Contract AI

WHY DO WE NEED TO BRING ARTIFICIAL INTELLIGENCE TO CONTRACTS

António de Macedo Vitorino

For the last two years, I have been working on a project named “Key Terms” which aims to bring artificial intelligence into contract drafting and negotiation. Several legal tech providers now offer artificial intelligence tools: Luminance, Kira, ContractPod and others offer AI-enabled tools that allow for the identification and compare clauses and other key indicators, such as the duration of certain obligations to determine if they match specified rules. For instance, imagine that your company is negotiating a supply contract; when you compare the supplier’s proposal with your company’s standard terms, you find that both have limitation of liability clauses, but there are differences which from your point of view are damaging to your organisation. An AI system can do that comparison for many documents and match clauses against pre-set criteria or business rules automatically.

AI serves to find patterns that identify similitudes and differences. Patterns, similitudes and differences can be algorithmically explored to show a hidden structure, a discrepancy, or a deviation from a rule. Still, the promise of a legal robot that would draft contracts on its own or even replace lawyers is not around the corner and, I believe, not even in the more distant future.

The problem with legal AI resides in the difficulties that data scientists have in understanding legal texts. Lawyers seem to use a language of their own. Lawyers are trained to master words and words may have multiple meanings. Words have a logical and an emotional significance. By moving from one synonym to another you may change the meaning of a proposition, like changing from one colour to an approximate colour in the rainbow you may start in blue and end in red or green or yellow. This ability of lawyers is always the demise of any logical attempt to take legal thought into a software application. We end up identifying patterns of use and behaviour without penetrating the inner structure of legal thinking.

To solve this problem, I propose a different approach. I propose to start by analysing the way lawyers think and work and how legal speech is built. To do this we need to look at the fundamental aspects of legal constructions, which may apply to a court brief, an administrative appeal or a contract. 

In this article, I propose to introduce three concepts that are not commonly used together when analysing legal writing: precision, redundancy and indeterminacy. 

Starting with “precision”, we are all, of course, familiar with the idea that we must use words with precision and that changing from one word to another may change the effect and meaning of the entire sentence. Legal drafting aims for more; legal expressions aim to achieve “mathematical precision”. Lawmakers and lawyers go to great lengths to that goal. Legal concepts are defined in laws, are analysed in great depth by law scholars, taught to exhaustion to law students and used with rigour in contracts, court briefs, opinions and memoranda. 

The reason for that desire to achieve the perfect meaning of an expression results from the need for certainty, security and safety. Security and justice go hand to hand. For society to work well, people need security. If laws were not stable and changed every day, there would be no security and consequently no justice. Things would be left to the will of whoever applied the law and laws would lose meaning and purpose. The need for precise legal concepts is at the heart of all legal professions.

The aim for precision has some practical consequences that people find odd and, many times, dislike. For instance, laws use many old words. This is because old words bring stability, their meaning is well established, even when they cease to be used in everyday language. Of course, laws change and are updated, but they change at a slower pace than language itself and society. Many times, laws get stuck in the past and disconnected from real life. This is not, however, true for all laws but the fact remains that this attachment to old and difficult words make legal professions more closed to the world. 

The quest for precision extends from laws to contracts and other legal documents, which many times seem out of touch with everyday writing. 

For instance, when using spell checkers and grammar review software, those applications suggest changing words and expressions by simpler one-word expressions which appear to have equal meaning. When we write “in accordance with…” the spell checker will suggest replacing it for “following…” or “by…”, but these suggestions do not catch the entire meaning of the expression “in accordance with…”, which is normally used in a legal text to state that an action must conform with a standard or a set of rules. If we were to replace the expression “in accordance with…” with “following…” courts might ask if that was done to downgrade the duty of care, tone down the prescriptive nature of the clause. It is possible that this will change in the future and that lawyers will replace the expression“in accordance with…” for “following…” without losing the prescriptive nature of the present “in accordance with…”. Still, the point is that precision is a fundamental goal of legal thought and legal writing.

The second important concept to discuss is “redundancy”. In the transmission of data through information systems, adding desired redundancy serves to detect and correct errors when communicating over a noisy channel of limited capacity. Lawyers do the same when using one or more synonyms in the same sentence. This ensures that the maximum significance is given and that nothing is lost. For instance, “authorisations, approvals and permits” mean approximately the same thing, but when used in a legal document, they mean that nothing can escape, even if the precise meaning of just one of these words would not catch all possible meanings that the expression “authorisations, approvals and permits” wants to capture. The multiplication of redundant expressions adds complexity and makes legal texts more difficult to understand. Many times, undesired redundancy adds noise and makes the text overcomplicated. In others, it leads to confusion because some other word was left out and may be interpreted as implying that whatever the omitted expression meant was excluded. This should be avoided, but some redundancy may still be necessary.  

The third concept is “indeterminacy”. Indeterminacy or vagueness contradicts the aim of precision, so it would seem to conflict to create secure and clear laws and contracts. However, the use of vague concepts pervades laws and contracts. This is because sometimes reality is impossible to encapsulate in a precise word. 

Vague terms give judges, contract parties, or even ordinary citizens, general standards adaptable to an ever-changing world to. For instance, what is “reasonable” or “fair” today may be very different from what it meant thirty or one hundred years ago. Thirty years ago, Internet connections were slow and would break much more often, so it was “reasonable” not to require internet suppliers to offer a close to “flawless” connection, but not today. To kill someone in a duel seemed an “honourable” thing several hundred years ago, but not today. 

The use of “vague” words leaves the interpretation of the desired outcome to a later moment and serves to close a discussion in a contract which, otherwise might break the will of the parties to close the deal.

Excessive use of outdated words, multiplication of synonyms, redundancy and indeterminacy are the main obstacles to implementing AI in legal software. They generate many false positives and negatives, which limits supervised AI systems to tagging precise terms and identifying discrepancies from accepted standards. This is what supervised legal AI software does today. Unsupervised AI is also limited because lawyers and data scientists need to work out what information to extract from data and to move away from tagging legal documents and finding simple discrepancies.

I believe legal AI can do more. AI can be used to look at the inner structure of legal documents and contracts and find meaningful communalities and discrepancies that will help lawyers to draft better contracts. I believe we can achieve greater clarity and preserve precision while making legal language more in tune with common people, reduce undesired redundancy and refine vague terms to suit their true purpose without overcomplicating legal documents. This should be the purpose of bringing AI to contracts.

About Macedo Vitorino

MACEDO VITORINO is a leading Portuguese law firm. We advise domestic and foreign clients in a wide range of business sectors, including banking, distribution, industry and projects. We are known for our professional and client-oriented approach to complex and difficult matters.

Since the incorporation of the firm in 1996, we have been involved in several high-profile transactions in all of the firm’s fields of practice, including banking and finance, capital markets, corporate and M&A, energy, real estate, project finance, complex disputes and restructurings.

About MVLAB

MVLAB is MACEDO VITORINO’s program for the development of legal technology and the digitalization of law, legal services, the judicial system and government and public services. 

Notice

The opinions expressed in this article are general and should not be considered as professional advice. Should you need legal advice on these matters you should contact a lawyer. If you are a client of MACEDO VITORINO, you may contact us by email addressed to mv@macedovitorino.com. 

