Brextrapolations (Part 2): Legal, Financial and Business issues

By | September 18, 2016

The UK’s EU referendum may have been likened to hurling a large rock into a pool but close observers will be aware that the waters were already far from placid.  Our ‘Information Society’ is constantly evolving – adapting to new technologies with their economic and societal impacts.

It is no surprise to find a wide range of opinion on the potential impacts of our ‘structural separation’ from the European Union. Across the country the perspectives range from a relaxed and unconcerned shrug of the shoulders through to far deeper concerns about future prospects. Weighing the risks and opportunities, and identifying actions to mitigate or nurture them, demands close attention to detail – and leaders must draw from that detail to find ways forward. This is therefore a time when destinations must be determined and navigational skills deployed to ensure our arrival.

The FISP Advisory Network (with, in aggregate, well over 500 years of IS experience) is well-placed to understand the detail and observe the courses being plotted. But FISP is more than a spectator. We seek to identify destinations and the key policy actions required to keep our economy and society on course. Being non-aligned has great freedoms but that in turn demands that FISP outputs must effectively inform leadership (commercial, regulatory or political) as a ‘critical friend’.

This is the second of three reports flowing from the recent FISP ‘Brexit Brainstorm’ and considers Legal, Financial and Business perspectives. Our first interim report hinted at the context of Brexit debates – setting them within a clear determination to revive and extend an Industrial Strategy and the potential impacts of that for regulation of the communications sector.

A former Minister for Universities and Science, David Willetts, has recently observed that ‘Britain has a pressing need to get better at generating more wealth and better too at giving more people a stake in it.’ (Note 1)  Much of the media commentary about Brexit is focused on trade negotiations but, he notes, ‘most trade negotiation is about regulatory standards, not tariffs’ – and the UK’s inputs to European-wide single-market standards over the past 40 years have been considerable and generally highly regarded.

The Legal Perspective

The UK’s constructive role in developing EU regulation was very much reflected in the FISP seminar input from Ann LaFrance (Squire Patton Boggs (UK) LLP).  (Note 2)

FISP has previously noted that the supposed constraints of EU State Aid rules have been often overstated and recent clarification (shortly before the EU referendum) signaled that investments in domestic digital infrastructures that did not have cross-border impacts were outside of their scope. In addition to concerns for the future (EU sans UK) development of the Digital Single Market and Spectrum Management, Ann further observed two key issues:

  • The potential for Ofcom to become less independent of government and/or for the telecoms sector to be declared competitive and Ofcom’s functions to be subsumed by the CMA;
  • The potential for HMG to become much more involved in merger control and to impose the kind of “national security/public interest” review that we see in the U.S. (CIFIUS) more generally but in particular for critical infrastructure like telecoms, particularly because of the surveillance value of telecoms/internet to the government.

This could mean, Ann suggested, that Direct Foreign Investment (DFI) in network operators will be restricted, which could impact financing options for BT, prevent Vodafone from shifting its HQ to Germany or elsewhere in the EU, and impact the status of other investments in the sector (considering that the two other MNOs are foreign-owned).

The Financial and Business Perspectives

Ann LaFrance’s concern for a potential diminution of DFI provided background for the FISP seminar’s consideration of inputs from Anna Coast (telcoconsulting) and Nick White (INTUG). (Notes 3 and 4)

Anna Coast’s review of investment needs highlighted the demand for ‘talented and committed people’. With the inherently global nature of the networking industry there was a need to recognize investment in people and training as a key requirement. Anna also pointed to the need for further upgrades to access networks. FISP has long criticized stop-gap investment in short-term palliatives and urged long-term future-proofed designs. The CAPEX investment needed to move to post-copper infrastructures will be considerable and may be dependent on the UK maintaining its attractiveness for the flow of FDI.

Here, again, discussion of an ‘Industrial Strategy’ focused on the need to avoid temptations to ‘pick winners or ‘national champions’ and maintain an open approach to competitive innovation. Following her theme of Structural Separation from the EU, Anna summarised the issues in terms of Access: access to the single market – access to other regions – access to funds and customers’ access to digital networks

From a business users perspective, Nick White again emphasised the global nature and interdependencies of telecommunications networks. “The international business users’ objective”, he said, “ has been expressed consistently as the ability to conduct borderless international electronic trade and to invest in cross border business processes, without artificial limitations, or financial penalties. This has triggered decades of progress in reducing charges for terminating international calls, purchasing international leased lines, enabling access to the earth and space segments of satellites, and in Europe and other regions of the world, in progressive elimination of Mobile Roaming Charges.

Nick White further highlighted the very large number of institutions that contribute towards global network standards and market regulation – positioning the EU as regional and, even there, BEREC is only one player alongside APECTel, CITEL, Regulatel, and GCC. New alliances such as the English-speaking Commonwealth group CANZUK might evolve and fresh approaches to the definition of ‘Relevant Markets’, Remedies & Appeals and Net Neutrality could emerge.

The third and final report from the FISP seminar will feature the scenario framework described by Richard Cadman and introducing the complex interplay of ‘soft’/‘hard’ Brexit/EU negotiation stances in the context of an emergent (or more clearly defined) Industrial Strategy with its potential for overturning orthodox policies and the scope it offers for public sector investment (e.g. in digital infrastructure) to stimulate further business investment.

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Notes:

  1.  ‘The hands-on economy’, David Willetts, Prospect Magazine (pp 62-66) October 2016.
  2. brexit-telco-impact-ann-lafrance
  3. brexittelecoms-impacts-anna-coast-4-09-16
  4. fispbrexit-nick-white-160914