2020 was not a usual year, and you may be wondering how it affected the TMT sector in our region – did it slow down it’s development or change any ongoing processes? In this newsflash our TMT team takes a closer look at the main market trends and shifts over the last year, and shares insights to what this year may bring.
TMT sector and startups to continue to boost the M&A and private equity market
The pandemic has accelerated the trend towards the digitalisation of businesses and investment in technology, with the TMT sector being the most active in terms of transactions worldwide in 2020. According to Mergermarket statistics, global M&A transactions in the TMT sector jumped by as much as 56.8% in value (from USD 543.4 billion in 2019 to USD 851.8 billion in 2020).
One important point is that 2020 stood out for the record number of investments in Baltic startups. It is the first time to date that as many as five of the top 10 deals by value have involved investments in or acquisitions of startups (Bolt (twice), Coolbet, Drops, Skeleton Technologies). On top of that, in November the Estonian startup Pipedrive received an investment valuing it at USD 1.5 billion, making it Estonia’s fifth unicorn! Belarus sector also have had notable deals in 2020, including Moonsoft deal with Wargaming in regard to Melsoft Games and Embracer Group acquiring Easybrain. Notwithstanding the situation special regime of Hi-tech park continues attracting attention of IT business to Belarus. Telecom sector was also in focus: Turkey Wealth Fund applied for approval of control acquisition over Belarusian Telecommunications Networks CJCS (BeST), one of three Belarusian mobile network operators and a member of Turkcell group. Being aware of both the continuing focus on TMT globally and the strength of the Baltic startup ecosystem, we forecast that the TMT sector will be highly active in 2021 as well.
Location dependent businesses going digital and remote
Digital platforms and tools are empowering brands to open new channels and broaden their business, driving their financial performance. Meanwhile, new business models will most likely trigger various compliance requirements like managing relations with SaaS providers/intermediaries, differing advertising and marketing rules, increase in cybersecurity demand, etc. Certain focus areas may even be highlighted as self-contained trends like health technology, e-commerce, e-government, fintech, etc. Legislative initiatives contributing to digitalisation in the Baltics and Belarus will continue in 2021 as well. Take a quick look at what the legal ramifications of taking your business online are here.
Regulating digital economy
To combat the challenges of creating a safer digital space and ensuring a level playing field, the EU Commission has proposed the Digital Services Act package. The two proposals envisage a major step forward in updating regulations for online intermediaries – companies that host third-party content or sell third-party products. The proposals will profoundly change the way companies offer and use digital services in the EU. Digital Markets Act targets the lack of competition in digital markets, while Digital Services Act is primarily concerned with transparency and consumer protection.
Cyber security more relevant than ever
2021 will see more data breaches, ransomware attacks and attacks on operational technology. In 2020, IBM estimated that in the US alone, the average total cost of a data breach was USD 3.86 million, while operational technology attacks surged 2,000% year-over-year. Digitalisation and remote working will only accelerate these trends. In response to the rising cyber threat, the EU Commission has adopted a proposal for a revised Directive on Security of Network and Information Systems (NIS 2 Directive) to adapt previous version to the current needs and make it future-proof. The changes include strength of security requirements for the companies and more stringent supervisory measures for national authorities. Belarus is introducing new regulations on personal data and relevant liability (from administrative to criminal), which may change current approach significantly.
Modernised VAT for EU cross-border e-commerce
As of 1 July 2021, modernised VAT obligations for cross border e-commerce in the EU enter into force. The new rules include significant changes to the legislative framework for VAT on B2C e-commerce, covering both distance sales within the EU and distance sales of goods imported into the EU. The rules will ensure that VAT is paid correctly to the Member State in which the supply takes place, in line with the principle of taxation in the Member State of destination.
Digitalisation continues to disrupt the media and advertisement sectors
With the development of digital tools, the influence of international media outlets has increased and local media is facing challenges to provide equally all-round and widely available news content. The EU is set to tackle some of these changes with the Audiovisual Media Services Directive, which governs traditional TV broadcasts, on-demand services as well as video-sharing platforms and is intended to create a level playing field for all sector participants.
Locally, mergers and acquisitions of media companies are periodically taking place in the Baltics and Belarus. The government of Latvia is considering following Lithuanian and Estonian example by merging the national radio and TV media, at the same time excluding them from the market of advertising. Thus, issues of competition law are likely to maintain their relevance or even gain additional popularity in near future.
Key social media players drawing attention of regulators
The influence of social media has significantly grown during the past year and will continue its growth during 2021. Although the advertising campaigns by influencers and other social media accounts have already drawn attention by media regulators and consumer protection authorities, the legal framework for the operation of social media and influencers in the sphere of advertising is still in process. Additional requirements to identification and new practice of social media blockage may also appears, in particular, in Belarus. We may expect specific content requirements and penalties for non-compliance to be introduced in near future.
5G rollout accelerates in the Baltics and Belarus
The Baltics and Belarus are pioneers of the next generation 5G connectivity, with Latvia being one of the first countries in the world to launch a 5G network in June 2019.
5G rollout is dependent on regulators making more spectrum available in a timely and predictable manner while much of the spectrum remains idle due to interference with Russian use. Furthermore, the extent to which foreign technology is integrated into Europe’s pre-existing mobile networks is already causing delays in adopting 5G, as Baltic governments seek to ban the use of certain high-risk technology in its networks.
The European Electronic Communications Code to boost connectivity
The EU is entering a new era of regulating the electronic communications sector with the transposition of the European Electronic Communications Code (EECC). We will see a number of material changes in communications legislation in the Baltics.
Most importantly, the EECC:
- broadens the scope of regulation to include all interpersonal communication services in addition to those conveying signals. This means that Voice over Internet Protocol (VoIP) and chat services such as Whatsapp, Facebook Messenger or Skype now fall under the definition.
- encourages investment in high-capacity harmonised networks, by obliging EU Member States to ensure that radio spectrum holder rights are valid for at least 15 years with a possibility for extension;
- ensures operator access to street furniture (e.g. lamp posts, street signs) for the installation of wireless access points on fair and non-discriminatory terms to enable investment in 5G networks by lowering the cost of network deployment;
- facilitates market entry for new operators by implementing the “use it or lose it principle” with respect to withdrawal of radio spectrum licences.
Prolonged Roam Like at Home rules to facilitate innovation
Roam Like at Home rules entered into force on 15 June 2017 and the EU Commission has proposed a new regulation that will prolong the current rules that are due to expire in 2022, for another 10 years. Roaming is essential to facilitate innovation and the adoption of connected objects. Machine-to-machine connectivity is by nature a cross-border activity and roaming will be crucial to advance innovation in the automotive, health, environment and energy sectors. Similar rules are currently discussed between Belarus and Russia as a part of interstate integration negotiations.