NETWORK SHARING: BEST ALTERNATIVE TO CONSOLIDATION

Consolidation amongst mobile operators continues, but structuring transactions to avoid competition law concerns is challenging and many are looking to network sharing as the next best alternative.

Consolidation in the mobile telecoms sector is by no means a new phenomenon, but negative economic conditions and the ongoing need for heavy expenditure in infrastructure have been particularly strong drivers for mobile operators to seek tie ups in recent years.

However, traditional consolidation in the form of mergers and acquisitions has been hindered by the increasing difficulty of obtaining merger clearances from the European Commission without onerous conditions being imposed. The Commission scrutinises these transactions closely and has on previous occasions chosen to go to an in-depth "Phase II" investigation. It is clearly keen to avoid losing mobile operators as a result of consolidation in markets which are already very concentrated – especially those operators which are seen as "mavericks" acting as a particularly strong, competitive constraint on other players. For example:

  • The Commission's clearance of the merger of Orange UK and T-Mobile UK in 2010 was conditional upon the amendment of T-Mobile's existing network-sharing agreement with Hutchison 3G ("H3G") UK in order to secure H3G UK's position as a competitive force on the market, as well as the divestment of a quarter of the combined spectrum of the merging parties in the 1800 MHz band. The spectrum was reportedly valued at £450 million and acquired by H3G for nominal consideration.
  • The Commission's clearance of H3G's acquisition of Orange's mobile business in Austria in 2012 – which would have eliminated one of the four mobile network operators in the country – was made subject to a package of remedies intended to facilitate the entry of new players into the market. This included the divestment of radio spectrum and additional rights by H3G to an interested new entrant (who would also benefit from the right to acquire additional spectrum at an auction in 2013 and privileged conditions for the purchase of sites), and a commitment by H3G to provide wholesale access to its network for up to 30% of its capacity to up to 16 mobile virtual network operators ("MVNOs") for the next 10 years. H3G could not complete the acquisition of Orange until it had entered a wholesale access agreement with at least one MVNO. These commitments are extensive and cover a very wide range of the wholesale remedies which could be imposed.

The benefits of consolidation therefore need to be set against the downside of the conditions that may be imposed.

In light of these issues, operators are turning to different forms of co-operation in order to achieve synergies and deliver the required cost benefits without undertaking major structural consolidation. An increasingly popular form of co-operation is the sharing of infrastructure, which can give rise to significant cost savings and efficiencies. A ground-breaking example is Telefónica and Vodafone's network sharing arrangements in the UK. Telefónica UK and Vodafone UK have not only set up a new joint venture into which all passive assets have been transferred but, importantly, they have also agreed that Vodafone will design, manage and maintain the active radio access network in one half of the country and Telefónica will do the same for Vodafone in the other half of the country. Furthermore, the agreement between the parties not only covers future builds and network rollouts (e.g. LTE) but also covers existing 2G and 3G operations. There have been a number of other instances of network sharing in Europe, although not generally as extensive, most recently in Greece, Poland and Denmark.

Whilst they are not without their own competition issues, these types of co-operation can provide a way through some of the difficulties associated with a full merger or acquisition. Such forms of co-operation may still require merger clearances: for example, the creation of a joint venture may need to be approved by the European Commission if the JV is "full-function" and certain turnover thresholds are met. Less extensive modes of co-operations may also trigger notification/clearance requirements dependent on the structure.

However, even if the co-operation is not of a type that requires merger clearance, the companies participating will need to ensure that their arrangements are structured and implemented in compliance with competition law. One particularly important aspect of this is taking caution with regard to the sharing of information between competing mobile operators, which can potentially lead to illegitimate co-ordination of their behaviour on the market. Whilst it may be necessary for the parties to share certain types of information in order to implement their chosen form of co-operation, stringent arrangements need to be put in place to ensure that competitively sensitive information (for example, indications of future commercial strategy) is not shared. This may involve the use of information exchange guidelines, ring-fencing, "clean teams" and other such precautionary measures, depending on the circumstances of the particular case. The structuring of these types of co-operation can therefore be complex, and require detailed consideration by the parties involved and their advisers in order to ensure that the chosen structure will be workable from a practical and commercial perspective, but also satisfactory to competition and regulatory authorities, whilst achieving the desired synergies.

A RIGHT TO BE FORGOTTEN? EU ATTORNEY GENERAL TELLS SPANISH COURTS TO FORGET ABOUT IT. (GOOGLE SPAIN SL AND GOOGLE INC V AGENCIA ESPAÑOLA DE PROTECTECIÓN DE DATOS (AEPD) AND MARIA COSTEJA GONZÁLEZ, CASE C-131/12, 25 JUNE 2013.)

The EU Advocate General (the "AG") has published an opinion on questions referred to the ECJ by the Spanish courts relating to the territorial scope of the Data Protection Directive (1995/46/EC) (the "Directive"), the legal status of search engine providers under the Directive and whether the Directive grants data subjects a right to be "forgotten" online.

In 2010, a Spanish individual contacted Google Spain requesting that search results that appeared when his name was entered into Google should not show links to certain online publications. A previous request to the publisher to remove the links in question, and a subsequent challenge, was unsuccessful on the grounds that the publication in the press was legally justified.

After Google refused, the individual lodged a complaint with the Spanish data protection agency which upheld the complaint. Google appealed to the Spanish High Court, which referred three sets of questions to the ECJ. The key issues were: (i) whether the Directive applies to the activities of search engine providers located outside the EU; (ii) the responsibilities of search engine providers under the EU data protection regime; and (iii) whether the Directive grants data subjects a "right to be forgotten" whereby individuals can ask search engine providers to stop indexing information about them that is published on third party websites.

