Feature article

1. Ofcom allows Mobile Spectrum Trading

The Wireless Telegraphy (Mobile Spectrum Trading) Regulations 2011 come in to force today (4 July 2011) and allow trading of the radio spectrum used for mobile communications for the first time in the UK.

Section 30 of the Wireless Telegraphy Act 2006 gives Ofcom the power to authorise spectrum trading by regulations. Ofcom has authorised trading of a number of spectrum licences since 2004 under the Wireless Telegraphy (Spectrum Trading) Regulations 2004, but these have never included mobile spectrum licences.

Rather than amending the 2004 regulations, Ofcom has issued new regulations - the Wireless Telegraphy (Mobile Spectrum Trading) Regulations 2011 - which come into force today and authorise the trading of mobile licences in the 900 MHz, 1800 MHz and 2.1 GHz frequency ranges.

Wireless Telegraphy (Mobile Spectrum Trading) Regulations 2011
Subject to certain exceptions, the new regulations authorise the transfer of: either all rights and obligations arising by virtue of a licence or rights and obligations relating to parts of the licensed frequencies or of the licensed geographical area.

Two types of transfer are authorised. Firstly, outright transfers i.e. a transfer in which the rights and obligations of the person making the transfer become rights and obligations of the transferee to the exclusion of the person making the transfer. Secondly, concurrent transfers i.e. where the transferred rights and obligations become rights and obligations of the transferee while continuing, concurrently, to be rights and obligations of the person making the transfer.

There are certain circumstances in which transfers are not authorised, including where Ofcom has not given its consent. There are a number of matters which Ofcom must take into account when determining whether or not to give consent. These include, for example, whether the transferor is in breach of its licence and the extent to which the transferee (and, in relation to a concurrent trade, the transferor) is able to meet the terms of its new licence.

The most controversial provision, however, is the requirement for Ofcom to consider whether competition is likely to be distorted as a result of the transfer. A number of operators have argued that Ofcom does not need ability to carry out an ex ante competition assessment where it has a range of powers to do so ex post. Ofcom, however, has confirmed that it believes such an assessment is justified by the material risk that concentration of mobile spectrum holdings could affect downstream competition. Ofcom does not intend automatically to carry out a full competition assessment but will consider whether it is justified on a case by case basis.

Where Ofcom does consent to a transfer, it can impose conditions relating to those matters it has considered and the transfer will then only be put in to effect after compliance with the conditions.

Impact of the new regulations
It is expected that most activity likely to arise initially as a result of the implementation of the new regulations will be the existing mobile operators moving to consolidate their spectrum holdings in advance of the digital dividend auctions scheduled for next year.

In particular, the new regulations pave the way for Everything Everywhere to divest that portion of its spectrum required to be divested as a condition to its merger approval. Ofcom has confirmed that the divestment of Everything Everywhere spectrum will not be subject to an ex ante competition assessment under the new regulations as any purchaser will, in any event, have to be approved by the European Commission and Ofcom.

The regulations may also result in operators exploring whether to further improve network efficiencies by going beyond existing infrastructure sharing arrangements and moving to the ultimate sharing arrangements – that of spectrum sharing.

In practice, concurrent or partial trades are likely to be subject to complex contractual arrangements between the parties, not least because they raise issues as to the apportionment of liabilities for licence obligations, including for example, coverage obligations and payment of licence fees. Any arrangements will not only need to be agreed between the parties but may be also be required to be submitted to Ofcom in order to obtain the necessary consent.

Ofcom has not set rigid guidelines on the timing of trades but it has confirmed that it aims to complete all trades within 42 calendar days from the date that it receives a valid transfer application to the date that the transfer is effected or rejected.

A copy of the Ofcom notice relating to the new Regulations, as well as the Regulations themselves, can be accessed here.


2. Holland passes first Net Neutrality Law

The Dutch Parliament has become the first in Europe to pass legislation to prevent mobile operators from blocking or charging extra for using internet-based communications services such as Skype.

Although the legislation must still pass through the Dutch senate, this is expected to be a formality. Mobile operators in Holland have lobbied against the draft legislation, warning that the law would lead to an increase in prices for mobile internet for a large group of customers as operators could no longer single out heavy users for higher charges. However, such lobbying has not prevented the law being passed.

The Netherlands is only the second country in the world to enshrine the concept of net neutrality into law. In Chile, they have a similar law which was implemented in May 2011 after much delay. Delays and challenges to passing neutrality laws are inevitable given their impact on the different operators in the market. In the US, an attempt by the Federal Communications Commission to impose a legislative set of network neutrality restrictions on American operators has been caught up in legal challenges from the industry.

In the meantime, in Europe, most EU member states have or are considering their position of the issue. In the UK, Ofcom consulted on the net neutrality issue in June last year but the UK Government does not appear to intend to legislate or regulate net neutrality or traffic management, except to the extent already enacted to implement the amendments to the EU communications framework.

The amendments, required to be implemented by Member States in May this year, include, in particular, rules on transparency, quality of service and the ability to switch operator. Under these measures, regulators have powers to set minimum quality levels for network transmission services. New transparency rules also require that consumers are informed – before signing a contract – about the nature of the service to which they are subscribing, including traffic management techniques and their impact on service quality, as well as any other limitations (such as bandwidth caps or available connection speed). The new provisions also require operators to transfer customers' phone numbers to a new provider within one working day.

Other than these measures, the European Commission and European Parliament have not yet taken legislative action to require member states to prohibit operators blocking or imposing extra fees on consumers although they have endorsed network neutrality guidelines,. Instead, the European Commission has adopted a "wait and see" approach, announcing earlier this year that it was going investigate current practice and publicly name operators engaging in doubtful practices.

