EC Defends Reform Package, as Panelists Call Telecom Sector ‘Sick’ but Disagree on Cure

Stakeholders are deciding which parts of the proposal they like or dislike, Kroes said. But “you can’t pick which bits you want from the menu. This isn’t a restaurant,” she said. The measure aims for more consistent regulation; harmonized access products for fixed networks; better and more standardized spectrum rules; making more Wi-Fi available; and permitting more innovative services as long as they don’t affect the regular Internet, she said. Those are all things telecom companies sought, but there are parts they find “sour” and are lobbying against, she said. Politicians and operators can’t run away from their responsibility to give the European economy a huge digital boost, she said.

Consumers are demanding and sophisticated and expect quality, diversity and decent prices, Kroes said. Connectivity today is “a lifestyle product,” she said. “It’s time to wake up, smell that coffee, and give our economy the stimulant it needs,” she said. It’s up to the market, not the EU to innovate, she said. The EU must get the regulatory framework right, she said. “If we want to look at other models, at the longer term development of our regulatory framework to deal with convergence and to deal with over-the-top services, then we first have to get the telco sector right,” she said. Some say the sector isn’t sick but that stance isn’t supported by analysis of the industry, she said.

European government ministers will debate the digital economy, innovation and services at an Oct. 24-25 EU Council meeting. This is a unique opportunity for telecom operators to make their contribution, said ETNO Executive Board Chairman Luigi Gambardella. Public policy in this area can’t be shortsighted, he said. Kroes’ proposal identified many areas that must still be addressed, such as the need for further deregulation and an even playing field for network operators, competitive rivals and over-the-top services, but falls short in several areas such as price regulation on several services, he said. ETNO wants a fully harmonized, pan-EU approach based primarily on competition law, not before-the-fact regulation, he said. He urged the council to require a policy review by the next EC and a broad debate among all stakeholders. ETNO operators don’t want to block reform but “simplify the system,” he said.

The situation in Europe today is “alarming” because Europe has been relegated to the “second league” in the digital economy, said Fleur Pellerin, French minister for small and mid-sized enterprises, innovation and digital economy. One reason is that digital policy over the past 10-15 years has focused on research and development, she said. Europe needs a more global approach to innovation, she said. Europe is “cruelly short” of instruments to finance innovation, she said. Another problem is that despite major liberalization of the telecom market, it wasn’t adequate to lay the foundation for European digital firms, she said. EU countries were perhaps “too protective of our prerogatives,” new operators didn’t invest enough in infrastructure and providers in general didn’t take enough risks to create new models and services, she said. The result is the current situation, an Internet marketplace in which Europe is “largely absent” and the U.S. dominates, she said.

Digital Europe is a “project in the making” that requires continental scale, said Pellerin. She recommended the creation of a genuine European venture capital sector to serve startups, saying such businesses shouldn’t have to turn to the U.S. for financing. In addition, Europe should support big data, an area in which it can gain control, she said. Pellerin also wants fair ground rules that apply equally to Internet powerhouses and new players, she said. If non-European companies take advantage of the rules, particularly tax regulations, they should be regulated, she said. The digital economy is dominated by 10-15 U.S. giants who alone can shape the market to their own advantage, she said. It’s important to regulate them, to keep the Internet an open space where innovation is possible, she said. Pellerin urged Kroes to take more time to consult on the issues.

The Body of European Regulators for Electronic Communications (BEREC) has publicly disagreed with Kroes’ proposal (CD Sept 17 p8). While it’s good that the EC is trying to fix the problems in the telecom sector, national regulators don’t agree on what the problems are, said Swedish regulator Göran Marby, BEREC’s 2014 chairman. The digital agenda is about more than just information and communication technology, and it heavily affects all industries, said Markus Beyrer, director-general of lobby group BusinessEurope. His members agree with the EC goals but believe the proposal is just a starting point that needs improvement, he said.

One issue that overwhelmingly drives investment is spectrum policy, said AT&T CEO Randall Stephenson. How countries manage spectrum policy will determine how much investment comes into Europe, he said. He listed several elements needed for investment: (1) “Maps matter.” Europe needs broad, ubiquitous spectrum footprints (maps) if it wants wireless networks. (2) Spectrum licenses that mimic ownership are the best way to drive investment. Long-term licenses are best, subject to stringent buildout requirements to prevent operators from hoarding spectrum. (3) The market is always best suited to spur technological decisions in spectrum bands. (4) Markets are very efficient at organizing spectrum across geographies, so Europe should try to ensure secondary markets are fluid and liquid.

Other telecom and financial sector speakers also criticized the EC proposal. Orange CEO Stéphane Richard said he fears that the sour part of the package will become even more bitter after it gets to the European Parliament. He questioned why the EU’s top priority seems to be cutting mobile roaming prices, and how investment can be helped by cutting operators’ resources. The package has nothing significant on investment, he said. The 200 or so European telecom operators won’t invest because every time they look toward Brussels they see policies aimed at reducing their resources, he said. They don’t even think about consolidation because they're afraid it will be blocked nationally or at the EU level, he said.

The GSM Association welcomes the EC view that the sector is sick but has “mixed feelings” about the proposal on the table, said Director General Anne Bouverot. There’s a lot of sour right now, she said.

Kroes has met with some large investors who seem to view her proposal as signaling a huge change, but Peter Golob of Bank of America Merrill Lynch, said he hasn’t seen that. There seems to be a “worrying disregard” for shareholder returns in the package, he said. If there is an underlying anti-shareholder bias, investment won’t happen, he said. Golob said the measure’s provisions alternate between “opaque and transparent” rather than sweet and sour.

Overall, Kroes did a good job but the devil is in the details, said Philipp Humm, Vodafone Group chief executive-northern and central Europe. The proposal contains little to concretely drive further consolidation of telecom providers and much of it is superficial, he said.

Startups will benefit from a single telecom market, representatives said. Portuguese company NMusic, which provides content to telcos, sees a single market as a “huge opportunity,” said CEO Celestino Alves. Most startups and small companies face problems because of the economy but a single market will give them a better chance to show what they can do, he said. Lack of investment in innovation is a major problem in Europe, he said. Startups need better access to financing, said Rovio Chief Legal Officer Kati Levorante. Rovio, which makes Angry Birds, wants to bring more exciting services to users but EU regulation moves slowly when innovative businesses must act quickly, she said. Small players need less red tape, she said.