The Digital World In Asia The Rise Of 5G: Opportunities And Risks.
Legal News & Analysis – Asia Pacific – Telecommunications, Media & Technology
23 March, 2018
In the second bulletin in our series on the digital world in Asia, we discuss the opportunities and antitrust risks associated with the rise of 5G technology in the region. In particular, we discuss the opportunities involved in relation to collaboration and standarisation of 5G technologies, how to manage the potential antitrust risks related to such projects and the key pitfalls to avoid.
The rise of 5G
The potential benefits that the rise of 5G could have on the way we communicate with each other are enormous. 5G promises to enable high-speed, low-latency mobile communications, far beyond that offered by 4G. For businesses, 5G provides the opportunity to speed up their ability to provide services and collaborate wirelessly via remote platform services and to deploy Internet of Things devices throughout their infrastructure and supply chains. For consumers, 5G could mean rapid download speeds, wireless connected homes, and the advancement of connected device services and applications across a range of markets.
In the APAC region, there is an ambitious growth plan for 5G technology with many countries either consulting on the proposed use of 5 GHz band of spectrum or preparing for spectra auctions. For example, in February 2018 the Hong Kong Communications Authority launched a consultation on the proposed use of the 5 GHz shared band for the provision of public mobile services. The 5G spectrum auction for 125MHz in the 3.6GHz band, ideal for providing 5G services in metropolitan and regional areas, is upcoming in Australia and India is busy scheduling its own spectrum auction.
It is likely that the roll-out of 5G services in the APAC region will require significant private sector investment. Collaboration between network operators - for example reciprocal build models where operator A deploys infrastructure in one geographic area and gives operator B access to that infrastructure, and vice versa (either by way of passive and/or active site sharing or network roaming) - can enable the more efficient sharing of costs and risks. This could potentially result in the roll-out of 5G services more quickly and at scale, ultimately benefitting customers. Collaboration between providers on the fibre build required to connect ultrafast, fibre broadband directly to homes and offices should also give rise to similar advantages, enabling multiple parties to share the costs and businesses/consumers to benefit from a faster roll-out.
Horizontal collaboration and competition law
Whilst likely to be fundamental to fast roll-out and adoption of 5G services, collaboration within the telecommunications industry can, depending on its nature, present a number of risks from a competition law perspective, and may require approvals from the relevant regulators. These risks are most pronounced in horizontal collaborations between network operators; however, analysis of competition law issues is recommended for collaborations at all levels of the supply chain (see section on vertical collaboration below). It is especially important to manage these risks in the context of an increased interest in the digital sector by competition regulators globally, including increasingly so in Asia.
When planning a meeting with a competitor the following guidance can be helpful to avoid inadvertently breaching competition laws in various APAC jurisdictions:
- Prior to setting up the meeting, seek advice from your in-house legal team and explain the purpose of the meeting.
- The legal team can then advise on the likely competition law risks and help structure the meeting so as to minimise those risks.
Plan thoroughly for meetings in advance. You should prepare an agenda of the topics to be discussed and keep notes of what was said at the meeting. This can be very helpful in practice to demonstrate that no competitively sensitive information ("CSI") was shared at the meeting in case of queries from the relevant competition regulator.
If it becomes necessary to share certain CSI with a competitor to progress a plan to collaborate, for example in relation to technology road maps, deployment strategies and/or supply chain costs, the use of "clean team" arrangements should be considered.
It is important to follow this guidance wherever in the world scoping meetings between competitors take place regarding collaboration on 5G. For example, many of the antitrust regimes in the APAC region are as strict as the regime in the EU when it comes to the sharing of CSI between competitors (i.e. this is strictly prohibited and considered to be a serious infringement of competition law).
Certain types of more formal collaborations in respect of 5G services in Asia could require merger control approvals. It is important to note that some merger control regimes catch joint venture arrangements where the relevant jurisdictional thresholds are met by the parents alone, even if the joint venture in question does not have any operations there (an "offshore joint venture"). These include the merger control regimes in the EU, China and South Korea.
Accordingly, while collaboration in respect of the rise of 5G in Asia presents significant opportunities, it is important to be aware of and properly manage the antitrust risks involved with such collaborations in the context of increased regulator interest in the sector.