© 2021 MACEDO VITORINO

In 1996, Nick Szabo coined the term “smart contract” in a revolutionary article on the introduction of digital technology in the realm of contracts. In that article, Nick Szabo stated: “[n]ew institutions, and new ways to formalize the relationships that make up these institutions, are now made possible by the digital revolution. I call these new contracts "smart" because they are far more functional than their inanimate paper-based ancestors. No use of artificial intelligence is implied. A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises.”[1]

Since 1996, the emergence of blockchain technology has allowed the creation of a new form of legal ledgers which are run in a decentralised manner.

There are various classifications of smart contracts and smart legal contracts depending on whether they are fully or partially automated and recorded in a blockchain system or not.[2]  In this article, we will use the expression “smart contract” in its simplest and widest form.

We define smart contracts as computer instructions that represent the intention of the parties to create an obligation, make a payment, purchase an asset or service or trigger an event that has a legal consequence.

The primordial example of a smart contract is a vending machine. By inserting a coin in a vending machine, the person who inserted the coin purchases a snack or a beverage from the vending machine owner or operator. Automated ticketing machines are also old automated or self-executing contracts, whereby a person acquires the right to use a transport service, enter a movie theatre etc.

More recently, online contracts with Amazon and the like are also forms of automated purchase agreements that fall into the concept of “smart contract” because they allow clients to purchase goods and services by giving automated instructions through a machine.

In any of the above examples, there is an underlying “natural language” contract, that is, a language used by people and not coded instructions given to a computer. When we enter an online contract, we are often required to accept a standard contract, sometimes in a foreign language that we may not fully understand. This raises issues of the validity of those rules concerning general and standard clauses. We will not be concerned with these implications in this article; we will focus on the issue raised by “software coded contracts”, which is the widest possible definition of smart contracts.

“Software coded clauses” or “smart clauses” are computer instructions using software language that may constitute the performance of an obligation or trigger the verification of contract conditions. Software coded obligations are self-executing because, in most cases, they do not need human intervention. Software coded contract provisions are now used in all online contracts because every service or product purchased online triggers legal consequences, such as the obligation to pay and the obligation to deliver a service or good.

The entry and performance of online contracts have occurred without disrupting legal systems. Generally, around the world, legislations accept the validity of online contracts. Disputes have been resolved in a fairly satisfactory manner because suppliers that value their clients are ready to solve complaints in a friendly way. Customers dissatisfied with suppliers simply cease to purchase from those suppliers. The rules of supply and demand that govern mature and fair markets take the stress out of the system. However, some terms and conditions and the conduct of many online suppliers may not be legal on many occasions.

The buzz about smart contracts goes much deeper than simple online B2C online agreements, where software coded information is translated into service and purchase orders and money transfer instructions.

Smart clauses coded in self-executing software language can include complex payment terms and formulas, trigger conditions, default clauses and security enforcement provisions. Smart contracts can be used in all types of contracts, including very complex B2B contracts such as credit agreements, mergers and acquisitions, issuance, acquisition and disposal of securities, IPOs, financial derivatives, futures markets, restructuring agreements, construction contracts etc.

Also, matters of technical nature can be linked to the contract clauses through smart clauses, that is, technical parameters stated in legal contracts involving the operation of telecommunication networks, power grids, power production, software requirements etc. can be linked to the legal language of contracts and trigger contract consequences. Presently, many of those technical issues are left in the contract’s fringes and put into more vague and elusive contract terms, such as “best efforts” and reasonableness judgements, or left to mediation or litigation when they become unsolvable by the people dealing with the day-to-day operation of the contract.

There are five basic practical rules for ensuring that smart clauses are enforceable and do not raise even worse issues than natural language clauses.

First, smart clauses should be translated into a natural language. This means that every smart clause should have an equivalent natural language clause. The natural language clause should be as objective as the smart clause and not include open concepts that cannot be translated into the coded clause.

The need for this rule does not result from the Law but serves a practical need: clauses should be understandable by people without very deep knowledge of the law and the technical aspects of the contract. Judges and business decision-makers should be able to understand the key points of the contract.

Suppose the main clauses of the contract, like the performance of the contract, are dependent on a coded clause (with no natural language equivalent). In that case, it won’t be easy to understand why the parties chose that particular solution instead of another. Sure, there are contracts with heavy and complex technical issues, be that the legal formulation of the clause or the commercial and technical aspects. But, in most cases, the economic, commercial and technical terms have a “natural language” formulation inscribed in the agreements and understood by the persons present at the negotiation table, even when they include complex technical schedules.

Second, the content of smart clauses should be open and auditable. This means that the acceptance of the code should be made by experts of each of the parties. This requirement aims to give an equal footing to the parties. Smart clauses must be understood and controlled by the parties.

There should not be one party controlling the code and the consequences of the instruction generated by it. In present natural language contracts where the legal and commercial technicalities can be generally understood by the parties, each party should have its own legal advisors. In coded language contracts, an asymmetry in knowledge can be more damaging than not having legal counsel. Expert advice and verification procedures are necessary.

Third, smart clauses should be protected. Integrity is a key element of any contract. In natural language contracts, one of the parties cannot change the wording of clauses. This is ensured by putting the contract in writing and other formal requirements imposed by law or agreed by the parties. Tampering with the words of a contract means falsifying the contract content. The same rules apply to smart clauses and smart contracts.

However, because smart clauses are generally self-executing, the consequences of possible tampering with the contract software code are more direct and can unlock a chain of events that may be impossible to stop. For this reason, the integrity of smart clauses should be ensured.

Blockchain systems are an acceptable form of ensuring the integrity of contracts because the blocks of a blockchain cannot be changed without the agreement of the nodes of the system (all or a significant number of participants in the system depending on the type of consensus algorithm that is used). This ensures the integrity of the contract in a manner that is as efficient, if not more, than current government-sponsored or other centralised ledger systems. However, blockchain is not the only way to ensure integrity. The parties may appoint an independent third party to store and protect the code or even monitor its application.

Four, smart clauses triggering events that require human intervention should not be left to the parties. While many smart clauses rely on machine self-execution mechanisms, there are cases where human intervention is necessary to fill gaps or interpret the data. The parties should not take this decision.

For instance, if the contract stipulates that one of the parties must make a payment to the other if the temperature reaches 45 degrees and two official computer records state different temperatures, one 44.9 degrees and another 45 degrees, a decision will have to be made as to whether the payment condition was met or not.

This example underpins the fact that minor discrepancies in digital records or the non-existence of an independent digital record may require human intervention to verify or certify smart contracts trigger conditions. When that is the case, the person making that decision should be independent of either party.

In Ethereum, the contract parties may appoint persons, named “oracles”, to take decisions that will trigger or not trigger smart contract events. This is an adequate solution for smart contracts based on Ethereum. For smart contracts outside a blockchain, the parties may use independent entities and grant them the power to fill in the missing data or resolve digital records inconsistencies.

Five, contracts with embedded smart clauses should include effective and fast dispute resolution mechanisms. Smart contracts should contain dispute resolution mechanisms because smart clauses can add a layer of complexity for which courts are unprepared.

In existing b2c online contracts, few disputes are resolved in courts because their value is low. The consumer often simply refrains from purchasing from the vendor that failed to deliver. This is not the ideal way of resolving a dispute, and a more effective transnational redress system must be created.

In more valuable contracts, disputes can be taken to courts, but the time for resolution may be too long to remedy the harm suffered by one of the parties. Parties will trust more in contracts that contain safe and expedient means of resolution. These may include mediation and arbitration mechanisms that allow for taking over control over the code, stopping wrongful use of the code, correcting an improper use of the code and repairing or correcting the code that proved not to attain the parties’ goals.

