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Brexit: Effects on the Electronic Communications market in the UK

Analysts and commentators attempted to break down the effects of BREXIT dissecting every legal area; tax, employment, dispute resolution, restructuring cross-border insolvencies, IP, to name a few. A few touched on its effect on electronic communications. Then on March 2017 UK Prime Minister Theresa May triggered Article 50 of the Treaty of the European Union by serving a notice to the EU Commission seeking to withdraw from the EU and in effect severing close to 40 years of EU membership.

Reportedly the 5th most entrepreneurial country in the world[1], UK decided the time was up. According to unverified reports, the vote to leave originated from former UK Prime Minister David Cameron who complained that the bloc had morphed into a powerful bureaucracy infringing on British sovereignty and its national interests on issues such as trade, immigration, financial and labor regulation and social spending[2]. ‘Bre-main’ would have spelled economic sabotage. In the coming months, meetings will be held among the remaining member states to determine a framework to negotiate UKs exit as well as formulate a future working model. Experts say it will take around two years[3] for the Council to conclude the withdrawal agreement. How does this affect the e-com industry?

The Broadband Stakeholder Group (BSG)  in its latest report[4] notes that the EU General Data Protection Rules will operationalize in mid-2017 which according to the UK Minister for Digital and Culture, Matt Hancock, will be adopted by the UK such that there will be “unhindered data flows after Brexit.”[5] By 2019, existing EU law will have been adopted into UK law via a White Paper which will set out the government’s proposals for ensuring a functioning statute book after transitioning from the EU, also known as the Great Repeal Bill.[6]

For 30 years, the telecommunications industry has grown considerably. Walden (2017) reports that with ubiquitous internet access, consumers now have a higher expectation to an ever expanding range of digital products on many different platforms and from a wide choice of providers from mobile money to Over The Top content. The UK telecoms industry contributes to £30.2 billion to the UK economy. BSG found that the digital industry, which relies in great part on telecoms services, contributes £118.4 billion to the economy (estimated at about 16% of the UK economy).[7] On the legal framework, UKs e-com law is the Communications Act of 2003. A cursory glance shows that it operationalizes five EU Directives initially developed to centralize communications-related activities across Europe.[8]

The purpose of this write-up is to review various thoughts and literature in light of the Brexit effect on telecommunications with a particular focus on data protection, electronic commerce and audio visual. While some think that Brexit doesn’t really have an impact on telecommunications generally[9], others think that “It will be a regulatory nightmare for telecom operators.”[10]

Technological convergence having been realized, throughout this article, the terms electronic communications (shortened to e-com) and telecommunications are used interchangeably.

COMMUNICATIONS ACT 2003 (the CA)

The CA was operationalized on 17 July 2003 effecting the government’s white paper proposals in the form of 5 directives for the reform of the regulatory framework as well as implementing the EU directives[11]. These are:

  1. Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services – the Framework Directive;
  2. Directive 2002/20/EC on the authorisation of electronic communications networks and services – the ‘Authorization Directive’;
  3. Directive 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities – the ‘Interconnection Directive’;
  4. Directive 2002/22/EC on universal service and users rights relating to electronic communications networks and services – the ‘Universal Services Directive’; and
  5. Directive 2002/58/EC on the processing of personal data and the protection of privacy in the electronic communications sector – the –privacy directive.

EU has helped frame global policy by sharing its policies with the rest of the world, giving EU laws a gold standard. Walden (2017) gives the example of the World Trade Organization’s 1998 Basic Agreement on Telecommunications, made under the General Agreement on Trade in Services with just shy of 100 countries adhering. More importantly for the EU, is UKs contribution as an e-com regulatory hub. Ofcom has worked on a number of issues in BEREC and IRG with BSG suggesting that the two would be non-existent if it was not for Ofcom’s involvement.[12] Indeed while the EU is a policy body which drives strategies into legislation, BEREC (the Body of European Regulators for Electronic Communications)[13] provides recommendations to the European Commission on the implementation of the Regulatory Framework while National Regulatory Authorities (NRAs) draw on their understanding of national markets and oversight in the implementation of telecommunications policies at national level. This includes delivering opinions on Article 7 (control by the European Commission of NRAs’ decisions to impose remedies to address market failures). BSG notes that this role would need to be somehow replicated in the UK post-Brexit. The UK should, therefore, seek to retain a substantive role for Ofcom in BEREC as well as the International Regulators Group (IRG).

