Brexit May Impact Roaming, Telecom Consolidation

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By Michaela Ross

June 24 — Britain’s exit from the European Union could affect telecom industry regulations on international roaming, sector consolidation and broadband speed targets, according to analysts.

Any major shift from the European Commission’s regulatory framework, however, will depend on the next two years of negotiations between the U.K. and the EU on divorce terms.

Regulation of U.K.-based telecom operators, including London-based Vodafone Group Plc and Liberty Global Plc, will largely depend on whether the U.K. decides to join the European Economic Area, or EEA, as a non-EU country, analysts said. That question will be answered during separation negotiations.

The two-year transition period likely means any shifts in regulation between the U.K. and the EU would be slow, several analysts said, and the benefits of keeping telecom policy consistent with EU regulation may also result in little divergence between the two entities.

“I do not think this will be an earthquake for the U.K.'s regulatory framework,” Bloomberg Intelligence analyst Erhan Gurses said in an interview with Bloomberg BNA June 24.

Leaving the EU doesn't necessarily mean that the U.K. will abandon the bloc's telecommunications initiatives wholesale.

“It will still be in the UK's interest to participate in spectrum harmonization, for example,” IDC Associate Vice President of European Mobility John Delaney said in an interview with Bloomberg BNA June 24, referring to the allocation of radio waves that carry the electronic signals of mobile carriers and TV broadcasters.

Roaming, Broadband Speeds

The most immediate regulatory uncertainty about Britain's exit involves international roaming rate caps. The European Commission's Digital Single Market initiative includes abolishing roaming charges across the EU by 2017.

Theoretically, carriers in the U.K. may be able to re-apply roaming charges after fully exiting the EU, but consumers might resist that, Delaney said.

The U.K.'s participation in EU broadband speed targets is also in doubt. Operators are to have equipped all European households with faster broadband speeds by 2020, according to a digital agenda adopted by the European Commission in 2010. It is unclear if the U.K. will set new targets or keep these in place, Gurses said.

Multinational telecom operators within Britain will continue to be regulated by the U.K.'s Office of Communications, or Ofcom, and the country's Competition and Markets Authority will continue to regulate multinational telecom operators as the transition occurs. Ofcom signaled that it is moving carefully.

“We note the result of the EU referendum, and will now work to understand any implications for Ofcom,” a spokeswoman for Ofcom said in an e-mail June 24. “We will continue to regulate the communications sector under the existing frameworks until any changes are confirmed.”

Telecom M&A More Difficult

Brexit is not likely to spur a string of mergers and acquisitions amongst U.K. carriers, Delaney said. British telecom regulators recommended in May that the European Commission block Hong-Kong based CK Hutchison Holding Ltd.'s bid to acquire Telefonica SA's U.K.-based O2 carrier.

“At present the U.K.’s authorities are, if anything, more anti-consolidation than the EU’s,” Delaney told Bloomberg BNA.

However, Britain may now have more freedom to regulate multi-service packages for consumers, Delaney said.

Developments in streaming technology have led many telecom operators to offer mobile TV and packages including landline, broadband, cable and mobile services. Regulation of these packages may be complicated by the fact that the European Commission draws a distinction between “content” and “electronic communication services”, Delaney said.

“Ofcom might decide that it’s more appropriate to regulate media and telecom in a holistic way, in response to the development of mobile TV and quad-play services,” Delaney said.

Innovation Impacts

U.K.-based carriers BT Group Plc and Vodafone said their multinational reach makes them prepared to handle regulatory divergence between Britain and the EU.

“It is too soon to form a view on the implications of the referendum outcome for the domicile of the group,” a Vodafone spokesperson said in an e-mail to Bloomberg BNA June 24. “In terms of the implications for Vodafone, each of our country businesses operates as a standalone entity able to adapt to a wide range of local conditions.”

Brussels-based trade association Digital Europe raised concerns that the U.K.'s move will ultimately lead to less innovation in the European telecom landscape.

"Without the U.K. at EU Council tables and no U.K. voices in the parliament or the commission, our task of promoting digitally empowered innovative Europe will become more important and, I fear, more difficult," John Higgins, Director General of Digital Europe said in an e-mail to Bloomberg BNA.

Digital Single Market

Leaving the EU may give the U.K. more freedom in regulating its telecom industry, but the move jeopardizes the country's influence in building and participating in the Digital Single Market, an EU initiative to create a cross-border digital marketplace with consistent policies on issues such as net neutrality and universal roaming rate caps.

Staying in the EEA would allow the U.K. to participate in the Digital Single Market, but would not allow it the ability to effectively shape future telecom policy, said Luca Schiavoni, senior regulation analyst at Ovum, a technology research and advisory company.

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