1.Ruling the (radio) waves: How Ofcom is trying to plot a course through 4G

The UK sale of 8000MHz and 2.6GHz radio spectrum suitable for the provision of so-called 4G services has been subject to legal arguments and delays since first announced in 2007. As Ofcom approaches the home straight and announces its final proposals on the auction process for the 4G spectrum, variations to existing 3G licences and the trading of 3G spectrum threaten to derail the process once more.

The 4G Spectrum Auction

Following multiple consultations, in July 2012, Ofcom published a statement setting out its decisions for the auction of spectrum in the 800MHz band and the 2.6GHz band (the so-called "4G Auction"). Highlights of the final proposals included the following:

  • Ofcom will reserve some of the available spectrum in the 4G Auction for a fourth national wholesaler, meaning a bidder other than Everything Everywhere, Vodafone or Telefónica.
  • Ofcom will impose spectrum caps limiting the amount of spectrum that each bidder can acquire in the 4G Auction. These caps will comprise an overall cap of 2 x 105MHz and a sub-1GHz cap of 2 x 27.5MHz. The caps will cover all the spectrum acquired in the 4G Auction, as well as existing mobile spectrum held by the bidders.
  • Ofcom has decided not to reserve any spectrum for low power shared use by operators of sub-national radio access networks. Bidders who wish to acquire spectrum for low power use will have to compete against those who wish to use it for standard power use.
  • Ofcom will include a coverage obligation in one of the 800MHz licences. The obligation will relate to 2 x 10MHz of spectrum and will require the licensee to provide a mobile broadband service for indoor reception to users in an area within which 98% of the UK population live. In addition, the licensee will be required to provide the same service to an area within which at least 95% of the population of each of the nations live. Both obligations will need to be met by 31 December 2017 but no additional wholesale access obligation will be imposed on the affected licensee.
  • Ofcom has set out its proposed position on reserve prices with lots ranging from £0.1 million for 5MHz of unpaired 2.6GHz spectrum, up to £250 million for 2 x 10MHz of 800MHz spectrum (including the coverage obligation described above).
  • Ofcom has confirmed that all licences issued at the 4G Auction will be UK-wide and technology and service neutral. All types of spectrum trading will be permitted (subject to competition considerations), and the licences will be of indefinite duration. During an initial period of 20 years, Ofcom's powers to revoke a licence will be limited to specific circumstances not including spectrum management. Thereafter, it will be able to revoke a licence for spectrum management reasons on five years' notice.

As regards timing, Ofcom expects to invite applications to take part in the 4G Auction before the end of the year, meaning that the auction itself is likely to take place at the end of 2012/beginning of 2013.

The Everything Everywhere Spectrum Licences

Whilst progress with the 4G Auction appears to finally be moving towards completion Ofcom has, in the meantime, separately approved Everything Everywhere's application to vary its existing 3G spectrum licences (spectrum in the 1800MHz band) to allow the use of LTE and WiMAX (i.e. 4G) technologies.

On 23 November 2011, Ofcom received an application from Everything Everywhere ("EE") for variation of its 1800MHz licences to enable it to provide services using LTE technology in those frequencies. The application encompassed all frequencies currently licensed to EE in the 1800MHz band (i.e. including the 2 x 15MHz that it undertook to divest as a result of the merger between Orange and T-Mobile in 2010).

In March 2012, Ofcom consulted on the variation, seeking to balance consumer demand for mobile data services with the possible anti-competitive advantage being granted to EE if it were to be the only entity capable of providing LTE/WiMAX services on a national basis for a period of time prior to the 4G Auction.

Following the consultation, Ofcom concluded that, although it is likely that EE will enjoy a competitive advantage during the period before other operators are able to launch their own 4G services (following the 4G Auction), it does not believe that such a head start would result in an enduring advantage distorting competition to the detriment of consumers. Ofcom has therefore issued EE with varied 1800MHz licences authorising the provision of LTE and WiMAX services from 11 September 2012.

However, it has since been reported that Telefónica has written to Ofcom (allegedly copied to Jeremy Hunt the Secretary of State for Culture, Media and Sport) threatening to challenge its decision. In the letter, it is alleged that Telefónica gives notice to Ofcom that it intends to appeal against Ofcom's decision to the Competition Appeals Tribunal, allowing it to seek interim relief, effectively blocking EE from launching its 4G service until a decision is reached.

