The writer is chief executive of Vodafone Group PLC
These are turbulent times for Europe’s telecoms industry. The shock bid by KKR for Telecom Italia, the national incumbent, highlights the economic vulnerability of the sector. The shift towards mass digitalisation of our economies confirms it has never been more essential — with ever more demand for data and connectivity.
There is one consistency. European market structures in general are failing in a number of areas. The challenge is the glaring gap between the boldness of Europe’s digital targets and the robustness of the execution.
The digitalisation of business across the EU shows progress with an increase of 11 per cent in the last year, and digital public services growing by 8 per cent, according to the European Commission’s DESI index, shows progress. However, only 2.4 per cent of connections in Europe are 5G, compared with 15 per cent in the US and 30 per cent in China, and both are accelerating. If Europe continues to move too slowly, it risks becoming a bystander to global transformation.
Effective new policies must balance short-term price competition with Europe’s needs for increased investment. First, industrial policy needs to make the most of how 5G, the internet of things, data, cloud and AI work together. We need a credible strategy to meet the Digital Decade target of having 5G and gigabit networks everywhere by 2030. Europe must identify and focus on specific areas in the digital ecosystem where it can, reasonably, build its capabilities. This means being selective and prioritising areas of opportunity.
Second, we need public funds to accelerate digitalisation and unlock additional private investments. The Recovery and Resilience Facility, which directs money to the digital and green transition, has made impressive progress. A Spanish scheme, which will use €3bn to provide bonuses to small businesses, is an excellent blueprint for other member states. The first €500m will be allocated in early 2022. But even with these extra funds, Deloitte estimates a shortfall of 60 per cent of digital infrastructure spending needed.
Third, we need conscious policy choices to ensure that European tech-comms companies can afford to invest. The ecosystem is fragmenting at a time when we need companies with more scale and resources to invest. There are already over 100 operators in Europe with an average customer base of 4.4m, compared with 95m in the US and 400m in China. Hyper-fragmentation has led to a 10-year revenue decline of 13 per cent, while the US grew by 30 per cent and China by 59 per cent.
Consolidation, while retaining infrastructure competition, will be needed to unlock the scale required to support Europe’s 5G acceleration and provide more value for consumers. European telecoms already has the highest capital intensity of all sectors, yet very low returns. 5G is a game changer, also in requiring far greater investments than previous generations of mobile technology. Our competition framework must adapt to these changes. High spectrum prices and auctions have also artificially forced unsustainable entrants into the market and extra financial burdens on our sector — and must end.
Finally, Europe needs to rethink its relationship between building the global technology giants and the European digital ecosystem. Policymakers should be applauded for finally trying to tackle the large asymmetric market powers and gatekeeping role that a few digital incumbents continue to leverage to the detriment of European businesses, large and small.
Yet, this is not enough. The vast majority of internet traffic today is driven by a handful of global tech companies and growing every year. It is not sustainable that large parts of network traffic are generated and monetised by big tech yet require heavy network infrastructure investment from European telecoms companies. Nor is it fair that consumers face the risk of slower internet access, caused by congestion, because these platforms are not incentivised to optimise the traffic.
Other regions are taking action. In Korea, the government has passed a so-called Netflix law to ensure that big streaming services pay for some of the additional capacity they imposed on the networks. In the US, there are initiatives for a broader range of companies to contribute to universal service obligations.
Whichever approach, or mix of approaches, works best for Europe is for governments to decide, but we can be more proactive in exploring what solutions would help. With the right changes, Europe can be technology makers, not just technology takers. Without them, we will fall even further behind.
Europe’s digital targets are bold, but delivery falls short
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