Brexit and the UK technology sector - read our analysis of the implications
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The campaign over the coming referendum on the UK’s continuing membership of the European Union (EU) on 23 June 2016 has been one of the most bitter and divisive political debates in living memory.
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At this late stage of the campaign, despite wildly varying poll numbers, it remains very unclear as to whether the Remain campaign arguing to keep the UK in the EU, or the Leave campaign arguing for Brexit, will win out.
However, most economists and the majority of business leaders have been clear that the risk from leaving the EU to the UK’s economy, to employment figures, to pension funds, and to the whole future development of this country would be too much to bear.
One area that has received many millions of pounds worth of investment in recent years has been the national broadband roll-out, both in terms of the private money backing the commercial roll-outs, and the public money committed by the government to the Broadband Delivery UK (BDUK) programme for rural broadband.
If Brexit risks damaging the UK’s ability to invest in its future development, does it follow that broadband investment is also at risk?
Matthew Hare, CEO at rural fibre supplier Gigaclear, said that actually he saw no clear impact for broadband roll-out at this point in time.
Even if the 23 June vote goes in favour of a Brexit, there will still be a possibly protracted period of time during which the divorce negotiations meant the UK remained within the EU. And there is no certainty on what sort of relationship the UK will have with the EU – whether or not it stays in the single market somehow, accesses the EU through the European Free Trade Association (EFTA), or forges a unique trading agreement. Essentially, it is too early to tell what lies in the mystery box marked 'Brexit'.
“Fundamentally there will be no massive change in what happens in terms of telecoms competition and infrastructure,” said Hare. “But this comes back to my view that the government sees the benefit to the UK of ubiquitous, high-speed, reliable fixed and mobile communications.”
Clive Selley, recently appointed CEO of BT’s arm’s-length infrastructure division Openreach, spoke in support of the wider view taken by the BT Group: that Brexit will be a negative both for the UK and for wider industry.
“We believe there will be an economic slowdown if there is an exit vote,” he said. “That hits my end customers, that hits my communications provider customers, that hits me. We would potentially face lower business volumes, which aren’t good for our business or our people.”
Selley warned that such a scenario would materially damage Openreach’s ability to invest in its network. “I can’t be hiring 1,000 new engineers, investing in upskilling, spending serious money on G.fast or fibre to the premises [FTTP] if I can’t be reasonably certain about the income streams,” he said.
“If Brexit means a period of lower economic activity, that undermines my ability to do the right thing for Openreach.”
In a report issued by the Economist Intelligence Unit (EIU), telco analyst Matt Kendall agreed that overall telecoms investment would be adversely affected by Brexit, primarily due to the anticipated UK-wide recession that will follow.
Kendall forecast that communications investment would likely rise by 29% between 2015 and 2020 if the UK remains inside the EU, compared with 23% in the Brexit scenario.
Show us the money
A lot of misinformation has been bandied about regarding the amount that the UK contributes to the EU budget, the amount we receive back in the rebate, and how much of that money the government could expect to recoup and where it would be redirected, if at all.
Much of this controversy has centred on NHS funding, a topic closer to most hearts than broadband. For Hare at Gigaclear, the fate of the UK’s contribution seems like the only possible area where Brexit could make a difference.
“If we were completely outside the EU, some of the money could be spent on broadband,” he said. “However I have not heard any indication from those campaigning for Brexit that broadband would be a priority.”
Read more about the EU referendum
- From taxation to trading, MicroScope takes a look at what a Brexit really means for the IT industry and the channel
- Only 35% of European IT firms and telcos have developed a clear plan for dealing with the impact of a Brexit vote, a study shows
- The EU General Data Protection Regulation will still apply to UK companies dealing with the EU, regardless of whether the UK remains in the union
Ronan Kelly, CTO at network supplier and G.fast specialist Adtran, said that regardless of what becomes of the UK, the wider ambition of the EU to foster the development of a gigabit society would continue.
He said he predicts that Brexit would mean that instead of being part of the EU gigabit society, the UK would find itself competing with it.
“The UK would have to be at the pinnacle of the digital society to overcome the challenges of being outside the EU,” said Kelly.
Kendall at the EIU added that with the EU moving ever closer to enacting a Digital Single Market, UK telcos could be affected with respect to their ability to benefit from the policy areas set out under the initiative.
State aid rules
One element of European legislation that will potentially be scrapped in the event of a Brexit is the UK’s compliance with the EU’s rules on state aid for broadband roll-out, which apply to BDUK.
Just a few weeks ago the European Commission (EC) endorsed the UK government’s plans to continue extending superfast broadband across the country through to 2020 as compliant with state aid rules.
To the uninitiated, this meant that Brussels is happy that the government will ensure public money is spent on areas where no next-generation access infrastructure currently exists and no private operator is willing to invest; that private operators will be involved in planning and consultation exercises; that Westminster will award state aid in compliance with EU procurement rules, respecting technological neutrality and facilitating bids from smaller, altnet operators; and that all interested operators will be able to access state-funded networks.
In the event of Brexit, the state aid requirement would presumably, eventually, go away. Could this free up the government to spend as it wishes? According to the EIU’s Kendall, there could indeed be a new approach to investment regulation.
However, immediate change seems unlikely, not least because the UK will be remaining in the EU for a few years, whatever the outcome of the referendum, and so will be subject to these regulations during that time.
According to Gigaclear’s Hare, state aid rules probably won’t go away. “Gigaclear’s view is that the UK and EU are aligned in terms of their objectives to set better connectivity,” he said. “Given a lot of European legislation on the communications side was first driven by the UK – we were first to deregulate – it’s unlikely they will diverge.”
Hare suggested that even outside the EU, the government would still have a requirement to demonstrate to private sector broadband investors, such as BT, TalkTalk and Virgin Media, that intervening in parts of the market was a) worth it, and b) wouldn’t damage their business.