Insights

EU's Accelerated M&A Activity in Telecom and Tech Sectors Prompts Regulatory Questions

EU's Accelerated M&A Activity in Telecom and Tech Sectors Prompts Regulatory Questions

M&A activity in the telecommunications and technology sectors is running at levels not seen since the dot-com bubble of the late 1990s. Much of the optimism stems from the rise of new communications services, such as, amongst others, Communications as a Service ("CaaS"), Voice over IP ("VoIP"), Virtual Private Networks ("VPN"), cloud computing, audio and video conferencing, Over the Top ("OTT") and Content Delivery Network ("CDN") services. The common feature of these services is the transmission of data to and from the customer and the service provider. This gives rise to the question of whether these new services are subject to telecommunications regulations, and if so, the regulatory requirements with which providers must comply.

Regulations vary from country to country, despite attempts by various international institutions—such as the International Telecommunications Union—to develop common regulatory standards. Broadly, common telecommunications regulatory issues include the following:

  • Licensing or registration obligations;
  • Radio spectrum holdings conditions;
  • Administrative charges (including licensing or annual fees);
  • Contract transparency (including tariffs, dispute resolution and termination rights);
  • Traffic management requirements;
  • Disabilities requirements;
  • IP address assignment conditions;
  • Security and interception; and
  • Reselling conditions.

Historically, these restrictions applied only to public switched telephone network-based operators ("PSTN"), not to web-based services providers. However, technologies are converging, regulations are fast-changing, and the lines are increasingly blurred. Certain telecommunications regulations may apply to varying degrees to new communication services providers too, regardless of whether the underlying technology used to provide such services is PSTN or web based. For example, in the EU, any service consisting of the "conveyance of signals over an electronic communications network" would fall within the jurisdiction of the national regulatory authority of the EU Member States, regardless of who owns the underlying network.

Unlike some other regulatory systems (e.g. the US) which distinguish between wireline and wireless service, or telecommunications and information services, the EU definition of "electronic communications network" is all encompassing and designed to capture virtually all transmission networks, regardless of the service or application running over them. In certain countries, even the provision of communications services within the same corporate entity, as opposed to the public, or reselling other providers' communications services, might trigger certain telecommunications regulatory compliance obligations.

The good news is that the basic level of regulation in most countries is relatively light, so many services providers are likely to be already compliant with the applicable regulatory requirements in their normal course of business. However, things could get more difficult following a merger or an acquisition: the combination of two previously unregulated (or partially regulated) businesses might bring the merged entity's business under the scope of telecommunications regulations or extend the scope of the applicable regulatory requirements. M&A deals are also more likely to catch the eye of national regulators, prompting questions.

What is key to any deal lawyer or integration manager is to have close at hand a record of the compliance decisions which the target or merged entity has made in the countries where it operates or intends to operate. In particular, for each country, they will need to be aware of:

  • the type of service(s) provided (i.e. whether it entails the handling of signal transmission to the public or closed groups);
  • the type of arrangements with local telecommunications providers (from leased lines to special access rights);
  • the relevant telecommunications regulations (from licensing to tariff transparency obligations, from security to interception requirements);
  • sanctions for noncompliance;
  • the level of risk for noncompliance;
  • the lowest common denominator for all of the applicable compliance obligations, assuming that a uniform global approach to compliance is preferable to a localized approach, which might potentially lead to monitoring and implementation problems; and
  • a list of practical steps to mitigate the risks of noncompliance.

So, while regulators across the world are grappling with the challenge of how to regulate internet-based versus PSTN-based services, new communications services providers, and their advisers, should be aware of the legal risks and how to minimize them, not only during pre-merger due diligence but also at the post-merger integration stage. In order to protect your investment, it pays to understand the regulatory environment.

Lawyer Contacts

For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com.

Alexandre G. Verheyden
Brussels
+32.2.645.15.09
averheyden@jonesday.com

Bruce A. Olcott
Washington
+1.202.879.3630
bolcott@jonesday.com

Holger Neumann
Frankfurt
+49.69.9726.3939
hneumann@jonesday.com

Francesco Liberatore
London
+44.20.7039.5221
fliberatore@jonesday.com

Paloma Bru
Madrid
+34.91.520.3985
pbru@jonesday.com

Hervé Castelnau
Paris
+33.1.56.59.46.74
hcastelnau@jonesday.com

Yvan N. Desmedt
Amsterdam / Brussels
+31.20.305.4203 / +32.2.645.15.23
ydesmedt@jonesday.com

Stefano Macchi di Cellere
Milan / London
+39.02.7645.4104 / +44.20.7039.5959
smacchi@jonesday.com

Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our "Contact Us" form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm. h

We use cookies to deliver our online services. Details of the cookies and other tracking technologies we use and instructions on how to disable them are set out in our Cookies Policy. By using this website you consent to our use of cookies.