In response to the first question, the AG recommended that where the search engine was operated by an entity outside the EU but the overall business model relied on the activities of an EU subsidiary, the court should look at the operator as "a single unit".

In response to the second question, the AG said that although a search engine provider's activities are clearly "data processing" under the Directive, it could not be considered a data controller with respect to the personal data it located, indexed, stored and made available to internet users. The AG observed that supplying an information location tool does not entail control over personal data included on third-party web pages.

In response to the third question, the AG rejected the notion that the Directive grants data subjects a general "right to be forgotten". The AG emphasised that "a data subject’s right to protection of his private life must be balanced with other fundamental rights, especially with freedom of expression and freedom of information".

The AG's opinion has already received extensive attention. Although the AG's opinions are not binding, they are often followed by the ECJ (the ECJ's decision is expected later this year). This is the first significant case in which the ECJ has been asked interpret the Directive in the context of internet search engine providers. While the opinion may be a setback to advocates of online privacy and the "right to be forgotten", search engine providers will be relieved by the AG's arguably pragmatic approach. What is clear is that the Directive's applicability to search engine providers, and more generally an ever-evolving online world, is continually developing.

A copy of the AG's opinion can be found here.  

THE LONG AND WINDING ROAD … TO EU DATA PROTECTION REFORM

Since the publication of the draft EU Data Protection Regulation (the "Regulation") in January 2012, over 4,000 amendment proposals are rumoured to have been submitted, with concerns raised by a range of stakeholders. In the wake of these debates, it is unlikely that the Regulation will be adopted before March 2014 and there is expected to be a subsequent two year transition period.

As originally drafted, the Regulation would impose a new single data protection law across all 27 EU member states which would:

  • apply to organisations based outside the EU if they process the personal data of EU residents;
  • grant data subjects enhanced rights (for example to demand personal data to be deleted where there are no legitimate grounds for its retention); and
  • grant data protection authorities ("DPAs") enhanced powers (e.g. the ability to impose fines of up to 2% of worldwide turnover).

In May this year, the EU Council's Presidency released a suggested compromise text for Chapters I to IV of the Regulation (narrowing the Regulation's scope and outlining a risk-based, rather than prescriptive approach).  While some claim that the amendments pander to corporate lobbyists, others contend that they are necessary to ensure that the legislation is workable.

There are, however, concerns over the additional burden that the draft Regulation would place on DPAs, with the potential for the reforms to impact DPAs' ability to generate revenue through notification fees and, together with the high level of implementation fees, potentially drive data controllers to relocate to jurisdictions with less onerous data protection requirements.

The EU Justice and Home Affairs Council recently discussed the draft legislation and concluded that the amended text of Chapters I to IV was a good basis however for further progress on the draft Regulation. The Regulation awaits a Committee decision and is not expected to be adopted before March 2014. Once adopted, the Regulation is planned to take effect after a transition period of two years, likely to be in 2016.

The EU Council Presidency's draft compromise text can be accessed here.  The press release of the EU Justice and Home Affairs Council meeting is available here.

DON'T BELIEVE THE HYPE? PHONEPAYPLUS EXAMINES MISLEADING DIGITAL MARKETING PRACTICES

PhonepayPlus, the UK regulator for premium rate services ("PRS"), is closely examining the behaviours of PRS providers in its consultation on new guidance applicable to digital marketing practices and promotions.

PhonepayPlus has launched a consultation on new guidance applicable to digital marketing practices and promotions used by PRS providers. The guidance is intended to supplement the previously issued guidance on promotions and promotional material and will be focused to reflect the growth in use of digital marketing across a range of media.

'Digital marketing' is a broad term covering marketing activities using a range of electronic devices including computers, tablets, smartphones, standard mobile phones, digital billboards and/or game consoles. The draft guidance considers a range of marketing practices, including the use of typosquatting (registration of intentionally misleading internet domains, such as "dacebook"), clickjacking (redirecting users to other sites without their knowledge), likejacking, banner ads, pop-ups and pop-unders and spam.

The consultation comes in response to a 100% rise in complaints over the last year relating to online promotion of PRS and an average of over 350 complaints per month being made in relation to online marketing. In 2012, PhonepayPlus levied fines of £1.38 million against 10 PRS providers in relation to misleading digital marketing practices.

PhonepayPlus has stated that the intention of the guidance is to help PRS providers ensure that any digital marketing that they engage in (whether directly or through third parties) is done in a legitimate way that promotes genuine consumer engagement and does not mislead or harm consumers.

In particular, the guidance advises that PRS providers:

  • ensure that consumer consent is provided knowingly (having received all relevant information relating to the PRS service, including the price, before committing to purchasing it) and that consent is clearly auditable;
  • do not intentionally mislead consumers into inadvertently purchasing PRS products; and
  • take measures to review and control the activities of affiliate marketing partners or other digital lead generation partners, often used by PRS providers to promote their campaigns. PhonepayPlus has expressed concern that these marketers can deploy techniques to drive traffic and increase their commission in manners which are "inherently misleading" and warns that the PRS providers retain responsibility for the compliant marketing of these services.

The new guidance is particularly relevant in light of the increase in electronic devices with internet capability and the desire of PRS providers to advertise their services across as many platforms and media as possible.

The consultation closed on 27 June 2013. A copy of the consultation document can be found here