1. Parliamentary Committee supports Ofcom on 4G auction design but expresses concern about Everything Everywhere spectrum sale

A report published by the Commons Culture Media and Sport Committee yesterday has provided support to Ofcom's proposals relating to the design for the 800MHz and 2.6 GHz spectrum band auction, otherwise known as the 4G auction. It considers "the spectrum floors and caps proposed for the next auction are the best viable compromise to ensure a competitive tension in the market place in the context of the liberalised 900 MHz licences".

Ofcom has only recently announced further delays to the much anticipated 4G spectrum auction because of responses received between March and May of this year, following publication of Ofcom's consultation on its assessment of likely future competition in mobile markets and proposals for award of the 800MHz and 2.6GHz spectrum bands. In its own words, Ofcom received "a number of substantial and strongly argued responses to this consultation" and since that time, the regulator has been reviewing the responses and refining its analysis. In light of these responses, and the significance of the decisions that it now needs to take – decisions that Ofcom believes "are likely to shape the future of the mobile sector in the UK for the next decade or more" – it has decided to undertake a further round of consultation. Details of the original Ofcom consultation and the responses received are available here.

Although Ofcom is keen to highlight that the 800 MHz and 2.6 GHz spectrum bands would not be available for new use until 2013 in any case, this announcement represents the latest in a series of legal challenges and delays to the 4G auction which was originally due to take place in 2008. Following publication of a further consultation document at the end of 2011, Ofcom will give stakeholders an appropriate period of time in which to comment on and respond to the revised proposals. Ofcom then aims to make its decision and publish a statement in the summer of 2012 and hold the auction later in the year during Q4 2012, resulting in a delay of approximately six months to the previous timetable. A number of other EU Member States have already held equivalent auctions of 4G spectrum and with Belgium's auction due to start on 28 November, the UK risks falling behind its European peers in the race for digital supremacy.

The parliamentary Committee also expressed, in its report, concern that the sale by Everything Everywhere of some of its spectrum will result in the company making a substantial profit from a public asset that was granted to it for free. As a condition of the merger, Everything Everywhere was required to dispose of some of its 1800MHz spectrum either by way of a private sale (under the new Wireless Telegraphy (Mobile Spectrum Trading) Regulations 2011) within a certain period or by handing it back to Ofcom for auction. The deadline for concluding the private sale was redacted in the merger ruling but no private sale has been announced todate. The latest report from the Parliamentary Committee recommends that the Government and Ofcom should look into mechanisms to ensure that at least a significant proportion of the proceeds be used to benefit consumers. It suggests, in particular, that this might be achieved by compelling Everything Everywhere to ring-fence a proportion of this windfall for investment in its network and recommends Ofcom to explore the issue.

Details of the Commons Culture Media and Sport Committee report is available here.

News

  1. Ofcom won't roll over Rollover Contracts

Ofcom has decided to prohibit the use of automatically renewable contracts ("ARCs") by communications providers for residential customers and small businesses.

ARCs are contracts which, at the end of each minimum contract period, automatically roll forward into another minimum contract period unless the customer informs their communications provider that they do not wish for this to happen. If the customer fails to opt-out of the automatic renewal they will be rolled into another minimum contract period, which will then be subject to an early termination charge should they wish to cancel that contract.

Ofcom has had concerns about ARCs since their entrance into the residential fixed voice sector in 2008 and has been monitoring them continually. Its research has indicated a clear causal link between ARCs and reduced levels of consumer switching which Ofcom believes can be attributed to the opt-out nature of the process for contract renewal in ARCs. The main reasons cited for this are the early termination charges payable on switching where a customer has forgotten to opt out and the fact that, if a customer does proactively contact their communications provider for the purpose of opting-out of an ARC, it gives the communications provider an opportunity to target this customer and persuade them to stay. Ofcom considers that these effects may result in consumer harm and could be damaging to competition.

