Friday, September 30, 2016

United Kingdom - Telecommunications policies in Scotland, 100% broadband, Brexit and a second independence referendum

No legislative powers

The Scottish Parliament has no powers to legislate on telecommunications and Internet access, these are reserved for Westminster (see schedule 5 of the Scotland Act). At least until Brexit, Westminster mostly transposes European Union directives.

In practice the Scottish Government (and the Scottish Executive before it) has adopted policies, made public procurements and channelled state aid to operators to increase the availability of broadband in rural areas.

S.65 of the Scotland Act 2016 gave Scottish Ministers the power to nominate one of the directors of the Office of Communications (OFCOM) and to lay the OFCOM annual reports before the Scottish Parliament. Given the statutory independence of OFCOM (see Art. 1(3) of 2009/140/EC) and the harsh scrutiny of the Competition Appeal Tribunal (CAT), the effect of these measures is unlikely to be significant.

Total broadband coverage

In its manifesto for the 2016 Scottish Parliament election campaign, the Scottish National Party (SNP) promised broadband for all businesses, homes and other premises, regardless of their remoteness. This was confirmed in a statement after the SNP formed its minority administration. However, there has been neither an economic analysis nor an impact assessment, just a political assertion, for example, it is unrelated to any plans for economic growth or to key sectors (e.g., finance or food). Audit Scotland, which has examined expenditure but not policies, notes the lack of a plan to deliver 100% broadband.

The promise was surprising, firstly because it exceeds the commitments made by Her Majesty’s Government (HMG), and secondly because the Scottish Government has almost no powers to achieve its target. All the Scottish Government can do is to ask HMG and BT Openreach for more broadband and, where it can find the funds, to provide subsidies within the state aid rules. For example, it has provided £2.1 million for fifteen community projects. Consequently, it seems very unlikely that the SNP will be able to deliver on its promise and that if it does it will be more a matter of luck than of good policy execution.

HMG has been very cautious about funding universal broadband, top-slicing £500 million from the Television Licence Fee income for the current Broadband Delivery United Kingdom (BDUK) scheme to extend rural coverage, which requires ‘local bodies’ to match this, notably with European Union development monies. This is a state aid project approved by the European Commission, a requirement that will end with Brexit, as will the EU funds used by the Scottish Government to match HM Treasury spending.

BT is trialling fast broadband over longer distances at North Tolsta on the Long Isle. This could enable much cheaper provision of broadband in remote and dispersed communities.

The Digital Economy Bill, presently before Westminster, contains the potential for a future Universal Service Order that would include broadband. This is a somewhat opaque means of requiring households that are cheaper to serve to fund the provision of broadband to more remote households, a scheme likely to be managed by BT (see responses to OFCOM consultation). Since this would be a United Kingdom measure, and since Scotland has a markedly lower population density, it implies a transfer of funds from English to Scottish consumers.


The surprise vote in favour of Brexit was taken as a casus belli by the SNP to argue for a second independence plebiscite, though this may not happen very soon. Indeed, the prospect of a ‘hard’ Brexit creates significant challenges in terms of the border with England, either requiring customs checks or passport controls, and conceivably both, if Scotland was in the Schengen Area and the European Customs Union (EUCU) and England was not.

Consequently, there are a number of scenarios in which Scotland might, at different times, be in either or both the United Kingdom or the European Union, perhaps neither. It is likely to have to leave the EU along with the UK and then apply for membership under Article 49 TEU.

Independence, whether or not in the EU, requires splitting of the UK telecommunication markets and networks. It would be especially challenging to split Openreach, both the Agreement and the BT local access network that supplies retail Internet service providers.  The consequential uncertainties can only reduce investment in networks. Moreover, faced with uncertainties and having to set up new network operations centres, lobbying groups, and regulatory compliance units, firms might prefer to spin off their operations in Scotland, for example, to hedge funds or to groups based in Scotland.

Independence would require a new legal framework, presumably by replicating the UK Communications Act 2003. However, this is complicated by Brexit, which necessitates considerable changes to the Act and the related statutory instruments, notably to remove obsolete references to the European Commission and the single market. Membership of the EU would require compliance with its acquis, including the telecommunications directives and creation of the associated institutions. The result could be a sequence of complex legal and regulatory changes, generating considerable uncertainty, not helped by the preference of the operators to test laws and rules in court.

Independence would require Scotland to create a ministry with policies for telecommunications and a host of new bodies, to replicate the functions of, inter alia, the following:
  • ·         Competition and Markets Authority (CMA);
  • ·         Competition Appeal Tribunal (CAT);
  • ·         Gambling Commission;
  • ·         Interception of Communications Commissioner's Office (IOCCO);
  • ·         Internet Watch Foundation (IWF);
  • ·         Investigatory Powers Tribunal (IPT);
  • ·         Office of Communications (OFCOM);
  • ·         Office of the Telecommunications Adjudicator (OTA2);
  • ·         Ombudsman Services.

