Uncertainties Ahead

With a moving target to consider, Askandar Samad, Partner at international law firm Reed Smith provides us an insight as to what ‘Brexit means Brexit’ holds for the telecoms sector?

The defining feature of the Brexit vote, at least at this stage, is uncertainty. Predicting the outcome of the trade negotiations and their impact on the shape of the regulatory landscape for telecoms post-Brexit is well-nigh impossible. If we can deduce anything from the gnomic ‘Brexit means Brexit’ it is that the current government is signalling its intention to avoid a relapse into the status quo. In theory therefore, the UK telecoms regulatory framework, shaped over the years by the matrix of EU directives, is susceptible to radical rearrangement. That said, once the dust settles, the landscape may not look all that different. The extent to which the regulatory framework and the operators’ practices may alter will ultimately be limited by market pressures and the strictures imposed by the trade talks.

We look here at the areas which could change, suggest some possible outcomes and identify some limiting factors.

Roam to Rome

The European Commission makes much of its success in reducing roaming tariffs, pointing to a reduction of more than 90% in roaming prices. The Commission’s goal is to end roaming charges by June 2017. As the controls on tariffs are imposed by directly applicable EU regulation, they are not incorporated into UK law. Therefore, at some point, they will cease to apply, unless re-introduced as part of UK law. Released from the obligation to provide calls and data to travellers within Europe at the same prices as they would at home, UK telecom operators could have a reason to cheer. After all, the regulation removes the high-margin slice of the business. However, this doesn’t mean that UK telecom providers will actually seek to re-impose roaming charges. The operators have been cautious in their public statements and competitive forces may prevent any one of the major players from breaking the seal and attempting to raise charges again.

Net neutrality

EU rules on net neutrality came into force in April this year. Broadly speaking, internet service providers are required to treat all traffic equally and, subject to some critical caveats, prohibit blocking or throttling of online content. On 30th August, BEREC published guidelines on how the EU will implement net neutrality rules. While the regulations contained a number of loopholes that raised concerns among net neutrality advocates, the guidelines are seen as a triumph for the ‘free internet’. For now, the rules also apply to the UK but its withdrawal from the trading bloc means that Ofcom could take a more relaxed approach to issues such as paid prioritisation. Should this happen, bandwidth-hungry apps and services could hope for new commercial models to emerge.

Towards convergence

Driven by a shift to ‘quad play’ offerings, the telecom sector has been caught up in a spiral of in-market consolidation. BT’s £12.5bn acquisition of EE at the beginning of this year (cleared by the UK Competition and Markets Authority) and the unsuccessful Three-O2 merger (blocked by Brussels) are cases in point. Departure from the EU would give UK competition authorities more freedom, but whether that would translate into a more lax attitude towards consolidation is unclear. It has been suggested that the cessation of the EU Treaties may have a bigger impact on state aid rules. Without Brussels looking over its shoulder, the argument runs, the UK would have free reign when it comes to public funding for infrastructure projects. A lot depends, of course, on the mood and tenor of the trade negotiations once they get underway. It would, however, be a high-risk strategy for the UK government to depart from decades of adherence to broad principles of competition law and open up the gates to state intervention and protectionism. Retaliation by the EU is likely to swiftly follow. Once again, the changes may not be as drastic as we might have feared.

Beyond core competencies

Under the Digital Single Market project, alterations to the regulatory framework include the regulation of new technologies and services (such as OTT) and, by way of example, include a proposal on the portability of online audio-visual content. Operators exploring cloud-based services could also be caught out by data protection laws and confronted with issues ranging from certification of data control systems to data operability and ownership. By venturing out of their core areas, telecom operators may face even greater uncertainty.

Askandar Samad concludes that notwithstanding the purported harmonisation across the EU, as telecom operators engage with their customers primarily
on a national level, the industry is, to a certain extent, insulated from the effects of Brexit.

“There are certainly challenges and uncertainties ahead, but perhaps roaming to Rome may not be as expensive as we might have feared.”

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David Dungay

Editor - Comms Business Magazine