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The implications of Brexit on the Telecommunications Industry

The implications of Brexit on the Telecommunications Industry

On 23 June 2016, the United Kingdom public voted to leave the EU. The prime Minister ultimately announced an intention to serve notice of withdrawal under Article 50 of the Treaty on European Union no later than March 2017. Based on Article 50, the Treaty on European Union ("TEU") and all other EU Treaties shall no longer apply to the UK.

From the date of entry into force of the withdrawal agreement that the United Kingdom negotiates with the Union, acting through the Council; or more likely two years after the United Kingdom has notified the EU Council of its aim to withdraw, except the European Council, in agreement with the UK, unanimously decides to extend this period.

The present day expectation is that the whole of the 2 year period will be needed to negotiate the exit provisions, consequently, in practice the British exit (Brexit) date cannot be earlier than 2019, i.e. March 2019 if notice is given in March 2017. This briefing note advises readers on the immediate concerns and anticipates how Brexit will effect the telecommunications industry in the UK.

One vital issue is the effect that Brexit will have on telecommunications markets in 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 EU economic area, it would stay inside the single market and lots 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, however does seek a close trading relationship with the EU, regarding a free trade agreement (which the authorities would aim to finish within the -2 year notice duration, with a phased implementation). Consequently, for the purposes of this note, we're assuming that following Brexit the UK will be outside the single marketplace and that a loose trade agreement will be in place with the EU. 

Telecommunications-specific regulation under EU law

The provision of telecommunications services in the EU is subject to a region-specific regulatory regime established mainly through 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 carried out in Member state law by the national legislators.

In the United Kingdom, this has in particular been carried out through the Communications Act 2003, although different primary legislation (which includes the wireless Telegraphy Act 2006) and secondary legislation are also relevant

.The Directives will remain relevant to the interpretation of the United Kingdom statutes where there are ambiguities within the UK legislation, in so far as the UK rules became intended to transpose the European Directives. However, on formally ceasing to be part of the EU, the UK would be free to change its laws that were initially introduced in accordance with European Directive requirements.

The Regulatory Framework is geared toward harmonising national telecommunications regulatory guidelines throughout the EU, promoting harmonisation of telecommunications regulation, liberalisation and competitiveness of telecommunications markets and protection of consumer and end-user rights. The problems addressed under the Regulatory Framework range from mandating telecommunications network access, to radio spectrum control, and to data privacy, number portability and client access to emergency services.

Finally, the commission has also established a range of coverage targets for the European telecommunications market, including the formidable broadband access targets set down underneath the digital agenda for Europe (e.g., 30 Mbit/s broadband availability for all by 2020).

The impact that Brexit will have on telecommunications regulation within the United Kingdom

A UK withdrawal from the EU will mean that the Regulatory Framework will cease to be applicable in the UK. This is not likely to present rise to any immediate consequences, however, as the Regulatory Framework has already been transposed into UK law through national legislation. This national legislation will remain valid and applicable following a UK exit. In addition, some of the instruments enacted by way of the commission that fall outside of the Regulatory Framework, but which are aimed at harmonising telecommunications.

Regulatory necessities across the EU, will now not be relevant. These include the commission's recommendations on non-discrimination obligations and costing methodologies for network access, as referred to above.

Digital single market measures

Depending on the exact timing of Brexit, it is possible that the reforms presently being undertaken as part of the digital single market (DSM) initiative will not be carried out into united kingdom law, or if they're applied, that they may not be maintained. One of the reforms under the DSM venture is the evaluation of and revisions to the current Regulatory Framework. In September 2016, the fee 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 crucial problems, including access to network infrastructure, the regulation of recent services and technologies such as over-the-top ("OTT") services and spectrum assignment and management.

The former European Commissioner for the digital economy and Society, Gunther Oettinger, has stated that the commission would like to see the ECC enacted into EU law through the cease of 2017. Assuming that the UK authorities invokes Article 50 TEU at the end of March 2017 and Brexit takes effect in March 2019.

Long-term divergence 

In the long run, Brexit is likely to result in a divergence in regulation between the United Kingdom 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 because it desires. Furthermore, 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 marketplace regulation, provided that it complies with WTO requirements.

An early instance of where such divergence may arise is the e-privacy regime. On 10 January 2017, the commission published proposals for a significant overhaul of the existing privacy legal framework for electronic communications, which, if enacted, would update the cutting-edge e-privacy Directive with an EU law. If this regulation is adopted after Brexit, the proposed changes will no longer take effect in the UK, unless the United Kingdom selected to adopt parallel legislation in comparable terms.

Implications of Brexit for telecommunications businesses 

UK Businesses

UK set up companies can currently avail of the rights to free movement granted under the Treaty on the Functioning of the European Union ("TFEU"), such as the liberty to provide services and freedom of established order. this means that any entity incorporated within the united kingdom 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 businesses in that Member state. Brexit will remove this right in respect of UK set up businesses. Any regulatory divergence between the UK and the EU following Brexit will also have a direct impact on telecommunications service providers within the UK. Divergences may additionally, for instance, arise in respect of the law of OTT services. The UK may additionally take a greater liberal approach toward those services than the commission or certain other national regulatory authorities. The United Kingdom may additionally favour a more pro-funding coverage on regulation than positive different Member States.

New VAT Legislation

An early immediate change surrounding VAT for instance is where any UK company supplying telecommunications to any overseas company must now charge VAT. The UK government published this proposal as a significant change to the existing VAT framework for electronic communications, which at the moment does not charge VAT to overseas firms. If this regulation is applied after Brexit, the proposed VAT charges will take effect in the UK, costing overseas companies 20% more, unless the United Kingdom selects legislation to regulate this.


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