This represents an enormous workload for new ministries in preparing policies and drafting legislation, for new regulators in drafting, consulting on, and re-issuing licences, and for the Scottish Parliament in creating additional committees to scrutinise legislation, then to oversee the new ministries and agencies.


Ewan Sutherland (2016) “Broadband and telecommunications markets—policy, regulation and oversight” Parliamentary Affairs 69 (2) 387-408.

Friday, September 23, 2016

Brexit for telecommunications markets – where we stand three months after the vote

It is now three months since the shocking United Kingdom vote for Brexit, during which time there has been the appointment of a new prime minister and cabinet, with three leading Brexiteers in cabinet positions charged with the negotiations. Aside from the “Brexit means Brexit” tautology, little formal progress has been made. The invocation of Article 50 TEU is strongly hinted for early 2017, with the prospective use of the Royal Prerogative presently being judicially reviewed. There remains the distinct possibility of a ‘hard Brexit’, closer to the Albanian than the Norwegian option, meaning only access to the single market with tight migration controls.

Attention to telecommunications came, rather briefly, this week, when the European Commission adopted revised guidelines on international mobile roaming. The question arose of whether, post-Brexit, UK-based customers would be able to roam continental Europe without paying surcharges. Given that UK-based operators would no longer have access to the regulated wholesale prices, then the logical answer must be that customers will revert to paying roaming charges, unless the operators can negotiate deals with their continental counterparts that they have failed to do for the last quarter century. Business users will be able to buy subscriptions in the remaining EU27, while consumers will have to rely on Wi-Fi, which Jean-Claude Juncker has promised to expand to all towns in the EU27, in competition with 4G networks.

British influence is already diminishing, notably in the recent Bratislava Summit of the EU27 leaders. The effect on the European Commission, European Parliament and European Council will change policies, directives and regulations, including pending proposals for the Digital Single Market. After Brexit, Her Majesty’s Government (HMG) will be reduced to lobbying the EU institutions in the hope of them changing the single market rules. For example, this could mean higher levels of mandatory European content in the revisions to the Audio-Visual Media Services Directive (AVMS), while British content might cease to be ‘European’.

The state aid rules exist only in EU treaties and EC rules, thus upon Brexit HMG will be free to spend money on rural broadband and mobile coverage as it wishes. How much might be available to spend and how it might allocate such funds is presently impossible to say. In the absence of the rules, any operator feeling aggrieved or disadvantaged by funds given to a rival would be reduced to judicial review, the outcome of which is very hard to predict. Doubtless, it would end up in the Supreme Court, subject to interim relief to suspend funding until finally decided. Existing state aid for rural broadband relies on EU funds, which local authorities match with the funds from HM Treasury, clearly this will be lost.

Brexit would take the United Kingdom out of the various EU directives and, especially, regulations. A review of all the statutes and statutory instruments that transpose the EU acquis would be necessary, in order to identify provisions that would no longer be relevant or necessary, such as references to the single market or the involvement of the EC in decision making. An obvious question is who would replace the EC in drawing up the list of markets to be analysed by OFCOM?

Lord Lawson has called for a completion of the Thatcher Revolution, with the sweeping away of many of the EU rules, though others have been more cautious. Given the expectations of economic growth and of the increased exercise of sovereignty, HMG might undertake wider legal reforms, which would open the way to lobbying by vested interests, primarily the large operators. In the absence of alternative proposals, the risk is of ministers succumbing to promises of better outcomes if regulatory burdens devised by the EU were to be judiciously raised or swept away. There is very little capacity in non-governmental bodies or in universities to analyse such proposals and the few discussions presently underway are exclusively in London and already dominated by vested interests.

One concern across the ICT sector is the prospective loss of access to the EU-wide pool of highly skilled labour needed in new ventures, in operators and in OFCOM. Loss of easy access to skilled labour could present significant problems, not least since it would take considerable time to train alternatives from the domestic labour pool.

The Brexit debate points to significant failings by the EC in the completion of the single market. It does not presents serious challenges for telecommunications, there being relatively few pan-European services that would be disrupted. The single markets for the various service sectors all look remarkably different.

The Department of Culture, Media and Sport needs to produce a green paper on telecommunications policy as quickly as practicable, with the parliamentary Culture, Media and Sport Committee conducting an inquiry that draws on a very wide range of inputs, much more than the ‘usual suspects’. The OECD should be invited to undertake a peer review of the regulatory system.


Ewan Sutherland A short note on Brexit: Telecommunications issues after the Referendum. (30 June 2016).

Ewan Sutherland A short note on telecommunications issues related to Brexit. (18 April 2016).

The Queen on the application of Santos v Chancellor for the Duchy Lancaster, CO/3281/2016, High Court of Justice, Queen’s Bench Division, Administrative Court (19th July 2016), before Sir Brian Leveson PQBD and Mr Justice Cranston.