A UK decision to leave the EU could have nasty consequences for its telecom players.

Iain Morris, International Editor

June 24, 2016

3 Min Read
'Brexit' Vote Hits BT, Vodafone

The British public has voted narrowly in favor of leaving the European Union (EU) and UK telecom players are already feeling the impact.

Shares in fixed-line incumbent BT Group plc (NYSE: BT; London: BTA) and mobile giant Vodafone Group plc (NYSE: VOD), both of which had warned about the consequences of a "Brexit" from the EU, fell in trading on Friday morning, just hours after the outcome of the referendum became known.

BT's shares were trading down more than 8% on the London Stock Exchange at the time of publication, while Vodafone's had dropped by more than 3%.

Those declines reflected widespread concern about the outlook for the UK economy after 51.9% of UK voters said they would prefer to leave the EU during Thursday's referendum.

The FTSE tumbled by more than 8% in early-morning trading but had staged a partial recovery by the time of publication, when it was down by nearly 5%. The pound sterling, meanwhile, sunk to its lowest level against the dollar since 1985.

In the run-up to the referendum, economists and business leaders, including BT Chairman Sir Michael Rake and Vodafone CEO Vittorio Colao, had warned that an exit from Europe's single market would have painful consequences for the UK economy.

Although Britain will have two years in which to negotiate its exit, and the deals that succeed membership, the political and economic uncertainty over this period could fuel market volatility.

Vodafone's Colao has warned that Britain will be shut out of Europe's digital single market if it leaves the EU, appearing to allude to emerging opportunities in areas such as the Internet of Things and cloud-based services.

He has also hinted at the possibility Vodafone would relocate its global headquarters from Newbury, in the UK county of Berkshire, to another part of Europe if Brexit comes with restrictions on the free movement of people and capital.

Along with other multinational organizations, the operator is evidently concerned that any such restrictions will make it harder to employ EU citizens in the UK.

For more fixed broadband market coverage and insights, check out our dedicated broadband content channel here on Light Reading.

Politicians backing Brexit have drawn support from voters concerned about rising levels of immigration to the UK from other parts of the EU, although efforts to curb immigration are likely to prove fruitless. Norway is not a member of the EU but has been forced to follow its rules to gain access to the EU market.

Brexit could hit UK telecom players in other ways, however. For one thing, the currency volatility is likely to weaken purchasing power and drive up the cost of imports.

This could obviously hinder the rollout of high-speed network infrastructure in the UK amid concern the country is already falling behind other parts of Europe when it comes to broadband capability.

Moreover, a recession -- predicted by several economists -- could trigger a fall in spending on broadband, mobile and pay-TV services.

While earlier recessions have had less impact on telecom services than other sectors of the economy, there is always a risk that consumers downgrade to lower-cost tariffs and rein in their usage as they tighten their belts.

Brexit could also have ramifications for local telco regulators, making it harder for them to co-ordinate their activities with those of EU member states. Such co-ordination is becoming increasingly important in several areas, including the release of new spectrum to mobile operators and the rules surrounding so-called roaming charges, which customers pay to use their phones abroad.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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