16th October 2018 UKCTA RESPONSE
1. UKCTA is a trade association promoting the interests of fixed-line telecommunications companies competing against BT, as well as each other, in the residential and business markets. Its role is to develop and promote the interests of its members to Ofcom and the Government. Details of membership of UKCTA can be found at www.ukcta.org.uk.
2. UKCTA is pleased to be able to respond to this consultation. (1) UKCTA is very supportive of the Government’s aim that rules should serve as a model of fairness and efficiency, and that the UK must truly be open for business with the rest of the world. UKCTA members are engaged in the provision of Critical National Infrastructure and count both major and important government agencies as their customers so intrinsically recognise the need to have transparent and proportionate controls on foreign direct investment and mergers where they can run contrary to the security of the UK. So far the proposals are very vague, and we are very concerned to ensure that they do not go further than is necessary and proportionate.
Response to the consultation
3. We note that this is the second consultation on the long-term changes to the UK’s national security review process for foreign investment. UKCTA previously made a response to BEIS setting out our concerns on the proposed reforms (attached as an annex for reference), and we are disappointed that many of these do not appear to have been addressed. We therefore would urge BEIS to consider the points made both in our previous response and the additional points below as part of its consultation and ultimately decision process.
Complexity and a lack of clarity
4. We feel that our concerns set out in paragraphs 13 to 15 of our previous response have not been addressed.(2) We urge Government to review these in addition to the points below.
5. We agree that the regime proposed should be a voluntary notification regime, and that there should be no penalty or sanction for not making such a notification. This is particularly important given that the regime is both far-reaching and lacks detail in order to give Government the maximum freedom possible. For example, “trigger events” range from large transactions of over 50% shares in a business to less obvious “trigger events” such as inherited shares/rights and land near sensitive Government sites.
6. However, the bi-product of this lack of clarity and almost limitless scope for Government to scrutinise “trigger events” (as set out in Section 3 of the consultation document) is that it creates a great deal of uncertainty for businesses including communications providers.
7. Specifically for communications providers, we note that they are considered to be core areas of interest to Government with a soft compulsion to notify under the proposed regime.(3)
The definitions are both broad and inconsistent, with thresholds which apply to some elements but not all (e.g. up to 1 million end-users is used for some of the descriptions but not all).
8. One specific example that is causing concern is the treatment of acquisitions of significant influence or control over an asset. Although the white paper suggests that “the Government does not intend that the power would be used in relation to ordinary business or consumer transactions”, (4) there is significant lack of clarity regarding these sorts of agreements - particularly the status of outsourcing and service agreements in the communications sector. As the definitions in the white paper are so unclear, all outsourcing and service agreements granting a degree of control or ownership over hardware or granting or assigning a software licence could in theory be a trigger event. It is unclear when communications providers can safely treat the service provider in question as a supplier as described in paragraph 5.51 of the Draft Statement of Policy Intent. Additional clarity is urgently needed to ensure that the day-to-day business of communications providers is not unduly restricted.
9. As a result of the combination of far-reaching Government powers, broad categories of data, and inconsistent treatment of communications providers, we consider that the uncertainty created could in fact act as a disincentive to investment in the UK.
Information gathering and sharing powers
10. The consultation sets out that new information gathering powers will be established for Government.(4)We note also that Government intends to provide for information sharing between itself, the CMA and/or other regulators.(6) We consider that any information gathering process must be proportionate and have a clear and public process set out in writing. As we noted in our previous response,(7) information requests are often disruptive and difficult for communications providers to manage, and therefore any such process should therefore be flexible and collaborative around timing.
11. Furthermore, we suggest that Government should use draft, informal information requests before sending a final request. This allows Government and the business in question to work together to identify data held and data required without the risk of sanctions for genuine mistakes or lack of understanding. Ofcom often sends information requests to communications providers under section 135 and therefore adopts this process for the majority of requests.
12. As the information requested is likely to be of a highly sensitive and confidential nature when it is received or transferred between the bodies above, we urge Government to ensure that adequate protection and security is put in place around that information.
