Leading up the referendum on June 23, there are many articles which attempt to analyze the economic and political consequences of whether the United Kingdom will BREXIT (British exit) or BREMAIN (British remain) in the EU, but none have investigated the impact to telecom policy and regulation. Taking into account how EU telecom policy has worked over the years, this research note explores the angle from mobile telecom operators’ perspective and how EU politicians and regulators will likely respond.
For starters, the EU is not popular among many Europeans, and its leaders have not been able to communicate to ordinary people what the EU project is about. In practice, EU skeptical parties prosper. A number of referendums have not gone in favor of the EU. In December 2015 Denmark said No the EU, declining adopting a number of new EU rules. It looks as if the UK may say no the EU too, and bid farewell to the EU. Yet another spike could be hammered in the EU coffin.
The question telecom operators should ask themselves whether is whether a BREXIT vote will affect the way the EU regulates the telecommunications industry. Operators outside the EU should ask themselves whether the regulatory trends in the EU are regional or global. In practice, as the telecommunications industry and those who invest in it consider the regulation occurs in a region spreading to other regions, how to regulators in Latin America, North America and other regions get inspiration from Europe and vice versa.
Strand Consult observes that by reviewing the history and facts, it is clear that that regulators around the world get inspiration from each other. This applies to areas such as roaming, consolidation, and especially net neutrality, which has been implemented in some 50 countries.
Much of what is proffered as “regulation” is not about solving specific challenges such as reducing barriers to market entry but rather creating policies that sound good to the voter. Strand Consult calls it look good/feel good politics. BREXIT could result in a political and regulatory avalanche that spreads around the world and has a negative impact on the industry's ability to invest and make money. Here are three examples from the EU showing how a policy and regulatory system attempting to abuse the telecom regulation to buy popularity among dissatisfied Europeans:
Case 1: Roaming: For several years EU officials have attempted to buy popularity in the EU. They would publish the proposed roaming regulation every year just before the summer break with a press release repeating the message of the previous year's press releases. The message is very simple: the EU gives you cheaper prices when going on holiday - you should be happy for the EU.
Strand Consult has published a number of research notes over the years that describe the roaming policy, and the monstrous lack of economic rigor in creating it. The EU’s goal is to harmonize end-user prices with little regard to the mobile operators' underlying costs. Strand Consult exposed the risk of financial arbitrage through the trafficking of SIM cards across EU countries, exploiting the differences between low and high cost countries. Our research note gives the example of taking a SIM card from low cost traffic market Lithuania to sell in high cost traffic market Germany. The EU took note of Strand Consult’s example and introduced a fair use clause, a legitimate limit to guard against the abuse. In practice, there is already a roaming solutions market and the general competition that gives consumers better offers that the EU regulation. We'll come back to what this means for BREXIT.
Case 2: Consolidation: In the EU, there are two institutions at the European Commission with great influence on telecom policy. The European Commission Directorate General for Communications Networks, Content & Technology (DG CONNECT) and the Director General for Competition (DG Comp). Each has conflicting views on how telecom policy should work. EU competition authorities operate on the conventional wisdom that the number of sellers creates competition, and like other EU politicians, like to appear like their doing something good for the consumer. However the market for mobile markets is a dynamic one where technology and innovation drive price, not the number of sellers. Competition in the mobile market comes primarily from technological developments such as next generation network technologies and over the top competition, but the DG Comp persists in blocking mergers to maintain the numbers of mobile operators in the market, even though their own analysis shows that mergers have little to no impact on price. In this research note Strand Consult show that the EU cannot support its positon when it comes to what creates competition.
The other agency, DG Connect, wants the industry becomes more efficient and increase investment - with it they will say that Europe's citizens must have access to good infrastructure. The problem is that it has been talking about this for years, and despite the good intentions, our analysis shows that things are still developing negatively. In the free report The Wireless Ecosystem, US vs. EU, we have documented how EU telecoms investment continues to fall back compared to the rest of the world. In practice then shows the historical facts that the EU has a schizophrenic telecommunications policy. We'll come back to what this means for BREXIT.
Case 3: Net neutrality: The Body of European Regulators for Electronic Communications has proposed guidelines to regulate the telecommunications industry and give consumers what is called a free internet. The problem is that there is no academic evidence for many of the things that EU claims and that these guidelines are the result of Internet activists funded Internet companies such as Google. Discussion on net neutrality is another example of feel good/look good politics, and it's yet another way that the EU tries to make itself popular with its citizens, even though most Europeans have never hear of net neutrality, and most will never use roaming. Both of these policies are in effect pandering to middling elites. We'll come back to what this means for BREXIT.
