From laggard to leader: How can Europe catch up with the digital frontrunners?

Europe is behind in digital innovation and changes need to be made so that Europe can catch up with the world’s digital frontrunners.

By Jenny Lindqvist

Jenny Lindqvist is a Senior Vice President and the Head of Market Area Europe and Latin America at Ericsson.

17 Jul 2023

Digitisation is a powerful force for good that is changing the way societies cooperate, compete and develop. It is transforming enterprises and public services and is critical for the green transition. Mobile networks are a key enabler of digitalisation and are a catalyst for exponential technologies such as AI, IoT and XR. And while European policy makers understand the value of digitalisation, so far that has not translated into actions to accelerate digitalisation.   

Over the past decade, 4G created the app economy and digitalised the consumer, driving unprecedented growth. Europe however was late to deploy 4G and many of the jobs in the app economy were created elsewhere. Europe today has few, large tech companies. 

There is no digitalisation without digital infrastructure and while Europe has a strong foundation including great universities, a large common market, an emerging entrepreneurial ecosystem, and a stable political system, it lacks the digital infrastructure needed for innovation to thrive. The digitalisation journey will not always be easy but it will open new opportunities, catalyse new skills and create new jobs. And these jobs will be created where the conditions are the best, including where the digital infrastructure is first available, just like in 4G. 

Europe’s lag in digital infrastructure jeopardises its future job creation. While the European Commission’s Digital Decade goals are bold, the connectivity targets are already at risk threatening the continent’s digital sovereignty and critically delaying the green transition.  

The lack of investment in digital infrastructure should thus be a concern for all European policy makers.  

Over the last 15 years, average telecoms spend per capita in Europe has fallen by around 16% compared to South Korea and the USA where it has increased by 19% and 24% respectively. In 5G Europe is already behind. Three years after the launch of 5G, only 7% of existing 4G infrastructure has been upgraded to the critical 5G midband in Europe. The US, China, South Korea, the Gulf states and Australia are all far ahead.

So why is Europe lagging?  

The simple answer is that the current market structure is stifling. The mobile industry is capital intensive and each market player requires sufficient scale to earn cost of capital, which is not the case in most European markets. As a consequence they reduce investments. In markets where mobile operators have been allowed to consolidate, such as in the USA, these newly merged firms have invested and deployed 5G much broader. India, for example, had over a dozen mobile operators a decade ago but today has three major telecom player and is experiencing the world’s fastest 5G rollout, driven by private capital. And is already eclipsing Europe in 5G rollouts.  

It is time to close this gap.  

Providing the right regulatory environment is critical to get Europe’s digital infrastructure back on track. Across 5G frontrunner countries, regulation is universally more investment friendly. These markets have consolidated, establishing sustainable and competitive structures where firms are incentivised to invest. It is time for Europe to re-assess its four-operator policy and consider the benefits, including assigning an economic value of having a state of the art digital infrastructure, of going to three.  

The market for mobile communications has also shifted beyond consumers and the smartphone. Mobile networks are now critical national infrastructure yet current market regulation is still focused almost exclusively on driving down consumer prices. This is inhibiting European operators ability to recover cost of capital, a minimum requirement if they are going to invest in a European economy of the future. Europe may simply find itself with no networks with ubiquitous coverage.  

Policy makers and regulators are ultimately responsible for market structure. If Europe is going to be at the forefront of digitisation, regulators need to permit market structures that enable infrastructure investments. All other frontrunner markets have consolidated, with far fewer operators than in Europe.  

Policy makers have a choice: allow in-market mobile consolidation, creating incentives for firms to invest in high quality digital infrastructure, or maintain current levels of competition with limited investment in digital infrastructure. In such case, Europeans living in metropolitan areas will get access to the new applications, but the rural parts will not. And digital jobs will again be created in other continents.  

This in-market consolidation is long overdue. Whether policy makers bless or block this ambition remains unclear. But delayed decisions will create further uncertainty, stifle investment, and encourage capital to flow elsewhere leading to fewer new digital jobs in Europe.  

There is a need for action now, the results will otherwise be visible in a decade just like with 4G enabled digitalisation. Applications are available but the jobs are elsewhere. The industry is ready and willing to make this happen, to enable Europe to have the digital decade, the jobs, the growth and the innovation it deserves. Let’s work together to imagine possible.  

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This article was produced in partnership with Ericsson. Ericsson enables communications service providers and enterprises to capture the full value of connectivity. The company’s portfolio spans Networks, Cloud Software and Services, Enterprise Wireless Solutions, Global Communications Platform, and Technologies and New Businesses.