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Q&A Ann LaFrance

Q&A Ann LaFrance

BREXIT AND THE DIGITAL SINGLE MARKET: POTENTIAL IMPACTS FOR BRITAIN AND THE EU-27

How will BREXIT affect achievement of the EU Digital Single Market?

This will very much depend on what form of BREXIT is ultimately agreed between the UK and the EU-27 (the remaining countries in the European Union). Will Britain go it alone and rely on its membership of the WTO? Or will the two sides follow the Norwegian model (EEA), the Swiss Model (EFTA) or some other form of bilateral arrangement that retains some degree of special trading relationship between Britain and the Continent? If some form of economic trading market is retained, will it include special provisions relating to telecommunications and other aspects of the DSM? These are among the many 'known unknowns' at this point.

What challenges would a complete UK break from the EU pose for the DSM ?

The UK and, particularly, Ofcom have been thought leaders in the EU telecoms space for the past several decades. If the UK completely withdraws from the EU, the EU-27 will miss the pragmatic and commercially-focused approach that Britain has often brought to the EU legislative, policy-making and regulatory process. The UK presence would be missed not only at government level; if there are strict limitations on free movement, transfers of business and technology talent between the UK and the EU-27 could become much less fluid.

The ability of the EU-27 to achieve a harmonised single market for telecommunications and other digital services is likely to be undermined if the extensive inter-dependencies and cooperation mechanisms that have evolved between Britain and the Continent are abruptly cut off. This covers a range of activities from the funding of R&D to the harmonised treatment of sector-specific regulation, state aid, merger control, copyright and data protection. Although the EU-27 may be able to march forward with further integration of the DSM without the UK, the loss of nearly 18% of the bloc's total GDP -- and, it is assumed, at least that percentage of the DSM's value -- could have an adverse impact on the scale and scope that the DSM initiatives are meant to achieve for the sector. Harmonisation initiatives relating to spectrum management, regional roaming arrangements, broadband strategy and sector-specific regulation could founder if, as might be expected, the attention of top EU decision makers is diverted from DSM to the Brexit negotiations over the next two years (or longer).

What impact would a complete break have on the UK's digital market?

On the one hand, the UK would no longer be part of a much larger digital market, with the scale and scope advantages that membership of the EU brings in a sector that is inherently cross-border. On the other hand, the UK would be free to evolve its regulatory approach to the dynamically changing technology landscape in ways that could give it an innovation edge over continental Europe. Examples could include a less restrictive application of the net neutrality rules than is currently being contemplated by BEREC, and a less interventionist approach to the treatment of Over-the-Top services than is being considered in the EU Regulatory Framework Review process. The UK would also be able to abandon or modify the EU state aid rules. It could also impose restrictions on all foreign (including EU) investment in UK strategic sectors, which might include digital enterprises.

There would also be negative repercussions for UK consumers and industry players. For example, UK mobile operators would fall outside the EU regional roaming arrangements and their subscribers would need to pay much higher charges for roaming in the EU. Similarly, it could become much more expensive for UK mobile subscribers to ring people in Europe. Other wholesale arrangements between UK and EU telecommunications operators could be negatively impacted as well. It is an open question whether UK operators would be able to pass on all of these increased costs to consumers given the level of competition in retail markets, which would depress profits and reduce the resources needed for investment in new technologies.

At the same time, UK operators doing business in Europe would no longer have a regulator with a seat at the table in the EU Commission or BEREC. Even if the EU regulatory framework were no longer applicable to communications providers in the UK, their EU affiliates would be subject to an evolving EU framework that would develop without the UK's involvement.

Of course, if some form of "Brexit-light" is ultimately agreed between the UK and the EU-27, many of these negative impacts could be averted.

What is unlikely to change?

In many respects, the UK regulatory approach and polices for the ICT sector are unlikely to deviate substantially from the EU approach, at least in the foreseeable future. In part this is because the UK has placed its own stamp on EU regulation and policy in the telecoms and competition law areas. To give one example: Although it was the EU that blocked the proposed merger between Three UK and O2, both Ofcom and the UK competition authority (CMA) were publicly on record as sharing the views of the European Commission. Furthermore, although regulatory outcomes in the UK may differ from those on the continent (as they often do under the existing EU framework), the same competition-based approach is likely to be pursued, subject to the supervision of an independent regulatory authority. After all, the UK was the principal architect of the core principles that are enshrined in the existing – and, likely, the future -- EU telecommunications regulatory framework.

In other areas that are of direct relevance to the sector, such as data protection and cybersecurity, the current regimes will not likely be affected by the form of Brexit. The importance of a coordinated approach on security measures will probably ensure continued cooperation in this increasingly critical area. Furthermore, the need to ensure the continued flow of personal data from the EU to Britain will mean that the UK rules on data protection and privacy will have to be "essentially equivalent" to those set out in the EU General Data Protection Regulation. Similarly, the UK's approach to data retention will need to ensure that the provisions of the Investigatory Powers Bill do not allow for what the EU Court of Justice has characterised as "indiscriminate surveillance and interception carried out on a large scale," in violation of the rights and freedoms of individuals. Otherwise, the UK may find itself in the same difficult position as the United States vis-à-vis the negotiation of cross-border data flows with the EU-27.

  • Wednesday, 20 July 2016

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