EU finally answers telecom industry’s call for help

LEÓN, Spain — The prayers of telecom operators have finally been heard. European Union governments came together in León, a historic enclave on the medieval pilgrim’s route, and finally paid heed to years of lobbying to focus on the industry and its investment needs.

While no miracles were performed, Spain’s Deputy Prime Minister Nadia Calviño did pick up on what telecom companies have been saying.

"The telecommunications sector is immersed in an unprecedented technological revolution" with "new services, new operators and new dominant positions," she told reporters on Monday. Telecom regulation and competition law enforcement need to adapt "to the new realities that incorporate these new risks" to make sure that "there will continue to be a profitable telecommunications sector," she said.

Operators may have whispered their thanks to hear acknowledgment that they are facing a make-or-break moment in Europe. They have long argued that they are hindered by a lack of investments and low returns, and by an outdated regulation that stops them from getting bigger and stronger.

The European Commission estimates that at least €174 billion of investments will be necessary for Europe to achieve the connectivity targets by 2030, such as high-speed fiber connections to all households, and good 5G wireless access in all populated areas.

Telecoms is now firmly back on the EU agenda with EU Internal Market Commissioner Thierry Breton, a former telecom executive, unveiling his vision to take European networks to the next level. He has also called for adapting the regulatory framework and granting operators "scale and agility."

"Europe will do ‘whatever it takes’ to keep its competitive edge," Breton said, echoing the magic phrase that promised the financial firepower to soothe a European debt crisis.

But it isn’t clear what governments are really prepared to do even as there is consensus that they do need to pay attention to telecoms.

"There was no unanimous view on how to proceed in this area," Calviño said after the two days of talks in León.

Alive and (somehow) kicking

The background to this week’s meeting is a year of intense lobbying around a proposal from the largest European operators to split the network costs with the data-hungry content providers. The telecom lobby calls it getting Big Tech to pay a "fair share" of the costs; some tech firms call it a "network fee" or tax.

Although many EU capitals have come out against it, the idea of some kind of charge is still in play.

A Commission consultation published earlier this month has "established the volume of investment required" for the industry to provide future networks, French Digital Minister Jean-Noël Barrot told POLITICO.

"The next step is to determine within these volumes what can be borne by private sector initiative, and what cannot," he said. "We must not rule out any financing solution" just yet, he said.

Italian Industry Minister Adolfo Urso reportedly backed the telecom firms’ push, clashing with Italy’s innovation minister, Alessio Butti.

But the "fair share" story is over for many other countries.

"This discussion is finished," said Germany’s Stefan Schnorr, state secretary for digital and transport. "This is a position of the majority of the member states," he said in an interview, adding that he understood how “comfortable” it would be for telecom operators if they got "money for doing nothing."

Austria’s Florian Tursky also spoke out against it on the sidelines of this week’s meeting.

Whether the concept of a fee is spiked for good may have to wait until the Commission publishes a white paper early next year, set to formally kick off the new debate over the future of telecoms. That paper was previously reported on by POLITICO and confirmed by Breton this week.

Breton emphasized again that the discussions over investment — or lack thereof — would be much broader and that he would soon organize a roundtable with the European financial sector to “restore the appetite” to invest in telecommunications infrastructure.

Consolidation looming

A greater taboo is consolidation. Telecom companies’ efforts to buy smaller rivals over the past two decades have frequently faced a veto from competition regulators, concerned that fewer operators vying for customers within a national market would increase prices.

One way out of this would be to argue that a deal in a European market would face far more competitors. This is difficult when regulation for most telecom services is national.

Breton talked this up by saying a new "Digital Networks Act" should "facilitate" the emergence of true pan-European infrastructure operators and "market consolidation should also be addressed for operations in a member state while preserving consumer benefits and innovation."

Merger reviews have been the battleground for market intervention with the Commission particularly proud of encouraging France’s Iliad to enter the Italian market via concessions offered by two merging operators.

Spanish Telefónica is dubious about that as a solution with a blog post last month saying that adding new operators to tight markets creates a "vicious circle towards the loss of profitability." The Commission seems to see competitive conditions "only when a certain number of operators operate in the market," it said.

France’s Barrot said the EU shouldn’t rule out a review of competition policy even as "some things must remain in the hands of the member states."

"It’s important for operators to be able to reach a certain critical size," he said. He also praised competition policy’s "effectiveness in enabling Europe to make progress in terms of investment, but also to offer European consumers access to a very good market" and even "very tangible benefits for the French."

Germany’s Stefan Schnorr argued there was no need to change the competition framework. "The market consolidation by the market is okay," he said, expressing some doubts about the market consolidation through regulation and praising the importance of smaller companies in the 5G and fiber roll-out.

Breton promises that the EU executive will try to square all these demands.

"We will propose what we believe will be appropriate to cope with the need of investors and to find the right ‘business model,’" he said.