What does Brexit mean for communications customers?
Speech by Sharon White to the International Institute of Communications, Brussels, 11 October 2017
It’s a pleasure to be back among colleagues in Brussels, one of the world’s most international cities, and the perfect venue for this latest stage in the global communications debate.
Brussels is also, of course, the beating heart of the European Union. So I’d forgive you for looking quizzically at your programme when you saw my chosen topic was Brexit.
But I can think of no better place to discuss what the UK’s plan to leave the EU will mean for people and businesses who rely on communications services – on both sides of the North Sea.
Because the industries we regulate are global businesses – bound invisibly, and inextricably, by fibre optics, satellite signals and radiowaves. And the rules that govern them have been shaped by years of careful collaboration between regulators, Governments, European and international bodies.
Today I want to explain why that collaboration can – and must – continue, for the benefit of all our citizens. As the UK’s exit from the EU is negotiated, I want to highlight the importance, and interdependence, of our communications sectors.
The Brexit process is underway. On the present timetable, the UK will cease to be a member of the EU on 29 March 2019. The Government’s EU Withdrawal Bill is designed to carry over into UK law, when we exit, the same general rules and regulations that exist across the EU.
Last month, the British Prime Minister called for an implementation period, so that all EU countries can adjust to the new arrangements in a smooth and orderly way. She spoke of a new economic partnership, underpinned by high standards and a practical approach to regulation.
As the UK’s media and telecoms regulator – politically neutral, independent of Government and of the companies that we regulate – Ofcom takes no view on the means or merits of Brexit. But we fully support the Government’s desire for continued effective regulation, delivered through close collaboration with European partners.
After all, the UK has always played a positive role in that process. We are proud, active members of European groups including the Body of European Regulators for Electronic Communications; the European Regulators Group for Audiovisual Media Services; and the Radio Spectrum Policy Group; as well as regional and global bodies such as the European Conference of Postal and Telecommunications Administrations, and the International Telecommunication Union.
And, of course, the IIC. Fittingly, this historic Institute was founded at Ditchley Park in Oxfordshire in the UK, later a filming backdrop to an international broadcasting success – Downton Abbey.
If you didn’t see Downton, it is more than a Victorian country house. It is a shining example of a transatlantic media partnership between independent producers, US distributors and Britain’s ITV, one of Europe’s leading broadcasters. Like many other productions, itsymbolises the truly international nature of our industries.
The UK is home to the world’s largest number of pan-European media companies. The BBC alone generates hundreds of millions of pounds in revenues from EU markets. Sky provides satellite services far beyond the UK – in Italy, Germany, Austria and Ireland. Discovery, based in London, broadcasts across the EU. Its audiences can trust what they watch because of Ofcom’s broadcasting rules, formed under our common European framework.
Likewise, our biggest telecoms provider, BT, offers services to every EU country. The UK mobile operator O2 is owned by Spain’s Telefónica, which also has operations in Germany. Vodafone Group is headquartered in London, but generates half its revenues – some £20bn – providing services to EU citizens.
These companies provide the networks by which our companies trade and our people communicate. Our broadcasters share formats, shows and perspectives that transcend borders and widen our cultural perspective.
So how can we ensure these benefits endure, or might be enhanced, after Brexit?
What industry has told us
To help answer that question, we have been speaking in depth to the companies we regulate. Some of them see potential opportunities, but most tell us they face challenges ahead. Let me explain three particular hurdles that our businesses would like to see overcome, before we approach Brexit.
Perhaps the biggest is ensuring broadcasters can continue to reach the whole EU from the UK, and vice versa. EU law enshrines a ‘Country of Origin’ principle, allowing broadcasters to transmit across the entire EU, provided they comply with the rules of their host country.
Ofcom licenses around 1,200 TV services; but almost a third of these are not broadcasting to UK viewers. They must still comply with our rules: impartial and accurate news; free speech; a right to privacy; and protection of children.
Conversely, around 35 channels do transmit to the UK, but are not licensed there. The same is true of on-demand services such as Netflix – popular in the UK, licensed in the Netherlands.
The Country of Origin principle benefits all citizens of the EU, and supports all our broadcasters – providing a mass audience, and promoting cultural exchange by transcending our borders. We believe that freedom of transmission and reception should endure between the UK and the EU after Brexit.
But Country of Origin cannot remain merely by existing in UK law. It will only stand if the EU 27 continue to allow UK-based companies to broadcast to their countries under UK rules; and if the UK allows companies based overseas to broadcast here under EU rules.
Several major UK-based broadcasters have stressed the importance of this issue, and we agree with them. Some are having to consider the disruption of relocation. Others are committed to remaining in the UK, but worry about their ability to reach EU audiences unhindered. Broadcasters have told us they are making contingency plans to move their editorial functions. These plans could be activated as early as this year. Others have put plans for new investment in the UK on hold.
All would like greater certainty in this area, and I’m pleased that the UK’s Culture Secretary is leading the issue at Government level.
A second pressing concern relates to the cornerstone and currency of modern communications – data. Today, digital information travels freely within the European Economic Area, thanks to shared standards of privacy and protection.
But personal data cannot leave the EEA unless the European Commission is sure it will be adequately protected by the receiving country. The EC has awarded this “data adequacy” status to 12 countries, from Andorra to Uruguay.