The Everything Everywhere Spectrum Divestment

Following Ofcom's decision to vary EE's 1800 MHz licences to allow the use of LTE and WiMAX technologies, EE has itself announced that it has agreed to sell some of its spectrum to H3G.

As a condition to the merger approval for the Orange/T-Mobile merger in May 2010, the European Commission required EE to sell off 2 x 15MHz of its 1800MHz spectrum to a rival operator in order to satisfy competition concerns. EE and H3G have now announced that they have reached an agreement, under which, H3G will acquire this spectrum subject to regulatory consents. Ofcom and the European Commission will now review whether the divestment satisfies the merger commitments, and a response is expected within the next three months.

Given Ofcom's announcement to amend EE's 3G licences (including the licence which will be transferred to H3G) to allow the provision of 4G services, it will be interesting to see whether or not the divestment has any impact on the proposed 4G Auction process. As described above, the current auction proposals reserve some of the 800MHz band for a fourth national wholesaler, meaning a bidder other than Everything Everywhere, Vodafone or Telefónica, as a result of competition concerns. However, H3G's acquisition of this spectrum could change the competitive analysis. This was anticipated in Ofcom's final statement on the 4G Auction but it has since been reported that EE could challenge Ofcom's auction rules in the event that any legal challenge of the kind reportedly threatened by Telefonica is launched by the other operators in relation to EE's licence variation and/or spectrum divestment.

At this late stage however, any change to the auction process would be likely to result in yet further delays to a process which has already been delayed by over three years, putting the UK behind its European peers in the race for superfast mobile broadband implementation.

A copy of Ofcom's 4G auction proposals is available here and a copy of its decision in relation to the Everything Everywhere spectrum is available here.

2.Ready for commitment? UK ISPs sign up to net neutrality Code of Practice

Ten UK ISPs, including BT, BSkyB, O2 and TalkTalk, have signed up to a voluntary code of practice that requires them to ensure that they are offering "full and open internet access" to their customers. Virgin Media, Vodafone and Everything Everywhere have however so far abstained.

In the UK, Ofcom confirmed in its statement in November 2011 that it believes that it is currently possible to rely on market forces to address issues regarding the use of managed services techniques by providers of internet access to block alternative services. As a result, Ofcom has not yet sought to implement its legislative powers to impose minimum requirements in relation to the quality of service of ISPs in order to prevent the degradation of service and the hindering or slowing down of traffic over networks. However, in its November statement, Ofcom confirmed that it will continue to monitor and review the situation in the UK. In addition, Ofcom warned that it will consider utilising its powers to impose minimum service requirements in the future, if it believes that network operators are prioritising managed services techniques to the detriment of best efforts internet access.

In an effort to mitigate the risk of regulatory intervention, a group of 10 UK ISPs have now signed a code of practice on the open internet, to be read in conjunction with: (i) Ofcom's November 2011 statement; and (ii) an already existing voluntary industry code of practice on traffic-management transparency for broadband services. In particular, signatories have agreed to:

  • ensure that full and open internet access products, with no blocked services, will be the norm within their portfolio of products;
  • provide greater transparency in instances where certain classes of legal content, applications and or services are unavailable on a product, and not market these products as "internet access" and ensure that any restrictions are clearly communicated to consumers; and
  • not target or degrade the content or applications of specific providers.  

The Code of Practice has so far been signed by 10 UK ISPs. However, Virgin Media, Vodafone and Everything Everywhere have elected not to sign up to the code, with Virgin citing concerns with its wording.

A copy of the Code of Practice is available here.  

3.Lights, Camera, Action! Competition Commission performs unprecedented u-turn in movies on pay-TV market investigation

The Competition Commission's ("CC") two year investigation into movies on pay-TV has culminated in a finding that BSkyB's position with regard to the acquisition and distribution of subscription movie rights on pay TV does not adversely affect competition in the pay TV retail market.

The CC's investigation arose from a complaint made to Ofcom by BT, Setanta (as it then was), Top Up TV and Virgin Media in 2007. As a result of such complaint, Ofcom launched an investigation which it concluded in 2010 with the publication of its pay-TV statement. In the statement, Ofcom imposed a wholesale must offer obligation on BSkyB in relation to it sports channels, Sky Sports 1 and 2 (see next article). In relation to movies, Ofcom published a consultation document, which culminated in a market investigation reference to the CC.

In August last year, the CC provisionally found that Sky's position with regard to the acquisition and distribution of subscription movie content on pay-TV had led to an adverse effect on competition in the retail market for pay-TV. The CC went on to consult on possible remedies, including a restriction of Sky's ability to continue to acquire the rights to subscription pay-TV movies from all of the six major studios (Disney, Fox, Paramount, Sony, Universal and Warner).

