Whenever there is a new submarine cable consortium project, the legal and regulatory analysis is initiated by the prospective landing parties to determine what antitrust requirements should be complied with. Each cable owner, whether a landing party or not, should conduct an independent legal analysis to assess the antitrust requirements. This analysis should be conducted in their own country and in those jurisdictions where they intend to operate. Antitrust laws and regulations vary from jurisdiction to another, so it's important to understand the specific rules that apply.
Such evaluation is important to know in advance the regulatory roadmap for the installation of a new subsea cable and to be able to negotiate any pre-sales IRU agreements with special legal conditions to generate additional revenues. The way forward is not easy, as any infringement of antitrust rules is generally subject to penalties linked to the net profits of the companies involved.
Accordingly, to compete effectively in any given market, each consortium member knows that it must successfully design and market its own capacity services, while maintaining the consortium infrastructure in good working order, and anticipating and responding to various competitive factors affecting all landing country markets and customers. Challenges range from pricing strategies against other new consortium competitors in the area, changes in consumer preferences, emerging technologies, and economic and social conditions in each landing country over the 25-year life of the cable.
Market share.
Consortium members should first define the relevant geographic markets in which they already operate and those in which they intend to operate. In the context of a submarine cable project, these markets would typically include the countries where the new subsea system will land.
If a consortium co-owner is found to have significant market power, it may be subject to stricter antitrust scrutiny. Antitrust authorities are more likely to investigate and review the conduct of companies with significant market power to ensure that they do not abuse that power to harm competition.
In order to calculate the market share of a telecommunications company, each national regulation determines how this should be done. In general, it is necessary to know the total revenue or number of subscribers of that company and the total revenue or number of subscribers of the international connectivity market. Once the market share has been calculated, it is often up to the antitrust or regulatory authorities in that jurisdiction to determine whether the cable owner is a dominant operator.
However, market dominance as such is not illegal. What is generally illegal under the relevant legal framework is the abuse of dominance - a practice that occurs when a company uses its dominant position to exercise market power, thereby distorting and/or restricting competition.
Actions to take before laying cables.
Addressing potential antitrust issues before laying submarine cables is a proactive approach that can help consortium members avoid legal challenges, penalties, and reputational damage. If a consortium member, whether an OTT or a telecommunication company, has an affiliate in a landing country and plans to sell capacity with an interconnection point in that nation, then it is imperative to assess whether there are any potential antitrust issues that need to be addressed before these two actions take place, rather than after, when it may come under the regulatory spotlight.
The real concern of any antitrust authority is to identify which entity, despite the complex corporate and contractual arrangements in a construction and maintenance agreement (C&MA), can effectively distort competition in its markets, so it is better not to be on the suspect list in the first place.
It is therefore essential that each cable owner considers this with an antitrust counsel in accordance with its own regulatory situation in the landing country. For example, a new telecommunications company with no previous presence in that nation may not have the same regulatory requirements as a consortium member that already has subsidiaries in that country with mobile, satellite or even other submarine infrastructure providing services to local customers.
In addition, if the latter has previously been sanctioned by the antitrust authority for anti-competitive behavior, all the other co-owners should take certain additional precautions to avoid being considered a cartel. Accordingly, the consortium parties should engage antitrust counsel to prepare a brief guide on how to conduct consortium discussions to avoid any risk in each jurisdiction.
Consortium discussions.
In the early stages of a submarine cable project, the exchange of information and discussions between the prospective consortium members is an integral part of the formation of such a submarine infrastructure project. Several competition authorities recognize the legitimacy of this need but have expressed concern where discussions and negotiations are not conducted in a prudent manner. Thus, it is essential that discussions are limited to the formation and operation of the purchasing consortium.
Moreover, these authorities expect the consortium partners to act as independent competitors in areas outside the collaboration (e.g. retail, and other markets in which the consortium members compete). Antitrust concerns generally arise from the possibility that the information exchanged, or discussions held by the competing companies could be used to fix, stabilize, or coordinate future competitive behavior, or that the meetings could be used as a pretext to fix prices or engage in other collusive behavior. For example, how the consortium members will bid, price, or perform in the coming years.
It is therefore important to recognize that the disclosure of non-public, competitively sensitive information in discussions or communications between consortium members may raise antitrust concerns. To minimize the risk of antitrust scrutiny, the co-owners must limit the disclosure or exchange of non-public competitively sensitive information.
On the contrary, the consortium parties are generally free to discuss non-confidential, technical, or commercial matters relevant to the industry, such as common problems or challenges related to technology, the characteristics and suitability of particular equipment or technology, and the specific standards or technologies used today in the areas mutually agreed by the consortium. What is not allowed is for any co-owner to disclose or discuss their own plans for the introduction of, or meetings relating to, specific equipment or technology:
Individual company prices, proposed price changes, terms and conditions of sale, price differentials, price mark-ups or price discounts.
The collective adoption of a particular pricing model or the boycott of another model.
Their proposed conduct towards individual suppliers, customers, or intermediaries. For example, while cable owners may legitimately develop or select a particular technology to promote interoperability, they cannot agree to collectively boycott other competing technologies.
Contractual clauses.
