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European infanticide as regulation slowly suffocates mobile industry

22 December 2011

Europe used to have the lead in the mobile business. Now lack of harmony in areas such as spectrum licensing means the lead has been lost to the US and Asia, writes Bengt Nordström

Read more: Europe GSM 3G 4G LTE DoCoMo Verizon Wireless AT&T

Bengt Nordström: European operators are investing much
slower in LTE than in previous network technologies 
Europe was the centre of the mobile industry. From the dawn of GSM in 1991, Europe led the way. Operators, regulators, governments, and industry and trade bodies from across the continent worked together to establish a coordinated, harmonised, standardised mobile standard.
This set the tone for European growth and innovation. Companies grew and jobs were created. Mobile users felt the benefit too — multiple cross border roaming agreements were initiated and the mobile experience that we take for granted today was enabled.
Now, the mobile landscape in Europe looks radically different. 
Long Term Evolution — near term failures 
Europe’s most advanced LTE networks can claim subscribers in the tens of thousands. NTT DoCoMo in Japan had, at last count, just short of 500,000. That puts them in second behind Verizon Wireless in the US, who boast millions of subscribers, and a phenomenal growth rate. AT&T too is joining in the LTE race. How long before AT&T alone has more subscribers than there are in Europe? Not long, I’d wager.
These countries are ahead because all parties — operators, regulators and governments — are leveraging scale and homogeneity in order to be a leader in mobile. Not every country can be first, but for Europe to lose a leadership by so many years in such a short space of time is remarkable.
Back in 1991, the unified, standardised, coordinated approach taken in Europe enabled rapid development of the industry, brought about by scale and a clear centre of gravity.
Fast forward 20 years and European operators are investing much slower in LTE than in previous network technologies. And with little coordination, because there’s no consensus, no common drive and common goal in Europe to develop networks together. Europe can compete with the US, but only if its countries act together to bring vital scale and harmonisation — of both spectrum and action — to bear.
Only a handful of countries have commercial LTE in Europe — including the Scandinavian countries, the Baltics, Germany and Poland. How can a few operators in these few markets, with their relatively tiny combined subscriber base, compete with Verizon, AT&T and NTT DoCoMo? 
Where it all went wrong 
The disjointed governments across Europe have failed in coordinating the licensing of 4G spectrum. The effect is a kind of European infanticide. From its position of leadership, the continent is now years behind the US, Japan and South Korea; opportunities, innovation and jobs have been stifled by governments and regulators.
Before the 4G spectrum auctions, things were heading in the wrong direction. The 3G auctions raised tens of billions across Europe, but it took that money out of the industry. This was, arguably, the beginning of the decline.
The spectrum auctions represent perfectly Europe’s problem in the industry. All that governments and regulators see now is short term financial gain from spectrum auctions, rather than long term economic progress. The licensing of spectrum is uncoordinated and focused entirely on making as much money as possible. Taking the money out of the industry simply means less to invest in infrastructure and services. 
What this means for Europe 
Being at the centre of the mobile industry — of any industry, in fact — creates jobs. When the innovation was all happening in Europe, the telecom infrastructure vendors in Europe were thriving. Alcatel, Ericsson, Nokia, Nortel and Siemens led the industry. The US had Motorola and Lucent, evolved from Bell Labs, but Europe was where the power was.
As that power has faded, and other regions — particularly China, through Huawei and ZTE — have taken the initiative away from Europe, the telecom vendors have suffered. Nortel has gone. Alcatel merged with Lucent to become Alcatel-Lucent. And Nokia and Siemens merged to become Nokia Siemens Networks.
That merger recently announced that it would be reducing head count by 17,000 jobs as it desperately tries to remain profitable. Cutting 23% of a skilled workforce is devastating for a company, and particularly so in this economic climate, but it is a true sign of what is necessary to survive in Europe. In the main, it is revenues from US operators — the ones investing in LTE — that are keeping Ericsson and Alcatel-Lucent profitable.
The opportunity for Europe has gone. The debate about how and when to auction spectrum is redundant as far as LTE is concerned. The hope of the industry is that Europe’s governments and regulators can see the devastating impact that they’ve had and revert back to a coordinated, harmonized approach in time for future spectrum auctions. There will be more licensing in the coming years, but they have missed a golden opportunity with LTE. 
Bengt Nordström is CEO of telecom consultancy Northstream, and will be writing regularly for GTB