July 12, 2016
When he was once asked what he feared most as Prime Minister, the late Harold Macmillan responded, “events, dear boy, events”, and I think we’d all agree that Britain’s recent decision to leave the European Union (EU) certainly qualifies as an event. No one is quite sure what the ramifications of “Brexit” will be, but most everyone seems to have an opinion on the subject. In recent days, we’ve all seen or read a variety of expert opinions that have ranged from “a return to the idea of national sovereignty” to “the prelude to a financial contagion”. I even saw a college student asked on television, “What do you think of Brexit?”. He responded that he hadn’t heard of it, but would definitely give it a try since he was tired of eating eating Wheaties for breakfast. Understandably, the interviewer chose not to ask a follow-up question. Although it won’t replace Wheaties, Brexit will have wide ranging impact on a variety of industries so it’s logical to ask how it will affect the data center business.
First, let’s understand what the primary driver behind the majority of England’s populous decision to excommunicate themselves from this melding of nation states into single body. Although a multitude of explanations have been offered, at its core, a majority of the British people decided that they no longer wished to be part of the EU’s conglomeration of 20+ countries governed by an unelected body of bureaucrats. That being said, it is difficult to see how this event will negatively impact data center providers.
Although there will be a period of uncertainty until all exit plans and negotiations have been completed, the near term events don’t portend the need for strategy revisions within the data center marketplace. As I write this, both the London and US stock exchanges have recovered from their losses immediately following the referendum and the pound appears to be stabilizing after its recent drop in value. In or out of the EU, London remains one of the world’s leading financial sectors, as well as the home for a number of global businesses and the European headquarters for a number of others. As a result, it is difficult to see any substantial drop in demand within the UK itself.
Exiting the EU also unbinds the UK from statues that were designed to “level the playing field” amongst EU nations. Through its newly declared independent status, it is not inconceivable to see Britain becoming a more aggressive competitor in the enticement of new data center business through the use of tax abatements and rebates similar to those currently offered by various states here in the US.
Some concerns have been voiced about the potential disparities in requirements for intercountry information exchange between Britain and the remaining countries of the EU. With the invalidation of the Safe Harbor framework by the European Court of Justice in 2015, the rules for intercountry data transmission have changed from a unified standard to a patchwork of country specific regulations. Although they are yet to be determined, it is highly improbable that Britain would adopt provisions more onerous than their European counterparts and they may potentially be less stringent, particularly with US-based providers as they attempt to move closer to tighter economic bonds with the United States.
Although it will take some time for all of the ramifications of Brexit to become apparent, their potential to negatively impact the data center industry appear to be minimal and mostly related to value of the British pound. In fact, Britain’s new independence from the EU may even provide opportunities that were not previously available. I suspect that that the UK, and the greater London area specifically, will continue to be a desirable market, and perhaps more so, for data center providers. Although they made him nervous, even Macmillan knew that there are positives and negatives to any major event. I suspect for data centers there will be more of the former and less of the latter. Keep Calm and Data On.