In the statement issued in April this year, the Commission confirmed that it has asked BEREC (the Body of European Regulators for Electronic Communications) to undertake a rigorous fact-finding exercise on issues critical to ensuring an open internet. These include barriers to changing operators, blocking or throttling internet traffic (e.g. voice over internet services), transparency and quality of service. The results of the investigation will be published by the Commission at the end of 2011 and the Commission will highlight any instances of blocking or throttling of certain types of traffic.

Importantly, if, as a result of the investigation, it becomes apparent that the principle of an open internet is not being applied in practice, the Commission has said that it will consider more stringent measures, such as guidance or even general legislative measures.


3. Regulators' views on the AVMS Directive and "television-like" content

The UK communications regulator Ofcom and the UK regulator for on-demand services ATVOD have both recently considered the extent of "television-like" services which fall within the scope of regulation under the Audiovisual Media Services Directive.

ATVOD has determined that both R18-rated content on Playboy TV and video content on newspaper and magazine websites are “television-like” and, therefore, subject to regulation.

ATVOD's determination of December last year that R18-rated content provided by Playboy on its website was television-like and therefore within the scope of regulation was upheld by Ofcom on 13 May 2011. Ofcom noted that despite the R18-rating of the content meaning that it was prohibited from being shown on television under the Ofcom Broadcasting Code, the legislation requires the form and content of the relevant programmes to be "comparable" – not "identical" – to that which is broadcast on television.

In an earlier determination of 21 March 2011 in relation to the Sun, the News of the World, the Sunday Times and Elle websites, ATVOD rejected the argument that material on the websites was incidental and ancillary to the principal online service consisting of electronic versions of the newspapers and magazine. ATVOD noted that, amongst other things, the principal purpose of the video content was the provision of programmes; access to the video content was on-demand; and there was a person with editorial responsibility. ATVOD determined that the video content was therefore a service in its own right distinct from the online version of the newspapers and magazine. The determination is currently the subject of an appeal to Ofcom.

How will these decisions affect businesses?
The implementation of the AVMS Directive brought on-demand content services within the scope of regulation. However, in an ever-increasing digital age, with differing types of content available to consumers via multiple devices, the scope of the regulation remains difficult to define, despite the existence of ATVOD guidance.

In determining the application of the legislation to content providers, the definition of what is and isn't "television-like" is crucial. The two decisions described above highlight the efforts of the regulators to grapple with this issue.

The newspapers and magazine decision in particular may be of concern to content providers as it suggests a broad interpretation of the scope of the legislation in the UK, although the decision is currently being appealed.
The decisions referred to above can be accessed here and here. A copy of the ATVOD Guidance can be accessed here.

4. Government launches Communication Act review

On 16 May 2011, the Department of Culture, Media and Sport announced the start of a wide-ranging review of the regulatory regime for the UK communications sector, in order to ensure the regulatory framework in place is "fit for the digital age".

In an open letter to those working within the communications sector, Secretary of State for Culture, Olympics, Media and Sport, Jeremy Hunt, confirmed the Government's aim to put in place a new communications framework by 2015. The DCMS noted that this is a "significant agenda", at the heart of the Government’s wider policy set out in the recently published Plan for Growth.

The letter noted the rapid development of new communications technologies over recent years and the need for a regulatory framework geared towards growth and the digital age. It also communicated the need for a flexible solution to the challenge of competition and growth in the sector and identifies a deregulatory approach as being the ultimate aim for dealing with developments in the communications sector. To this end, the DCMS is exploring the issues under three key themes being: (i) growth, innovation and regulation; (ii) a communications infrastructure that provides the foundations for growth; and (iii) creating the right environment for the content industry to thrive.

The next stage will be the development of a Green Paper and, following publication, there will then be a long period of consultation with a view to producing a White Paper and a draft Communications Bill by April 2013. However, the letter added that the DCMS is "willing to take action sooner" where primary legislation is not required.

The Government's review of the regulatory regime for UK communications is likely to have consequences for each and every business in the sector.

Any new Communications Bill will however, have to be drafted carefully so as not to contradict the provisions of the recently revised EU communications framework, which was implemented into law in UK partly via amendments to the Communications Act.

A copy of the DCMS open letter is available here.


5. GSM spectrum to be opened up for 4G use by end of 2011

The European Commission has adopted a Decision setting out technical rules on how the 900MHz and 1800MHz frequency bands should be opened up to allow use by 4G mobile devices.

The Decision is an important step towards bringing wireless broadband access to more EU citizens and businesses. Neelie Kroes, the member of the European Commission responsible for its "digital agenda" has said that the Decision "opens the way for the latest 4G mobile devices to gain access to the radio spectrum they need to operate, and so further stimulate high-speed broadband services and foster more competition".

The Decision also reflects the European Commission's efforts to achieve the targets of the Digital Agenda for Europe, which aims to give every European citizen access to basic broadband by 2013 and fast and ultrafast broadband by 2020. It sets out technical parameters allowing for the co-existence of GSM, 3G and 4G mobile technologies on particular frequencies.

The new rules follow the amendments to the GSM Directive made in 2009 which required Member States to open the 900 MHz frequency band for use by 3G as well as GSM devices. EU Member States now have until 31 December 2011 to implement the Decision into their national laws so that the GSM/3G frequency bands are effectively made available for LTE and WiMAX systems.

In the UK, these new rules, once implemented, mean that the 1800 MHz spectrum which Everything Everywhere is required to divest under the merger approval will be capable of being used by a successful purchaser to build an LTE network.

A copy of the decision is available here.