The regulatory telecommunications framework in Bermuda is currently in the process of root-and-branch reform heralded by the establishment of a regulatory authority pursuant to the Regulatory Authority Act 2011 and continued by the bringing into force of the relevant sections of the Electronic Communications Act 2011. Coupled with this reform, telecommunications companies have now been opened up to foreign investment and ownership by the Companies Amendment Act 2012.
The previous regulatory framework under the Telecommunications Act 1984 has been fragmented and unsatisfactory and has sought to regulate a wide range of telecommunications and broadcasting infrastructure and services through a multiplicity of licences. This framework has not been able to deal efficiently with the development of telecommunications technology when the convergence of technologies and service platforms has meant that a unified regulatory regime was appropriate. The Telecommunications Act 1984 has historically prevented carriers from offering service bundles outside of their authorised class, and carriers have also been largely restricted to one of three classes of service namely: international, ISP, or domestic telephone provider.
This has made little economic sense when faced with the development of digital technology which has allowed for large efficiencies to be made when multiple services are provided over one network. These licensing restrictions and regulatory inefficiencies have caused Bermuda to fall behind other countries with regard to innovation as the investment required is prohibitive when a wider range of services cannot be offered by individual carriers.
In response to pressure from the industry the Ministry of Energy, Telecommunications and E-Commerce produced a telecommunications regulatory reform policy on 18 November, 2008 which had two principal limbs:
- To separate policy making from the implementation and enforcement of telecommunication policy;
- To reform the licence structure by removing the requirement for separate licence categories based on services provided in order to introduce a single standard communications license available to all qualifying licensees.
Following a lengthy development and consultation period, the Regulatory Authority Act 2011 and the Electronic Communications Act 2011 have been passed and will now become the twin foundations of Bermudian Regulatory Reform.
When the Electronic Communications Act 2011 is brought into force, it will introduce the concept of an Integrated Communications Operating Licence (ICOL) and will provide the primary and enabling provisions for the regulation of electronic communications services by the Regulatory Authority, while television and radio broadcasting will remain regulated by the Telecommunications Act 1986, the Broadcasting Commissioners Act 1953 and associated regulations made pursuant to their specific enabling provisions.
Part 4 of the Electronic Communications Act 2011 will provide the regulatory authority with the power to impose ex-ante remedies if they determine that any existing provider has significant market power, so as to ensure access to telecommunications services and infrastructure on reasonable terms and thereby discourage anti-competitive practices.
Section 17 of the Electronic Communications Act 2011 when in force will provide that the regulatory authority is able to specify the duration of the licence. The duration of the licence and other licensing conditions are currently the subject of public and industry sector consultation. Section 18(3) of the Electronic Communications Act 2011 provides that the term of an Integrated Communications Operating Licence shall not exceed 20 years.
It is currently proposed that the standard length of a licence will be set at this 20-year maximum which is particularly attractive to foreign investors. It should also be noted that when the Electronic Communications Act 2011 is implemented section 18(4) provides that an Integrated Communications Operating Licence may be renewed for an additional term if the licence holder files an application requesting renewal no earlier than nine months and no later than six months prior to the expiry date and the authority determines that renewal of the licence would be in the public interest, subject to any modifications that the authority may deem it necessary or appropriate to impose at the time of renewal.
Given the level of investment that is required to provide a telecommunications service suitable for the re-insurance, investment and professional business sector in Bermuda the ability of outside investment funds and telecommunications companies to participate has been seen as essential. With a land mass of only 21 square miles and a population of approximately 65,000 people, Bermuda has traditionally imposed controls on the acquisition of land by foreigners and restricted the right of foreign owned companies to carry on business in Bermuda. Indeed, successive Companies Acts have provided the mechanism whereby participation in the local economy has been restricted to Bermudian owned companies. Section 113, 114 and the Third Schedule to the Companies Act 1981 provide that a local company carrying on business in Bermuda must be at least 60% owned and controlled by Bermudians. However, in line with the economic policy of encouraging outside investment in Bermuda the so called "60/40 rule" has recently been relaxed with regard to certain prescribed industries.
The Companies Amendment Act 2012 which came into force on 27 July, 2012, provides exceptions to this 60/40 rule. Pursuant to the amended section 113 and 114 a telecommunications company that is listed on a designated stock exchange is permitted to carry on business in Bermuda. The abrogation of the rule also extends to other prescribed industries such as energy, insurance, hotel operations, banking and international transportation services by ship or aircraft.
In accordance with the economic and policy rationale of opening up Bermuda’s telecommunications sector to outside investors there is to be no operator exclusivity. When implemented, Section 18 (2) Electronic Communications Act 2011 directs the minister to establish the maximum number of Integrated Communications Operators Licences and the procedures by which such ICOLs will be granted. Part 4 of the Electronic Communications Act 2011 will help develop and maintain effective and sustainable competition between the licensed operators for the benefit of consumers with regard to price innovation and choice and thereby promote investment in the electronic communications sector.
The liberalisation of the island to foreign investment has been coupled with a change of government in December 2012 to one that is more outward looking and business friendly. These factors when combined with the well-known tax efficiencies that the island offers and the current regulatory reform are worthy of serious note by all advisers to investment funds and telecommunications companies.
Bermuda is calling and it means business.
Timothy Frith is a senior associate at MJM Barristers & Attorneys