 E-COMMERCE AND GEOBLOCKING

The flow of data in a world embracing the Internet of Things is a key driver of the UK economy particularly the e-commerce industry. Research done by digital marketing firm ThoughtShift[14] found that:

  • The total value of UK retail transactions in 2016 was £358 billion;
  • Retail sales quantity increased by 4.3% (December 2016 v December 2015); and
  • 12% of retail sales were made online.

Online retail spending days, Black Friday and Cyber Monday broke records in 2016. Consultant Nikki Gilliland stated that “the Black Friday shopping frenzy broke online sales records in the US, with $3.34bn being spent online and a 17.7% increase on sales last year.”[15]

On the other hand, the debate on the effect of Brexit in electronic commerce (e-commerce) still continues. Spanish law firm Gómez-Acebo & Pombo opine that an EU exit would not affect the UK e-commerce industry.  In their feature article[17] they state that “the withdrawal from the Digital Single Market (DSM) Measures adopted by the European Union in terms of geographic blocking (Geoblocking) as well as the improvement of cross-border parcel services and the reinforcement of consumer rights and confidence will have no repercussions in the UK.” DSM is intended to harmonize and give additional rights to consumers buying digital content and goods online. And the reason for this is because of divergence vis a vis consumer protection in the event of defective goods and/or digital content purchased online. The UK through the consumer protection Act of 2015 is among a few states that provide for rules dealing with faulty goods bought online.[18] Indeed a geoblocking would not really affect the UK in this respect. But what if?

 Understanding Geoblocking

hqdefault

Courtesy of YouTube

Madiega (2016) defines geoblocking as a situation in which “an online customer is prevented from accessing and purchasing a product or service from website A based in one EU member state and is automatically rerouted to website B with the effect of refusing delivery or payment based on the location or place of residence of the online customer.”[19]

Madiega continues,

“consumers face different selling conditions for products or services purchased online on the basis, for instance, of their IP address, their postal address or the country of issue of their credit card. These methods act as a barrier to cross-border trade in the internal market and result in “geographical market segmentation” which has long been a concern for consumer protection, competition and copyright laws.”

Marketa (2015) paints this picture. She states:

“In a world where countries cannot agree on a single set of laws that would apply uniformly

around the globe, most national laws need to be territorially confined….For example, what might work as law in the United States might not work in France, and therefore French law might be different from U.S. law. Some legal rights and responsibilities exist only within countries’ jurisdictional limits, and therefore persons and entities may enjoy the rights and must fulfil the responsibilities within the defined territory”

Going by Madiega, geoblocking laws are clearly a barrier to competition. Practical Law Company (PLC) recently analyzed[20] geoblocking and how the European Economic and Social Committee (EESC) are leading efforts to ban unjustified geo-blocking between EU member states. PLC reports that the EESC is cautioning consumers and companies that there will still be considerable difficulties faced when doing business across the single market and doubts as to whether the regulation will really alleviate consumer frustrations.[21] This urgency to level the playing field for off-line and on-line trading will not impact on the UK post-Brexit as pointed out earlier by Gómez-Acebo & Pombo, and the UK will still be subject to these restrictions. According to PLC, the EESC proposes that the focus should not only be on ending unjustified geo-blocking but also on tackling the remaining obstacles in the single market that discourage or hamper traders from selling on-line and/or off-line across borders.[22]

PLC goes further to point out EESC opposition to unjustified geo-blocking but acknowledges a number of well-founded reasons companies (including SMEs and micro-enterprises) may have for avoiding or refusing cross-border on-line trade. It therefore considers that it is right that the proposed regulation does not impose any obligation on traders to deliver goods or provide services to the country of the customer if the trader does not (yet) deliver or operate in the country concerned.[23]