Smart contracts are one of the greatest inventions of the turn of the century. They improve efficiency increase speed and quality of delivery.

Embedding smart clauses in natural language contracts and creating adequate dispute resolution systems backed by robust control and verification mechanisms are the first steps to make your contracts smart.

With the development of the digital economy, new economic and financial assets, like tokens and cryptocurrencies, were created. Because of their high (potential) returns, they have become a refuge for investors, leading more and more people to invest in them.
This type of asset is not subject to the limits of monetary and exchange rate policies defined and controlled by central banks, and this lack of regulatory control encourages volatility and speculation. The innovation of these instruments involves significant legislative challenges, particularly regarding their legal nature, the regulation of the respective market and the taxation of their holders’ profits.
Concerns such as money laundering and terrorist financing led to the publication of the report "Taxing Virtual Currencies", by OECD, in October 2020, which addresses the existing legislative gaps for the main types of taxes and gives countries that want to strengthen their tax policy in this area some recommendations. Among OECD's recommendations there was the need to provide guides on tax treatment of virtual currencies that are clear, regularly updated, and consistent with the treatment of other assets. In Portugal, unlike many other European countries, such regulation was not yet implemented.

But is there a tax regime in Portugal?

In Portugal, the law is silent as to how this type of asset is taxed.
Between March and May 2020, the purchase and sale of cryptocurrencies in Portugal increased by 60% compared to the same period in the previous year. However, against what would be expected, neither the Government nor the Parliament have been following this growth through a clear and adequate legislative framework.
More recently and following the announcement that the Bank of Portugal has taken over the supervision of entities managing cryptocurrencies and the approval of anti-money laundering rules specifically addressed to transactions on these assets, there have been rumors of a change in the position of the Portuguese Tax Authorities to consider that this income should be taxed as capital income (at a rate of 28% or 35% if from a "tax haven"). But no amendments have been approved (yet).

… so how are they currently taxed?

In the absence of an express taxation, and after being questioned by several taxpayers, Tax Authorities took the only position that would be acceptable under the law.
In what concerns Personal Income Tax (“PIT”), the Tax Authorities confirmed that the income from this type of assets is presumably not taxable, unless the income arises from the performance of constant, regular professional activity. However, it has not been clarified when there is a regular performance of a professional activity for this purpose, which creates uncertainty.
Tax Authorities have not yet disclosed any kind of understanding regarding Corporate Income Tax (“CIT”). But, as the taxable profit of legal persons is based on the net profit recorded in the company’s financial statements for the period and any income earned by a company must be registered in its accounts, the income arising from transactions on bitcoins should be subject to CIT.
Regarding VAT treatment of the transactions on bitcoins, Tax Authorities considered, following the understanding of CJEU in the Hedqvist case (C-264/14), that bitcoins are comparable to fiduciary currency and their exchange for fiduciary currency, or vice versa, carried out for consideration, although characterized as a supply of services for VAT purposes, will be exempt from Portuguese VAT.

What's next?

At the income tax level, very few countries have considered cryptocurrencies as fiduciary currency because they have limited acceptance, lack intrinsic value (they are not linked to the value of any commodity or foreign currency), are volatile, are not issued by a public authority and are not regulated.
The current tax framework for cryptocurrencies leaves Portugal on the (increasingly short) list of countries that still do not tax income from this type of asset, which makes Portugal an attractive destination for investors of this kind.
But it is difficult to imagine that these gains will escape the tax net in the future. The 2022 State Budget to be presented in the next two months could be a turning point and new tax rules could be approved starting January 1, 2022.

This article was published by Expresso, a Portuguese newspaper, on April 1

There is no doubt that the world is at a turning point, in History, in the Economy, and in the lives of us all. In History, the veil is now falling away that for so long prevented us from recognizing one of the greatest tyrannies on Earth (and don't think that Russia is the only one that we have yet to admit as such, as we still have China and countries like Saudi Arabia, which we continue to treat as equals in values when they are not). In the Economy, we have entered an inflationary cycle, which was already inevitable as a consequence of the monetary policies followed in the fight against the effects of the Covid-19 pandemic. And which, with the Russian invasion of Ukraine, nobody can tell where it will lead us. In the lives of us Westerners, fortunate enough to live far from war and poverty, we feel squeezed by the rising prices of everything we consume and perplexed in our lack of understanding of the price-setting mechanisms. Some call for the taxation of capital gains that they adjectivize as unjustified, immoral, and the cause of the famine that affects the majority. Others, more moderate, question the universality of market rules and wonder whether it is not time for a new chapter in Economics too.

In this dire context, the European Commission recently proposed a plan called REPowerEU to erase dependence on Russian fossil fuels before 2030, to rebuild European gas reserves and to address rising energy prices in Europe. This initiative might, besides shaking the gas market, have a significant impact on the renewables sector, as it aims at allowing member States to take price regulation measures, to impose temporary windfall taxes, and to use of revenues from emission trading and state aid mechanisms. In the Iberian electricity market we have also seen discussions about electricity pricing mechanisms. The electricity wholesale prices in OMIE (where the daily price and the intra-daily price of electricity in the Iberian Peninsula are negotiated) are calculated through on a marginal prices mechanism that tries to mirror the meeting of forces between the supply and demand for electricity. There is an algorithm for these calculations called EUPHEMIA (who knows if named after the Greek saint tortured to death for not agreeing to participate in pagan sacrifices in the Roman Constantinople of the 3rd century) and we can say in this regard things are very complex; but, trying to simplify them, the setting of electricity wholesale price at OMIE works as follows:

OMIE puts the demand indicated by the operators of the Spanish (REE) and Portuguese (REN) grids together with the offers made by all different types of Iberian producers. The price established for the purchase of the electricity will be the price of the last offer to be entered into the system (normally, that of those who has less incentive to sell, i.e., those who obtain a lower profit margin). If this last offer comes from a combined cycle gas power plant producer it will reflect the costs of this producer and not, for example, the average of the production costs of all the offers made that day. A photovoltaic plant producer will sell its electricity in OMIE at the selling offer price of the producer of the combined cycle gas plant. This, in the current context, means having a significantly higher margin than it would be willing to accept if all the offers to the market were from photovoltaic production.

Here one may ask whether if, by aggregating different types of offers and choosing a price-setting criterion that seems incapable of reflecting the different production costs, we are not preventing the market from functioning properly as it would if the direct confrontation between comparable offers and demand was possible. Of course, the choice of the marginal prices’ principle has a technical explanation, a rationale that may seem more appropriate in a context of abundant supply and homogeneous costs (where the pressure to sell is similar for all producers) but it is apparently necessary because the system needs the energy produced by gas and other fossil fuels burning producers.

The creation of a special tax on renewable generation sources to match the so-called windfall profits (in the style of the infamous claw-back tax created by the Portuguese Government to eliminate the “unjustified” profits of Portuguese producers in MIBEL compared to the Spanish, victims of a special tax of 7%) implies a disincentive to what we are all saying we want to encourage. A disincentive with not only immediate impact, but also for the future of investment in renewable energy marketplace, which needs fiscal predictability. It is important to remember that the market operates based on a perception of risk, which includes factors within the market itself, such as technological developments or, conversely, negative developments in the cost of production factors. If we add non-market risks, such as administrative pricing or the imposition of taxes, the market will be disrupted, affecting, without discrimination, the supply (with high costs producers having to close doors) and the demand (which may have to endure either higher prices or shortages of electricity).

