The telecom industry has an important message for the nations of Asia, Africa, and Latin America: if you want network investment, economic growth, and internet innovation, don’t follow the misguided policies of the European Union. The EU faces a €150 billion gap in network investment; a low growth rate of less than 2 percent annually for the last decade; and a failure to create world-class internet platforms (outside of some one-off exceptions, Spotify, Angry Birds etc.).
In the late 1990s and early 2000s, the EU was the world leader in telecommunications. It had 6 makers of mobile phones and the 3G/GSM standard; one-third of the world’s telecom network investment, and along with South Korea, cool mobile operating systems, apps, services, and technologies. The flowering of innovation and investment followed the liberalization and privatization of state-owned telephone monopolies and intelligent coordination among technological leaders across Europe. But European regulatory authorities and politicians gave up on that success in favor of ideology. It is easier to make rules based upon feel good, look good politics, rather than facts. An evidence-based approach requires the analysis of data. This is costly as it requires skilled employees and software tools, and in order to credible, the analysis needs to be transparent and precise. Regulators would rather make rules be based on non-numerical concepts such as public interest, human rights, and fairness, topics which don't lend themselves to measurement.
There are many exciting developments in the telecom industry in Asia, Africa and Latin America, and many there want to test and learn new policies and business models. The US and EU offer two models of what to do and what not to do. The US wisely abandoned a two-year experiment to regulate broadband and the internet like a telephone utility. They returned to the proven policy of permission-less innovation with competition law enforcement. The EU, on the other hand, even in the face of an ongoing crisis of investment decline, has doubled-down on policies that don’t work. The EU has adopted one bad policy after another, all the name of being “consumer-friendly”. In the same way that the European Commission wants to give 18 year-olds free rail passes to transverse Europe, it touts Wifi4EU, free Wi-Fi across the EU. Or course it sounds great to give people things for free, but it comes at the cost of next generation 4G and 5G networks, the services people and firms are willing to pay for.
Strand Consult has published a series of reports documenting how Europe, once a leader in the telecommunications market, has lost ground to the United States, China, South Korea, and Japan. Europe was the first with 2G, 3G and 4G. But today the United States, China and South Korea are light years ahead of Europe on 5G. European politicians attempted talk a big game without making policy that works. At Mobile World Congress 2016, the European Commission and the 5G Infrastructure Association held a press conference in which the Commissioner for Digital Economy and Society Günther H. Oettinger who declared that Europe would have a leading position in 5G. The prediction proved wrong, and the EU officials have dropped their 5G talking points.
The same thing is playing out with the European telecom trade association ETNO, and its members are increasingly dissatisified. The annual ETNO conference in Brussels last week was a repeat of their 2015 event (see Strand Consult's note) in which politicians talked more feel good, look good politics. But they reject the reality that their regulation has removed incentive for investment and continue to make bad regulation even in the face of worsening results.
If you want insight into how EU regulators work, look at what has happened on the network neutrality. Strand Consult has for many years followed how net neutrality rules have been made in over 50 countries and has published extensively in this area. Strand Consult documents that the “public consultations” conducted by the Body of European Regulators for Electronic Communications (BEREC) are perfunctory exercises conducted to gather support for its pre-determined outcomes. In these three new research notes, Strand Consult observes that BEREC has lowered its standard of transparency so that its overreach on interpretation of the rules is less visible, for example by delaying and complicating their response to freedom of information requests, masking the identity of key stakeholders, and redacting comments from freedom of information disclosures.
1. Documentation: BEREC President Johannes Gungl’s answer to Strand Consult on transparency – 11 simple questions he declines to answer.
2. BEREC’s net neutrality process is a black box. Strand Consult fights for transparency against regulators that like to make net neutrality rules behind closed doors.
3. CASE: BEREC tenders a net neutrality measurement tool before it completes its evaluation of the net neutrality implementation. This proves that BEREC’s “public consultations” are just formalities. BEREC collects consultation responses so it can solicit more support for its pre-determined outcomes.
Strand Consult has studied and published much about US telecom regulation. The Federal Communications Commission (FCC) has stricter transparency standards, including an ex parte requirement that any written or verbal communications to the FCC meant to influence policy must be publicly disclosed. There are many myths about the US and EU in telecom regulation, particularly about the US process on net neutrality. Strand Consult described what has actually happened inthe US in these two research notes:
1. The press claims that the American telecom regulator FCC killed the free Internet. Is it true?
2. Net neutrality in US vs. EU: BEREC digs in while American FCC transitions oversight to FTC. The consequences for operators, content providers, and consumers.
The EU declares that its net neutrality rules are designed to protect end users and to promote innovation. In some three years since their passage, neither of these goals have been realized. End user rights have been abridged by regulators imposing their preferences on consumers, as a number of European courts have concluded. Google, Netflix and other American platforms have gained even greater market power as a result of price controls conferred by the regulation. Moreover no new European startup, patent, or innovation can be attributed to the EU legislation or BEREC implementation.
If European telecom regulation was working, the EU would not be missing €150 billion to reach its 2025 connectivity goals. If the EU’s regulation was working, the EU would not continue to fall behind the US, China, South Korea, and Japan on 5G. If the EU's regulation was working, Europe would experience economic growth in the telecom sector, not decline.
Policymakers, telecom regulators, and firms from Asia, Africa and Latin America must learn from Europe's mistakes. Ideology-based telecom regulation has turned Europe from a world leader to a world loser. It is better to look at the policies and results in the US than in EU. To understand the difference between the two models, listen to the keynote presentations at Mobile World Congress 2017 about "Building the 5G Economy" featuring FCC Chairman Ajit Pai and European Commission VP Digital Single Market Andrus Ansip.
Andrus Ansip offers an investment-discouraing speech, noting that he did not support in-market, but rather cross-border consolidation. It is clear that Europe's competition authority DG Competition and Margrethe Vestager determine how the telecommunications market will develops in Europe, not DG Connect where Ansip sits. Ansip’s talk was about the big goals EU has for the future. As a large investor remarked, "It was a clear speech - we can start investing in Europe some years from now when they finally reach their goals.” That is to say, the current environment is not attractive.
Ajit Pai's presentation describes how the light touch approach adopted in the US from 1996-2008, in which innovation and investment exploded in the US. He was clear that the FCC’s 2015 net neutrality rules were a mistake. Pai signaled that the United States will return to a light touch approach, leaving the EU to continue down the path of falling behind.
Telecom regulators in Asia, Africa or Latin America should listen to the two presentations, look at the results of the two markets, and careful their respective regulation for any disincentives which it creates.
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