Another argument could be that the UK post-Brexit would be free to charge their goods higher without restrictions from Europe as the perception would be that such goods would be of superior quality and therefore those higher prices could be justified. Another way to look at it is that should the British Sterling Pound as has been seen before, buying from the UK will be deemed cheaper from the other EU states. Supporting this argument is Professor Joshua Bamfield who is reported by the Guardian to have said:

“UK-based online retailers will be able to sell a lot more goods abroad priced in sterling, as their prices are much cheaper now compared to overseas rivals,” He continues, “They will benefit although they need to be careful when hedging their currency bets. Alternatively, they can increase their profitability by raising their international prices if that helps them more.”[24]

Data Protection

Before Brexit

Brexit may have data protection implications within the UK. It is known now the UK has a two-year transition period for implementation of the General Data Protection Regulation (GDPR) which was assented to in April 2016 and will replace the current Data Protection Act of 1995. Thus implies that the UK is not obligated to apply it until 25 May 2018.[25]

Broadly the GDPR seeks to regulate data controllers and data processors. With similar definitions under the current Data Protection Act, the controller ‘controls’ how personal data is to be processed and the processor acts on the controller’s behalf.[26] The GDPR also applies to controllers and processors outside the EU whose processing activities relate to the offering of goods or services (even if for free) to, or monitoring the behavior (within the EU) of, EU data subjects. Many will need to appoint a representative in the EU.[27] 

The GDPR places a higher duty on Processors with regards to maintaining records of processing activities under its responsibility. Bearne (2016) reports that “Each controller and processor is obliged to cooperate with the supervisory authority and make those records, on request, available to it, so that it might serve for monitoring those processing operations.”[28] However, if you are a controller, you are not relieved of your obligations where a processor is involved – the GDPR places further obligations on you to ensure your contracts with processors comply with the GDPR.[29]

Other key provisions include data subject’s rights. Mc Cullagh (2016), reports that the standard for valid consent is now higher. That it should be looked at separate from other terms and conditions and will be invalid unless freely given, specific, informed, and unambiguous, and its withdrawal (in telecommunications meaning ‘opting out’) must be as easy as it is to give.[30] What it does is that it gives individuals more control over their personal data, including through:

  • Clear and affirmative consent by the individual to the processing of personal data;[31]
  • easier access by the subject to his or her personal data;[32]
  • the rights to rectification, to erasure and ‘to be forgotten’[33];
  • the right to object, including to the use of personal data for the purposes of ‘profiling’;[34] and
  • the right to data portability from one service provider to another.

After Brexit

As it stands, the GDPR will bring a compliance burden for businesses particularly for those that will be processing data from other EU states. Mc Claugh reports how the GDPR received heavy backlash from some parliamentarians as well as calls by large tech companies to propose amendments to introduce a data protection framework that is less burdensome for small businesses and is more business-friendly in general.[35]

Some avenues have reported that the European Commission will have to “designate the UK as a safe third country in order to avoid the application of stricter requirements on data transfers, mainly for companies that process data.”[36]   BSG notes that “UK post-Brexit will be considered as a third country and as such, would need to demonstrate to the European Commission the “adequacy” of its level of data protection.”[37]In adopting an adequacy decision, Ward (2016) quotes Daniel Zeichner who stated that “the European Commission must be satisfied that a third country offers an equivalent level of data protection” implying that national law will have to be juxtaposed against the GDPR to establish a high standard. If this is achieved, the current data sharing activity will be continued as the UK would be harmonizing domestic law with the incoming EU for law enforcement purposes.[38]

Greenland approach

Having UK comply with the GDPR in terms of processing personal data of EU member citizens could potentially bottleneck cross-border trading by raising the cost of doing business effectively ruling out the UK as a business hub. A Greenland approach might be the only way.

