On 23 June 2016, the UK voted to leave the EU. As with other sectors, the uncertainty around Brexit appears to be having an impact on the telecoms sector in terms of the timing of transactions and the risk of business relocations. However, the telecoms market can be said to be more resilient than other sectors to such uncertainty as most telecoms providers serve predominately domestic customers. Nonetheless, the sector is heavily regulated and much of the regulation is based on European law. Independent of the EU Referendum, Ofcom had already initiated a strategic review of digital communications and the legislators will now need to consider the objectives of that review in light of the possible Brexit terms. Notable areas for consideration as part of that review include:
European telecommunications regulatory framework and Ofcom's strategic review
- Given that the majority of the instruments from the European telecommunications Regulatory Framework (i.e. the EU Directives) have been enacted into local UK law, these provisions will continue to apply following Brexit until repealed or replaced. However, certain instruments of the European Commission, such as the Roaming Regulations may no longer apply (depending on what form Brexit takes).
- The EU Regulations are currently under review as part of the Dingle Single Market strategy which aims to overhaul the Regulations to improve spectrum co-ordination, encourage investment in high speed broadband and create a level playing field for all players. The UK will, in theory, not be subject to any reforms implemented as part of this review post Brexit. However, Ofcom is also carrying out a strategic review of communications (with initial findings published in February 2016) and its review included similar objectives (as well as the objective to improve the performance of BT's Openreach wholesale business). Ofcom reforms implemented post Brexit would not be subject to the requirements of the EU Directives. One of Ofcom's primary aims of the review is deregulation of the market; Ofcom has commented that it would explore to ascertain whether there is any scope for deregulating any downstream networks and services – i.e. downstream of any bottlenecks. Therefore, the move away from adhering to EU Regulations more generally may well be within the purview of Ofcom's latest plans for the UK market.
- Under the EU Directives, Ofcom is required to consider the case for regulation based on the competiveness of specific markets, in accordance with the European Commission's Recommendation on Relevant Markets for regulation. It is possible that Ofcom could take a different approach to such reviews.
- A full Brexit would mean that the abolition of roaming charges within the EU under the Roaming Regulation, would no longer apply in the UK and, as such, UK mobile operators would no longer be regulated in respect of setting their roaming charges. However, UK mobile operators are arguably incentivised to reach agreement with their EU counterparts to maintain the status quo so as to deliver a consistent user experience.
- Under a full Brexit, the UK would cease to be subject to the net neutrality regulations under the Connected Continent Regulation. Given Ofcom's desire to deregulate, and its objective to encourage investment in networks, it may not seek to legislate in this area in order to enable service providers to develop new commercial models for bandwidth hungry services and applications. This, in the short term, this could have a positive effect on competition particularly, for Internet of Things businesses.
- Furthermore, it could encourage operators to undertake more significant investment in infrastructure. On 6 July 2016, a group of 17 telecoms operators, including the giants BT, Deutsche Telekom, Telecom Italia and Vodafone signed a manifesto to rollout 5G network infrastructure in at least one city in every EU country by 2020, in exchange for a softening of the EU rules on net neutrality – these operators have threatened to cease investment until the rules are revised. Given this reaction by the market, as well as Ofcom's latest objectives to promote investment, foster competition and deregulate where it can, the UK is likely to take a less prescriptive approach to regulation in this area and may well rely on market forces instead.
- Management of spectrum is unlikely to change because Ofcom is only required to be guided by EU decisions and recommendations in this regard, although full Brexit will mean that the UK will no longer be bound to take account of such decisions, Ofcom will continue to cooperate with other Member State national regulatory authorities and other EU bodies such as the Electronic Communications Committee and the European Conference (ECC) of Postal and Telecommunication Administration (CEPT) in the management and harmonisation of spectrum.
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