2018 was a busy year for telecoms in Ireland. In addition to major M&A activity (the acquisition of incumbent eir by Xavier Niel's group Iliad, the acquisition of fixed wireless provider Imagine by Brookfield and the completion of the two stage sale of enet and Airspeed to the Irish Infrastructure Fund), there were significant developments on the regulatory front.

MILESTONE REACHED BETWEEN INCUMBENT AND REGULATOR

In June 2017, the Commission for Communications Regulation (ComReg) heralded a new approach to enforcement in the area of wholesale regulation. In particular, ComReg brought a set of enforcement proceedings against eir before the High Court seeking the imposition of significant financial penalties pursuant to provisions of the Access Regulations 2011, as yet untested. eir issued separate proceedings against the State challenging the validity of the provisions relied upon by ComReg (ComReg was joined as a codefendant at its request) and ComReg's proceedings were stayed pending the outcome of eir's challenge. ComReg separately engaged with eir in relation to its internal governance structures following reviews by KMPG and Cartesian published in 2017.

All these issues were resolved in a settlement agreement between eir and ComReg in December 2018. In particular eir and ComReg put behind them a range of compliance disputes and agreed to withdraw ongoing Court proceedings. Crucially, the agreement provides for the establishment of an independent committee constituted of five members, the majority of those to be designated by ComReg. This committee is tasked with the publication of an annual report on eir's compliance with the agreed rules governing eir's retail and wholesale interactions and with advising eir's board on actions to take. eir also agreed to pay a fine of 3 million and to place 9 million in escrow in respect of failures to comply with the list of specific measures set out in the Agreement.

PROGRESS MADE IN BRINGING WHOLESALE REGULATION IN LINE WITH MARKET DEVELOPMENTS

2018 saw some significant progress in bringing the level of wholesale regulation to which eir is subject in line with market developments. ComReg concluded its long-outstanding market review of wholesale broadband markets known under the European Common Regulatory Framework for electronic communications networks and services as Market 3A (Wholesale Local Access provided at a Fixed Location) and Market 3B (Wholesale Central Access provided at Fixed Location for Mass Market Products). While eir's provision of access to its network will continue to be regulated, this will no longer be the case for eir's provision of wholesale central access in urban areas following a six month sunset period. Deregulation recognises the change in competitive conditions following the roll-out of fibre networks in urban areas including by SIRO and Virgin Media. ComReg's decision, however, including the price control imposed on regulated markets, in particular connection charges, has been challenged by Sky, a purchaser of access, by way of an appeal before the Irish High Court.

Delays continue in respect of the regulation of eir's provision of leased lines, which is regulated by a ComReg decision now more than 10 years old. The consultation process for the revision of these obligations has been ongoing since 2016. After initial proposals for the deregulation of Wholesale High Quality Access (WHQA) relying on Modern Interfaces (e.g., Ethernet), revised proposals include continued regulation of Modern Interfaces WHQA in certain geographical zones (grouped in a Zone B) as well as the continued regulation of low bandwidth WHQA provided over Traditional Interfaces.

5G LICENSING UNDERWAY

Following an auction held by ComReg in June 2017, a total of 350 MHz of spectrum rights of use were awarded for 15 years to five winning bidders (Imagine, Airspan, Meteor, Three and Vodafone) in the 3.6 GHz band. The award increased the total amount of harmonised spectrum for mobile, nomadic and fixed wireless broadband services assigned in Ireland by 86%.

Additional spectrum may be released for the rollout of 5G-based services in other bands, including in the 26 GHz band. While the 26 GHz band is in use for pointto-point services (following an auction process, five blocks of 2 x 28 MHz of spectrum rights were granted to eir, Three and Vodafone in June 2018) the 26.527.5 GHz frequency range is currently unassigned and could be made available for 5G services if necessary. The 700 MHz band will also come free by 4 March 2020 when DTT services are to migrate out of the band.

Specific ComReg proposals include holding a multi-band award of spectrum rights of use suitable for the provision of wireless broadband services. The auction would make available a total of 470 MHz of spectrum across four bands: 700 MHz duplex; Paired 2.1 GHz; 2.3 GHz; and 2.6 GHz. ComReg expects to publish detailed proposals on the award process and further consultation in early 2019.