Therefore, ideas like the setting of a price ceiling at 180 euros per MWh, as has been suggested to the EU Commission by the Spanish and Portuguese Governments, will result production at a deficit in gas-fired plants. Certainly, producers with higher costs will withdraw their supply from the market generating supply shortages, unless they are subsidized (making the measure useless). We would risk not having electricity for everyone, because, at the present moment, the energy supply is not elastic (much has been said in this regard about the Portuguese Government's haste in anticipating the closure of the coal-fired plants).

Because all the above results of prices following natural laws and having no ideology, any electricity prices’ regulation is to be avoided. And taxation on the so-called windfall profits will naturally cause prices to rise or electricity to be in short supply for everyone. The least harmful way of State interference will be the direct support to those consumers who are least able to bear the increases in electricity market prices: the individuals and small companies with the fewest resources and the electro-intensive consumer companies whose activity is indispensable to the country's economic fabric. And the most efficient way of providing such support will always be paying individuals and companies in cash (and never by granting them new credit lines, the equivalent to offering water to a drowning person); or, better yet in the case of companies, offering them direct tax rebates.

Consequently, the EU Commission and the EU member States should, first of all, give priority to a consensual reassessment of the electricity pricing models and, if possible, adjust them so that they allow the market to function better, because it is not the market that is failing, but possibly the rules to which trading platforms like OMIE are subject to.

5G – multi-partner business models

Around the world 5th Generation Mobile Network (5G) is expected to act as one of the main tools for economic recovery. By using shorter and higher frequency bands 5G promises lower latency, faster speeds, and greater carrying capacity, which will be especially relevant for accelerating transformation processes at the industry level and benefiting businesses and consumers.

As an evolution in the lineage of cellular mobile network, 5G upgrades its predecessor facilitating the remote control of machines by other machines and of countless day-to-day devices.

The advantages underlying the introduction of 5G vis-à-vis its predecessors include:

  • Higher-speed mobile internet access (around 100 times faster than 4G);
  • Remote control of machines and devices (IoT);
  • Enhanced possibility of network management for providers; and
  • Lower power consumption compared to earlier mobile technologies.

Although Portugal also shares these expectations, only in the beginning of 2022, ANACOM, the Portuguese regulatory authority, issued the rights to use the frequencies allocated to the winning bidders of the 5G Auction. Right now, the commercial exploitation of 5G is still at an embryonic stage.

Therefore, most market questions outstanding after the end of the auction, such as the role of the new players and new services to be implemented, remain unanswered.

In this context, while the technological advantages of 5G seem promising, it is not so clear how operators will be able to recuperate on their investments and, above all, how and when other industries will benefit from the technology.

For operators to both recover investments already made to acquire spectrum rights, as well as to deliver on the commitments that the licences require, they will need to develop collaborative, multi-partner business models with specific legal and regulatory challenges to overcome.

To be able to address these challenges, we will make a brief overview on some of the fields in which the boundaries between the communications sector and other undertakings will mostly fade.

5G operators' business models opportunities

From a regulatory perspective, until now, operators have essentially two options, which naturally will branch out almost endlessly. In the first junction operators will basically position themselves either at retail or wholesale level, with large operators, particularly legacy operators with widespread networks, operating in both levels.

In any case, they will be either (i) offering the network services they design to retail customers – either B2B or B2C – or, (ii) sublet network components to other network operators who, in turn, will offer them to their retail customers.

Simplistically it may be said that until the 1990’s explosion of commercially available IP based communications, in general, retail customers were users of networks focused on content, while operators focused on hard telecommunication engineering skills.

With personal computers exploding and broadband IP based services becoming ubiquitous, in the early 2000’s, the first over the top providers appeared, first in fixed services and a few years later, with the popularization of pocket computers, also known as smartphones using 2,5G and 3G, these services became fully mobile.

As discussed below, the technical possibilities offered by 5G, will not only speed up communications but allow retail customers to become value-added servicers themselves, further blurring the lines between users and providers.

Faster Internet speeds, increased traffic, and technology integration are the benefits commonly attributed to 5G. Some of the major benefits are:

Smart IoT devices - The number of Internet of Things (IoT) devices is expected to increase with the rollout of 5G speeds. Thus, IoT-focused companies may expect this technology to leverage their capabilities. From evolving infrastructure diagnostic systems, to providing better data insights and to reducing device vulnerability.

Network Slicing - The multitude of emerging technology uses and new services by businesses and consumers will require a flexible network that provides a better user experience. With 5G, users will be able to create multiple virtual networks with just one physical system. This network slicing may help enterprises provide an end-to-end virtual system, encompassing not only the network, but also the compute and storage functions.

Multi-Access Edge Computing - Through 5G technology, multi-access edge computing will help to relieve crowded enterprise networks, even while supporting hundreds of devices simultaneously. This cloud-based network architecture can also boost the overall performance of enterprise networks. In addition to handling large data loads and delivering real-time results, multi-access edge computing will also protect user data.

Therefore, we will highlight some of the main sectors (industries) that are usually credited with more immediate benefits from 5G and what could be the relationship between companies operating in the respective sectors and the operators.

Automotive sector

Among the various sectors, despite being one of the sectors that tends to benefit most from the implementation of 5G based networks, the automotive sector will be face some of the major challenges in implementing the “5G transformation”.

When talking about autonomous vehicles used in closed circuits, e.g. in logistics facilities such as warehouses, factories or even ports and airports, the improvements may be immediate since many vehicles may be connected to a network with very low latency and very high speed, which, connected to an intelligent system, will allow internal displacements to be increasingly efficient, fast, controlled and safer.

However, despite being one of the most promising sectors, many questions may emerge, such as: who will be responsible for possible accidents in case there is a failure in the network supply to the company that in turn indirectly affects the final consumer; who will be held liable for compensation if a product fails due to a connection fault; and who will be held liable for compensation in the event of a data leak, the company providing the service, or the operator?

Manufacturing and farming

5G is set to enable large scale “machine to machine” communications, allowing for a reduction in human error and an increase in automated processes. Also, using 5G real time communications to the operators of machinery is growingly possible, making the process faster and safer, with sensors that can reveal exactly when and where a tool needs changing or updating.

As well, in this emerging technological world, scientific farming techniques are being used to boost productivity in farms. These include use of Agri-IoT sensors for soil monitoring, water management, smart irrigation, crop health monitoring, drone-based farm management etc.

Deployment of 5G networks will provide added benefit to manage these drones and obtain real time data from the sensors and conveying it directly to farming operators.

Healthcare sector

In the healthcare sector app-based services are seen as a major tool to provide better services, thus it could benefit greatly from the introduction of 5G. Long-distance monitoring and care services which, although not being exactly novel, with the recent pandemic, we are getting a first glimpse of the possibilities.

5G will also allow for faster and more reliable real-time access to health data from wearable technology and even bring closer the reality of remote treatments. The possibility of using augmented and virtual reality (VR) tools will certainly assist with the provision of remote medical services.

Despite the countless benefits, this is one of the sectors that may raise more complicated situations to deal with, as: e.g., in case of an error due to a network collapse, who will be held responsible? Who bought the system that will serve as the base for the infrastructure, or the telecom operator?

