Clifford Chance

With effect from 1 October 2020, the Dutch Telecommunications Act (Telecommunicatiewet) has been amended by way of the Act on undesired control in telecommunications (Wet ongewenste zeggenschap telecommunicatie) to prevent undesired parties gaining control of telecommunications parties in the Netherlands.

The Minister of Economic Affairs and Climate Policy (the Minister) has been accorded new powers to block an acquisition leading to predominant control over a Dutch telecommunications party and to intervene in the existing possession of such control, where such control is acquired or held by an undesired person.

A "telecommunications party" is defined to comprise providers of (public or private) electronic communications networks and services, and providers of hosting services, data centres, trust services or internet exchange points. Parties that provide strictly passive infrastructure, like telecoms towers and masts, are not caught in the definition of telecommunications party.

"Predominant control" (overwegende zeggenschap) concerns the situation that the person acquiring or holding such control (1) possesses (solely or jointly) at least 30 percent of the (direct or indirect) voting rights in a telecommunications party, (2) has the ability (by agreement or otherwise) to appoint or dismiss more than half of the board of directors or supervisory board members, (3) has the ability to exercise control through special voting rights, (4) possesses a branch that qualifies as a telecommunications party, (5) is liable as a partner for the debts of the telecommunications party that is acting in its own name, or (6) is the owner of a sole proprietorship. Although seemingly similar to the concept of "control" under merger control rules, these criteria allow for a lower threshold to assume control than is the case under such rules.

PROHIBITION TO HOLD OR OBTAIN PREDOMINANT CONTROL

The Minister has the authority to prohibit the acquisition or holding of predominant control in a telecommunications party, if this would lead to a threat to public interests. Such a threat can only be assumed if the predominant control leads to a "relevant influence in the telecommunications sector", and:

(i)      the controlling person is a state, entity or natural person of which it is known or in respect of which there are grounds to suspect that it intends to influence a telecommunications party to enable misuse or intentional outage of that party;

(ii)     the controlling person has close ties with or is under the influence of any such aforementioned state, entity or person;

(iii)    the controlling entity has a track record that significantly enhances the risk that a relevant influence can be exerted;

(iv)    the identity of the controlling person cannot be determined; or

(v)     the controlling person does not cooperate (sufficiently) with an investigation into any of the aforementioned circumstances.

A relevant influence in the telecommunications sector is deemed to exist if the misuse or outage of a telecommunications party can lead to:

(a)     an unlawful infringement of the confidentiality of communications or a disruption of access to the internet or telephone services;

(b)     an interruption in the availability or verification of a significant part of the services and applications provided through the internet; or

(c)     an interruption of the availability, reliability or confidentiality of designated products or services deployed for public tasks in the area of national security, defence, law enforcement or emergency services (which includes the Dutch General Intelligence and Security Service and the Military Intelligence and Security Service).

By governmental decree (Besluit ongwenste zeggenschap), thresholds have been specified which need to be met in order to assume a relevant influence (e.g., specifying a minimum number of users of the service or network concerned).

PRE-CLOSING NOTIFICATION OBLIGATION

Any party that intends to acquire predominant control over a telecommunications party will need to notify the Minister (in effect, the Bureau Toetsing Investeringen) if the acquisition would lead to a relevant influence in the telecommunications sector. Rules in respect of the notification have been detailed in a ministerial decree (Regeling melding Wet ongewenste zeggenschap telecommunicatie), which decree includes the form to be used for the notification.

The Minister has eight weeks after notification to decide whether the proposed acquisition will be prohibited. If the Minister is of the opinion that further investigation is required, the term may be extended by six months and by a further three months if the investment is required to be screened under EU Regulation 2019/452 establishing a framework for the screening of foreign direct investments into the Union.

After the term set for the Minister's decision has expired or the Minister has indicated that no prohibition will be imposed, the Minister will only be able to prohibit the change of control, if (i) the information provided in the notification proves to be incorrect or incomplete, or (ii) facts and circumstances have become known after the decision was taken not to impose a prohibition, leading the Minister to decide that public interests may be threatened by the acquisition (in which case the Minister needs to take a decision within eight months of becoming aware of these facts and circumstances).

Failure to comply with the notification requirements and other violations of the obligations under these rules may be penalised by a fine up to EUR 900,000.

CONSEQUENCES OF A PROHIBITION

If a prohibition is imposed upon a notification with regard to a particular transaction to acquire predominant control, the subsequent transaction conferring such control will be null and void, except where control is acquired through public stock exchange transactions. The latter exception aims to safeguard the functioning of financial markets, which could be endangered if stock exchange transactions were to be rendered void by operation of law.

In any event, however, whether undesired predominant control is gained though stock exchange transactions or otherwise, or where a party already possesses such control, the effect of a prohibition will be, that:

(1)    the controlling person will be obliged to reduce or terminate its control as required to eliminate its predominant control within a reasonable period of time set by the Minister;

(2)    the controlling person is not permitted to exercise its voting or other rights relating to its shareholding, membership or participation in the telecommunications party (except as regards rights to distributions from dividends and reserves) until such time as the predominant control is eliminated; and

(3)    if the controlling person fails to eliminate its predominant control within the prescribed period of time, the telecommunications party concerned is exclusively and irrevocably authorised and obliged to assign and transfer the shares of the controlling person in its name and for its account, or to otherwise eliminate the predominant control.

CONCLUSION

These rules are exemplary for the growing concerns around the world about the security of networks and information systems that underpin vital elements of society or the economy. As such, the rules fit with other legislation such as the EU Directive on security of network and information systems (Directive (EU) 2016/1148) and the mentioned EU Regulation on a framework for screening of foreign direct investments into the Union (Regulation (EU) 2019/452) which also aim to address concerns in relation to the security, integrity and availability of critical infrastructure and technologies.