The CC issued revised Provisional Findings in May 2012. In these revised provisional findings the CC made an unprecedented u-turn in finding that it no longer considered there to be an adverse effect on competition and, consequently, that there was no need to impose remedies on Sky. The basis for the u-turn related to the changing supply of movies in the UK including, in particular, the emergence in the UK of "over the top" movie services such as Netflix, Amazon LOVEFiLM and Sky's own NOW TV service. These revised provisional findings were confirmed in the CC's final report published in August 2012.

A copy of the CC's final report is available here.  

4. The Sky's the (price) limit: BSkyB wins Sky Sports appeal

BSkyB, advised by Herbert Smith, has won its appeal against an Ofcom decision which had forced the company to make its Sky Sports 1 and 2 channels available to competitors at prices set by Ofcom.

In March 2010, a three-year investigation by Ofcom culminated in a 1,000 page decision requiring Sky to supply Sky Sports 1 and 2 to retail competitors and compelling it to reduce its wholesale prices. Sky appealed Ofcom's decision to the Competition Appeal Tribunal. The Premier League, Virgin Media and BT also appealed the decision: the Premier League on similar grounds to Sky; and Virgin Media and BT arguing, broadly, that Ofcom did not go far enough. Eight other parties intervened in the inter-connected appeals.

The Competition Appeal Tribunal has now ruled on appeal that Ofcom's core competition concern about the way Sky sold its sports channels, which was the basis of its decision, was "unfounded". In a summary of its judgment, the Tribunal said Ofcom's competition concern was "based on the finding … that Sky has deliberately withheld from other retailers wholesale supply of its premium channels, preferring to be entirely absent from those retailers’ platforms rather than to give them wholesale access, and that in doing so Sky has been acting on strategic incentives unrelated to normal commercial considerations of revenue/profit-maximisation. The Tribunal is of the view that Ofcom has, to a significant extent, misinterpreted the evidence of these negotiations, which does not support Ofcom's conclusion. We have found a significant number of Ofcom's pivotal findings of fact in the statement to be inconsistent with the evidence."

Going forward, it will be interesting to see how this latest decision plays out. With Sky no longer required to provide its sports channels to competitors at a regulated price, it will be free to negotiate the price for supply. However, two recent developments could have an additional impact on such negotiations:

  • BT has itself recently won the rights to two Premier League packages in the latest auction process, presumably putting it in a strong negotiating position. If either Sky or BT want to be able to offer subscribers the full suite of Premier League live matches, they will need to be able to reach agreement with one another; and
  • As part of its recent investigation into movies on pay-TV (for further details, please see our previous article), although the Competition Commission found that there were no features of the specific markets referred to it for review (i.e. the supply and acquisition of subscription pay TV movie rights and the wholesale supply and acquisition of packages which include core premium movie channels) which gave rise to an adverse effect on competition in any market, it did state that, in its view, competition in the pay-TV retail market overall remains ineffective, which could lead to BSkyB becoming the subject of further regulatory investigation.  

A copy of the summary of the Competition Appeal Tribunal's decision is available here. The Tribunal has indicated that the full non-confidential version of the judgment will be made available in due course.  

5. Big Brother is (sort of) watching you: Protection of Freedoms Act provisions come into force

The Protection of Freedoms Act 2012 (Commencement No. 2) Order 2012 has been made, and will bring into force as of 1 November 2012 provisions relating to judicial approval of certain activities relating to communications data, surveillance and covert intelligence.

Against a backdrop of concern regarding the proposed new Communications Data Bill (for further details, please see our previous eBulletin available here), certain provisions of the Protection of Freedoms Act 2012 ("PFA") are now due to come into force at the beginning of November 2012, amending parts of the Regulation of Investigatory Powers Act 2000 ("RIPA"). Specifically, the provisions being brought into force relate to judicial approval for obtaining or disclosing communications data, the use of directed surveillance and covert human intelligence sources, and are set out in sections 37 and 38 of the Protection of Freedoms Act 2012.

Section 37 of the PFA amends RIPA so that judicial approval (from a justice of the peace (in England)) is required in relation to any local authority seeking to obtain communications data. This judicial approval is intended to provide an additional level of protection for individuals and the provisions of the PFA set out the relevant tests for obtaining judicial approval, including that it is reasonable and proportionate to believe that obtaining the data is necessary.