Ofcom has therefore proposed to prohibit ARCs for residential customers and small businesses with more than ten employees in the fixed and broadband sectors. It has implemented its proposal in a decision published on 13 December 2011 amending General Condition 9 of the General Conditions of Entitlement applicable to electronic communications providers. Given the significant number of customers already contracted to ARCs, Ofcom has recognised that the removal of ARCs could not happen immediately and has therefore set out the following framework for the withdrawal of ARCs:

  • For fixed voice and fixed broadband residential and small businesses, the prohibition on the sale of any new ARCs will take effect on 31 December 2011;
  • ARCs must be completely removed from the residential and small business markets by 31 December 2012.

Communications providers with customers on ARC arrangements will therefore need to take steps to amend these arrangements in due course.

Note that, while Ofcom admitted that ARCs are not currently a feature of the mobile market and therefore a specific prohibition on ARCs in the mobile market had not been included, it would have "significant concerns" were ARCs to appear in the mobile market and would "urgently revisit this issue" if that was to happen.

A copy of the original consultation document, the response to that consultation and Ofcom's final statement is available here.

  1. Ofcom considers changing the Channel

Following a request from the Department for Culture, Media and Sport, Ofcom has published written advice to the Secretary of State on the options for the relicensing of the UK's two commercially owned national public service television networks – Channel 3 and Channel 5.

With the Channel 3 and 5 licences due to expire on 31 December 2014, Ofcom is under a statutory duty to prepare a final report for the Secretary of State before June 2012 explaining whether it considers that these broadcasting licences should be renewed after 2014. In advance of this deadline, Ofcom's interim report (published on 2 September 2011) sets out the following three options available to the Secretary of State:

  • allowing Ofcom to proceed with the renewal process, which may result in ten year licences being granted to the existing licensees from 1 January 2015 (no Channel 3 licence holders have yet submitted a renewal application);
  • blocking licence renewal, leaving Ofcom to award new vacant licences, resulting in ten year licences being granted to new licensees from 1 January 2015 (this order needs to be made before June 2013 and, in the case of Channel 3 licences, cannot apply selectively); or
  • extending the existing licences for a period of the Secretary of State's choosing (at any time).

In putting together the required statutory report, Ofcom is required to assess the capacity of the existing Channel 3 and Channel 5 licence holders to:

"contribute, in the next licensing period, to the fulfilment of the purposes of public service television broadcasting in the United Kingdom at a cost to the licence holders that is commercially sustainable."

Ofcom has previously voiced its concerns over the continued ability of the existing licensees to deliver meaningful public service commitments in light of the growing tension between the incentives on such commercial licence holders to "sustain profitable business models while continuing to invest in a wide range of public service content".

Ofcom has indicated that if the existing Channel 3 and Channel 5 licensees are able to maintain a commercially sustainable public service broadcasting model, then in the medium term, licence renewal is the option most likely to ensure the continued delivery of the key public service objectives. However, Ofcom is unclear as to whether the existing regulatory settlement with the commercial public service broadcasters is sustainable throughout the next licence period. Ofcom is particularly concerned as to whether the regulatory enforcement mechanisms currently in place would be effective to prevent the Channel 3 or 5 licensees from seeking to pare back delivery of public service content in response to any future unfavourable market conditions.

At the same time, Ofcom has also recognised that a decision to block licence renewal would lead to an award process that could lead to new and innovative forms of public service content and drive efficiency.

Since issuing the requested advice, Ofcom has written an open letter to all Channel 3 and Channel 5 licence holders requesting responses to various questions, to assist Ofcom in the preparation of its formal report.

Whatever decision is made about licence renewal, it is clear that there will be a continuing need for the public service broadcasting system to adapt to changes in content consumption and technology, particularly as broadcasters develop strategies to compensate for declining advertising revenue.

The full Ofcom report can be found here.