In 1985, Greenland formally withdrew from the European Community in what is known as the Greenland Treaty of 1985 after having joined the union in 1973. This treaty declared Greenland a ‘special case’ because of its small population and its main economic driver- fishing. A fisheries agreement between Greenland and the EU was signed as part of the treaty giving Greenland tariff free access of fisheries products to the EU. Greenland was furthermore associated with the EU through its placement in the Overseas Country and Territories Association Decision.[39]

With online retail revenues of 358 billion GBP, the UK may have a case that it is an e-commerce leader and an approach similar to Greenland may be adopted. The challenge is it may be longer[40] and more complex to negotiate a special case agreement now than it was for Greenland in 1985.

Audiovisual (AV)

The European audiovisual (AV) market is worth around 97bn Euros a year and employs between 0.7m and 1.1m people according to Oxera’s recent report (the report)[41]. The UK is a big contributor to AV content with nearly 500 AV channels. This puts them in a leading position and well ahead of Sweden, Netherlands, Spain, France, Italy and Germany[42]. The UK regulates audiovisual media services in line with the requirements of the Audiovisual Media Services Directive (AVMS Directive).[43]

AVMS is subject to harmonization through the country of origin principle which separates it from the telecommunications sector which isn’t[44]. As Wagner (2014) notes, “the country-of-origin principle applies where a service provider is established in a different Member State to that of the recipient.” Walden (2017) adds; “that a business that is set up in one EU member can supply services to the other member states without further authorization, control or regulatory red tape from the recipient state.”

FieldFisher TMT Counsel Tim Johnson[45] views Brexit as beneficial to the UK in some respects as the UK would no longer have to be bound by the minimum requirements laid out in the AVMS Directive even though current UK regulation leans towards being more, rather than less, restrictive than the AVMS minimum requirements.  However, Tim warns that in the event of a Brexit, any UK AV content would cease the benefit of being licensed in a qualifying “country of origin” which may affect the attractiveness of the UK as a broadcasting hub.  Tim concludes by saying that losing “country of origin” status far outweighs any benefits to be gained from the freedom to regulate on a lighter touch basis.

Following Brexit, UK AV service providers will only be able to obtain licenses in other States under the principle of reciprocity.[46] Notable restrictions will be on transmissions which through the AVMS Directive, is currently not restricted. Following a Brexit, the automatic effect is that broadcast restriction would be triggered. Brexit would allow the remaining EU members to restrict broadcasts from the UK for the reasons provided in the AVMS Directive such as consumer protection as well as for no reasons at all such as blocking advertisements of British products. The UK also faces exclusion from the group of European regulators (ERGA, The European Regulators Groups for Audiovisual Media Services). Its responsibilities include the evaluation of codes of conduct for audiovisual media service providers, including online video distribution platforms, and the provision of advice to the Commission.

Conclusion

A lot of the commentators view Brexit as an impediment in a world embracing the Internet of Things. The regulatory challenges surrounding the exit are a cause for worry. In digressing a bit, when Kenya decided to move to a devolved government in 2010, the country was not ready for the transition. 7 years later and basic necessities are lacking. The structural gaps opened doors to swindling of funds meant for teachers and doctors with the nurses just recently going on strike. The point is a lack of workable structures in place to safely handle the transitions from the National Government to the County Governments was the cause. Similarly, the UK is at risk of being caught off-guard.

The importance of the electronic communications industry cannot be overlooked. The Greenland approach as discussed is a befitting one. Other models, I haven’t touched on include the UK joining the European Free Trade Area (EFTA) and the European Economic Area (EEA). Alternatively, it could lobby for a creation of a hybrid of sorts which Mc Claugh terms as ‘cherry picking’ elements from existing trade deals that would best suit its economic needs. Either way, it is going to be a long and tedious process to get the preferred systems in place.