Network sharing arrangements
Network sharing between competitors could involve the sharing of certain, limited commercially sensitive data or CSI to enable the arrangement to work in practice. As a result, issues relating to anticompetitive information sharing can arise unless the appropriate safeguards are put in place.
One of the sensible ways to manage the antitrust risks associated with network sharing is to set up a "clean team" to enable CSI to be shared between competitors in a competition law compliant manner. This involves setting up a team of ring-fenced individuals removed from their "business as usual" roles and subject to appropriate restrictions.
Where properly utilised, this mechanism can enable competitors to work together effectively without CSI being shared within their wider respective businesses (which could amount to an antitrust infringement in many APAC jurisdictions).
In addition, clear guidance will need to be prepared and circulated to the clean team members so that they understand what is and is not permissible, particularly when it comes to reporting back in to their employer. Careful consideration will also need to be given to the information which is shared within the clean team, to ensure that it goes no further than is necessary for the underlying legitimate purpose of the network sharing arrangement.
Another concern which can arise in practice is how the network operators present themselves externally to third parties. For example, any joint purchasing by network operators as part of the collaboration will need to be considered carefully.
There is likely to be a level of technology standardisation involved in the roll out of 5G. Technology standardisation and related antitrust issues have come under the spotlight in several jurisdictions. For example, the European Commission published a Communication on the EU approach to Standard Essential Patents ("SEPs") in November 2017. The Chinese authorities are also in the process of drafting guidelines on SEPs and separately intellectual property rights more generally (as set out in our first e-bulletin in this series here).
Technology standardisation typically raises antitrust challenges which should be properly managed. For instance, the holder(s) of SEPs for 5G technologies should be careful not to engage in patent hold up (i.e., demanding a higher royalty or fees for patents that have been widely adopted across the industry), and should charge fair reasonable and non-discriminatory ("FRAND") royalty rates. Moreover, engagement in a standard setting organisation should be approached carefully because the possibility of the exchange of CSI, as well as allegations of patent ambush, could arise.
Furthermore, users of SEPs should be mindful of not engaging in patent hold out. This typically involves a user refusing or threatening not to take a license or to invest in the implementation of a standard until their royalty demands are met, knowing that the SEP holders' only choice in this scenario would be to start injunction proceedings; this is not without issue when the SEP holder is dominant, and would typically involve the SEP holder proving the value of a patent family in court (which is commerically unattractive).
A final risk area in terms of standardisation is patent trolling; that is the collection of patent portfolios (which could relate to an industry standard) by non-practicing entities (NPEs) for the sole purpose of commencing law suits to profit from the holding of these patents. Technology companies involved in the roll out of 5G should be aware of this practice, which has reportedly spiked in China recently.
The rise of 5G is also expected to involve vertical collaboration between telecom companies and service providers. Vertical collaboration is typically considered to raise fewer antitrust concerns than horizontal cooperation between competitors (which is discussed above).
One key antitrust issue to be aware of in respect of such collaborations is the level of exclusivity granted to service providers and whether this creates a monopoly situation in a particular market. For example, if a telecom's company collaborates with a company developing wireless medical service robotics and gives the company exclusive access to an important part of its 5G network on a perpetual basis in return for exclusive rights in the resulting robotics technology, this could be potentially problematic.
Another issue is the possibility of CSI being exchanged where the telecoms company is itself vertically integrated (and therefore competes with the service provider to which it is offering 5G services), or is in vertical collaboration with a number of different service providers in the same market. This risk can typically be managed with the use of clean teams, as described above.
5G has been described as "revolutionary" and an "enabler". The rise of 5G technology certainly does present significant opportunities for companies (including in respect of connected and autonomous driving, which will be the topic of our final bulletin in this series). However, businesses should be mindful of the antitrust risks associated with exploiting the many opportunities presented by 5G, in particular in relation to collaboration and standardisation. Nevertheless, the potential benefits and opportunities for network operators and other industry participants to collaborate to roll-out these services faster and more comprehensively (to the benefit of consumers) are enormous.
For further information, please contact:
Mark Jephcott, Partner, Herbert Smith Freehills