The conclusion is that both the civil servants and the political system in the EU have for several years tried to buy their way to popularity. The thousands of people who are part of the EU government are frustrated that EU citizens do not understand the project and are looking for something that can make the value of the European Union visible to the citizens who increasingly are turning away.
The BREXIT vote is like steroids for EU politicians and civil servants.
Imagine that you are employed by a company which now has a worse image than the worst telcos - that is the EU right now. Few can see the meaning of the European project, and more and more are turning their backs on it. Europeans have experienced many EU policies, become dissatisfied, and the panic, fueled by referendums such as BREXIT grows. Life is difficult for EU civil servants and politicians. They are looking for things that they can use to show European citizens that the EU is a good project. But Europeans are immune to the cold facts, even if the EU has created growth and stability in Europe.
Regardless of the outcome of BREXIT, EU has to reinvent itself and the European project. The process takes time, and in the interim politicians will look for things that are easy to communicate and that most Europeans can understand. The fact is that the market already offers better products for roaming than the EU's regulation, so in the EU will have to find another lever to pull favor with Europeans.
The EU will see telecommunications industry and telecommunications regulation as an obvious area to focus on. We believe that the EU will take steroids and turbocharge the regulation related to telecommunications. Net neutrality is in focus now, and soon it be on privacy, as the EU will push for tougher regulation and enforcement on the Internet companies that live by our data.
We have absolutely no doubt that the BREXIT vote will result in increased regulation of the telecommunications industry in the EU and that the regulation will spread to other parts of the world. When we look at net neutrality, it has become a global epidemic among regulators as they take a vacation from the economic and market analysis that is the heart of telecom regulation.
The list of countries with totalitarian systems that talk about net neutrality and a free internet grows. In our view, it is ludicrous that countries with questionable records on human rights, democratic processes, and freedom of expression make net neutrality rules and promise citizens a "free internet". One of the world's most corrupt countries, Brazil, has a Marco Civil law that gives unprecedented power to the government in the name of liberating the people.
What should the telecom sector do, how they should handle these challenges?
Let's face it - for vast majority telecom operators outside the US, regulation does not have the attention of top management as it should. This means that many of the CEOs do not have the insight required to understand the importance of these challenges. Try asking a CEO of a telecommunications company in Europe about what net neutrality regulation is and how it affects his company's ability to compete and make money in the future. We would argue that 7 out of 10 European CEOs do not have an insight that puts them in a position to discuss this topic.
In practice many of the people working in the regulatory function do not know how to fight and mainly justify their existence by making compromises with regulators. This is a dangerous cocktail for shareholders. We believe that most European operators do not have the knowledge required to counter it as BEREC is in the process of adopting bad implementation policies for net neutrality. It will have a major negative influence on the European telecommunications market, and then it will spread to the rest of the world.
We from Strand Consult believe that the telecom industry needs to fight hard and that they need to reinvent themselves, and market the industry as those struggling against corrupt political systems and to protect consumers. In Denmark, the Danish telecom operators struggled against increased surveillance of citizens, and it has in many respects been successful by the end-user's eyes.
Strand Consult has on several occasions described why and how telecom operators should assume the role of consumer watchdog. We believe that operators are in effect the world's leading consumer organization. They should work together to push back on the regulatory deceit and demonstrate leadership. In this research note we have described how operators lost Consumers' trust and how they can get it back.
Strand Consult’s updated and expanded report Understanding Net Neutrality and Stakeholders’ Arguments. is particularly important for operators in countries that have managed the issue with soft measures (code of conduct, multi-stakeholder, co-regulation), as they will find that their constructive process may be brought to an abrupt halt by new legislation and rules even if no violations have occurred.
The report also shows that a number of regulators have misgivings about interpreting net neutrality because of the legal risks. The report provides important high level summaries, detailed case studies, and actionable facts. It has saved Strand Consult’s customers time and money. It is a report which caters to talented people who want to be successful when they engage in a high stakes debate. The report is frequently packaged with a 1-2 day workshop in which Strand Consult helps its customers to get up to speed and develop strategies to address the issue in the future.
Contact Strand Consult for more information and to order the report and workshop. Get the report today so that you are ready for issue that is not going away and will only get worse.