Digital TMT and Sourcing Predictions 2019

2018 was a landmark year for digital TMT and sourcing.

Against the backdrop of the UK's impending departure from the EU, there were a wealth of highlights as regulation moved further towards greater harmonisation at the European level; the EU General Data Protection Regulation ("GDPR") came into effect on 25 May 2018 and implemented a comprehensive reform of the EU data protection regime. We also saw a comprehensive reform of the EU telecoms regulatory framework (with the European Electronic Communications Code entering into force), along with a directive modernising the existing audiovisual media services framework to reflect current market, consumption and technological changes. In line with the European Commission's Digital Single Market strategy, both the Portability Regulation and the Geo-blocking Regulation further sought to remove cross-border barriers in the realm of paid-for online content portability and online trade of goods and services, respectively.

The emergence and uptake of new innovative technologies continued to become more pervasive across industries and functions, with the fast-paced digital environment in which we operate requiring organisations to think like technology companies to maintain competitive advantage. Twinned with the recognition of data as a critical asset, these factors continued to spark new global trends in mergers and acquisitions, as companies looked to acquire other companies to ensure access to this valuable asset and the underlying technology to realise that value, as well as the individual "talent" behind the technology itself. The buoyant M&A activity in the sector in the last 12 months was, and continues to be, unsurprising, as one way for organisations (including those outside the TMT sector) to disrupt their respective market, before they themselves are disrupted.

What could the next 12 months possibly have in store? This article sets out some predictions for further developments across the digital TMT and sourcing landscape in the year to come.

• Brexit
• Digital Commerce
• Disruptive Technologies
• Media & Entertainment
• Telecommunications
• Sourcing
• Data Protection

Brexit

What next? First and foremost, we can't avoid Brexit. Deal or no deal, the impact of this world-changing event will be keenly felt across the digital TMT and sourcing sphere. And one thing is for sure, with no clear outcome for Brexit at the moment, the topic will remain near the top of our agenda for some time to come. In particular:

• on the broadcasting side, now that French President, Emmanuel Macron has suggested that audio visual media services will be excluded from any free trade agreement with the EU, to what extent will multi-national broadcasters with their EU bases in the UK still be able to benefit from the "country-of-origin" principle in practice?;
• on the telecoms side, will 2019 see an end to surcharge-free roaming for UK mobile telephone customers across the EU (and vice versa)? Refer to our Telecommunications entry below;
• on the data protection side, in the long-term, we will need to wait until 2020 at least to see if the UK is found to be "adequate", but the short-term impact will depend very much on the ability of the politicians to agree on exit; and
• on the commercial contract side, we will continue to see organisations assess changes in the legal, economic and regulatory landscape caused by the UK exit, as well as the costs and other implications on their contractual relationships.

For further details of the impact of Brexit on each of these areas, please refer to our Legal Brexit Guide here and our latest bulletins and blogs here.

Digital Commerce

Consumer rights on the rise in the online world. 2019 will see a strengthening of consumer protection for consumers purchasing digital content or goods online. The EU has been slowly progressing several legislative proposals in the consumer sphere as part of its ongoing Digital Single Market Strategy. This should lead to making it easier for national authorities to protect consumers online along with the creation of new rules for online platform players. The rules aim to create a fair, transparent and predictable environment for consumers when using online platforms by providing consumers with specific contractual rights that they can exercise in the event that the digital content or goods they receive are not what they had expected to receive. If the proposed directives are approved, can we hope for a rebalancing of the status quo away from the digital providers that have previously operated with minimal restriction?

Digitising real world experiences. The continuation of the merger of the digital world and the physical world is set to continue in 2019. We have already seen Amazon embrace this with their concept store, Amazon Go. Additionally, customers at some of Tesla Motors’ store can configure their own Tesla car on a large touchscreen, then preview it on an 85-inch video wall in the back of the store. Farfetch's "Store of the Future" is another demonstration of the trends in this area - Farfetch's founder Jose Neves explained: "Retailers need a way to collect information about their customers while they are browsing in-store, just as they collect data from online searches. The Store of the Future aims at providing the in-store experience of the future by giving visibility to retailers on what is happening in the store. It’s the offline cookie that closes the loop, between a great online presence and a complete omni-channel offering and, finally, in-store technology which augments the experience of customers in store and overall." In 2019 we expect to see more brands using technology in store to keep visitors engaged.

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Disruptive Technologies

Will enterprise-grade blockchain solutions and smart legal contracts become a reality in 2019? It has been challenging over the last few years to see through the incredible hype around blockchain technology (particularly, cryptocurrencies), into a place where enterprise-grade solutions can meaningfully be put to use by businesses. Beyond the Bitcoin-led world of anonymised, immutable financial transactions, blockchain has given rise to the potential for "smart legal contracts" – i.e. computer based protocols that facilitate the performance of a legally-binding contract, without the use of an intermediary, including through the use of external data sources (such as Internet of Things (IoT) device data) to enable smart clauses to self-execute where certain specified contractual conditions are met. The potential applications are plentiful, for example, where a smart legal contract provides that one party pays another on delivery of a specified volume of goods to a construction site, sensors located at the construction site could record the time and date of the delivery of the goods on a blockchain which, in turn, triggers an automatic notification to the bank confirming that the terms of the contract have been met (delivery of the goods) and instructing it to make the relevant payment.