The truth is that although the introduction of 5G will raise several legal and regulatory questions super-fast connectivity will allow futile things that we still do today, such as pushing the grocery cart, to disappear.

The importance of operators in connecting 5G with these sectors

With the 5G journey just beginning, disruption and innovation is already happening in the B2B segment.

The telecom operator of the future will not just be a broadband/communication provider but will be a partner to jointly develop digitization and automation solutions.

Telecoms are collaborating with a growing number of customers in the transport and industrial sectors, and more are to come. Such customers include railways, utilities, and companies in sectors such as energy, utilities, transportation and logistics, healthcare, as well as companies offering traffic management and drone operations.

Industrial campuses are where digitalization and automation are happening

Communication between machines and personnel/staff equipment (e.g., laptops, tablets, etc.) is traditionally implemented through local area networks (LAN) using Ethernet and Wi-Fi-based solutions. While LAN can provide high-speed communication, it is limited to fixed devices and cannot be used in extreme environments such as high temperature areas (e.g., factories producing steel, glass, etc.) and environments with a large number of moving elements (e.g., packaging and shipping warehouses).

While Wi-Fi is easy to install and use, it has a number of limitations. Typically, only a few dozen devices can be connected to a Wi-Fi network and the quality of Wi-Fi is unreliable, vulnerable to external factors (including interference from nearby Wi-Fi networks) and is a "best effort" network. This implies that Wi-Fi is not suitable for machine or mission-critical data flows.

5G field networks can supply the basis for industrial automation

Technology enabled by telcos can open radically new ways of doing business. For the first time, telcos have a valid justification to talk directly to business unit heads and offer them tailored potential innovative solutions based on the field network to further expand industrial productivity.

In such a role, the telecom operator not solely be the provider of the network but become an active partner in digitization and automation solutions with greater synergies with the underlying telecom infrastructure, resulting in lower costs for the industrial partner. In this way, the telecom provider will further move away from its typical role as an external cost centre to become a partnership-based "value creator" for the industrial customer.

Many companies still limit the scope of their corporate accountability and ethics to merely complying with the relevant legal obligations. Profitability remains the main, if not the only, criterion (in many cases) governing business decisions.

Social, legal, and regulatory changes, however, are forcing companies into adopting a different approach. Companies must now provide clear disclosure of their financial position and corporate governance practices and carry out transactions transparently while ensuring to safeguard competition. They must also respect all human rights, prohibit any employment discrimination, and act in a socially and environmentally responsible way, with sustainability and ESG (Environment, Social and Governance) appearing as an aggregating "slogan" of this current trend, which is (rightly) here to stay and with due visibility.

Corporate governance, corporate social responsibility, and compliance must work in unison in today's world. Traditional views on competitiveness and profitability are changing. The change will be vertiginous.

Of course, many of these issues have long been regulated, but control of corporate practices by other stakeholders has been growing. Clients, suppliers, employees, and society are paying far greater attention to the way companies behave socially and requiring them to meet specific criteria, which place them at a different level of competitiveness. The competitiveness of a business and its marketplace vis-à-vis other competitors will also depend on this.

Companies must review their governance practices not only to comply with their statutory obligations but to ensure accountability, fairness, and transparency towards their stakeholders.

Compliance challenges and changes

Companies are also facing new challenges in diversity management and equal opportunities to increase the proportion of minorities and women in senior roles.

Diversity management focuses on valuing ‘difference’ and on non-discrimination and respecting every individual in the workplace regardless of their race, gender, or sexual orientation. Antiharassment, which recently gained strength with the “#MeToo” movement, is another concern driving the introduction of new workplace policies and procedures.

We have also seen a surge of new laws and regulations about business ethics, social responsibility, and personal data, among others.

Social responsibility and sustainability — recognising a company’s role in society through, for example, charitable support and environmental responsibility — should not be seen as a marketing tool to maximise future profits but as contributing to the welfare of all stakeholders: employees, shareholders, suppliers, customers, and society.

Ethics are an essential and complementary part of compliance

Investors are changing how they review a company’s performance and make decisions based on criteria, including ethical considerations. There is evidence that a company’s ethical corporate behaviour is increasingly impacting stakeholders’ market perceptions and the decisions of investors and customers regarding their choice of companies to deal with.

In companies with poor culture and ethics, employees tend to behave in a way that can lead to unethical, harmful behaviour, increasing the risk of breaches and subsequent damages.

Companies will be obliged to assume responsibility for their management and employees’ actions unless they can prove that they have performed all endeavours to deter or advise against illegal and fraudulent behaviour.

Therefore, all employees must be given the relevant training, and controls are developed across the company involving all departments, primarily legal and compliance. Policies, procedures, or rules will not be effective unless they are prepared, implemented, and enforced in a much more inclusive manner within the company.

The key is not only to follow the law but to teach those within the company that doing so is not a choice. The company must understand why it must be followed and why it must be a business priority.

Compliance is not a passing trend

Compliance cannot be reduced to a set of checklists. There is no one-size-fits-all compliance solution.

Legal and compliance departments must develop a framework for promoting corporate ethics and legal compliance within the company. These steps include:

  • Implementing internal legal audits;
  • Making information regularly available within the company regarding corporate social responsibility and legal compliance;
  • Internally relaying relevant information about local and other legislation that relates to the business;
  • Providing training courses/workshops on corporate ethics and legal compliance for every single employee and discussing misconduct prevention across the company; and
  • Creating corporate ethics and legal compliance helpline, i.e., an internal whistle-blowing system.

Companies must understand that corporate governance, social responsibility, and compliance affect the entire company, including the board, management, shareholders, employees, and other stakeholders. It is becoming a day-to-day exercise for which they must be fully prepared.

It is time for companies to rethink legal compliance beyond traditional risk management and see it as a strategic business asset. Accountability, transparency, and dialogue can help make a company more reliable and boost the standards of other companies at the same level. Everyone benefits, but not necessarily in the traditional sense of profit!

In 1996, Nick Szabo coined the term “smart contract” in a revolutionary article on the introduction of digital technology in the realm of contracts. In that article, Nick Szabo stated: “[n]ew institutions, and new ways to formalize the relationships that make up these institutions, are now made possible by the digital revolution. I call these new contracts "smart" because they are far more functional than their inanimate paper-based ancestors. No use of artificial intelligence is implied. A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises.”[1]

Since 1996, the emergence of blockchain technology has allowed the creation of a new form of legal ledgers which are run in a decentralised manner.

There are various classifications of smart contracts and smart legal contracts depending on whether they are fully or partially automated and recorded in a blockchain system or not.[2]  In this article, we will use the expression “smart contract” in its simplest and widest form.

We define smart contracts as computer instructions that represent the intention of the parties to create an obligation, make a payment, purchase an asset or service or trigger an event that has a legal consequence.

The primordial example of a smart contract is a vending machine. By inserting a coin in a vending machine, the person who inserted the coin purchases a snack or a beverage from the vending machine owner or operator. Automated ticketing machines are also old automated or self-executing contracts, whereby a person acquires the right to use a transport service, enter a movie theatre etc.

More recently, online contracts with Amazon and the like are also forms of automated purchase agreements that fall into the concept of “smart contract” because they allow clients to purchase goods and services by giving automated instructions through a machine.

