The UK electorate has voted to withdraw from the European Union and, once the government formally notifies Brussels of their intention to withdraw by invoking Article 50 of the Lisbon Treaty, the two-year withdrawal process will begin.
The outcome will take several years to unfold, with consequences for IT investment and the telecoms regulatory environment.
Ovum analysts Jim Jennings and Luca Schiavoni consider the likely impact:
- Analyst View—Brexit decision will impact enterprise IT investment—Tim Jennings, Chief Research Officer, Enterprise IT Management
- Analyst View—Brexit will have minimal impact on the UK’s regulatory environment—Luca Schiavoni, Senior Analyst, Regulation
- Analyst View—Brexit decision will impact enterprise IT investment
The UK's momentous decision to Brexit, and the consequential uncertainty of the withdrawal process under Article 50 of the Lisbon Treaty, is likely to have a short- and medium-term impact on enterprise IT investment in the UK. Senior executives will want to prepare their core systems for any implications of revised trading and legislative agreements and may postpone investment in non-mandatory IT projects, such as digital transformation, until the needs of the business-as-usual environment become clearer.
IT departments must focus on application changes
For modern business applications, most required changes to business logic in areas such as commerce, tax, and data handling should be possible through configuration rather than customization; however, for older legacy applications, re-coding or reworking may be required. Similarly, modern applications, particularly those delivered as cloud services, are upgraded on a more frequent basis, making it easier to add new functionality where this may be required. For older on-premise systems, an upgrade is typically a major undertaking, requiring a significant investment of resource, all of which will put additional burden on IT departments and their budgets.
Ovum's conversations with enterprise IT leaders suggest that few have planned or prepared for the changes that might be required as a consequence of Brexit. This is understandable, given the unprecedented situation in which the UK now finds itself, but is likely to increase the level of caution that is applied to ongoing investments in business improvement and more speculative innovation projects, and may also play out against a potential downturn in the macroeconomic environment. This IT budget uncertainty will persist for at least the two-year EU withdrawal process, but beyond that time frame the level of uncertainty will be dependent on the clarity of the UK's future trading arrangements with Europe and other global partners.
During the referendum campaign, IT suppliers have, as a group, been strongly in favor of the UK remaining within the EU. This is in part due to the commercial implications for their own businesses, but is also in recognition of the uncertainty for their customers in areas such as systems preparedness, data protection, IT contract terms, and the physical locations of IT service delivery. Ovum recommends that IT leaders should be proactive in discussing Brexit implications with their strategic suppliers, to create transparency for both sides in terms of business planning, and to minimize any disruption from system changes.
Analyst View - Brexit will have minimal impact on the UK’s regulatory environment
As a result of the vote in a referendum held on June 23, 2016, it is now likely that the UK will start the process that will lead the country to leave the European Union (EU). This will not happen overnight as such will require lengthy negotiations, and the expectation is that the exit could take at least two years to complete. However, once completed, Brexit will have little impact on the UK’s regulatory environment.
The EU’s regulatory framework is largely inspired by the UK’s experience of the previous decades
Brexit is likely to have a minimal effect on the UK’s regulatory environment for at least two reasons.
First, it is highly likely that the UK will continue to be part of the European Economic Area (EEA). As other EEA countries do (e.g., Norway), Ofcom will likely follow a regulatory approach close to the approach stemming from the European Commission’s (EC’s) regulatory framework.
Second, the European approach to regulation actually borrows a great deal from the UK’s experience of privatization and market liberalization. It is unlikely that the UK will adopt a radically different regulatory approach, which will still be characterized by regular market reviews. However, one aspect that could change is the frequency of such reviews, which is currently set at three years for all markets warranting regulation. Ofcom could look to be more flexible about the time frames for reviewing markets once it is no longer bound to the EC’s framework.
Another impact is that UK consumers could lose the benefits of the “roam-like-at-home” regime recently implemented by the EC for international mobile roaming, as UK operators will no longer be subject to the EC’s roaming regulation. However, this is an area that could ultimately depend on the UK remaining part of the EEA.