Brexit: No Deal or Trade Deal, Operators Will Pay

Whether Brexit occurs via a comprehensive trade agreement or no deal, service providers will assuredly face new challenges related to investment, mobile fees and governance.

In 2015, the UK exported £2.7 billion-worth ($3.8 billion) of telecoms services to the European Union, with £3.8 billion ($5.4 billion) going to the rest of the world, while importing £3.4 billion-worth ($4.8 billion) of services from the EU, with the remaining £1.7 billion ($2.4 billion) from the rest of the world, Matthew Kendall, chief telecoms analyst at the Economist Intelligence Unit told Broadband World News via email.

"It is clear that the EU is a vital trading partner for the UK telecoms sector. Will leaving the EU under No Deal result in tariffs? Profit margins on telecoms sector activity are slim, and there will doubtless be little appetite to instigate any sort of trade war, but the prospect of any sort of additional cost could have significant consequences," he said.

Since 2014, Britain's technology sector as a whole has received about €1.4 billion ($1.9 billion) in funding from the EU, said Kendall. If no deal occurs and the UK is shut out of the European Investment Fund, Britain's startups, small businesses and entrepreneurs could lose access to this source of funding, he cautioned.

Large corporations are far from immune. Several major FTSE 100 businesses across vertical markets are considering contingency plans if a no deal scenario occurs, said Kendall. This includes BT -- once known as British Telecom -- which could potentially move jobs and operations out of Britain, he said.

"Then there is the regulatory challenge, which is already going to be a complex undertaking across many sectors," Kendall added. "UK telecoms regulation is a mix of European regulation and directives, and UK-specific law, so a No Deal scenario would make an already difficult situation even worse."

It's most likely the UK will secure a comprehensive free trade deal after inking a number of compromises, according to EIU, which recently released a report on Brexit's impact on multiple vertical markets, including telecom. In "A Year to Go: How Brexit Will Impact UK Industry," analysts also considered the much harsher effect a no-deal situation could impact each segment and the country.

Regardless of the exit plan used, service providers are considering how Brexit will affect their fixed-access broadband services, workforces and revenue opportunities. Decision-makers in London and Brussels will disrupt service provider businesses across the UK, even those that do not deliver mobile offerings and are, therefore, immune to roaming-fee issues that already have arisen as the UK separates from the continent.

Brexit and broadband
Brexit could slow the broadband deployment process due to the absence of EU funding and an inability to attract labor to roll out fiber, according to EIU.

"Coverage and speeds will, therefore, grow at a slower pace as a result. There may also be a difficulty in providing incentives for broadband companies to invest, as a result of the loss of public funding from the EU, so the extent of the impact of Brexit really depends on how committed the government is to funding broadband infrastructure improvements," said Kendall.

By keeping money it once gave to the EU, the UK government has more funds it can use for rural broadband and mobile investment, said Environment Secretary Michael Gove in a speech to the National Farmer's Union in February. (See Could Brexit Boost Britain's Broadband?)

"Universal broadband and 4G coverage for all -- paid for by the money we no longer have to give to the EU -- that is what we mean by taking back control," he said, according to The Register. "It is unjustifiable that in the country that first guaranteed universal mail provision, invented the telephone and television and pioneered the World Wide Web that broadband provision is so patchy and poor in so many areas. Outside the EU, just one-fifth of our annual net contribution to the EU could transform our national infrastructure."

An agreement that encourages the Church of England, for example, to use its buildings (including church steeples) for broadband, Wi-Fi and mobile infrastructure in their primarily rural communities and momentum toward achieving a Universal Service Obligation that gives everyone in Britain the right to request and receive minimum speeds of 10Mbit/s by year-end 2020 prove the country's ongoing commitment to broadband, said Gove. And Brexit won't stop that momentum, he said.

So far, Parliament has only invested words, not pounds.

"It is nothing more than rhetoric at this point, and despite the announcement of a gigabit broadband voucher scheme in mid-March -- worth £67 million -- ($95 million), there has been no significant funding commitment from the government," Kendall said.

One thing EIU does not expect to change? The busy merger and acquisitions trend that's hit cable and telco businesses. The pound could become weaker, making British providers more attractive to international investors if they see opportunities, said Kendall. Investors, too, will cause some market restructuring, offering "opportunities for canny investors," he added.

The government will be supportive of investment -- planned corporate tax cuts and an announced industrial strategy, as well as plans for an additional tax break for research and development investment, Kendall said.

"In general the UK will be keen to lower rather than raise barriers to foreign investment," he noted. "Despite UK efforts, some foreign investors, particularly those in the EU, will see the UK as a harder market to do business in -- given lower opportunity for synergies and higher trade barriers. But I'd expect the above factors to outweigh this."

Related posts:

• Britain's Broadband Transformation: Beyond the Digital Divide
• Zoom Britannia
• 3 UK Acquires UK Broadband – And Lots More Spectrum

— Alison Diana, Editor, Broadband World News. Follow us on Twitter @BroadbandWN or @alisoncdiana.