provided a copy of its report to the Leveson Inquiry and as an input into the Government's Communications Review (see previous article).
Click here to view a copy of Ofcom's report.