  1. EU Data Protection Reform and Cloud Computing – more of an amber light than a green one?

The European Commission is currently drafting its legislative proposals to modernise the legal system for data privacy, with the amendments expected early next year. The revision is focussed on bringing about a general update of the Data Protection Directive (Directive 95/46/EC) and as such the expected reforms are likely to impact on cloud computing in the EU.

The idea of cloud computing, whereby data and IT services (software and/or infrastructure) are hosted remotely in a virtual "cloud", is of increasing interest to businesses due to the costs savings and greater efficiencies which it represents. For smaller businesses in particular, cloud computing can allow flexible access to greater computing resources than would be possible under conventional arrangements. Essentially businesses pay for what they need when they need it, rather than having to commit capital to IT infrastructure.

The majority of cloud computing service suppliers are based in the United States; however, the data centres could be located practically anywhere. Data could be obtained from Germany, stored in India and processed in the United States, for example. It is precisely this geographical flexibility which causes difficulties under the Data Protection Directive because the Directive (and national laws and regulations in the Member States) imposes restrictions on the movement of "personal data" (data relating to living individuals) outside the European Economic Area territory to so-called "third countries". There are mechanisms for overcoming these restrictions but these have a number of drawbacks, particularly so for cloud computing models, since the options are limited, cumbersome and unsuited to a flexible multi-country approach.

There are also difficulties under the Data Protection Directive in establishing the applicable governing law when personal data are stored and processed outside the EU or by a non-EU service provider. Firms which handle data in several EU Member States are currently subject to different regimes in different Member States, which creates uncertainty and increases costs.

As well as creating confusion about which set of data protection compliance obligations apply, this can have implications for security and access by foreign sovereign states. Earlier this year the Managing Director of Microsoft UK was reported as acknowledging that Microsoft could not guarantee that EU-stored data, held in EU based data centres, would not leave the EEA under any circumstances, including in response to a request under the United States' PATRIOT Act.

The European Commission is alive to the possibilities presented by cloud computing. In a speech to business in May, Viviane Reding, EU Commissioner for Justice said "I want to provide a uniform European approach towards cloud computing which has a great potential in terms of efficiency, innovation acceleration and costs savings for economic operators.."

Separately, Neelie Kroes, EU Commissioner responsible for the Digital Agenda, also announced in May that Europe should be "cloud active" not just "cloud friendly"; she sees development of EU cloud computing centres as being complementary to the EU's ICT infrastructure policy of broadband for every EU citizen; cloud computing could be an efficient use of the bandwidth which such universal broadband connectivity would entail.

The European Commission has been looking into cloud computing and the opportunities it offers European industry for the last couple of years. There has also been a public consultation on a European Cloud Strategy which closed in August; the responses are being analysed and the strategy should be in place in 2012.

The reforms are aimed at simplifying the restrictive rules on international data transfers; this may include a mechanism allowing cloud computing service providers to sign up to internal binding rules of conduct.

There are few details available at present though Commissioner Reding publicly announced in May that the European Commission is looking at a version of the Binding Corporate Rules model – codes of conduct based on strict EU data protection standards. These rules could be voluntary for service providers but would be legally binding and enforceable. This would possibly be linked to certification and guarantees for auditing and enforcement. This mechanism for third country providers voluntarily to adhere to EU data protection rules could in time become an "EU Safe Harbour" system.

Greater harmonisation within Europe of data protection laws will make it easier to offer pan-European cloud solutions, whether by European on non-European-based cloud service providers. Simplifying the mechanisms for international transfers of data out of the EEA, as well as reinforcing rules on security, should increase the adoption by European citizens of cloud services provided by non-EU based providers.

There are mixed views on the EU's focus on the cloud. Attempts to ease legal and bureaucratic barriers to cloud computing must be positive. However, concerns have been voiced by industry in case the European Commission ends up over-regulating this young sector and doing more harm than good for European industry and the rights of its citizens.