Last year saw Herbert Smith Freehills partner with IBM, CSIRO’s Data61 and King & Wood Mallesons to launch the Australian National Blockchain (ANB), a new blockchain platform that enables businesses to use digitised contracts, digitally manage the lifecycle of a contract – from negotiation to signing and, even, throughout the term of the agreement – and confirm the authenticity and status of legal contracts across a distributed peer-to-peer network. As well as representing a significant new piece of infrastructure in Australia’s digital economy, the enterprise-grade nature of the ANB platform means smart legal contracts could become a reality for businesses in 2019.

Just how intelligent will AI become? Once firmly in the domain of science fiction, uptake of Artificial Intelligence ("AI")-based solutions is set to continue to rise throughout 2019. AI refers to computer systems that are capable of performing tasks commonly requiring human intelligence (such as visual perception, speech recognition and decision-making). However, the umbrella term collectively refers to a wide spectrum of technologies and capabilties; AI ranges from 'weak' or 'narrow' (focussing on one task, such as beating a human at chess) to 'strong' or true' (capable of exhibiting behaviour at least as skilful and flexible as human behaviour). Whilst it is generally thought that 'true' AI remains only a distant possibility, 2018 saw a greater uptake of 'narrow' AI solutions by organisations (e.g. to analyse large data sets for improved analytics and decision making) and this looks set to continue in 2019. In particular, greater use of cloud-based AI enterprise-level software and services is predicted for those that adopt AI technology.

Alongside the opportunities that narrow AI can bring, a number of technical, legal and commercial challenges remain for organisations to grapple with in the year ahead. These include risk allocation considerations, such as who is liable for reliance on inaccurate or incomplete datasets and coding errors in the software (if the data input is wrong, incomplete or biased, so too will be the decision or output)? While the current state of 'narrow' AI means it is still "controlled" by humans to whom liability remains attached, the concept of a "controller" will become less relevant as AI gets 'stronger'. Who, then, will be responsible for a road traffic collision caused by a fully-autonomous vehicle that is "controlled" by 'true' AI - will it be the vehicle manufacturer, the software programmer, the provider of the data interfaces or the owner of car? As we edge ever closer to human-level AI, we expect this year (2019) will see regulators taking more interest in the issues surrounding AI – from responsibility and ethicality to privacy and security (having particular regard to the GDPR) – as well as enforcing restrictions on the use of AI for automated decision-making and profiling. For our latest thinking on disruptive technology and innovation, click here.

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Media & Entertainment

A new arena for live sports? Following on from Amazon's ground-breaking deal in June last year to livestream exclusive coverage of 20 Premier League matches via its Prime Video service, we can expect to see continued disruption to the live sports rights market in 2019, with new online entrants stealing a growing share of the market away from the traditional broadcasters. Some commentators are expecting Facebook to be the next player to take up the gauntlet by introducing some form of live sports offering. There may even be opportunities for would-be live sports streaming platforms to partner up with players in the virtual/augmented reality space who are trying to bring ever more immersive live experiences into our living rooms (see for example this article about NextVR's involvement in broadcasting the world's first live streamed VR soccer match). Watch this space…

True or false? Recent investigations into possible interference at an international level with political processes on both sides of the pond, together with accusations of widespread misinformation and so-called 'fake news' influencing critical national decision-making (c.f. Brexit) are likely to lead to a greater regulatory focus on the source and quality of information accessed via the internet (especially on major consumer platforms such as Facebook, Google and Twitter). Over the course of 2018 we began to see some platforms (including Facebook) introduce initiatives aimed at signposting to users the source of particular types of content (such as news). In 2019 we can expect to see initiatives like these becoming the norm (and potentially even a legal requirement). It would not be surprising to see anti-misinformation laws being proposed as part of a wider legislative package designed to harmonise regulation of content accessed via the internet and/or social media with broadcast content regulation and to encourage (or force) platform operators to take greater responsibility for the content made available on their sites (a number of broadcasters have already started lobbying Ofcom to this effect – see here). The DCMS report entitled 'Disinformation and 'fake news'' published in July last year and the government's response in October also shed some light on plans in this area - click here to read more on this.

