On 29 March 2017, the UK Government served formal notice under Article 50 of The Treaty on European Union to terminate the UK's membership of the EU (following the June 2016 UK referendum on EU membership). Based on Article 50, the EU Treaties shall cease to apply to the UK and the UK exit will take effect in March 2019 (subject to the unlikely possibility of the withdrawal agreement being concluded sooner and unless all Member States agree to extend the period). Negotiation of a new trade agreement with the EU could take several years beyond 2019 although the Prime Minister has declared the objective of achieving such an agreement within the two-year period.
This briefing note advises readers on the immediate considerations and anticipates how Brexit will impact on the telecommunications industry in the UK.
One important issue is the impact that Brexit will have on telecommunications markets in the UK. This note discusses the effect that Brexit is likely to have on telecommunications market regulation in the UK, and the potential implications for stakeholders in the industry both within and beyond the UK.
The impact of Brexit will depend to a large degree on the model to be adopted for future relations between the UK and the EU. If the UK were to join the European Economic Area, it would remain in the single market and much of the existing body of EU law would still apply. However, the Prime Minister announced in a speech on 17th January 2017 that the UK government does not seek membership of the single market, but does seek a close trading relationship with the EU, involving a free trade agreement (which the government would aim to conclude within the two-year notice period, with a phased implementation). Accordingly, for the purposes of this note, we are assuming that following Brexit the UK will be outside the single market and that a free trade agreement will be in place with the EU.
The Prime Minister also reiterated in her speech that a "Great Repeal Bill" to repeal the European Communities Act 1972 ("ECA 1972") as from Brexit will also include provisions to convert the existing body of EU law into UK law. This can be expected to apply especially to EU Regulations which would otherwise cease to apply on Brexit, and also to statutory instruments implementing EU Directives, where the statutory instruments were adopted pursuant to the ECA 1972 and would otherwise fall away on repeal of that Act.
Telecommunications-specific regulation under EU law
The provision of telecommunications services in the EU is subject to a sector-specific regulatory regime established mainly by a set of EU Directives. These Directives collectively comprise the core regulatory framework for electronic communications in Europe (the "Regulatory Framework") and are required to be transposed into and applied in Member State law by the national legislators. In the UK, this has mainly been done through the Communications Act 2003, although other primary legislation (including the Wireless Telegraphy Act 2006) and secondary legislation are also relevant. The Directives will continue to be relevant to the interpretation of the UK statutes where there are ambiguities in the UK legislation, insofar as the UK legislation was intended to transpose the EU Directives. However, on formally ceasing to be part of the EU, the UK would be free to change its laws that were originally introduced in accordance with EU Directive requirements.
The Regulatory Framework is aimed at harmonising national telecommunications regulatory rules across the EU, promoting harmonisation of telecommunications regulation, liberalisation and competitiveness of telecommunications markets and protection of customer and end-user rights. The issues addressed under the Regulatory Framework range from mandating telecommunications network access, to radio spectrum management, and to data privacy, number portability and consumer access to emergency services.
The European Commission (the "Commission") has also more recently, in 2014, issued a Directive on access to passive network infrastructure, including masts, ducts, towers and poles. The UK will no longer be required to maintain laws in the terms of this Directive once it ceases to be a Member State of the EU.
In order to ensure the harmonised application of the Regulatory Framework at Member State level, national regulatory authorities are required to notify to the Commission all proposals to analyse telecommunications markets and all proposed regulatory conditions to be imposed on operators designated as having significant market power, for prior review/consultation. Consequently, Ofcom as a Member State regulatory body in the UK is required to notify the Commission of any draft proposals that it has for regulating national electronic communications markets, such as the markets for broadband access or voice call termination, but will no longer need to do so following the UK's exit from the EU.
