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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
United Kingdom | Publication | September 2023
There is significant interest among investment funds in investing in the roll-out and take up of fibre-to-the-home (FTTH) networks in the UK which, along with incentives from the UK government, has resulted in a boom of regional and national fibre network providers and internet service providers (ISPs), with now over 150 broadband providers in the market, according to USwitch.
Growth in the sector is in large part due to a demand for higher broadband speeds arising from a shift towards remote working and customers’ media usage, as well as a conscious push from the UK government (which has included grant funding in the form of the Building Digital UK voucher scheme).
While investment has slowed recently due to lower than anticipated uptake in customer connections, higher costs of capital and concerns regarding over-build, we are nonetheless seeing a number of new equity and debt financings, as well as a likely uptick in consolidations in the market.
Here we set out the key regulatory and data protection considerations that investors in this sector should bear in mind when investing in the UK fibre space and that should be borne in mind in the context of consolidations in the space, in the following parts:
It is common for telecoms providers to enter into agreements with Openreach for the provision of PIA (PIA Agreements). PIA Agreements are standard documents that BT enters into on the same terms with all network providers willing to deploy their networks using Openreach’s poles and ducts.
Under the terms of the PIA Agreement, counterparties can request licences to:
The counterparties will need to impose and comply with appropriate data protection restrictions within the PIA Agreement to ensure that processing of end-user data (e.g. addresses of premises being accessed and potentially, contact details) is undertaken in a compliant manner. This is discussed in more detail below.
The minimum licence terms for PIA products are five years for spine ducts, and twelve months for lead-in ducts and overhead lead-in.
PIA is a crucial remedy in the WFTMR. Ofcom promotes unconstrained access to ducts and poles, with the intention to promote infrastructure sharing and support deployment. There is also price regulation on PIA as well as measures to improve usability and practical implementation. BT must also provide access to ducts and poles on a no “undue discrimination” basis, meaning that BT and other providers should access ducts and poles on the same basis and terms (strict equivalence) as BT.
As access to infrastructure is considered a key bottleneck, it is likely that the PIA remedy will remain in place long term, until there are material changes to Ofcom’s assessment of BT’s and Openreach’s market position.
Openreach may also award third party altnets “path to collaboration” status, which would allow them to fast track network adjustments by removing the need for Openreach to conduct field validation after desktop approval has been given. This could in theory increase rollout speeds.
The use of PIA by altnets (particularly in urban and suburban areas where Openreach already has full duct and pole penetration) is vital to many rollout plans, as it prevents the need to construct new infrastructure, increasing rollout speeds and reducing construction costs and permit times. It is therefore important to ensure that altnets have:
The Access to Infrastructure Regulations 2016 (ATI Regulations) are intended to enable network providers to use other third party infrastructure to roll out its network. Relevant third parties (to whom the ATI Regulations apply) are:
Specifically, a fibre network provider may:
Ofcom can determine whether charges are fair and reasonable. Infrastructure operators can refuse access due to:
However, Ofcom’s guidance on the ATI Regulations notes that providers are expected to try to resolve these concerns by contract.
While such access could in theory help speed up the rollout of a fibre network, to date, communications companies have not been able to use the ATI Regulations to access third party infrastructure to the extent that was originally envisaged.
In 2020, the UK government undertook an information gathering exercise to identify issues with the ATI Regulations. The exercise revealed various potential barriers to using ATI Regulations:
In November 2021, the UK government completed its review of the ATI Regulations, stating that it would not make major changes. Nonetheless, it concluded that the ATI Regulations have not been utilised to their full potential and considered it may be proportionate to make clarifications to the scope of the ATI Regulations. It proposed to create a power for the Secretary of State to amend the ATI Regulations through secondary legislation and said it would consult on the potential changes.
It is not uncommon that rural broadband network providers will enter into commercial mast-sharing agreements with power and utilities providers for the mounting of FWA technologies.
The UK government estimated that the total investment required for a nationwide rollout of FTTH in the UK is in the region of £30bn. In September 2019, the UK government stated that it aims to deliver a gigabit broadband network to 85% of the UK by 2025.
This network could be delivered via full-fibre, hybrid fibre-wireless solutions or 5G wireless networks. Building Digital UK (BDUK) is part of DCMS and is responsible for supporting the delivery of FTTH throughout the UK. It administers a number of schemes to help fund fibre rollout, as described below.
For example, Project Gigabit is aimed at delivering gigabit-capable broadband networks in the UK. In March 2020, the UK government confirmed that it would commit £5bn to support rollout to the 20% of premises that are hardest to reach. This “outside in” approach is designed to ensure that gigabit services are delivered in hard-to-reach areas alongside the rest of the UK. This fund is administered by BDUK, which offers rollout contracts following a competitive bidding process.
As part of Project Gigabit, the UK government is also providing voucher funding as part of the Gigabit Broadband Voucher Scheme to help people experiencing slow broadband speeds in rural areas. Vouchers for homes and businesses are available to cover the costs of installing gigabit broadband.
The latest update from BDUK was published in February 2023 and stated that at such time over £1bn had been made available to broadband suppliers through the scheme, with 73% of the UK now gigabit capable.
As part of the UK government’s drive to deliver “gigabit capable broadband” nationwide by 2025, in January 2020 the UK government announced proposed changes to the Code Powers, intended to overcome practical difficulties with rolling out fibre networks:
The UK government also intends to introduce legislation that will require developers to ensure that new build homes have the necessary infrastructure to support gigabit-capable connections. The requirement for developers to engage with telecoms operators is expected to increase opportunities for operators to enter into agreements with house builders to connect homes at the time that they are built.
Publication
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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