Section 38 of the PFA provides for a similar approval mechanism in cases of the use of directed surveillance and covert human intelligence sources. The same procedural requirements are required as for local authority approvals described above.

Given that, in its current form, the new Communications Data Bill also requires judicial approval for access to communications data by local authorities, it will be interesting to see what impact (if any) the new Bill could have.

A copy of the legislation is available here.  

6. Ringing in the Changes: Court of Appeal overturns CAT judgment in non-geographic numbers dispute

The Court of Appeal has allowed appeals by Vodafone, O2, Everything Everywhere, and H3G against a judgment of the Competition Appeal Tribunal ("CAT").

The case concerned the rates payable by the UK mobile network operators ("MNOs") to BT for calls made by the MNOs' subscribers to non-geographic numbers hosted on BT's network with the prefix 080, 0845 and 0870.

In 2009, BT introduced a new wholesale charging structure (referred to as "ladder pricing") for calls to these number ranges, with the amount payable by the MNOs to BT being linked to the retail price charged by the MNOs to their customers for calling the relevant numbers: the higher the MNOs' retail prices, the higher the amount payable to BT.

The MNOs disputed these charges and the matter was referred to Ofcom for resolution. At the time, Ofcom determined that the new charges were not "fair and reasonable" and required BT to revert to the previously applicable charging arrangements. In its statement, Ofcom concluded that the likely effects of the new charging structure were uncertain and that there was a risk that consumers may end up worse off overall as a result of the changes.

BT appealed against Ofcom's determinations to the CAT and, in its judgment issued in August 2011, the CAT found in favour of BT and overturned Ofcom's decision. The CAT's judgment placed particular emphasis on BT's contractual right to introduce the new charges, the absence of relevant ex ante regulation on BT and the impact on competition of preventing BT from introducing new pricing structures.

The MNOs appealed to the Court of Appeal and, in its judgment handed down on 25 July 2012, the Court of Appeal upheld the MNOs' appeals and overturned the CAT's judgment.

This decision is the latest in a number of long-running disputes between telecoms operators and Ofcom in the UK regarding pricing and regulation in the telecoms sector. In August 2011, the Department of Culture, Media and Sport announced proposals to amend the rules on appeals against Ofcom decisions. The Government was of the opinion that the existing standard of review on appeals led to unnecessarily lengthy and expensive appeals. However, in March 2012, it was announced that the appeals framework would not, for the time being at least, be amended after all. For the time being it therefore appears that we can expect to see continued lengthy legal wrangling's between operators and Ofcom.

A copy of the Court of Appeal ruling is available here.  

7. Independence Day: Independent producer rules amended for UK local television

To support the emerging local TV market in the United Kingdom, the Government has passed legislation amending the local producer requirements set out in the Communications Act 2003.

During the past year, the UK Government has created a regulatory framework for new public service local television services. Local digital television programme services ("L-DTPS") licences will be granted in an initial 21 areas in the UK, and Ofcom will also licence a single multiplex operator to offer capacity, via which the local services will be made available.

The L-DTPS licences will only be for services carried on this local multiplex (i.e. on digital terrestrial television). L-DTPS licensees who also wish to distribute their services via cable, satellite or online, (subject to commercial negotiations) will require a separate Television Licensable Content Service licence for any such simulcasts. L-DTPS licensees will have to broadcast a minimum amount of news and current affairs programming, and are expected to engage with the local democratic process. Licence applications for both the multiplex and L-DTPS licences were required by 13 August 2012 and Ofcom has published a list of the applications received by that date.

The latest legislation from the Government also removes the burden of the 10% commissioning quota obligation that ordinarily applies to licensed local TV services. Independent producers, who were previously prevented from holding local TV broadcast licences if they wished to retain "independent" status, are now encouraged to participate in the bidding process for local TV licences.

Specifically, the legislation:

  • exempts local digital television programme services from the independent productions quota which would otherwise apply to them by virtue of the Communications Act 2003;
  • permits an independent producer to hold up to 100% ownership in a broadcaster providing a local digital television programme service, provided that the provision of relevant regulated television services is not the main activity of the producer; and
  • enables Ofcom to impose, on any holder of a local TV broadcasting licence who is also a producer, a licence condition requiring that licence holder to provide Ofcom with such information as is necessary for the purpose of determining whether that licence holder is an independent producer.  

A copy of the new legislation is available here and the list of L-DTPS and multiplex licence applicants is available here and here.