Getting Europe into a truly connected mode is proving to be especially difficult. It has been left to the EU’s 72 year old Digital Agenda Commissioner Neelie Kroes to tackle the gridlock on Europe’s networks.
Kroes has unveiled a series of bold telecoms reforms to bring Europe up to speed. They are described as the biggest regulatory overhaul in 26 years. But no sooner than the proposals were tabled than they came under attack from regulators to operators to parliamentarians. The major criticism so far is that there is not enough time left in the mandates of the current Commission and European Parliament –which expire next year—for such an ambitious package to be approved. But Kroes counters that Europe cannot wait as it falls behind the rest of the world in connectivity. Without new high speed networks, Europe’s economy, its industries and consumers will all suffer. Its networks are simply too slow, unreliable and insecure for Europe to remain competitive. ”The telecoms sector hasn’t had its Lehman moment yet. But with declining revenues, rising debt, dated business models, I worry about that happening,” says Kroes.
Many of the Commission’s proposals are far reaching such as the politically popular scrapping of roaming charges across Europe. Consumer groups claim “roaming rip offs” and do not square with the notion of a Digital Single Market. Kroes is encouraging operators to develop plans to allow their customers to “roam like at home” meaning they should pay nothing more for data or phone calls when they are abroad.
Europe’s telecoms operators claim they are suffering from intense regulation, competition from new players who do not invest, and a lack of capital to roll out high speed networks estimated to cost 250 billion euros or more. Operator revenues continue to decline while the net investment rate in new infrastructure amounts to virtually zero. Domestic markets are saturated but entering new markets is fraught with regulatory problems. Kroes wants to make this easier so that a license to operate in one EU country is valid for all 28 member states. This should be welcome news to operators and serve as an incentive to consolidate. Europe does not need hundreds of operators while the United States has only two who have succeeded in deploying new 4G networks to nearly all consumers while only a quarter of Europeans enjoy similar access. Sadly missing from the Commission’s proposals is any clear regulatory guidance on consolidation in the telecoms markets which will now be dealt with separately by competition authorities. If European consolidation stalls, this leaves some heavily indebted European operators exposed to foreign takeover as we have recently seen with KPN (America Movil) and Telefonica (AT&T).
To encourage faster and better wireless connections from fast 4G to urban WiFi, the Commission is proposing new spectrum auction rules to make it easier to plan and bid across countries. Europe currently faces a tangled mess of rules and prices. Operators remain wary about how these new auctions will be organized. The last time around, they overpaid billions of euros into state coffers and robbed themselves of much needed new investment capital. The Commission is now warning member governments not to treat spectrum as a cash cow. Nevertheless, the latest coordinated spectrum rules should generally be welcomed if auction prices are kept under control.
Perhaps the most polarizing issue is a proposal on “net neutrality” which for the first time would introduce new safeguards in Europe for an open Internet. The blocking and throttling of popular free data heavy or competing services such as Skype would be banned. Consumers would have the right to check if they are receiving the internet speeds they pay for and can terminate their contracts if speeds are not delivered. EU consumers receive only 74 per cent of the advertised headline speeds they have paid for.
Some innovative thinking has been going on to try to unblock the standoffs between operators and content providers. If new high speed networks are to be built, rich digital content needs to nurture them. Kroes has launched the idea of allowing “specialized services” with premium quality so long as they do not interfere with internet speeds promised to other customers. Some premium services could include IPTV, video on demand but also e health applications such as high resolution medical imaging, virtual operating theaters and well as business critical data intensive cloud applications. Consumer groups are vocal about the dangers of creating a two tier internet which would be counter to the open and non-discriminatory model. But the Commission sees premium services as a way to enable telecoms operators to generate additional revenue streams to finance new investments.
EU heads of state and government will be considering Kroes’s package at a special Digital Agenda summit meeting in late October. Some member states are considering whether a more comprehensive set of reforms is needed to create an ambitious new digital single market for Europe. Regulators are concerned that the package is being “rushed through” and that the plans risked undermining the legal certainty needed by companies to invest. Leading members of the European Parliament are complaining that the reform package is too late to be approved by next spring.
Kroes certainly deserves credit for making some important recommendations to get Europe connected and re-establish its long lost lead in the ICT sector. Whatever the outcome of the current debate, the Commissioner has set in motion a series of far reaching ideas likely to be carried over and considered by the next European Commission when it takes over in late 2014.