A number of additional instruments have been enacted at EU level which are directly applicable to the provision of telecommunications services in the EU. These include the Roaming Regulation, for example, which regulates wholesale and retail roaming charges within the EU. Another example is Regulation 2015/2120 of the European Parliament and Council which enshrines the principle of net neutrality in EU law and which provides for the phasing out of retail roaming surcharges by 15 June 2017. Further, the Commission has issued Recommendations on a number of regulatory issues, including on non-discrimination obligations and costing methodologies for network access. All of these measures will cease to apply in the UK when it leaves the EU.
Finally, the Commission has also established a range of policy targets for the EU telecommunications market, including the ambitious broadband access targets set down under the Digital Agenda for Europe (e.g., 30 Mbit/s broadband availability for all by 2020).
The effect that Brexit will have on telecommunications regulation in the UK
A UK withdrawal from the EU will mean that the Regulatory Framework will cease to be applicable in the UK. This is unlikely to give rise to any immediate consequences, however, as the Regulatory Framework has already been transposed into UK law through national legislation. This national legislation will continue to be valid and applicable following a UK exit. In addition, some of the instruments enacted by the Commission that fall outside of the Regulatory Framework, but which are aimed at harmonising telecommunications regulatory requirements across the EU, will no longer be applicable. These include the Commission's Recommendations on non-discrimination obligations and costing methodologies for network access, as mentioned above.
- Digital Single Market measures
Depending on the exact timing of Brexit, it is possible that the reforms currently being undertaken as part of the Digital Single Market (DSM) initiative will not be implemented into UK law, or if they are implemented, that they will not be maintained. One of the reforms under the DSM project is the review of and revisions to the current Regulatory Framework. In September 2016, the Commission published its proposals for a new EU Directive (the European Electronic Communications Code or "ECC") that would repeal and replace the existing Directives of the Regulatory Framework. These proposals address a number of important issues, including access to network infrastructure, the regulation of new services and technologies such as over-the-top ("OTT") services and spectrum assignment and management. The former EU Commissioner for the Digital Economy and Society, Gunther Oettinger, has stated that the Commission would like to see the ECC enacted into EU law by the end of 2017. Since the UK government invoked Article 50 TEU at the end of March 2017 and assuming therefore that Brexit takes effect in March 2019, it is uncertain whether the ECC will have been required to be implemented into national law by the time of Brexit, whether or not the UK will choose to transpose it early into UK law, and whether or not the government will include the content of the ECC at UK level in the planned "Great Repeal Bill". In the same manner, the Directives planned under the DSM project concerning contracts for the supply of digital content and for the online and distance sales of goods may not find their way into UK law or may not be retained under UK law, depending on the required national implementation dates of the eventual Directives and the date that Brexit takes effect. These measures are currently seen as consumer-friendly and as relatively onerous for businesses. Similar considerations apply to other customer protection orientated reforms contained in the DSM initiative, and specifically those that will be legislated for as EU Regulations rather than Directives. A good example here is the proposed Regulation on the cross-border portability of online content services. It is possible that this will be adopted and brought into force, having direct applicability as a Regulation, before a UK exit date. The Regulation will then automatically cease to apply upon the UK ceasing to be an EU Member State. This may be welcomed by media rights holders (licensors) but unwelcome to consumers and users of online content.
Another important consequence of Brexit is that UK consumers will no longer be able to benefit from the Roaming Regulation in respect of their use of international roaming services, when travelling within the EU. (As noted earlier, retail roaming surcharges were to be phased out by 15 June 2017.) The flip side, of course, is that, UK operators will also no longer be subject to regulated roaming tariffs at the wholesale level. (The wholesale regulation of roaming tariffs has proved controversial among roaming service providers in the face of the imminent withdrawal of retail surcharges.) However, as a commercial matter, one might expect that any wholesale rate rise on the part of UK operators will be likely to be reciprocated by their counterparts elsewhere in the EU. This could prove a costly move for UK industry in the event of unfavourable tourist/traveler flows between the UK and the rest of the EU. There has been speculation that the UK might, introduce UK legislation with the purpose of ensuring as far as possible a parallel roaming regime in the UK to that applying in EU Member States under the Roaming Regulation.
