Bermuda Calling: Telecommunications Reform & Investment Opportunity

Bermuda Calling: Telecommunications Reform & Investment Opportunity

Telecommunications in Bermuda is undergoing root and branch reform with a view to not only making the industry more competitive but more attractive to investors. The commitment to change has been signalled by the establishment of the much-needed, long-overdue Regulatory Authority and an easing of restrictions on foreign investment.

The overhaul in telecommunications, following extensive consultation with stakeholders, is embodied in two key pieces of legislation, the Regulatory Authority Act 2011 and the Electronic Communications Act 2011, both of which will become the twin foundation of Bermudian Regulatory Reform.

One of the more important changes will be the removal of the requirement for separate licence categories based on services provided and the introduction of a single standard communications licence.

The opening up to outside investment follows changes to the Companies Act made in July 2012.

We highlight below some of the more significant changes which are intended to show that Bermuda is calling and that Bermuda means business in the telecommunications industry.

• The Electronic Communications Act 2011 will introduce the concept of an Integrated Communications Operating Licence (“ICOL”) and provide the primary and enabling provisions for the regulation of electronic communications services by the Regulatory Authority whilst 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 (not yet in force) will provide that the Regulatory Authority are 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 license will be set at this 20 year maximum which is particularly attractive to foreign investors.
• 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 9 months and no later than 6 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.

The need for outside investment to help develop telecommunications in Bermuda has also been recognized.

With a limited land mass of only 21 square miles and a resident population of around 65,000 people, Bermuda has traditionally sought to restrict who can do business here – and how. For example, participation in the local economy has been limited to Bermudian-owned companies, which must be at least sixty percent owned and controlled by Bermudians.

However, in line with the new economic policy of encouraging outside investment in Bermuda, the so-called “60/40” rule has recently been relaxed with regard to certain prescribed industries – and the telecommunications industry is one.

The Companies Amendment Act 2012 which came into force on 27^th July 2012 now provides for exceptions to the rule.  Pursuant to the amended Sections 113 and 114 of the Act, 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.

Furthermore, 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 Licenses 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 advisors to investment funds and Telecommunications Companies.