In any of the above examples, there is an underlying “natural language” contract, that is, a language used by people and not coded instructions given to a computer. When we enter an online contract, we are often required to accept a standard contract, sometimes in a foreign language that we may not fully understand. This raises issues of the validity of those rules concerning general and standard clauses. We will not be concerned with these implications in this article; we will focus on the issue raised by “software coded contracts”, which is the widest possible definition of smart contracts.

“Software coded clauses” or “smart clauses” are computer instructions using software language that may constitute the performance of an obligation or trigger the verification of contract conditions. Software coded obligations are self-executing because, in most cases, they do not need human intervention. Software coded contract provisions are now used in all online contracts because every service or product purchased online triggers legal consequences, such as the obligation to pay and the obligation to deliver a service or good.

The entry and performance of online contracts have occurred without disrupting legal systems. Generally, around the world, legislations accept the validity of online contracts. Disputes have been resolved in a fairly satisfactory manner because suppliers that value their clients are ready to solve complaints in a friendly way. Customers dissatisfied with suppliers simply cease to purchase from those suppliers. The rules of supply and demand that govern mature and fair markets take the stress out of the system. However, some terms and conditions and the conduct of many online suppliers may not be legal on many occasions.

The buzz about smart contracts goes much deeper than simple online B2C online agreements, where software coded information is translated into service and purchase orders and money transfer instructions.

Smart clauses coded in self-executing software language can include complex payment terms and formulas, trigger conditions, default clauses and security enforcement provisions. Smart contracts can be used in all types of contracts, including very complex B2B contracts such as credit agreements, mergers and acquisitions, issuance, acquisition and disposal of securities, IPOs, financial derivatives, futures markets, restructuring agreements, construction contracts etc.

Also, matters of technical nature can be linked to the contract clauses through smart clauses, that is, technical parameters stated in legal contracts involving the operation of telecommunication networks, power grids, power production, software requirements etc. can be linked to the legal language of contracts and trigger contract consequences. Presently, many of those technical issues are left in the contract’s fringes and put into more vague and elusive contract terms, such as “best efforts” and reasonableness judgements, or left to mediation or litigation when they become unsolvable by the people dealing with the day-to-day operation of the contract.

There are five basic practical rules for ensuring that smart clauses are enforceable and do not raise even worse issues than natural language clauses.

First, smart clauses should be translated into a natural language. This means that every smart clause should have an equivalent natural language clause. The natural language clause should be as objective as the smart clause and not include open concepts that cannot be translated into the coded clause.

The need for this rule does not result from the Law but serves a practical need: clauses should be understandable by people without very deep knowledge of the law and the technical aspects of the contract. Judges and business decision-makers should be able to understand the key points of the contract.

Suppose the main clauses of the contract, like the performance of the contract, are dependent on a coded clause (with no natural language equivalent). In that case, it won’t be easy to understand why the parties chose that particular solution instead of another. Sure, there are contracts with heavy and complex technical issues, be that the legal formulation of the clause or the commercial and technical aspects. But, in most cases, the economic, commercial and technical terms have a “natural language” formulation inscribed in the agreements and understood by the persons present at the negotiation table, even when they include complex technical schedules.

Second, the content of smart clauses should be open and auditable. This means that the acceptance of the code should be made by experts of each of the parties. This requirement aims to give an equal footing to the parties. Smart clauses must be understood and controlled by the parties.

There should not be one party controlling the code and the consequences of the instruction generated by it. In present natural language contracts where the legal and commercial technicalities can be generally understood by the parties, each party should have its own legal advisors. In coded language contracts, an asymmetry in knowledge can be more damaging than not having legal counsel. Expert advice and verification procedures are necessary.

Third, smart clauses should be protected. Integrity is a key element of any contract. In natural language contracts, one of the parties cannot change the wording of clauses. This is ensured by putting the contract in writing and other formal requirements imposed by law or agreed by the parties. Tampering with the words of a contract means falsifying the contract content. The same rules apply to smart clauses and smart contracts.

However, because smart clauses are generally self-executing, the consequences of possible tampering with the contract software code are more direct and can unlock a chain of events that may be impossible to stop. For this reason, the integrity of smart clauses should be ensured.

Blockchain systems are an acceptable form of ensuring the integrity of contracts because the blocks of a blockchain cannot be changed without the agreement of the nodes of the system (all or a significant number of participants in the system depending on the type of consensus algorithm that is used). This ensures the integrity of the contract in a manner that is as efficient, if not more, than current government-sponsored or other centralised ledger systems. However, blockchain is not the only way to ensure integrity. The parties may appoint an independent third party to store and protect the code or even monitor its application.

Four, smart clauses triggering events that require human intervention should not be left to the parties. While many smart clauses rely on machine self-execution mechanisms, there are cases where human intervention is necessary to fill gaps or interpret the data. The parties should not take this decision.

For instance, if the contract stipulates that one of the parties must make a payment to the other if the temperature reaches 45 degrees and two official computer records state different temperatures, one 44.9 degrees and another 45 degrees, a decision will have to be made as to whether the payment condition was met or not.

This example underpins the fact that minor discrepancies in digital records or the non-existence of an independent digital record may require human intervention to verify or certify smart contracts trigger conditions. When that is the case, the person making that decision should be independent of either party.

In Ethereum, the contract parties may appoint persons, named “oracles”, to take decisions that will trigger or not trigger smart contract events. This is an adequate solution for smart contracts based on Ethereum. For smart contracts outside a blockchain, the parties may use independent entities and grant them the power to fill in the missing data or resolve digital records inconsistencies.

Five, contracts with embedded smart clauses should include effective and fast dispute resolution mechanisms. Smart contracts should contain dispute resolution mechanisms because smart clauses can add a layer of complexity for which courts are unprepared.

In existing b2c online contracts, few disputes are resolved in courts because their value is low. The consumer often simply refrains from purchasing from the vendor that failed to deliver. This is not the ideal way of resolving a dispute, and a more effective transnational redress system must be created.

In more valuable contracts, disputes can be taken to courts, but the time for resolution may be too long to remedy the harm suffered by one of the parties. Parties will trust more in contracts that contain safe and expedient means of resolution. These may include mediation and arbitration mechanisms that allow for taking over control over the code, stopping wrongful use of the code, correcting an improper use of the code and repairing or correcting the code that proved not to attain the parties’ goals.

Smart contracts are one of the greatest inventions of the turn of the century. They improve efficiency increase speed and quality of delivery.

Embedding smart clauses in natural language contracts and creating adequate dispute resolution systems backed by robust control and verification mechanisms are the first steps to make your contracts smart.

A shorter version of this article was published by Público, a Portuguese newspaper, on January 18. To read, follow this link

 

The idea that robots and machines might one day replace people fascinates and scares many people. Literature, movies and cartoons depict the image of robots that take over control over humankind in a not-so-distant future. The Matrix saga, 2001: A Space Odyssey, The Jetsons, among many others have populated the imagination of children and adults for generations. Until the beginning of the XXI century, the subject of artificial intelligence (AI) was confined to the academic world, science fiction, and a few industries. At the end of the last century, Goggle brought AI to everyone’s lives in a palpable way. Research at our fingertips replaced long hours in libraries and bookshops.

Today, AI is everywhere, in social networks, in the advertising industry, computer research, development of cars and other machines among so many other things. Computer software is powered by AI engines. Smartphones, computers and laptops have embedded AI. When you lift a smartphone, unlock your phone using face ID or use speech recognition, you are using AI-powered software.

