Telefonica UK GC: Ring cycle

The mobile technology sector is moving so fast that Telefonica UK counsel Edward Smith is always on call

Edward Smith

Name: Edward Smith

Company: Telefonica UK Limited

Industry: Mobile Telecommunications

Position: General counsel

Turnover: £5.97bn (2011)

Employees: 10,532 (2011)

Legal capability: 39 (inc four regulators)

External legal spend: £5.75m (2011)

Principal external law firms: DLA Piper, Herbert Smith, Simmons & Simmons (non-contentious issues); Ashurst, Baker & McKenzie, SJ Berwin (contentious); DAC Beachcroft, Morisons Solicitors, Pinsent Masons, Shoosmiths (property); DLA Piper, Freshfields Bruckhaus Deringer (HR and pensions); iPulse (IP)

Nobody these days can escape the influence of mobile phones, which suits Edward Smith just fine. Smith has been general counsel at telecoms giant Telefonica UK since last November and, together with his team, is in the midst of developments that are increasing our reliance on mobile technology.

Smith took over as general counsel following a reorganisation of the Spanish giant’s UK and European operations last year, having previously been head of legal for just over a year after a decade with the company. He reports to CEO Ronan Dunne. When he took on the role he reorganised legal so that each business unit has a dedicated team within the legal department.

Senior service

“The point was to try to make it such that the senior lawyers in particular had a real sense of accountability to senior clients,” he reveals.

Telefonica UK has a large legal team, as befits a large company: 35 lawyers, four regulatory specialists and four support staff. External legal spend in 2011 was £5.75m, -although much of that went on standard property or IP matters.

The company has an extensive property portfolio including stores and corporate buildings, and a small panel of firms to deal with them.

For other matters there is no formal panel. Smith says the senior lawyers in charge of each business-aligned team can pick and choose external advisers. He wants them to have relationships with their advisers rather than with him.

While there is no panel, and firms are often asked to bid for projects, Telefonica UK does have a list of preferred advisers.

On large, non-contentious projects Herbert Smith is often the go-to firm. Smith has known telecoms partner Nick Elverston for many years and the firm is working on two major projects known as Project Oscar and Project Beacon.

Project Oscar received regulatory approval in September and is a significant joint venture between Telefonica, Vodafone and Everything Everywhere. It is a mobile advertising project designed to given advertisers the chance to reach -customers across all three networks. Companies would be able to offer discount vouchers or coupons and, it is hoped, eventually to make paying for goods or services easier.

Project Beacon is another joint venture with Vodafone that will, says Smith, deepen the companies’ network-sharing arrangements.

“This takes it to a new level,” Smith says. “Between us, it allows us to accelerate the roll-out of 3G and 4G networks. In terms of the gnarly, core telecoms work where we need external advice the go-to firm is Herbert Smith, and that’s really because of Nick Elverston.”

But Herbert Smith is not Telefonica UK’s only regular adviser. DLA Piper and Simmons & Simmons are also instructed on non-contentious projects such as IT outsourcing.

Band cramp

Ashurst, Baker & McKenzie and SJ Berwin are the company’s main advisers on contentious matters. Ashurst is advising Telefonica UK on issues connected to the upcoming auction of spectrum bands, which are needed for the company to be able to offer 4G services. At the moment only Everything Everywhere provides 4G, important for the -development of the mobile market, especially now Apple has launched its iPhone 5, which uses 4G.

Smith has quite a soft spot for the iPhone, having structured the 2007 deal that gave O2 exclusivity on it for two years.

“It’s been nothing short of extraordinary,” he says of the influence and development of the smartphone. “The relationship with Apple is a vital one for us. We’ve got the longest, and I’d say the strongest, relationship with Apple of any of the UK operators.”

4G whizz?

But Smith says operators are all going to have to be cautious about the way they market the iPhone 5 because of the limits on 4G.

“The industry’s going to have to be careful about managing expectations, not just about the iPhone 5 but also about 4G devices more -generally,” he says. “No UK 4G -network has been switched on yet. As with any new technology, it won’t be without a few bumps in the road.”

Despite the fact that telecoms is a competitive industry Smith works closely with his peers in rival companies on some issues. The joint venture projects illustrate this point particularly well. But he also sees them on different sides of disputes.

“There are few bread and butter commercial disputes,” Smith says. “There are a number of disputes that are a result of different interpretations of regulations or decisions made by the regulator. We have to cross swords with our competitors in the courts fairly regularly – not only mobile competitors but also BT and landline operators.”

Pirates ahoy

An issue that has raised its head this year and looks set to continue to be on the agenda for telecoms lawyers is content-sharing. O2, like other network operators, also offers broadband services and so has found itself caught up in the litigation brought by content owners trying to stop piracy.

One particularly significant case this year involving Telefonica UK is known as Golden Eye after its lead claimant. Golden Eye is the licensee of pornographic films and was trying to obtain a Norwich Pharmacal order to force O2 to disclose details of customers alleged to have infringed copyright. In the High Court in March Mr Justice -Arnold granted the order after -Baker & McKenzie, on behalf of O2, said the company did not oppose the claim.

Smith says the issue of content infringement is one that will keep rearing its head and telecoms companies must keep a close eye on it.

“We don’t see ourselves as being any part of the problem,” he argues. “We don’t profit from the alleged infringements in any way. We have an obligation to our customers to look after their best interests.”

Edward Smith

He says this does not prevent the company from complying with court orders, but is happier for cases to be tested in the courts first.

“We are working to reach that balanced outcome,” Smith says.

The other big topic on Smith’s desk right now is the development of new business lines. At the moment the three key areas Telefonica UK is looking into are media, healthcare and financial services.

“The fact is that traditional telecoms revenues are in decline,” Smith explains. “We’ve got to find new sources of revenue.”

Project Oscar, the joint venture with other operators, is a part of this attempt to find fresh sources of revenue, as it branches out from traditional telecoms services into ‘m-commerce’. It also links into media and entertainment, which Smith says is an important part of the company’s offering.

The move into new areas is proving an interesting challenge for Smith and his team. He points out that his lawyers, who were perhaps recruited as telecoms or competition lawyers, are having to learn new skills “on a monthly basis” to advise the company.

The constant development is unlikely to slow down, with mobile telecoms and its associated branches of business set to remain a core part of modern life.

Stephen Lerner

Stephen Lerner
GC and regulatory affairs director, 3

Three launched in 2003 on the back of a licence reserved for a new entrant. Even though the broad regulatory policy was and remains to promote competition, there remain many aspects to the market and its regulation that actively inhibit it.
There has been progress on some fronts. For example, we have successfully fought for a reduction in mobile termination rates despite vigorous and continuing opposition by our competitors (it is still subject to ongoing litigation brought by them). The benefit is simple yet powerful: affordable unlimited calling packages for all mobile customers.
Other badly needed reforms have been stalled or undone by our larger competitors aggressively litigating to preserve the status quo. For example, it is unfortunate that the UK is the only jurisdiction in the EU where customers still need permission from their current mobile operator to move their number to their new operator. It’s an unnecessary hassle for customers which Ofcom agreed should be removed. Despite a decision by Ofcom to change the switching process in 2007, reform was blocked by a Vodafone appeal supported by T-Mobile, Orange, and O2.
The 4G spectrum auction is now scheduled for January 2013. This will be the largest auction of spectrum in the UK. Once operators have rolled out new networks on the new spectrum, UK users will have an improved mobile network experience. At Three, we want the auction to happen now. It is time to set aside our differences and ensure that the UK continues to lead the world in technological development, innovation and competition.