SPECTRUM TRANSFERS AND LEASES

ComReg is also consulting on ways to facilitate spectrum leasing in Ireland and proposes to apply the same procedures as those used in case of spectrum transfer for spectrum leases. This would include prior notification to ComReg and an ex ante competition assessment before a lease could be put into effect, subject to conditions where and if appropriate, unless the transaction is subject to merger control approval by the European Commission and the Irish Competition and Consumer Protection Commission.

Five Trends and Lessons from Recent Telco M&A

2018 saw the continuation of the longcycle of telco mergers and acquisitions activity, during which we have seen a number of trends and lessons emerge.

THE RISE OF THE "DUAL-TRACK" PROCESS

Maximising competitive pressure on the sell-side of transactions has seen the growing use of a dual-track process. This involves both a private M&A sale and an IPO being run as parallel processes until, in theory, relatively late in the deal cycle, so that the company can ultimately switch rapidly from one exit mechanism to the other. The major advantage of the tactic is to maintain both competitive

pressure on potential bidders and maintain a real-world value benchmark, rather than relying on a desktop analysis earlier in the process. It also allows for flexibility for dealing with capital markets turbulence and M&A buoyancy. The key challenges of running such a process are the very significant demands it places on internal company resources, together with the fact that it relies on secrecy being maintained on the preferred path until relatively late in the process. We have seen this strategy successfully deployed and it remains an important tactical tool in M&A planning (particularly for late-cycle dealplanning), although its real value lies in its ability to truly test market value as most dual-track processes give way to a single-track some considerable time short of the "end-game".

OUTSOURCING IS NO LONGER A ONE-WAY STREET

It has always been a key consideration for buyers in the sector to identify appropriate opportunities for outsourcing as part of an acquisition. More recently, existing outsourcing arrangements are being subjected to greater scrutiny, with a swing towards insourcing and "gold de-plating" of services. In-house teams should apply ever greater scrutiny to their outsource deals, in particular their exit and termination provisions, so as not to create a potential bar to future exit value in the event of a rapid reversal of outsource policy. We also expect to see operators including greater levels of control on outsource contracts with a view to dictating efficiency measures and reducing services scope.

THE CONSEQUENCES OF INDEFINITE MARKET BOUNDARIES

The continued blurring of the perimeter of the telco market is a wellestablished decade-old trend a pure telco transaction now takes into scope aspects of media, technology, internet of things, cognitive technology, data ownership and access, amongst others. As the perimeter continues to expand, this is bringing into focus legal issues not typically associated with telco M&A, including the application of the media merger regime, sanctions compliance, CIFIUS impact, data chain diligence, GDPR and content agreements. Operators that are organically expanding into these areas similarly need to keep a careful watch on the impact of these "internal acquisitions" on an ultimate exit process and the universe of available buyers. A clear plan from the outset is required for sellers of telco businesses or assets in respect of regulatory or consent issues that are going to arise during the diligence process. An in depth industry knowledge is a must for the various advisers in any M&A transaction involving telcos, both on the sell side and the buy side.

HUMAN CAPITAL

Traditionally key personnel retention has not been one of the top five priorities in telco M&A due to the nature of the sector and infrastructure. A further consequence of the spreading of boundaries into what would have more traditionally been seen as tech sectors is that senior executive incentivisation and retention have increased in importance as deal issues, particularly where PE sponsors form part of the exiting shareholders and the prospects of a senior management exodus on completion are very real. There has also been greater emphasis

on the senior leadership team (and the incoming leadership team) maintaining strong visibility with the target organisation throughout the M&A process as a means of providing reassurance (and encouraging focus on business as usual), as well as establishing the parameters of the crucial post-transaction integration of culture. A well-thought out internal communications and retentions strategy is now core to any well-run M&A process. Importantly, the strategy needs to plan not just for a successful outcome, but also the consequences of the deal not going through.

"WE NEED TO TALK ABOUT HUAWEI"

A perfect storm is brewing between the confluence of Huawei's growing leadership position in 5G and the apparently near-inevitable incoming EU regime to regulate suppliers' vital infrastructure. The extent of Huawei exposure of an operator, both to existing and newly built infrastructure is expected to become a major issue in M&A due diligence. While Ireland is not expected to be at the centre of these regulatory developments, it will ultimately not be able to escape the fallout of EU-wide regulation.