Network operators around the world have to wrestle with a raft of regulation governing how they provide their services. In many countries only a few licence holders enjoy the privilege of operating networks at all. And in some there is still one recognisable national incumbent, with its country’s name and the word ‘telecom’ bolted together, which has a monopoly on the supply of telecoms services to end customers.

Consequently, while many telecoms outsourcings are cross-border or global in aspiration, a supplier may have to partner with other service providers in countries where the supplier itself is not licensed to operate. This is an issue going beyond the practical point that a supplier may need to enter so-called ‘interconnector agreements’ with other network operators to ensure it can carry traffic across regions where it has no network. It also goes beyond the question of formal alliances in certain regions for business or marketing purposes. In some countries, even with the willingness of a local operator, the supplier may find it is illegal for it to sell telecoms services to its customers or even subcontract them.

Depending on the jurisdiction this can sometimes be worked around by the customer contracting directly with the local incumbent but leaving the supplier to manage the relationship on the customer’s behalf. Due diligence is necessary country by country and, since in practice customers tend to be bullish about the risks and suppliers naturally cautious, there is usually a negotiation to be had. This is especially true where the customer may lose the benefits of scale or is sensitive to the organisational issue of leaving some parts of its business outside the outsourcing arrangement.

Most jurisdictions also impose compliance requirements on the use of their networks which suppliers then have to pass through to customers. The most  common mechanism for this is the ‘Acceptable Use Policy’ or AUP. In fact, AUPs often go beyond regulatory issues into other areas of legal risk which the supplier is keen to avoid. Typical restrictions include non-distribution of obscene or copyright infringing materials, not connecting equipment that interferes with the network and compliance with rules applying to other services accessed via the network.

While AUPs are often reasonable and fair (or may simply be difficult to challenge on smaller outsourcings), they should be considered and negotiated in context. There is a world of difference between the customer giving a warranty or indemnity to do something, and the supplier being able to suspend services if that event occurs. There are also some risks which objectively the customer has little or no control over.

Telecoms regulation is a mature but continually developing field. It will develop further in the foreseeable future to capture new convergence-based services which are reaching the market. It is also developing in many countries which are liberalising telecoms. This calls for an appreciation of progress in different fields and different geographies in order to future-proof deals which typically run for three to seven years. Contracts should address change-in-law risk and how eventualities ranging from additional AUP requirements to supervening illegality of the services might be treated. For example in the EU, the Citizens RIghts Directive (2009/136/EC), which comes into force on 25 May 2011, will impose quite onerous data security obligations on telecoms companies and ISPs.

More esoteric regulatory issues will come to the fore in particular kinds of outsourcing and as outsourcing practice pushes the boundaries of commercial possibility faster that regulatory changes occur. As a result, telecoms regulation is a complex but never less than interesting field of operation.