Electronic communications is an asset and e-commerce will only grow. Internet speeds will improve as evidenced by increasing discussions surrounding the rollout of 5G. With the future being digital, the author foresees privacy being traded in the stock exchange like gold and oil and hence a key economic asset. As a result data protection will be given focus. Businesses will be forced to adapt in a classic.

streaming

courtesy of Techexclusive

As for AV, we have to consider the new wave – streaming (Youtube, Netflix, and Showmax). However, current AVMS laws are not KEEPING UP. Recently, the European Commission proposed to modernise the Audiovisual Media Services Directive to reflect streaming. This concern was noted by Digital Minister Matt Hancock who put it as part of House Business for 1 March 2017. According to Parliament’s website, Hancock responded to the Committee’s questions about the implications of Brexit and the broadcasting sector noting that,  “The EU Internal Market for broadcasting is highly integrated: the AVMS Directive permits a broadcaster that is compliant in the Member State in which it is established to broadcast freely to the other 27. In combination with the UK’s strengths in the creative sector and favorable business ecosystem, this has enabled the UK to become the overwhelming destination for international broadcasters seeking to access the EU market.”[47]

As earlier noted, Brexit would be delimiting as it would lead to a broadcasting restriction being triggered. Parliament further reports that “the Council of Europe Convention on Transfrontier Television which would have been the ideal fall back currently does not capture streaming and does not include six EU Member States. The Committee agreed to retain the file under scrutiny and request further information about the proposal itself, as well as the implications of UK non-participation in the AVMSD post-exit. Indeed the sector appears highly exposed.”[48]

This is not an open and shut topic as debates and discussions are continuing. This essay is therefore inconclusive.

Bibliography

  1. Bearne S, ‘Brexit: What Does It Mean For Online Retailers?’ The Guardian (2017)
  2. ‘Black Friday & Cyber Monday 2016 Ecommerce Stats Bonanza’ (Econsultancy, 2016)
  3. ‘Consumer Rights Act 2015’ (Legislation.gov.uk, 2015)
  4. ‘Directive Of The European Parliament And Of The Council On Certain Aspects Concerning Contracts For The Online And Other Distance Sales Of Goods On Certain Aspects Concerning Contracts For The Online And Other Distance Sales Of Goods’ (European Commission, 2017)
  5. ‘EESC Opinion On Proposed Regulation To Address Unjustified Geo-Blocking’ (2017) W-005-7076 Practical Law Competition
  6. ‘House Of Commons – Documents Considered By The Committee On 1 March 2017 – European Scrutiny Committee’ (Publications.parliament.uk, 2017)
  7. Johnson T, ‘Brexit – The Audiovisual Media Services Directive – Fieldfisher’ (Fieldfisher.com, 2016)
  8. Lomas N, ‘On Data Protection Brexit Means Mirroring EU Rules, Confirms UK Minister’ (TechCrunch, 2017)
  9. Madiega T, ‘Geo-Blocking And Discrimination Among Customers In The EU’ [2016] European Parliamentary Research Service
  10. Mendoza Losana and Almarcha Jaime A, ‘Multisectoral Effects Of Brexit: What Are The Legal Implications?’
  11. ‘Overview of the GDPR’ (Ico.org.uk, 2017)
  12. Oxera Consulting LLP, ‘The Impact Of Crossborder Access To Audiovisual Content On EU Consumers’ (2016)
  13. ‘Regulation (EU) 2016/679 (General Data Protection Regulation)’ (Eur-lex.europa.eu, 2016)
  14. ‘Retail Forecast For 2017-18 – Centre For Retail Research, Nottingham UK’ (Retailresearch.org, 2017)
  15. ‘Retail, Ecommerce And Brexit In 2017 By @Thoughtshiftuk’ (ThoughtShift, 2017)
  16. Ward P, ‘Brexit And Data Protection’ [2016] House of Commons Library

[1] Lynsey Barber, ‘The UK’s The Fifth Most Entrepreneurial Country In The World’ (Cityam.com, 2017)

[2] Explainer: The What, When And Why Of ‘Brexit’ (USA TODAY, 2017)

[3] ‘Brexit: Article 50 Triggered’ (http://www.debrauw.com, 2017)