But the AI revolution seems not to have reached the business of law. Of course, lawyers and law firms now use AI in their electronic devices and in computer software, some of which is designed specifically for lawyers, such as document management systems and billing software. But AI has not disrupted the business of law as it has done in so many other businesses.

The changes to the business of law brought about by legal AI technology, the concerns and scepticism of lawyers call for a discussion about the role of legal AI in the future and if some or all of the lawyers’ tasks will be replaced by legal machines.

First, let us define AI. According to the Encyclopaedia Britannica “artificial intelligence (AI) is the ability of a digital computer or computer-controlled robot to perform tasks commonly associated with intelligent beings”. AI is the ability to simulate the logic of an algorithm by a machine. An algorithm is a finite sequence of defined instructions used to perform a computation. Algorithms are used as specifications for performing calculations, data processing, automated reasoning, automated decision-making and other tasks. AI gives machines the ability to perceive a given environment and to take actions to achieve the goals set by the machine’s program.

To some lawyers, this is impossible, at least for the more complex legal matters, because the business of law, whatever its shape and form, lives around “words”. From the dawn of history, enacting and enforcing laws has revolved around the use of “words”. Rhetoric and grammar have always been at the core of all legal professions. Words may be ambiguous and have multiple meanings depending on the context and order in a sentence. The interpretation of words appears to be a purely human activity.

However, due to its “prescriptive” nature, the Law implies simple deductive reasoning processes, which makes it ideal for AI “coding”. Putting it simply, the Law is not immune to AI; on the contrary, the Law is an ideal field for AI.

The good news for today’s lawyers is that we are far from the day when AI will take over their business. For that to happen, we must “code legal thought”.

To code legal thought one needs to create the processes that will allow machines to interpret laws, contracts and court decisions, which seems still far on the horizon because “words” and “sentences”, the matter of law, have many meanings, many times elusive, and open to manipulation by legislators, the politicians that make the laws, lawyers and even judges, who are no more than humans and, therefore, have sentiments, opinions and convictions to which they hold strong. Right and wrong are not clean-cut, are not yes and no, are not a series of 0s and 1s.

Yet, legal thought can and will be software coded in the not-so-distant future.

This is how it will happen. Firstly, AI will replace lawyers and other legal practitioners in the review of documents. Document review systems use machine learning technologies and pattern recognition technology to identify key contract concepts, tag clauses, court decision patterns, flag discrepancies and other patterns in the application and interpretation of laws and contracts, etc.

Lawyers are still needed to interpret the data coming out of computer systems and attribute meanings to those discrepancies and patterns. The machine will learn from the human lawyers’ interpretation, build new models, discern potential risks, etc.

Existing computer programs, like Luminance or Kira, already successfully help lawyers to conduct due diligences and provide advice to clients.

The second stage of legal AI will affect how courts prepare their rulings. AI-powered research systems already give judges and lawyers access to legal precedents concerning the specific subject matter of the case. In the future, AI will enable judges to narrow down the key elements of their decisions and offer them a roadmap for the decision-making process. Let us take a simple court decision such as determining if the court has jurisdiction over a particular matter that is put to it. Legislations around the world have a clearly defined set of rules for determining courts’ jurisdiction, which can be coded in computer language, that is, in an algorithm.

Some software systems, such as Lexis+, offer court decisions analytics and help lawyers to assess the likelihood of success of cases based on past decisions.

Future legal algorithms will help legal professionals to determine if matters follow into one legal category or another and how the law will be applied in specific cases. This will be one step away from determining the application of legal rules. Again, taking a simple example, if someone goes into another person’s property and it was not entitled to do so by law, such action falls under the legal concept of trespassing. These tasks will be done with an increasing degree of complexity, eliminating false positives, the application of conflicting rules and rights, the existence of exculpatory reasons to dismiss the application of a certain rule and the choice for another prevailing rule.

Many lawyers will argue that doing law has some specific features, such as the interference of sentiments and beliefs, which make it a non-computable task. AI can probe into statistics and the cold walls of legal statutes - they will say - but not into the hearts and minds of real people.

This is the wrong approach to legal AI. There are two areas where legal AI will struggle to master: an upper layer of present laws with their cultural, sentimental and political veneer that cover the law’s core rules. This veneer will be cleaned up by more powerful algorithms and the rationality of legal algorithms, uncovering a simpler and, therefore, fairer set of rules free of many of their present inconsistencies and conflicts.

As far as lawyers are concerned, legal technology and, in particular, AI systems will change the way they work but will require all of their ingenuity to interpret the complex legal issues that are needed to power legal AI. Lawyers and law researchers will have to break down the questions embodied in existing laws, contracts and legal precedents to map the AI systems of the future. Lawyers will also have to understand how to introduce queries into AI-powered systems and interpret the results brought to light by AI, formulate legal strategies and create legal documents, such as court briefings, contracts and opinions.

Legal AI will empower lawyers and clients. Legal AI will create faster and more efficient ways of completing all legal tasks. This is the case of knowledge management, documentation analysis, contract drafting, litigation review, preparation of court briefings. Legal AI will release lawyers from many repetitive and standardised tasks.

AI will disrupt the business of law. AI will lead to the disintermediation of legal services as it is now doing in other business sectors. In finance, for example, centralised exchanges will have to compete with the blockchain-enabled trustworthy peer to peer (P2P). The same will happen with many existing legal services. The traditional legal services will only be provided by lawyers when a trusted confirmation or reliable advice cannot be found in other sources.

Many lawyers view the disintermediation of other business sectors as unwelcome news, unaware that automated legal services have already taken a chunk of their old business. Automated services now offer many services that were exclusively provided by lawyers and paralegals a few years ago, such as invoice collections, automated contract drafting is now offered to business consumers and for low-value contracts. It is foreseeable that in the medium to long term, many legal services will be taken over by machines.

All legal professions will benefit from AI. Lawmakers will make better laws; judges will issue fairer judgements; lawyers will be able to perfect their court pleadings to a higher degree of efficiency and practicality. Many conflicts will be solved before being taken to courts because the odds, that is, the likelihood of success, will be against one of the parties in a clearer way, prompting that party for a settlement or simply to avoid litigation.

AI will not replace lawyers, but it will radically change the way lawyers provide services.

Legal thinking must remain in the sphere of lawyers because inside the core of all laws live values and values are non-computable. Values cannot be reduced to the mathematical formulations of algorithms. The creation and the application of law must, in the end, be made by humans and for humans.

Law is a science and a technique, but it is also an art and therefore cannot be reduced to mere algorithms. This is the limit of legal AI and the limit to any AI-powered technology.

Under the 5G Auction Regulation, the objectives of the auction are, among others, to promote greater competition in the electronic communications market. To achieve this objective, the auction was designed to promote the entry of new entrants through the application of asymmetric coverage obligations and prices.

With the bidding phase concluded, it remains to be seen what operators and consumers in the communications market can expect. For this purpose, it is important to understand the importance of the specific bidding phase for new entrants - which corresponded to the reserve price in the first phase and in subsequent phases to the value determined by ANACOM's Board of Directors.

New entrants and incumbents

Allocation of radio spectrum rights

In January 2021, after merely 44 rounds, four 2 x 5MHz frequency bands in the 900MHz and 1.8 GHz were awarded for approximately 84 million euro, ensuring these entrants will be able to provide IMT2000 based services, while being permitted to bid in the main bidding stage.