Clearly, media and telecoms companies need certainty that the UK, which already complies with EU data law, will retain this status. Without that assurance, pan-European operators will face practical and commercial disruption.
UK firms might have to negotiate separate data agreements with all their European partners, costing time and money. Those with multiple data centres across continental Europe may have to relocate them all to the UK – a huge operational undertaking.
One leading mobile operator told us that data movement is its number-one strategic and commercial priority during Brexit. Major broadcasters, too, rely on cross-border data to distribute their content. One said it considers this an even bigger issue for the continuity of its business than maintaining the Country of Origin principle.
So I fully agree with the UK’s Digital Minister, Matt Hancock, who wants to achieve an unhindered, secure flow of data after Brexit. That would mean a new data deal between the UK and EU, based on mutual interest and common rules of protection.
Ofcom is working closely with the UK’s data agency, the Information Commissioner’s Office, to identify the implications and help inform the Government’s negotiations.
A third question raised by industry is access to skilled workers. Communications companies across Europe have international workforces, sharing employment and expertise from the board room to the street cabinet. They need academics, specialist managers and engineers to complete urgent projects. They rely on transportable workers to construct fibre and 5G networks.
Our broadcasters also depend on highly skilled people, many from overseas. Estimates suggest up to 40% of people working in the UK’s creative industries may be EU nationals with no UK citizenship. Their work is seen by audiences from Amsterdam to Zagreb.
All employees, of course, need certainty. The Government has made the status of EU workers a priority in its negotiations. We hope that progress there will provide clarity to staff across our industries, and to the companies who rely on them.
If our industries overcome these hurdles, they also face broader headwinds. We recognise that the investment climate is uncertain. There are positive signs, such as strong commercial demand for IT services. But some companies wishing to build networks are unsure about consumer spending, and the UK’s future trading relationship with the EU. And in broadcasting, advertising revenues are predicted to be down 5% this year.
So when we call for UK communications customers to be given priority in Brexit negotiations, it is not only for their importance to the economy – £57 billion revenues in the UK alone, or three per cent of GDP. It is also because our communications firms face a mix of uncertainties, and many of these can only be resolved through a successful Brexit process.
The future after Brexit
Looking further ahead, how will those companies be regulated for the benefit of UK consumers? Let me briefly set out Ofcom’s vision of how UK regulation could work after Brexit.
For the UK, one big change will be the loss of the European Commission’s role in overseeing our legal frameworks. For many years, the Commission has worked to create a single European market for telecoms, and played an important role in promoting harmonised regulation.
We do not expect that pan-European role to need replicating by an equivalent UK body after Brexit. But there may be exceptional circumstances where oversight might be needed.
For example, if our reforms to BT’s network division, Openreach, do not produce the desired results in the coming years, we may wish to impose an exceptional remedy such as splitting the companies entirely. Today, that kind of measure would need Commission approval. After Brexit, if we believed that structural separation was the only option for BT and Openreach to deliver for investment, and for consumers, that decision would be taken in the UK by a domestic competition body, not here in Brussels.
All our decisions will rightly remain subject to appeal in the UK courts. Ofcom believes in expert scrutiny and accountability, in a form that provides confidence to businesses, and is timely and efficient for consumers.
Decisions must also be taken about the laws that should apply in the UK after Brexit. This is an important process: one that will determine the future direction of our media and telecoms companies, and their impact on people and businesses, for years to come.
We have analysed the laws that govern our sectors, and advised the UK Government on how these can continue to work after we leave the EU, with some technical tweaks. We expect, too, that the Government will maintain the independence currently required by EU law for communications regulators – so that we can seek industry’s views, advise Government and liaise with our European counterparts, all with complete impartiality.
In the longer term, we have called for a triple test to be applied when deciding which EU laws should continue to apply in the UK. Of each and every measure, we have urged Parliament to ask three crucial questions.
Does it prioritise the interests of UK consumers and the wider public?
Does it promote competition and investment?
And it does it support UK companies’ ability to trade successfully in the EU – and EU companies’ ability to serve UK customers?
That final test is crucial. It will only be passed if the UK and the EU work together to ease the transition for industry facing a new relationship with the EU, from broadcasting standards to data transfer.
That way, we can continue to promote communication between our countries, providing certainty to our industries, with shared standards and protections for our people.
So I’d like to conclude where I started – working together.
Brexit does not change the UK’s desire to engage globally on the communications questions that affect us all. Whether it’s common standards for internet television, protecting our networks from cyber attacks, or tackling ‘fake news’ – these questions will demand teamwork on a global scale.
In many areas, such as anti-trust, European bodies have led international thinking. The UK, too, has always played its part. I can promise that Ofcom will seek to remain a constructive and influential voice, sharing our expertise to meet common challenges.
We have achieved so much together, from protecting children online, to ensuring consumers’ rights to an open internet.
Looking ahead, we will face the fourth industrial revolution together – a fusion of the physical, digital and biological worlds that will change our economies. We want the UK to lead innovation as we establish new trading relationships with the rest of the world.
None of this is straightforward. The Brexit negotiations will be complex. But with the right approach, we can achieve clarity for our businesses, and secure protection, choice and value for our consumers.
As our relationship evolves, it is more important than ever that we do that together.