13. As we raised in our previous response,(8) criminal sanctions are highly disproportionate and we are disappointed that this concern has not been addressed. Furthermore, the possibility of unlimited fines seems disproportionate, with no way for concerned businesses to plan for such a sanction in their finances.
14. Sanctions against directors and managers at lower levels(9) also seems to be disproportionate and problematic to ensure that staff are sufficiently aware of the regime in place to be able to identify breaches in place. Again, with the complexity of the regime proposed, this seems practically hard to manage.
CMA independence and impact on competition
15. As noted in our previous response,(10) we expect competition reviews should be kept as a strictly separate process from national security reviews. The analyses and data required are very different, and the processes should not be confused or merged together.
16. We see there being a risk to the CMA’s independence where Government will be able to overrule the CMA’s decisions to block certain transactions where there are significant competition concerns (11). If such a transaction were to be forced through, we would like to know how the competition concerns will be addressed, and what remedies would be available to competitors in the market who may feel that the transaction could harm their business. While Government may see this being an exceptional circumstance and a decision to be taken on a case by case basis, we urge Government to also set out how such competitors could input into such a decision on both the CMA and Government sides.
Admin and practicalities
17. The lack of clarity around the regime and the risk of criminal sanctions (as highlighted above) could lead to over-notification. We note that Government is expecting to receive around 200 notifications, and conduct around 100 assessments; however this risk of even more notifications should be acknowledged and planned for in light of the potential sanctions. It is also unclear how and where Government will resource the processing of the notifications and the resulting assessments that will take place.(12) The Government anticipates reviewing significantly more mergers than the CMA reviewed in 2017/18, and imposing remedies in four times as many cases.(13) As we noted in our previous response, we would also urge that any such resources should have relevant experience to allow them to perform their duties, including how to handle sensitive data.(14)
18. We agree with the proposal that no fees should be levied from industry for notifications (whether voluntary or called-in).(15) This will reduce the burden on business, and gives some clarity for the purposes of planning the costs of any relevant “trigger event”.
19. Government would like to make the regime apply extra-territorially.(16) However, it is not clear how this would work in practice – would the UK need to seek the support of overseas governments? How would conflicts of remedies work cross-border? Similarly it is unclear how the new regime will interact with the EU regime now and in future (i.e. post-Brexit and with the introduction of the EU Merger Regulation).(17)
20. Again, this leads to significant uncertainty for business which ultimately puts a dampener on investment into the UK, particularly at a time when the UK is trying to make itself as open to the wider world as possible. As we noted in our previous response,(18) there is great political sensitivity around protectionism at this time, and Government should consider how it positions this change alongside its other desires for the UK to be a global nation, without sending out mixed signals to foreign investors.
3 As set out in Annex A of the Draft Statement of Policy Intent, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/728311/20180717_Statement_of_policy_intent_-_shared_with_comms.pdf
4 Paragraphs 3.72 and 3.74 of the consultation.
5 As set out in Section 7 and paragraph 8.62 of the consultation.
6 Paragraphs 11.25 and 11.43 of the consultation.
7 See paragraph 12 of our previous response, http://www.ukcta.org.uk/ukcta-response-beis-national-security-infrastructure-investment-review/
8 See paragraph 16 of our previous response, http://www.ukcta.org.uk/ukcta-response-beis-national-security-infrastructure-investment-review/
9 Section 9 and Annex C of the consultation.
10 See paragraph 6 of our previous response, http://www.ukcta.org.uk/ukcta-response-beis-national-security-infrastructure-investment-review/
11 Paragraphs 11.16 to 11.21
12 As detailed from paragraph 5.18 onwards in the consultation.
13 In 2017/18, the CMA reviewed 62 mergers and accepted remedies in 12 cases.
14 See paragraph 7 of our previous response, http://www.ukcta.org.uk/ukcta-response-beis-national-security-infrastructure-investment-review/
15 Paragraph 5.25 of the consultation
16 Paragraphs 6.40 to 6.41 and 9.22 of the consultation.
17 See paragraphs 11.31 to 11.38 of the consultation.
18 See paragraph 4 of our previous response, http://www.ukcta.org.uk/ukcta-response-beis-national-security-infrastructure-investment-review/