  1. Thank you for the Music: New Directive extends sounds recording copyright term to 70 years

The European Council has adopted a Directive which amends the Copyright Term Directive by, inter alia, extending the term of copyright protection for sound recordings from 50 to 70 years.

The new Directive reflects the European Council's opinion that the 50 year protection period did not adequately reflect the value of performers' work. Many performers who started their recording careers at a young age now face the prospect of the protection period expiring during their lifetime leading to concerns about performers suffering a loss of control over their work and an income gap once the protection period had expired. Under the 50 year rule, the copyright on sound recordings by artists including the Rolling Stones, The Beatles and The Who would have expired in the near future.

Although the Directive will please many artists who have been lobbying for change, the time extension has not been met with universal approval. Some have commented that, as the copyright of sound recordings is usually owned by record labels, the main benefit of the change will only be felt by the record labels and the biggest artists. In the UK, both the Gowers Review in 2006 and the Hargreaves Report in 2011 opposed any extension of the copyright term. In addition, the Open Rights Group has commented that an extension will render many unpublished works inaccessible by the public.

As well as extending the Copyright term, the new Directive also introduces a number of accompanying measures aimed at ensuring that the term extension benefits performers, including the following:

  • record companies will have to pay 20% of the revenues they earn during the extended term into a fund intended to benefit session musicians;
  • rights in a recording are to revert to the performer if the record company stops marketing the recording during the extended term; and
  • record producers are prevented from making deductions to the royalties they pay performers following expiry of the initial 50 years.

Member States will now have a two year period to implement the changes into national law. A copy of the Directive is available here.

  1. The Premier League and the Pub Landlady

European Court finds that prohibitions on the sale and use of foreign decoder devices for viewing broadcasts of football matches are contrary to EU law, but holds that transmission in a pub of certain elements of such broadcasts requires prior authorisation under copyright law.

In this judgment, the ECJ demonstrated clearly its single market objective, condemning both Member State measures and contractual arrangements entered into by undertakings which tend to fragment the internal market. It did, however, provide some protection for the rights-holders in respect of the question of prior authorisation of protected works.

In June 2008, the question of the legality of the use of foreign decoder devices in the UK to enable access to foreign satellite transmissions of live Premier League football matches was referred to the Court of Justice of the European Union ("ECJ") by the High Court. The foreign decoder cards, which were supplied on terms which prohibited their use outside specified territories, were being used to show live matches (broadcast from Greece) in pubs and bars in the UK.

Following the previous opinion of Advocate General Kokott (see our previous newsflash here), the ECJ ruled on 4 October 2011 that contractual restrictions prohibiting the sale and use of decoder devices by a broadcaster in one Member State to enable viewers in another Member State to access its encrypted satellite broadcasts, and national legislation to this effect, are contrary to the competition and free movement provisions of EU law.

However, in respect of copyright questions, the ECJ departed from the Advocate General's opinion and ruled that transmission in a pub of broadcasts containing protected works (for example Premier League graphics or logos) constitutes a communication to the public requiring the prior authorisation of the author of the works (Football Association Premier League Ltd & others v QC Leisure & others; Karen Murphy v Media Protection Services Ltd, Judgment in Joined cases C-403/08 and C-429/08 click here).

Despite the potentially wide-reaching impact of the decision in relation to the application of competition law to such exclusive licensing networks, the ECJ's judgment does reaffirm that exclusive territorial licensing is not in principle problematic, and it therefore remains to be seen how competition authorities and national courts will analyse other restrictions ancillary to such licensing and assess their compatibility with Article 101 TFEU in the circumstances of individual cases.

It also remains an open question as to how the ECJ's reasoning in respect of the broadcasting of football matches will be applied to other markets where digital rights are often licensed on a territorial basis (for example computer software, music, e-books or films made available via the internet, as envisaged by the Advocate General). No guidance was given by the ECJ in this regard.

For more information on this decision, please see our IP Newsflash here