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Brexit: ‘Quite Substantial’ Indirect Impact to Partners Doing Business With EU Telcos

Brexit

Edward GatelyU.S.-based telcos aren’t likely to feel much impact from Brexit, but for those in the United Kingdom/European Union, a world of hurt likely is heading their way.

That’s according to Declan Lonergan, 451 Research’s vice president of research, primarily focusing on the European Union mobile telecom market. He spoke with Channel Partners about how telcos and partners likely will be affected by the U.K.’s vote to exit the European Union.

I451 Research's Declan Lonergann addition, an IDC report expects a “challenging transition,” with the U.K. IT growth forecast likely revised downward by more than 2 percent on a compound annual growth rate (CAGR) basis through 2020.

News of the Brexit vote spread shockwaves across the stock markets, with many telco stocks, including AT&T and Verizon taking a hit. However, for the most part, the markets have since recovered.

“It’s difficult to see any direct, real negative effects for the U.S. carriers,” Lonergan said. “And at the edges, around things like roaming and international mobile roaming charges where they make some money there, I think a number of them have been moving toward including more roaming within their standard price plans, so even if that was an issue, it would be marginal; it would not account for any major change in their outlook.”

As for U.K./EU telcos, assuming at least a modest recession ensues as a direct result of Brexit, it will affect both consumer and business markets directly, he said.{ad}

“But even a modest decline will force U.K. telcos to revisit commercial strategies to ensure they remain competitive and can retain market share as customers rein in their spending and switch to low-cost providers,” Lonergan said. “On the demand issue, U.K. telcos will be especially exposed to the threat of some multinational companies relocating some or all of their operations out of the United Kingdom. There is a danger that this risk is overstated because most companies will carefully weigh the pros and cons before making any dramatic relocation decisions. But some flight of business from the United Kingdom is to be expected, especially among those in the services sector with the most mobile businesses and workforces.”

U.K. telco network investment will be negatively affected, and it will be more challenging for U.K. telcos to recruit and retain certain employees, he said.

The indirect impact to channel partners that do business with U.K/EU telcos could be “quite substantial,” Lonergan said.

“For example, for Vodafone, which may be the largest (telco) in Europe … a large chunk of its business comes from multinationals and they would be working with channel partners to serve some of those companies,” he said. “So suddenly Vodafone is exposed to the threat or the risk of a lot of those companies deciding to rethink their approach to …

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… where they want to do business within the European Union, and potentially downsizing in some countries, obviously in the United Kingdom, and moving their resources around. There’s also the direct risk of an economic recession. So all of those factors would suppress demand among enterprises and of course consumers as well, and that would have a direct effect on the carriers, which in turn will affect the companies they do business with and their channel partners.”

As for IT growth in the United Kingdom, IDC said the most likely scenario would be a slight drop in U.K. IT spending in 2017 and 2018, with demand recovering in 2019 and 2020. The U.K. IT market then returns to its pre-Brexit levels during 2020, it said.

“Based on recent feedback from a number of large enterprise leadership teams, we expect a ‘wait and see’ approach as the political and economic lines are redrawn,” said Thomas Meyer, IDC Europe’s group vice president of research. “IT spending will likely shift, but the strategic transition towards the digital enterprise will remain, and in fact is likely to accelerate with a greater focus on cost optimization and IT value to the organization’s bottom line.”


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