[4] Samira Gazzane, ‘BSG Comment – What Does Brexit Mean For The UK Telecoms Industry?’ (Broadband Stakeholder Group, 2017)

[5] Natasha Lomas, ‘On Data Protection Brexit Means Mirroring EU Rules, Confirms UK Minister’ (TechCrunch, 2017)

[6] ‘The Great Repeal Bill: White Paper – GOV.UK’ (Gov.uk, 2017)

[7] Supra

[8] Herbert Smith Freehills, ‘Brexit: Telecoms And Media’ (2017)

[9] Ian Walden, ‘Brexit Sector Briefing: Telecommunications’ [2017] Practical Law Brexit series

[10]  ‘How Will A BREXIT Impact Telecom Regulation In Europe? John Strand: “It Will Be A Regulatory Nightmare For Telecom Operators.”‘ (Strandreports.com, 2017)

[11] Ian Walden, Telecommunications Law And Regulation (1st edn, Oxford University Press 2014) page 114

[12] Supra page 8

[13] Established by Regulation 1211/2009,  www.berec.europa.eu

[14] ‘Retail, Ecommerce And Brexit In 2017 By @Thoughtshiftuk’ (ThoughtShift, 2017)

[15] ‘Black Friday & Cyber Monday 2016 Ecommerce Stats Bonanza’ (Econsultancy, 2016)

[16]

[17] Ana I. Mendoza Losana and Jesús Almarcha Jaime, ‘Multisectoral Effects Of Brexit: What Are The Legal Implications?’

[18] ‘Consumer Rights Act 2015’ (Legislation.gov.uk, 2015) http://www.legislation.gov.uk/ukpga/2015/15/contents/enacted> accessed 18 April 2017, chapter 3

[19] See Tambiama Madiega, ‘Geo-Blocking And Discrimination Among Customers In The EU’ [2016] European Parliamentary Research Service, page 2

[20] ‘EESC Opinion On Proposed Regulation To Address Unjustified Geo-Blocking’ (2017) W-005-7076 Practical Law Competition.

[21] Ibid

[22] Ibid

[23] Ibid

[24] Suzanne Bearne, ‘Brexit: What Does It Mean For Online Retailers?’ The Guardian (2016)

[25] Philip Ward, ‘Brexit And Data Protection’ [2016] House of Commons Library.

[26] Ibid

[27] See recitals 10-12 ‘Regulation (EU) 2016/679 (General Data Protection Regulation)’ (Eur-lex.europa.eu, 2016)

[28] Supra 26 recital 82

[29] Supra 26 Recital 108-111

[30] Dr Karen Mc Cullagh, ‘Brexit: Potential Implications For Digital And ‘Fintech’ Industries’

[31] Recital 32

[32] Recital 39

[33] Article 16

[34] Recital 50

[35] Supra 36 at page 13

[36] Ana I. Almarcha Jaime and Jesús Mendoza Losana, ‘Multisectoral Effects Of Brexit: What Are The Legal Implications?’

[37] Supra 4 page 13

[38] Supra 5

[39] See more here ‘The Greenland Treaty Of 1985 – Naalakkersuisut’ (Naalakkersuisut.gl)

[40] Ibid – negotiations for the Greenland treaty took 3 years.

[41] Oxera Consulting LLP, ‘The Impact of Crossborder Access to Audiovisual Content on EU Consumers’ (2016), page 1.

[42] Ibid page 17.

[43] See more at: Tim Johnson, ‘Brexit – The Audiovisual Media Services Directive – Fieldfisher’ (Fieldfisher.com, 2016)

[44]Under the E-Commerce Directive 2000/31/EC

[45] Supra 49

[46] Supra 22 page 3

[47] ‘House of Commons – Documents Considered by the Committee on 1 March 2017 – European Scrutiny Committee’ (Publications.parliament.uk, 2017)

[48] Ibid




This post first appeared on SheriaApp, please read the originial post: here

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Brexit: Effects on the Electronic Communications market in the UK

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