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Policy in Brussels threatens to sacrifice Europe’s telco future
17 August 2012
Hannes Ametsreiter comments on the European Commission’s policy on telecoms. Brussels needs to take action now to avoid the inevitable collapse of a once booming industry, says the Telekom Austria CEO
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GSM
Hannes Ametsreiter: 15 years ago Scandinavia was the
breeding ground of the GSM revolution. Now innovation and
revenues are generated in Silicon Valley
European Commissioner Neelie Kroes: EU digital agenda is to
deliver sustainable economic and social benefits from a digital
single market based on high-speed internet
Broadband indicators for 27 nations of the European Union 2011
| Penetration of fixed networks (lines/100 people) |
27.7 |
| New entrants’ share in fixed broadband subscriptions |
56.8 |
| DSL lines share in fixed broadband |
74.2 |
| NGA lines share in fixed broadband |
11.8 |
| Share of fixed broadband lines equal to or above 2 megabits a second |
91.8 |
| Share of fixed broadband lines equal to or above 10 megabits |
48.4 |
| Share of fixed broadband lines equal to or above 30 megabits |
8.5 |
| Share of fixed broadband lines equal to or above 100 megabits |
1.3 |
| Percentage of households having a broadband connection |
67.3 |
| Percentage of enterprises having a fixed broadband connection |
86.5 |
| |
|
The EU’s Digital Agenda Scoreboard shows no significant improvement in the availability
of high-speed internet across Europe. Source: European Commission
Modern broadband infrastructure and education are key to creating a modern society — a society based on knowledge and ideas, competing in a global market.
However, the future outlook for maintaining this infrastructure is under threat. The European telecommunications industry — which once created the globally successful GSM technology and is believed to be crucial for current and future GDP growth and job creation — is falling behind global competition.
As a telecommunications operator we at Telekom Austria Group know that the ones who out-infrastructure us now, will outperform us in the future.
I firmly believe that the current European regulatory approach needs to be reconsidered to avoid the inevitable collapse of a once booming industry.
Shortly after being re-appointed as a European Commissioner in 2010 Neelie Kroes introduced the digital agenda for Europe. The overall aim of this digital agenda is to deliver sustainable economic and social benefits from a digital single market based on high-speed internet.
Nobody doubts that the deployment of high-speed internet will spur innovation, economic growth and improve the daily life of citizens and businesses across Europe. But is it really conceivable that by 2020 all Europeans will have access to internet speeds of above 30 megabits a second and that 50% of European households will subscribe to internet connections above 100 megabits?
This year’s Digital Agenda Scoreboard, an EU service which monitors progress against the targets of the digital agenda, showed no significant improvement in the availability of high-speed internet across Europe. Just as it did not last year.
And Europe is lagging behind other parts of the world where heavy investments in next generation networks are being made.
A report by the WIK research institute, Germany’s Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste, shows that several Asian countries — such as South Korea (44%), Japan (26%) and Taiwan (13%) — had significantly higher penetration rates of high speed fibre connections four years ago than most European member states have today.
The US is also ahead of Europe regarding the deployment of fibre networks. According to the WIK report, over 4% of broadband connections were fibre to the building or home in the US compared with only 1% in Europe. Another study — this one by Plum Consulting — shows that South Korea is also ahead of Europe in fixed take-up, with an estimated 100% of households having a broadband line.
The take-up in Europe, however, varies from below 40% — in Poland, Slovakia and the Czech Republic — to 80% in Denmark and the Netherlands, compared with a take-up of over 70% in the US.
Considering that the growth rate of fixed broadband penetration in the EU of around 1-3% from 2011 to 2012 is very slow, it is highly unlikely that this picture will change in the future and that Europe will achieve the Digital Agenda broadband targets by 2020 — unless there are fundamental changes in the regulatory policy.
In order to improve the investment climate significant changes are necessary.
First of all, economic incentives for incumbents to invest in their networks have to be created. This could be done by:
• taking measures such as avoiding regulatory obstacles to new business models;
• allowing for flexible charging models that deliver quality of service levels matching customers’ demand;
• creating a level playing field for over the top players;
• developing strategies aiming at increasing the demand for ultrafast broadband services;
• and fostering technology neutral spectrum utilisation.
Investment security needs to be achieved — binding payouts and business plans without unforeseeable changes in the regulatory regime need to be established and a risk premium to make investments attractive needs to be guaranteed.
Regulation of new technologies, such as fibre services, for telcos should be abolished.
The introduction of stable termination rates on an economically reasonable level — €0.02 mobile termination rate — and the abandonment of the application of cost accounting methods for regulated prices which do not allow providers to cover their costs within these regulated areas — pure LRIC, for example, leads to cross-subsidies out of earnings in unregulated areas — would also encourage operator’s willingness to invest considerably.
The digital agenda broadband goals cannot be met with fixed broadband networks only but need the deployment of mobile networks. It is thus quintessential that the second digital dividend — the 700 megahertz frequencies — be allocated for mobile networks.
Finally, the regulation of retail services should be abandoned and regulation of access products should focus on virtual unbundling local access only.
If we do not refocus our thinking, the quality of infrastructure will deteriorate: Besides Europe losing out on achievements in the digital age — or becoming a basket of cheap operators — merely a few of them will stay European.
Further takeovers in the European telco industry will happen and a key future industry sector will be fading away. Ebitda multiples speak for themselves: seven in Asia, six in US, five in Europe.
We need to accept the current situation as a wakeup call for all of us. It is time to concentrate on ideas which can really stimulate investments into broadband infrastructure for a modern and growing European society. The fact is, 15 years ago Scandinavia was the breeding ground of a global revolution which was called GSM. Nowadays innovation and revenues are generated in Silicon Valley. GTB
Hannes Ametsreiter is CEO of Telekom Austria Group
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