While it's agreed that the European Commission’s policies should contribute positively to the economic development in the EU, the Juncker government has yet to resolve the telecom industry's biggest challenge, the long-term stable framework that stimulates investment in new telecom infrastructure.
In the market for building and operating telecommunications infrastructure, investors need to know the framework under which they can make long-term investments. The European Commission has two agencies that oversee telecommunications, the Directorate General for Competition (DG Comp) and the Directorate General for Communications Networks, Content & Technology (DG Connect).
DG Comp is responsible for competition (Margrethe Vestager) and DG Connect for the digital society (Andrus Ansip and Günther Oettinger). DG Comp is an antitrust authority and decides whether mergers get approved. DG Connect is a policy making arm, responsible to ensure that Europeans have access to the telecom infrastructure, the foundation of modern digital society, by ensuring the proper framework for investment. As described in a previous research note and report The EU’s Broadband and Telecom policy is not working. Europe is falling further behind the US, the EU's own figures point to a region with falling telecom investment. The EU has some pockets with heavy investment but numerous areas that have been neglected for some time.
When the schizophrenic endangers others
It is not inevitable that two agencies in the same commission should be in conflict about telecommunications policy. Ideally the strengths of one should complement the other. But in practice the bi-polar approach of the commission, with one agency attempting to foster investments while the other deters them, is a danger for the EU’s digital society and economic future. The gulf between the views of DG Comp and DG Connect is so wide that it seems that Vestager, Ansip, and Oettinger never took the time to discuss what it will take to make a healthy telecommunications market in the EU.
DG Connect in many ways has a realistic view of the challenges in the EU and the solutions. Through a series of reports and analyses, DG Connect has concluded the need for consolidation so that the European telecom industry can attract investment to upgrade and expand the telecom infrastructure in Europe. Strand Consult describes this in the research note EU telecom regulation - Good bye Neelie Kroes. Welcome to Juncker's ICT team: Ansip, Katainen and Oettinger. Let's hope you can deliver on promises made but not kept by Neelie Kroes.
DG Comp brings the same perspective to the telecommunications industry as they do to grocery stores, counting the number of retailers instead of the level and diversity of technology. DG Comp doesn't understand what creates competition in the telecom market or that telecommunications requires a high level of investment over a number of years. Though there are talented people in the agency, they likely fear telling the truth about their past decisions. It's no secret that their choices made in the name of propping up the number of competitors in a given market have caused investment to plummet. As a result of DG Comp failing to approve welfare-enhancing mergers or its imposition of extreme remedies, the EU suffers a lack of infrastructure. Read the research note Telecom operators, regulators and competition authorities need to update their knowledge of what creates competition in the market. Here are four factors that should be considered when regulators define consolidation remedies.
Across Europe there are a number of frustrated telecom companies and investors who cannot see the thread of the EU's telecom policy. DG Connect may have the right analysis and framework, but it doesn’t’ amount to a hill of beans if DG Comp makes the decisions that determines the players for the future.
The consequences for EU citizens
Reflecting on the many accomplished people in DG Connect and DG Comp, it is obvious that they can be both gifted and schizophrenic simultaneously. The point is not to make fun of mental disorders, but to underscore that fact that it is inexcusable for the telecom policies of the two agencies not to be aligned, especially when so much is at stake for the future of Europe.
Just as the economic policies of a number of EU countries have resulted in financial crises with consequences for many Europeans, the schizophrenia in the Commission will have major consequences for the EU. In fact an important part of lifting countries out of financial crisis is having the framework for predictable and long-term telecommunications investment. This is described in Europe's Disconnected Continent: The next crisis hitting the EU will likely be digital and long and expensive for society.
Ansip, and Oettinger say one thing with DG Connect about promoting investment through consolidation while Vestager and DG Comp checkmates telecom mergers on the other. It is irresponsible of the Commission not to get its agencies in order. Juncker need to get his team on the same page about what the telecom market looks like, what drives it, what creates investment, and what creates competition. It is obvious that Margrethe Vestager does not understand how technological developments and OTT players create the market dynamics that drive competition. It is described in the research note Tier 0: A new category of telecom operators is born. The reign of Tier 1 operators such as Orange, Vodafone, Telefonica, and Deutsche Telekom is over.
The telecom industry needs to take its share of the responsibility
It’s too easy to lay all the blame on politicians. The political system has not understood the challenges of the industry, but operators themselves have not communicated effectively to the government or the public.The telecom industry is in fact the world’s largest consumer organization, but it has failed to seize the opportunity to communicate this. As a result, it does not get credit for its vital role in the transformation to the digital society.
Historically, political and regulatory concerns were not a priority for operators. Executives delegated this function to public affairs companies and trade associations. But that is no longer sufficient. Political and regulatory issues are now front and center for top management and boards. Whilst CEOs in the past may have been selected for their operational expertise, in the future they will be hired for their skills in public affairs.
Too often operators and trade associations are afraid to fight and instead settle for compromises. They make a compromise because they think it is a result. But the reality is that on many issues a compromise is a loss.
Strand Consult has observed over 20 years that confrontations generate better results than compromises. A case in point is Denmark, where over the last four years, conditions to build and run mobile infrastructure have changed completely. The results are described in the report How mobile operators can reduce cost for mobile masts and improve mast regulation. Mobile Operators Association in the UK is an example where operators have chosen to compromise and not to fight. This has cost the shareholders money.
Net neutrality is a great example where charismatic individuals and small but sophisticated advocacy groups have been able to manipulate the political system to impose grotesque regulation that harms industry and users alike. It is an example where storytelling trumps the facts and good regulatory process. Strand Consult’s report Understanding Net Neutrality and Stakeholders’ Arguments details what went wrong in the Netherlands and Slovenia.
How do we address the challenges
The European telecommunications industry faces significant challenges, and the solutions are not necessarily easy to implement. Just as schizophrenia requires serious, knowledgable and dedicated treatment, the telecom industry and its investors need effective and continuous communication with the political system to create the framework that delivers long term investment.
Strand Consult has worked with the industry around the world for almost two decades and publishes predictions each year, including a link to its past predictions. We predict a disaster for the EU if the European Commission can’t align its agencies and get telecom policy right. Part of that process is for executives and operators to improve their communication and give the political and regulatory issues the priority demanded. This may mean taking a fight.
Strand Consult conducts workshops for senior management and boards of telecom companies. There is a need for leaders to upgrade their knowledge and to be smarter when working with the regulatory and political system. Before he took the job as Chairman of the American telecom regulator FCC, Tom Wheler said to me that the operators couldn’t even organize a two car funeral.
Let's communicate the challenges the industry faces. Share this research note with your friends and colleagues. Strand Consult is always ready for fact-based debate, which is why we invest our resources in research in this area.
About me: ww.understandingmobile.com/