Leiden Law Blog

Reporting obligation for acquisitions in the Dutch telecom sector

Posted on by Jelle Nijland and Cees de Groot in Private Law
Reporting obligation for acquisitions in the Dutch telecom sector

Last week, a legislative proposal to amend the Telecommunications Act was sent to the Dutch Council of State. According to this Act, a takeover of Dutch telecom facilities must be reported in advance to the Ministry of Economic Affairs and Climate to safeguard public interests in the telecommunications sector. That providers of telephony, internet or data centres can be seen as companies of vital importance because of their national importance, comes as no surprise. The proposal is a reaction to the attempt by América Móvil in September 2013 to take over KPN (a former state-owned Telecom company). Additional legislation was deemed necessary to protect national security.

The paradigm shift

Until the end of the nineties, privatisation was the paradigm for executing many public tasks. But while the service, production and/or supply of many sectors was left to market forces, there was a growing realisation that a number of these sectors, such as the energy, ICT/Telecom, chemical and nuclear sectors, are of national public interest. The Dutch government has also become aware of the fact that especially in the case of foreign shareholdership, attention should be paid to the possible negative impact on the public interests involved.

Proposal to amend the Telecommunications Act

The ratio for the amendment of the Telecommunications Act by this proposal can be found in a gap in existing legislation and regulations to properly counter threats to public order and national security following on from the increased influence of foreign shareholders taking decisions on the basis of geopolitical motives. The only effective means to end such threats is to prevent such a party from gaining control that could be misused, or if such a party nevertheless has acquired predominant control, to ensure that that this control is ended. The legislative proposal aims to provide effective government intervention, by granting the Minister of Economic Affairs the authority to prohibit the acquisition of predominant control in a telecommunications business if this control leads to a level of influence in the telecommunications sector that could jeopardise national security or public order. The proposal provides for the introduction of a new chapter 14a in the Dutch Telecommunications Act. This new chapter 14a is entitled 'Preventing unwanted control over electronic communication networks and services'.

The proposed legislation is welcome and should be considered as the basis for a more general legislative proposal that can protect other sectors and, possibly, individually specified companies from societally undesirable takeovers that could place national security or public order at risk.

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