The Brexit impact: Unpicking the datacentre ecosystem

The UK is in the middle of an EU referendum that will have huge economic implications. The pros and cons of leaving the free market are being widely debated and while politicians battle this out, our industry needs to understand that the consequences are far-reaching. From energy legislation to data protection, datacentres have a host of challenging regulations to comply with, but in a digital ecosystem trying to make data conform to geographic boundaries is complex.

The current state of play

The UK is a world leader in the Digital Economy, but what people often fail to realise is that this is because of its strong datacentre economy. The implications of Brexit could well put this at risk. Data demands have soared exponentially, with the amount of data we create doubling every two years, on average, and as a result datacentre demand has increased accordingly.

The UK is a leader in the global datacentre market, experiencing some of the highest demand for new datacentres in Europe. London’s success as a global datacentre hub has been built on being at the centre of trade and commerce – broadening to technology and innovation through the decades. As a result, the UK is home to the largest stock exchange in Europe, the centre of foreign exchange markets, money markets, and international banking.

The digital economy is by definition borderless, so retracting to historical borders rather than expanding is counter intuitive to the technology industry. But until data legislation is approached from a global perspective, geographical boundaries need to be applied. As the last physical component in the digital ecosystem, the location of a datacentre dictates the jurisdiction that the data residing inside must be protected by. As a result, data within UK datacentre must abide by EU laws – regardless of whether the company is European or not.

Complex EU data protection rules have been an opportunity for UK datacentres, with global businesses selecting the region to house European citizens’ information in order to comply. But equally, datacentre owners and operators in Europe must comply with a range of national and EU-level regulations around energy efficiency, carbon emissions and data privacy. These regulations are generally more complex and far-reaching than in other regions such as the US – resulting in global companies struggling with contradicting rules.

Leaving the EU

In the event of a Brexit, it is difficult to imagine the UK continuing to lead the European datacentre market, and as a result, its strong-hold on the Digital Economy will lessen. It’s unlikely the financial capital of Europe will remain outside of the EU in the long term, and with that the demand for datacentres will move to elsewhere in Europe too.

The uncertainty of the impact of Brexit on the economy extends to the impact on the datacentre industry. The host of EU legislation that UK datacentres have to abide by will need to be re-evaluated and unpicked. Datacentre providers will decide which rules they need to keep because they house European citizens’ data, which laws are no longer applicable and what benefits there might be to no longer following them.

The incoming General Data Protection Regulation (GDPR) will affect British and multi-national companies regardless of the EU referendum result, and big firms including Sky and Canon have already announced their intentions to abide by the law whatever the outcome. However, organisations that chose not to follow – whether cost-driven or convenience-driven – will only add to a complexity of data management in the aftermath of leaving.

Stick with the status quo?

In the result of a remain majority, the changes to the UK datacentre industry will stay wholly unchanged. London will likely stay at the centre of the European finance market – and benefits that the datacentre industry has enjoyed thus far will continue.

However, with energy efficiency and an EU green agenda on the horizon, remaining in the EU could mean that UK datacentres will have future costly legislation to abide by. Datacentres by nature consume a lot of energy, UK datacentres use in the region of 2.2-3.3 per cent of Britain's total grid power – but it’s in their best interests to be as efficient as possible. The more energy-efficient a facility is, the more profitable it can be.

But the Carbon Reduction Commitment had many in the industry concerned. The binding legislation is to ensure the EU meets its climate and energy targets for the year 2020 including three key targets:

  • 20 per cent cut in greenhouse gas emissions (from 1990 levels)
  • 20 per cent of EU energy from renewables
  • 20 per cent improvement in energy efficiency

The outcome on Carbon Reduction commitments after a vote to exit is unclear, but it can only be assumed that the need to follow any EU codes of conduct will be diminished. So political appetite and wider global compliance will be the main drivers. Key to the datacentre future will be the relative cost of electricity, if the UK becomes disproportionately expensive those with choice will switch to mainland European locations.

The datacentre economy

Ultimately, if the UK leaves the EU organisations housing EU citizens’ data will still need to comply to EU rules. The difficulty will arise when determining when Brits are no longer EU citizens, will UK datacentres holding only UK data still comply? We’ll enter a period of uncertainty, both economically and legally – we’ve already seen that the unpicking of EU legislation will be a complicated and lengthy task. Consequently, enterprises and series providers will likely be deterred from creating or expanding datacentres in the UK. The knock-on effect will be that an industry key to UK prosperity will be severely impacted. Datacentres are the backbone of UK’s technology sector and vital to the resilience of public services and the competitiveness of the UK’s global business.

Nigel Stevens, UK Managing Director at IO