Capacity Brexit survey: Breaking down or breaking free
14 July 2016 |
Immediately after the UK's vote in late June we surveyed Capacity readers' views on the decision. Here are our findings, in partnership with Capacity Intelligence.
Most respondents to Capacity’s survey thought that the European telecoms market would be adversely affected by the results of the UK’s decision on 23 June to leave the European Union (EU) – what has become known as Brexit.
In the aftermath of most big decisions, commentators are usually able to make some informed comment, but Brexit has led to the instant demise of a prime minister; the paralysis of Her Majesty’s Loyal Opposition, resignation of the UK Independence Party’s leader and currency mayhem. There is a total political vacuum which has even meant that the starting gun on Brexit – the invocation of article 50 of the 2007 Treaty of Lisbon – has not yet been fired.
Some companies have made decisions. Vodafone has announced its decision to consider moving its HQ out of the UK. The company has decided that if the UK leaves the 28-nation EU, then the right place for it to be is with the other 27 nations.
Telefónica has abandoned its plan to sell a stake in O2 UK following the decision. Globe Telecom has also announced plans to withdraw from the European market although it is not entirely clear whether this is because of Brexit or a strategic financial withdrawal from the European market for other reasons.
When we asked our respondents how they thought Brexit would affect the European telecoms market, overall 50% of respondents thought that the effect would be negative or slightly negative; 47% of UK respondents thought it was negative or slightly negative and 48% of non-UK European respondents agreed that the outcome was negative or slightly negative.
This split was followed through when we asked respondents to say how the decision would affect their own company. Of these, 37% of UK respondents and 33% of European respondents thought that the decision would adversely affect their companies.
However, 53% of UK respondents and 50% of European respondents thought that the effects would be neutral. Perhaps it is just too soon to say otherwise.
It is also possible many telcos will assume that, in order to operate smoothly across the EU, UK telcos will adopt EU legislation. They are being optimistic that self-harmonisation will be the order of the day.
This will almost certainly be the case for data location, data privacy and spectrum allocation, but maybe not for all issues.
Where the EU has been seen to be taking a lead, such as in boosting research, investment and awareness into cyber security, the UK will probably follow. The EU, however, launched a public-private partnership on cyber security on 5 July that is expected to trigger €1.8 billion of investment by 2020 – money the UK likely will miss out on.
Whereas 6% of UK respondents thought the result would have a slightly positive impact on their businesses, not a single UK respondent thought the effect would be positive overall. European respondents were less pessimistic, with 18% saying the effect would be either positive or slightly positive.
Just over a third of UK respondents and just under a third of Europeans thought that effects of Brexit would be neutral. This would indicate that respondents are waiting for the dust to settle and detailed negotiations to start before they take a view.
This is borne out by the number of respondents telling Capacity that they just do not at the moment have a clear view of how the market will develop – making any comment pure speculation – which they are loath to do at the moment.
The optimists are clearly in the minority, as most predict some negative backlash from the decision. Respondents from the rest of world – of which there were few – were overwhelmingly negative about the vote with not a single respondent saying that Brexit was positive for the industry.
Of UK-only respondents, 41% thought that capital would be more difficult to raise and 47% thought there would be no change, with 6% saying it would be slightly less difficult. However, this tends to ignore the fact that the UK’s financial services have more to lose immediately after a EU exit than most other sectors of the economy.
As we pointed out in our first survey analysis, it is likely the UK will remain a haven for direct foreign investment flows even if it were outside of the EU.
We could see a period of weak foreign direct investment as the UK’s new relationship is renegotiated. However, if the UK is able to obtain favourable terms, then foreign direct investment would increase.
If London loses its position as the financial capital of Europe, financial institutions will relocate some of their London-based staff to the EU, as many have said in the past week.
As a direct result of Brexit the UK has lost its triple-AAA rating from Moody’s. This downgrading of the country’s creditworthiness also means UK companies will have a higher interest rate for borrowing.
Overall 68% or respondents thought that it was important or slightly important for UK carriers to continue adhering to EU telecoms regulation, with 60% of UK respondents and 74% of EU respondents agreeing. So it looks as if EU regulations will be respected.
The UK Information Commissioner’s Office (ICO) issued a statement in early July saying if the UK wants to trade with the single European market on equal terms the UK would have to prove “adequacy” – therefore UK data protection standards would have to be equivalent to the EU’s new data protection framework by 2018.
The ICO continued: “Having clear laws with safeguards in place is more important than ever given the growing digital economy, and we will be speaking to the government to present our view that reform of the UK law remains necessary.”
The EU-US Privacy Shield – successor to the Safe Harbor Privacy Principles of 2000 – has not yet been agreed. The problem is the US’s habit of mass surveillance of its population. The EU has been very protective of its citizens’ personal data.
The UK will have to start moving closer to Europe than the US, particularly in the investigatory powers bill, currently passing through the UK parliament, in order to win the necessary adequacy status.
Critics of the bill have claimed that it is at odds with human rights and likely to be overturned.
The question is: will the next government plough ahead with what would be the first political manifestation of Brexit – with the dangers of the instability that could result if Britain was deemed to be an unsafe place for European data?
Negative and positive
We asked: “Above all else, what part of your business will be negatively affected by Brexit?” UK respondents did not think that content sharing would be affected. But 22% of UK respondents thought that mobile roaming would be negatively affected, while only 15% of EU respondents thought so.
Problems with cross-border investments were predicted by only 22% of UK respondents, while 29% of Europeans considered it would give them difficulty.
Acquiring staff was placed quite low as a problem by UK respondents. This suggests either UK respondents don’t employ many EU staff, or they think Brexit will not have a huge effect on the free movement of people across borders.
Just over half of the number of UK respondents (13%), compared to EU respondents, considered data privacy to have been negatively affected.
At the other end of the scale, 16% of UK respondents thought that parts of theirbusinesses would be positively affected by Brexit, as opposed to only 6% of Europeans who thought positively about Brexit.
Answering the question about what would be affected negatively, 22% of UK respondents and 15% of Europeans thought that mobile roaming would be negatively affected – presumably because the protection afforded to UK citizens by the EU’s planned ceiling on roaming charges may be lifted, exposing them to potentially higher charges or at the very least price volatility across mobile operators.
Maybe carriers see this potential volatility as an opportunity. However, over 59% of respondents thought that Brexit offered absolutely nothing positive to them. Whether that will change only time will tell.