Telefnica SA: European leadership in connectivity requires regulatory collaboration and consistency

The European Union has broad digital aspirations. Initiatives such as the digital compass, with the objectives of the digital decade or the program “On the road to the digital age”, illustrate the Union’s desire to strengthen the region’s digital leadership. However, we already had ambitious goals before with the Digital Agenda 2020 and the Gigabit Society 2025, which either have not been achieved or we will not be able to achieve them by the estimated date.

The inevitable question that arises is whether we can now really deliver on time and on budget: will we be able to overcome the obstacles that stand in the way of European digital leadership? This question was hotly debated during the “Brussels Telecommunications and Media Forum 2022”, organized by the International Institute of Communications (IIC).

Hana Tovarkova(Chairman of the Official Telecommunications Council of the Czech Republic), Marc Vancoppenolle (Vice President and Global Head of International Government Affairs, Nokia), Natalia Vicente (Global Satellite Operators Association, GSOA), Martin Duckworth (Director, Frontier Economics) and John Montero (Director of Public Policy, Competition and Regulation, Telefónica) participated in the session “Bridging the digital divide in Europe: is the connectivity toolkit the answer?” to answer this question.

Juan Montero identified two keys to achieving the objectives set by the European Union: coherence and collaboration. These attributes are particularly important in decisions to be agreed on competition policy and in the regulation of the telecommunications sector.

A regulatory and competitive framework in line with the current context

According to estimates by the European Association of Telecommunications Network Operators (ETNO) and Boston Consulting Group. For this to happen, “competition policy must be designed to allow for sustainable market structures at the national level,” the Telefónica leader said.

This is a necessary element for telecommunications players to grow. Thus, users and companies will obtain better quality services, coming out of a context characterized by fragmentation and an artificial overdimensioning of the number of players on each market, which affects the capacity for investment.

In this sense, “the regulation of the sector should also evolve”, Montero said. So far, the regulatory approach based on lower barriers to entry and low prices for consumers has been maintained as an immediate benefit. In return, the European telecommunications sector is plunged into an infernal spiral which is no longer sustainable.

From 2011 to 2020, telecom sector revenues in Europe decreased by 29%, while in the United States they increased by 20%. These data make the European telecommunications sector the only deflationary sector in an economic context where prices are only going in one direction: upwards. One of the reasons for the difference between the two markets ─European and American─ lies in the excessive fragmentation of the first associated with a strong competitive dynamic and the maturity of the market.

The Telefónica executive warned that the European situation is not only paradoxical, but also incompatible with connectivity objectives and aspirations for digital leadership as well as with the development of a European digital ecosystem. The strained financial situation of the European sector, with lower cash flow due to lower revenues, and insufficient return on investment directly affects its ability to increase or maintain investments.

Despite the situation, there is room for optimism. The European Commission has already identified the need to facilitate the deployment of fixed and mobile HCV networks and to reduce costs, for example by removing unnecessary administrative obstacles and streamlining authorization procedures, as part of its “toolbox connectivity”. He also understood the need for an investment-friendly spectrum policy that generates significant revenue streams for the EU. Forecasts indicate that the annual license fees paid by telecommunications operators in the EU, Norway and Switzerland exceeded 150 billion euros between 2000 and 2017. “Isn’t it the lack of investment for cover the whole EU with 5G?” Juan Montero wondered as he examined the data.

A fair contribution to the deployment of digital infrastructures

Telecom operators in Europe are investing in an endless cycle to cope with the 50% annual increase in data traffic, modernizing their network infrastructure by expanding coverage and increasing capacity. On the other hand, the major digital content platforms do not contribute to the deployment of these digital infrastructures and do not remunerate the network operators for the traffic they inject. Juan Montero warned of the strong market position of these players, with asymmetric bargaining power and the absence of fair regulatory conditions that prevent network operators from negotiating fair remuneration.

This idea is not new. The European Commission already incorporates the notion that all market players should contribute fairly to the deployment of digital infrastructure in its declaration on digital rights and principles. This is an important step forward to encourage European institutions to promote legislation favorable to investment in sustainable infrastructure.

From all the above, we can conclude that telecommunications make possible what is yet to come. Without this sector in the digital age, nothing will happen. Europe is at a turning point to accelerate the recovery, lay the foundations for a strong and competitive economic fabric, and conquer the long-awaited digital sovereignty or open strategic autonomy. A successful digital transformation is of vital importance for the European Union to achieve a global leadership position and reduce external dependencies by developing its own digital capabilities. “It’s not just about politics, but also about bringing together all the resources necessary to make it happen,” Montero concluded.

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