New UK telco rules and the impact on telecommunications tech transactions

Last month, the UK Government published the UK’s legislation transposing the requirements of the EU Electronic Communications Code (EECC). The UK is obligated to implement the EECC under the Brexit transitional arrangement. The Government’s approach was foreshadowed by its statement on the UK implementation published in July and the draft Statutory Implement (SI) can be found here.

For background, the EECC is designed to put in place one of the essential building blocks of the EU’s Digital Single Market (DSM) and marks a significant revision of the current EU telecommunications regulatory framework, dating from 2009. At the heart of the EECC is the desire to promote connectivity in fibre deployment as well as 5G.

Another critical plank of the EECC was the intention to level the playing field between traditional and over-the-top (OTT) communication services. Consequently, the EECC sought to extend the telecoms rules to OTT communication applications for the first time.

OTT Services

Of particular relevance to the UK’s transposition is therefore the approach to the future regulation of OTT services, such as messaging services and email (known as number-independent interpersonal communication services (NI-ICS)). In line with the Government’s statement in July to deprioritise certain provisions governing NI-ICS (in particular, the end user provisions, security and interconnection/interoperability), the UK legislation does not fully transpose the EECC requirements as applicable to NI-ICS.^[1]

The Government has not revised the UK definition of electronic communication services (ECS) in line with the definition in the EECC. As a result, the draft SI revises the definition of ECS to only include Internet Access Services, number based-ICS and any other services involving the conveyance of signals (such as services designed to support M2M applications)). It also does not include the broader category of interpersonal communications services, which would include both number based and number independent ICS.

Instead, the UK Government has sought to expressly apply certain provisions directly to NI-ICS rather than via the general amended definition of ECS. For example, the Government has extended Ofcom’s information gathering powers to NI-ICS.

The narrow scope of the new ECS definition to exclude NI-ICS clearly has wider implications for other legislation that refers out to the “ECS” definition in the Communications Act 2003 (as amended), such as the ePrivacy rules in the Privacy and Electronic Communications Regulations (PECR). PECR directly refers out to the ECS definition in the Communications Act. By implication, this could suggest that unless the PECR rules are changed to expressly include NI-ICS, such services will not be subject to the telco specific PECR rules (e.g. on traffic data). It should be noted that protection of the confidentiality of communications content is addressed in the UK pursuant to separate provisions under the Investigatory Powers Act 2016 (and already captures OTT messaging services and email).

Overall, the UK’s position on the regulation of OTT services may come as a surprise to some but perhaps, given Brexit, it is a sign of things to come and we may see further divergence from the EU in the future.

The General Conditions

In the UK, the legislation is only part of the story when it comes to the implementation of the EECC and it is important to also take into account Ofcom’s General Conditions (GCs) where the more granular requirements outlined in the EECC are enforced. The Ofcom rules set out the telecoms obligations as applicable to the various communication providers. Ofcom published its final statement on 27 October 2020 setting out the end-user requirements and has excluded NI-ICS from its scope.^[2] There are a range of strengthened consumer measures with differing implementation dates, including:

• Banning mobile providers from selling locked mobile devices – December 2021.
  
  
• Extended rules on accessibility for disabled customers – December 2021
  
  
• New rules for bundles which includes other services or equipment sold with a communication service – December 2021
  
  
• Better contract information and stronger termination rights – June 2022
  
  
• Improved switching processes for broadband - December 2022.

Ofcom is also consulting on minor changes to the definitions and terminology in the GCs as well as Metering & Billing and to the numbering plan. The consultation is open until 30 November and Ofcom intends to publish a final updated version of the GCs by 21 December 2020.

National Security and Investment Bill

The UK has also recently published a new foreign direct investment (FDI) screening law (the National Security and Investment Bill). The draft Bill will introduce strengthened FDI screening powers and will require a mandatory notification for transactions involving telecommunications services and infrastructure, which will need to be notified and cleared by the UK Government prior to completion. This new Bill will sit side by side with the competition regime once it has been passed into law. Whilst the UK Government will not be able to scrutinise transactions before the new regime comes into force, it does have the ability to retroactively “call in” transactions for review where they close after the introduction of the Bill (i.e. after 12 November 2020) in order to protect against parties seeking to “rush through” deals.

Impact on Tech Transactions

The UK’s EECC implementing legislation, which makes changes to the Communications Act 2003 and Wireless Telegraphy Act 2006 (governing spectrum), is due to enter into force on 21 December 2020 (some provisions will also be refined at the end of the Brexit transition period). Ofcom’s new rules will enter into force at the same time, all be it, with differing transition periods to give communication providers time to implement the requirements, particularly in the COVID-19 environment.

The EECC has measures to promote greater investment in very high capacity networks in line with the EU’s ambitions to build a European Gigabit society (which chime with the UK’s ambitions) and one of its core objectives reflects this ambition. This development of high capacity networks also offers opportunities for tech transactions as long term investments.

The UK’s FDI screening Bill will clearly have an impact on any relevant transactions and will also need to be considered alongside the EU's FDI Regulation and implementing legislation.

Any tech transactions involving electronic communications services or networks will need to consider these changes in the UK market and in particular the difference between the UK and EU position, which will likely diverge even further in the future.

[1] https://www.gov.uk/government/consultations/implementing-the-european-electronic-communications-code

[2] https://www.ofcom.org.uk/consultations-and-statements/category-1/proposals-to-implement-new-eecc