A particular clause in a C&MA may be legal in one country but illegal per se in another. Some practices are considered to have a negative effect on the market and are therefore almost always prohibited. For example, it is illegal to agree with competitors to fix prices, to fix or agree to limit output, to rig bids, to allocate territories or customers, or to boycott a customer or supplier. In some countries, such agreements are even criminal offences.
Consortium co-owners should therefore tread very carefully and activate the C&MA termination clause in the event of a serious breach of the agreement by one of the cable owners, which could implicate the others in possible unintentional breaches of local antitrust law.
Indeed, one of the most important future competitors for any consortium may be new entrants to the telecommunications industry. These new entrants would typically start with no market share in a country in which they land and may not be burdened by an installed base of obsolete equipment or technology, relying more on equipment/fiber with higher level of transmission performance. The success of a cable consortium therefore depends in part on its ability to anticipate and adapt to technological change.
Pre- sales Capacity IRUs.
The prospective consortium cable owners will seek to pre-sale capacity IRUs before the new cable system becomes operational to obtain additional financing and also to reduce the risk exposure. In fact, for a period of 25 to 30 years, the consortium members will face competition from other telecommunications companies, including local and global operators, existing or newly developed consortium cable systems along existing and new alternative routes, as well as from satellite companies offering competing network access and data services.
Consortium owners are aware that IRU capacity customers with alternative cable infrastructure or access to competing subsea networks may have more options and leverage in negotiations. This dynamic can influence the pricing, terms, and conditions of IRU agreements and expose consortium members to customer demands for some provisions that may be illegal, such as:
Exclusivity of other Capacity IRU sales in its country for the duration of the contract (25 years or less).
ROFR, Right of First Refusal, a contractual right that gives a Capacity IRU customer the option to deal with the consortium owner as a supplier before other suppliers can.
Best price: the cable owner concedes to give the Capacity IRU customer the best terms or prices it offers to any other customer.
In the same way, local providers of backhaul and local loops in the landing country may be tempted to try to impose similar special terms on the consortium cable owners, or vice versa, as in the previous scenario.
All these arrangements have some challenges in common, such as the difficulty of sharing confidential third-party information with a supplier or customer to enforce these terms. In addition, all parties need to recognize that price alone is not the sole measure of the competitiveness of another party's offer, but that it must be weighed against the overall package and terms offered. Considerations may include, but are not limited to, price, payment terms, minimum purchase requirements, time commitments and other benefits offered by such suppliers or by one or other of the parties.
In addition, if a customer buys capacity IRUs from most of the submarine cable owners in the same country with similar best price provisions, it can create the network effect by indirectly controlling the prices of international connectivity in that country. Thus, even a single customer with no infrastructure of its own may be able to distort competition in the telecommunications market, and this is something that a consortium should be defended against by national competition authorities to have a healthy market in the long term.
OTTs and the markets.
With the successive announcements of new cable systems, concerns are being raised about the dominant position of OTTs (Over-the-Top) or GAFAM in the changing connectivity routes around the world. Certainly, it is currently very difficult to project a new submarine infrastructure without their participation, as a parallel project by an OTT with higher investment in the same region could undermine the future competitive advantages of any telecommunication operator or newcomer to the industry.
While it is true that the primary business of OTTs is focused on other types of business (e.g. online shopping, personalised advertising), it is also true that self-regulation has failed in these same markets. On both sides of the Atlantic, there are numerous lawsuits against hyperscalers for misconduct and abuse of dominance in these non-telecom markets, with the help of whistleblowers and consumer and civil rights organisations.
In the coming years, the wholesale telecoms market could face similar challenges if current developments are not carefully monitored in order to preserve national digital sovereignty under the pressure of economies of scale. A possible mistake could be to rely too much on the short-term vision that there will always be spare capacity offered to them as landing countries. Accordingly, one of these preventive measures should be to demand transparency in the contracts between countries and OTTs and to secure interconnection rights for any local operator in such systems.
Other voices have also mentioned the possibility of requiring a certain percentage of bandwidth or fibre pairs to be reserved for landing countries, rather than relying on an OTT to open the water gauge at will. While an island may welcome these new investments with their associated data centre projects, if not properly regulated, they may jeopardise future investment in the region, leaving the country with limited room for manoeuvre to attract new ICT players.
National policymakers should find a long-term balance between preserving their sovereignty rights in case they need to correct possible abuses, and ultimately encouraging new submarine routes through different operators, taking advantage of the different multinational options in the market. And there is always the World Trade Organisation (WTO), to help out when international markets are distorted and nations need international coordination to get back on track.
Andrés Fígoli is the Director of Fígoli Consulting, where he provides legal and regulatory advice on all aspects of subsea cable work. His expertise includes contract negotiations and permitting. Additionally, he has extensive experience as an international commercial dispute resolution lawyer. Mr. Fígoli graduated in 2002 from the Law School of the University of the Republic (Uruguay), holds a Master of Laws (LLM) from Northwestern University, and has worked on submarine cable cases for almost 21 years in a major wholesale telecommunication company. He also served as Director and Member of the Executive Committee of the International Cable Protection Committee (2015-2023).
This article was first published in Submarine Telecoms Forum Magazine #135 – March 2024.