PM+: Tide is turning for EU's telecoms sector

If Europe wants to establish a leading role in the digital world, then some kind of EU level coordination mechanism is vital, argues James Elles.

By James Elles

25 Aug 2014

"There is a tide in the affairs of men which, taken at the flood, leads on to fortune." Frequently, Shakespeare's lines from Julius Caesar have been quoted to encourage the taking of game-changing opportunities.

Twelve months ago, they would not have been appropriate for Europe's telecoms sector which appeared to be slowly withering, lacking companies capable of delivering Europe-wide services and hampered by restrictive regulation. Profits and investment were falling behind global competitors, diminishing the potential competitiveness of the European economy.

The industry's plight has not yet greatly altered, but perceptibly change is in the air. Europe's top leaders are publicly acknowledging the need for new policies that will encourage investment and stimulate progress in creating a genuine single digital economy.

Jean-Claude Juncker has already promised a more vigorous and coordinated approach to industry consolidation without harm to consumers as the incoming European commission president. He is in full agreement with German chancellor Angela Merkel who publicly favours easing restrictions on telecoms mergers and takeovers.

"The industry's plight has not yet greatly altered, but perceptibly change is in the air. Europe's top leaders are publicly acknowledging the need for new policies that will encourage investment and stimulate progress in creating a genuine single digital economy"

She has said that there needs to be a balance between sustaining competitive markets and tolerating growth in market power through changes of ownership. Merkel has recommended Juncker put the digital economy at the top of the agenda of the new commission whose dominant priority will be stimulating economic growth and job creation.

Meanwhile, Matteo Renzi, the Italian prime minister strongly underlined the primacy of the issue by organising a top-level conference in Venice, "Digital Venice", at the start of the Italian presidency in early July. This was attended by several CEOs of leading mobile companies and six of them issued a declaration through their trade association, the GSMA, calling for a new digital agenda supported by "a pro-investment regulatory framework".

They warned that Europe was falling behind the US and Asia in the deployment of new communication infrastructure and called on the EU to support a new interpretation and application of merger regulation and guidelines. They stressed that consolidation in the European telecoms market "along with reasonable safeguard measures" can provide a boost to investment, support job creation "and deliver innovative services without any adverse impact on competition."

The scale of the tasks facing governments and the telecoms sector in facing up to the challenge of the emerging "knowing society" is varied and daunting. This concept comes from a European Internet Foundation report "The Digital World in 2030", focussing on trends in the development of core digital technologies, published in March 2014.

That report underlines that we are on the cusp of a real third industrial revolution which needs to be understood and prepared for. The immediate priority must be to complete Europe's digital single market.

Telecoms industry experts believe that a key step in that direction would be a more flexible application of EU competition laws that will generate more investment in new, fast broadband services. They say the EU is much too much fragmented into national markets which struggle to sustain the three or four mobile operators which the commission has been targeting for each major market in recent years.

The commission has recently earned widespread praise for the approval of two important takeovers. Industry insiders hope that these will be merely the beginning of a restructuring process that will alter the balance of power in the sector.

One deal involved Spain's Telefonica in the purchase of E-Plus, the German mobile business of KPN of the Netherlands. The second to win regulators' approval was the deal between two Swedish companies the sale by Tele 2 of its Norwegian mobile unit to TeliaSonera. "In telecoms, this is the closest Europe has come to demonstrating that anti-trust rules, intelligently applied, can benefit consumers without obstructing the essential restructuring of the sector," wrote the Financial Times.

"Member states are still not sure how much regulatory authority they will have to pass to Brussels in this area, but some coordination mechanism at European level is necessary if the Union is to establish a leading role in the digital world of tomorrow"

Europe has a long way to go if it is to provide the necessary fast broadband capacity and services to keep its economy in the global game. It has been leading the way in some areas like data protection but it will have to break national strangleholds on others - notably spectrum allocation.  

Member states are still not sure how much regulatory authority they will have to pass to Brussels in this area, but some coordination mechanism at European level is necessary if the Union is to establish a leading role in the digital world of tomorrow.  

It is all a matter of political will. The game can be changed, but the faster these vital decisions are taken, the quicker that the EU will catch up with its global competitors.

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