The allotment of non 5G spectrum for new entrants, accompanied by low coverage obligations, unusually generous payment terms, is consistent with ANACOM’s understanding that the number of mobile network providers should increase to counter what regulators have been arguing to be an excessively concentrated market. The hypothesis of excessive concentration is fiercely disputed by incumbent operators, who in general argue that the said concentration is not the result of an unfair advantage but rather of the market structure itself.

In any case, as mentioned above, it is not the first time that ANACOM tries to force the entrance of new players by what it perceives to be a levelling of the playing field.

To this end while it is providing new entrants with spectrum that allows for the immediate provision of services, it is also imposing other obligations. Thus, in the 700 MHz bands, holders of spectrum will be required to provide 25% mobile broadband service coverage by 2025:

  • On each of the country's highways;
  • On each of the main road routes in the country; and
  • On each of the railway routes included in the “Atlantic Corridor”, for the part relating to national territory (essentially a railway connection between the country’s largest seaports from Sines in the South to Oporto), the Braga-Lisbon link, the Lisbon-Faro link and the urban and suburban links of Lisbon and Porto.

ANACOM considered it appropriate to impose on new entrants benefiting from these 'advantages', gradual coverage, and the maintenance of a level of investment which, without discouraging new entry, is also intended to contribute to the robustness of the network offer and to increase the benefits of these allocations for end users.

Access to national roaming

New entrants will also have access to the networks of incumbent operators, irrespective of the amount of spectrum acquired. For this purpose, incumbent operators will be obliged to enter into commercial agreements for national roaming with the new entrants (‘roaming’).

As above, new entrants benefiting from national roaming will be subject to mobile coverage obligations. For the purposes of compliance with coverage obligations in locations or buildings where only the installation of infrastructures of one of the holders of rights of use of frequencies in the 700 MHz band is permitted, the operators shall be obliged to enter into national roaming agreements, under non-discriminatory conditions, to enable other holders of rights of use of frequencies in the 700 MHz band to provide services in such locations.

Operators entering into roaming agreements will be subject to an obligation to provide mobile coverage of 25% and 50% of the national population by using the frequencies allocated to them respectively within 3 and 6 years from the conclusion of those agreements.

It should be noted that compliance with these coverage obligations may be achieved by using any frequency band assigned under the auction or consigned until the date of entry into force of the Regulation.

5G and consumers

The holders of rights of use of frequencies are subject to compliance with the conditions of article 27 and 32 of the Electronic Communications Law, namely:

  • Transparency obligations of public communications network operators offering publicly available electronic communications services in order to ensure end-to-end connectivity;
  • Maintenance of the integrity of public networks;
  • Public authorities’ terms of use for communications to the general public for warning for imminent threats and mitigating the consequences of major disasters;
  • Security of public networks against unauthorised access;
  • Providing a service or using a type of technology including, where appropriate, coverage and quality requirements; and
  • Network development and fixed voice signal augmentation.

Given the delay, it could be several months before operators' commercial offers involve 5G tariffs.

Transfer or lease of rights of use

The rights of use of frequencies may only be transferred or leased by the respective holders after 2 years from the date of commencement of the provision of publicly available electronic communications services using the frequencies assigned to them provided that ANACOM has not prohibited such transfer.

Nevertheless, there is a duty of prior communication to ANACOM of the intention to transmit or lease the rights of use of frequencies, as well as the conditions under which they intend to do so.

ANACOM has, within 45 working days, the right to prohibit the transfer or assignment if the following conditions are not met:

  • The transfer or lease does not distort competition, namely due to the accumulation of rights of use;
  • The frequencies are used efficiently and effectively;
  • The intended use of the frequencies is in line with what has been harmonised through the implementation of Decision No 676/2002/EC of the European Parliament and of the Council of 7 March 2002 (Radio Spectrum Decision) or other EU measures; or
  • Legal restrictions in relation to radio and television broadcasting are safeguarded.

In conclusion, the need to enhance the competitiveness of the country and of all its regions associated to 5G is thus perceived. Moreover, ANACOM believes that the obligations associated with the coverage of municipalities with low population density, in the Autonomous Regions of Madeira and the Azores, may be ensured, with efficiency gains in these areas through national roaming agreements.

To learn more, please read the extended version of this paper with extra content on our PDF down bellow.

2021-09-23
Guilherme Dray

With the massification of the "Covid-19" vaccination in Portugal, with 83,5% of the population fully vaccinated, the last quarter of 2021 promises to be a resume to work. But this time, everything points to a return to work stressed by what we used to call "Future of Work".

The Future is already among us, and it has a name: Hybrid Work. A powerful combination of remote and in-person work.
This is the big new trend in Western economies: the United States, Canada, Australia, Brazil and Europe are investing heavily in hybrid work models that combine work at the premises (vertical or horizontal) with the remote work that characterized the pandemic.

Remote work and telework, as we already know, has tremendous advantages for all stakeholders and for the community:

  1. For companies, it reduces costs with installations and generates a greater capacity to recruit employees geographically distant, besides allowing the stability of the operation in confinement phases;
  2. For workers, it guarantees them greater freedom of action, better work-life balance, the ability to work for companies located in different geographies, and the reduction of costs and time associated with commuting;
  3. For the community, it is a huge factor in reducing commuting, a tool for reducing CO2 emissions; a tremendous opportunity for development of previously forgotten and abandoned rural areas; and an important factor in containing new pandemic outbreaks that may continue to occur, due to the Delta variant or others that may come.

But exclusive remote work also has obvious disadvantages: it heightens social isolation; makes career progress more difficult; separates workers from their representatives and union structures; and reduces group work, the exchange of ideas, and the resulting creativity. Exclusive remote work alienates people and human contact.
Because of this, the hybrid model, in professions that do not require constant physical presence, can enhance the advantages of remote work, and minimize its disadvantages. It ensures employee turnover and less crowding workplaces, allowing employees to benefit from two complementary realities: in-person work and remote work.

However, for it to work well, there are some precautions to take:

  1. Planning: companies and their HR departments must plan intelligently and clearly the distribution of hybrid work among their employees; in some cases, for example, employees work 2 days a week in face-to-face work and 3 days in remote work; in others, it may be the other way around; or we may have entire weeks of in-person work and others of remote work;
  2. Communication: planning must be properly communicated to employees in advance, so that they can plan their lives and know what to expect; the worst that can happen in an organization is lack of communication and the use of "Chinese walls" about the model to be adopted; uncertainty and lack of communication about how the future will be generates anxiety, unnecessary "noise" and lower productivity;
  3. Involvement: employees must be involved in the solution; not necessarily by consulting or issuing prior opinions, but at least through good explanation of the rules adopted and constant and effective communication mechanisms;
  4. Adaptation: hybrid work plans should not be definitive; they should be flexible, follow the evolution of the pandemic and the adaptation to this new way of working; they can (and should) be changed and recalibrated, to the extent that this is justified; and workers should be aware of the temporary nature of the plans to be adopted.

We know that the Future of Work is not going backwards and will involve hybrid work, digital nomadism, work on digital platforms, lots of digitization, and the use of algorithms. It will bring new opportunities, but also new risks and challenges that must be guarded against.

The solution is not in trying to prohibit or decree a return to the past; the solution is in regulating these new trends, in the name of the Decent Work Agenda. The Future of Work in Portugal must be cultivated and regulated so that it can bring new opportunities, decent and better paid jobs, with more freedom and less precariousness.