Telecoms regulation: what UK companies need to know now
Published on 15th Mar 2023
Telecoms businesses need to be mindful of national security impacting acquisitions and upcoming changes for over-the-top service providers
There have been a number of regulatory changes that telecoms companies have needed to grapple with over the last few years – and there are many more to come.
Two key pieces of regulation are impacting the sector: the National Security and Investment Act 2021 (NSIA) and the EU Digital Markets Act 2022 (DMA).
Impact of the NSIA in its first year
The NSIA came into force in January 2022, creating a stand-alone regime for the government to review transactions on national security grounds and, if necessary, intervene to impose conditions or stop the deal going ahead.
A critical aspect of the regime is the requirement to make a "mandatory" notification of acquisitions that give control of entities or assets in various high-risk sectors in the UK. These sectors include communications, satellite technology, critical suppliers to the government and suppliers to the emergency services.
During 2022 over 1,000 notifications were made through the government online portal and 95% of these were given clearance within 30 days.
If the government has concerns about an acquisition, it can block a transaction to prevent it from going ahead. In 2022 though, only five such transactions were blocked completely. A further 11 were allowed to go ahead, providing that certain conditions were met.
Along with significant fines and potential criminal convictions for non-compliance, notifiable transactions that proceed without approval or without compliance with conditions are void.
Navigating the rules
One year on, three practical tips for navigating the rules are:
- If in doubt, make a notification. At the beginning of the year, many companies spent a lot of time deciding if they were required to notify the government about a transaction. We have learnt that it is better to err on the side of caution given the consequences (and relatively small number of transactions blocked), get the notification submitted early and not to let it delay your transaction timeline.
- Think broadly about the "UK connection" of the qualifying activities. It does not necessarily have to involve a UK company or one that has a branch in the UK to be notifiable. A company with a base of customers in the UK could be sufficient. As above, if in doubt, make a notification.
- Keep in mind that many countries have similar regimes in place, so even if your transaction is not caught by UK rules, other regulations could apply.
Impact of the DMA on the telecoms sector
Digital regulation has become the focus of legislative attention over the last few years and there is an increasing array of EU and UK regulations that telecoms companies need to comply with.
A game-changing piece of regulation is the DMA, with its rules beginning to apply from 2 May 2023. The DMA applies to online platforms, search engines, social media companies and over-the-top (OTT) communication providers, amongst others.
One of the most significant changes for telecoms companies is a new requirement on instant messenger services designed to ensure fair competition and promote consumer choice.
Under the DMA, certain instant messenger services (that is, those with significant scale and reach based on turnover and active users – known as "gatekeepers") will be required to work with each other. They will need to ensure that their number independent messenger services interoperate (exchange messages) with number-based services. For example, iMessage and SMS are already interoperating because users can receive an SMS via iMessage and vice versa. Similar services will need to do the same.
This is just one of several requirements under the DMA that telecoms businesses will need to consider. Others include business access to data generated on the gatekeeper's platform and rules on an end user's ability to remove pre-installed apps on the gatekeeper's operating system.
Similar regulation anticipated in the UK
UK companies not operating within the EU may question the impact of the DMA on them, given that it is an EU law introduced after the UK left the EU.
However, the UK government has proposed similar legislation: the Digital Market, Competition and Consumer Bill is expected to be published in the current parliamentary session, which ends in autumn this year.
Moreover telecoms regulator Ofcom's current digital markets strategy confirms it is looking at online personal communications services as a new specific focus area: in particular, how these services disrupt traditional communications and may affect consumer outcomes (including where there is limited interoperability). This review of the market is to identify the issues so Ofcom is in a position to frame a regulatory response if necessary to meet its duties relating to competition, consumer protection, access to essential services and securing end-to-end connectivity.
Osborne Clarke comment
While the regulation of OTT communications providers under the EU and the UK regimes will have similarities, inevitably the two regimes will diverge. Communications providers need to keep an eye on the evolving regulatory approaches in order to respond.
The topic of this Insight formed part of Osborne Clarke's Communications Review 2023, on 1 March. If you would like to discuss any of the issues raised, please contact your usual Osborne Clarke contact or one of the experts listed below.
This Insight was produced with the assistance of Hannah Edwards, Trainee Solicitor.