A further area where there could be some divergence between the UK and the EU is spectrum management and assignment. Following Brexit, the UK will no longer be subject to Commission decisions and initiatives on the harmonisation of spectrum allocations and use across the EU. It will, however, continue to cooperate with other Member States on some of these issues through membership of other organisations, including the European Conference of Telecommunications and Postal Administrations or CEPT.
- Digital Agenda for Europe
The ambitious targets of the Digital Agenda for Europe, or any other Commission policy for that matter, will no longer apply to the UK. It is unclear whether the UK will continue to apply these targets once it leaves the EU, though it might, for example, give preference to the same or better broadband speed targets for ubiquitous broadband access.
Following Brexit, Regulation 2015/2120 of the European Parliament and Council will no longer be directly applicable in the UK, although its content could be preserved at UK level under the planned "Great Repeal Bill". Alternatively, the UK could enact similar domestic legislation (or perhaps choose to address the issue by way of non-binding guidelines) to take effect following Brexit. If neither of these legislative options were pursued, the principle of net neutrality would no longer be safeguarded under law in the UK.
Longer term divergence
In the longer term, Brexit is likely to lead to a divergence in regulation between the UK and the rest of the EU. Following Brexit, the UK Parliament will be free to legislate for the regulation (or de-regulation) of the national telecommunications markets as it wishes. Moreover, Ofcom will no longer be required to notify the Commission of any draft proposals for the regulation of telecommunications markets in the UK. The UK will essentially have a "free hand" in market regulation, provided that it complies with WTO requirements. An early example of where such divergence might occur is the e-privacy regime. On 10 January 2017, the Commission published proposals for a substantial overhaul of the existing privacy legal framework for electronic communications, which, if enacted, would replace the current e-Privacy Directive with an EU Regulation. If this Regulation is adopted after Brexit, the proposed changes will not take effect in the UK, unless the UK chose to adopt parallel legislation in similar terms.
Implications of Brexit for telecommunications companies
UK established companies can currently avail of the rights to free movement granted under the Treaty on the Functioning of the European Union ("TFEU"), including the freedom to provide services and freedom of establishment. This means that any entity incorporated in the UK has the right to provide telecommunications services in any other Member State, assuming that it complies with the national law requirements that apply to domestic companies in that Member State. Brexit will remove this right in respect of UK established companies. Any regulatory divergence between the UK and the EU following Brexit will also have a direct impact on telecommunications service providers in the UK. Divergences may, for example, arise in respect of the regulation of OTT services. The UK may take a more liberal approach towards these services than the Commission or certain other national regulatory authorities. The UK may also favour a more pro-investment policy on regulation than certain other Member States.
- EU companies operating in the UK:
The same logic applies for companies established in any Member State other than the UK. Such companies will no longer have the virtually automatic right under EU law to provide electronic communications services in the UK, once Britain leaves the EU.
- Non-EU companies operating in the UK:
Brexit is also likely to have an important impact on companies from outside of the EU that are considering doing business in the UK and/or the EU. Such companies sometimes choose the UK as a stepping stone or "springboard" into the greater EU-wide market. There are a number of important reasons for this, including language, relative ease of doing business in the UK and the significant size of the UK domestic market. From a compliance perspective, this strategy can be particularly effective in a regulated environment, such as the market for electronic communications. The harmonisation of telecommunications regulatory regimes across the EU has meant that a new market entrant in the UK will be subject to broadly similar regulatory requirements anywhere in the EU. The prospect of Brexit will, for obvious reasons, now undermine the rationale for using the UK as a springboard into the greater EU-wide market. This is because of the loss of the EU "passport" to the EU internal market that has been available through establishment in the UK and compliance with EU requirements in the UK as a Member State.
We intend to continue to update our guidance in this area as the implications on the UK telecommunications industry become clearer.
This article is part of our Brexit series