Brexit issues are starting to crystallise in the telecoms sector.
We've been taking soundings about implications for the UK telecoms sector in the week since the UK voted to leave the EU in the 23 June referendum. It is too early to tell how negotiations over Brexit will evolve but the consensus is that exit from the EU is likely to have fundamental ramifications across business and society.
For UK telecoms, a number of issues are immediately coming to the fore, mostly in the areas of regulation, and general commercial and intellectual property law. UK tax structures will also be affected. Indeed, they are already subject to change precipitated by the OECD in its Base Erosion and Profit Shifting (BEPS) recommendations, and Brexit will only add to this dynamic.
We’ve highlighted three areas within the telecommunications industry that could potentially be affected following the vote to leave the EU, and will briefly touch on the key themes in each one.
1. Telecommunications, media and data regulation
Exit from the EU may now enable the communications regulator Ofcom to take a firmer position on various regulatory matters. This may include the carve-out from BT of Openreach, the division that operates BT's network infrastructure, and a review of the approach to the roll-out in the UK of superfast, ultrafast and hyperfast broadband. Funding that was to come from the EU to support this may now need to be sourced from elsewhere (we will be issuing a paper on how this may be achieved shortly).
The UK may no longer be covered by the protocols governing the free flow of data within EU countries, raising issues concerning certification of data control systems. Issues may also arise over data ownership and interoperability. This may affect developments in areas such as Internet of Things (IoT), cloud solutions and big data.
UK consumers travelling to Europe may no longer be covered by the pan-European approach to roaming and could therefore be subject to higher roaming charges.
Exit from the EU may affect UK-based broadcasters to transmit into other countries. Currently they can transmit into other member states without the need for additional licences or compliance with additional regulation.
2. Commercial and intellectual property law
Lawyers have highlighted that force majeure clauses may come in to play, although there is a counter-argument that says, as the referendum has been flagged for a couple of years, it may be hard to invoke these clauses.
This may also be an area of uncertainty with the stipulation of the laws of England and Wales in contracts subject to review.
Intellectual property (IP)
The UK was to be a founder member of the new Unitary Patent and Unified Patent Court regime, and London was to be one of the three seats. The regime looks less useful if the UK is no longer to be part of it.
Exit may present the opportunity to shape UK tax laws, particularly those relating to VAT and elements of international taxation, such as the treatment of international group losses or withholding taxes on dividends and interest paid across borders.
Any changes will be heavily affected by the shape of the eventual negotiated settlement and by the UK's approach to implementation of the new BEPS recommendations.
With telecoms firms facing uncertainty and potential disruption, now is arguably the time to firm up defences for a possible storm ahead. While we can’t be sure of the extent of Brexit’s impact, it makes sense to start assessing key internal capabilities and defences.
We recommend that organisations think about business continuity, working capital management, supply chain risk mitigation, succession planning into critical roles, and other internal processes and capabilities that will ensure the impact is felt less on their business than the competition's.
You can read more articles on our Brexit hub.