The rise of contextualised commerce. If, like us, you were inspired by Villanelle's outstanding wardrobe on the BBC's 2018 hit series Killing Eve, you'll be pleased to know that 2019 may well be the year when contextualised commerce bridges the gap between concept and reality. Contextualised commerce is, broadly speaking, the idea that opportunities to effect commercial transactions (aka shopping) can (and should) be seamlessly integrated into everyday activities and environments. One of the more obvious applications of this idea is 'shoppable TV', which is the next logical progression of prop and product placement. Whilst on one level this concept is not new (QVC has been successfully running shopping channels for longer than we care to remember), the possibility of watching your favourite TV show and, within a couple of clicks on your remote (or more likely via a voice activated command to Siri/Alexa/Google Assistant), being able to buy that sweater/desk lamp/watch/Love Island water bottle is potentially revolutionary. Unsurprisingly this technology (like all contextualised commerce applications) is powered by data – in this case a combination of catalogued shoppable items from the relevant film or TV show combined with retailer stock information, AI-powered algorithms to suggest similar or alternative products and the user's own transaction history and preferences – so data protection considerations will be inherent to any implementation of this concept. In the UK there may also need to be a relaxation of existing content regulation (which is fairly restrictive when it comes to commercialised content) before shoppable TV can fully take off.

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Telecommunications

The year of the 5G revolution? There is no doubt that this next generation mobile technology has the potential to spark a revolution; paving the way for connected devices / the internet of things in particular and easing the wireless capacity burden as the demand for faster data consumption continues to increase. Recent years have seen the 4G and 5G radio spectrum auction in 2018, the 5G Action Plan for Europe to start launching 5G services in all member states by the end of 2020 and adoption of the European Electronic Communications Code (which overhauled the EU telecoms regulatory framework and seeks to enhance the deployment of 5G networks). Against this backdrop and as global 5G standards are in the process of being finalised, 5G network investment and product testing look set to continue during the course of 2019, with 5G fixed wireless expected to gain a foothold in some markets in 2019. However, it seems unlikely that the true "revolution" will commence until the first wave of commercial 5G services, applications and devices launch at scale in 2020 at the earliest. Please click here to read our article on 5G mobile technology and the challenges of deploying 5G mobile networks in the UK.

Holiday phone bill headaches? 2019 may see an end to surcharge-free roaming for UK mobile telephone customers across the EU (and vice versa). A "no deal" Brexit would mean that this digital single market benefit could no longer be guaranteed post Brexit and will instead depend on individual roaming agreements commercial negotiated between mobile operators, rather than being mandated by wholesale regulation. Whilst a number of UK mobile operators have suggested that they will continue to offer surcharge-free roaming for UK customers across the EU, the House of Commons EU Scrutiny Committee has recently suggested that in practice this may not be sustainable in the long term. With the potential for different roaming terms and conditions across mobile operators, will we see international roaming return as a key differentiating chip when selecting mobile phone providers?

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Sourcing

How resilient are you? 2019 is likely to see the spotlight focus front and centre on operational and IT resilience, particularly in the financial services sector. Touted as the most significant area of concern for the FCA and PRA behind Brexit, a combination of outages, data breaches and cyber-attacks throughout 2018 (particularly in the consumer banking and payment provider sectors) unsurprisingly meant that the last 12 months was punctuated with the Bank of England, PRA and FCA's joint discussion paper on operational resilience, the FCA issuing its first fine in relation to a cyber-attack and ended with the Treasury Committee launching an inquiry into IT failures in the financial sector, to name but a few. The scrutiny looks set to continue in 2019 as we will see the first half of the year bear the fruits of this inquiry, as well as finalised EBA guidelines on outsourcing arrangements in an effort to provide further clarity around how firms can practically comply with certain duties. However, one thing is for sure, 2019 will require a step change in firms' preparedness to deal with "disruption events" – the regulators are watching.

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Data Protection

Click here for our full data protection predictions for 2019, we set out a snapshot below. Also click here to access our new data blog and to keep up-to-date with the latest data protection developments.

Further GDPR guidance 2019 will hopefully be the year when the European Data Protection Board addresses some of the key areas of GDPR concern through guidance. Although we finally got draft guidance on extra-territoriality towards the end of 2018, there are still significant gaps in regulatory guidance waiting to be filled in 2019. Please click here to read our bulletin on the EDPB's draft guidance on extra-territoriality.

ePrivacy Regulation 2019 may be the year of the new ePrivacy Regulation. This key piece of legislation, which supplements the GDPR, has already been delayed in the European legislative process. If and when it is finally agreed, can we hope for clarity on issues such as B2B marketing, use of the so-called soft opt-in, and cookie consent?

Data breach class actions The Court of Appeal judgment in the Morrisons case, combined with the legislative changes made by the GDPR, increased public awareness of data protection issues, and the publicity that the case attracted, could spark a new wave of class action court cases from workers and customers in the event of a data breach. Whilst individuals may not themselves be entitled to significant sums, if the data breach affects large numbers of individuals, the total potential liability for organisations could become commensurately large. Please click here to read our bulletin on the Court of Appeal judgment in the Morrisons case.

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