This paper aims to provide food for thought for a better alignment of the European Industrial Telecom Policy against the background of the creation of a Digital Single Market in Europe.

1. Opportunity:

The digital economy offers significant opportunities for Europe in terms of economic growth, innovation, technological development and social benefit. These opportunities have been widely recognised:

• “I believe we must make much better use of the great opportunities offered by digital technologies, which know no borders… Enhancing the use of digital technologies and online services should become a horizontal policy, covering all sectors of the economy and of the public sector” (Commission President Juncker)

• The digital economy continues to be “the single most important driver of innovation, competitiveness and growth” (DG GROW, European Commission)

• “The overall value of the data economy in the EU is estimated at about EUR 255 billion in 2014, representing about 1.8% of the EU GDP. According to estimates, the data economy could provide a contribution of 4.7% to European GDP by 2020, provided we take the right measures to foster this market”. (Commissioner Oettinger)

Commission proposals, inter alia for the Digital Single Market, are designed to ensure the EU is able to maximise these opportunities.

2. Challenges:

There are a number of challenges:

Regulatory

Europe’s Telecom Markets are fragmented, split up in 28 different jurisdictions, with many small and medium sized players lacking size and the economic strength to invest.

Due to historic reasons, regulatory oversight is fragmented in the same way, with responsibilities split up between national regulators, national cartel offices and the European Institutions with partly overlapping responsibilities.

Competition policy and merger control are executed through a focus strictly within the boundaries of national markets.

Economic/commercial

The economic situation for most of the telecom operators is still not very promising. A market driven by the pace of Moore’s law (doubling of chip performance every 18 – 24 month) with technological revolutions coming up at the same pace requires strong players with healthy EBITDA to cope with this pace and to enable a rich pipeline of product and service innovations. This – inter alia – creates pressure to scale up the operations.

Pace of change

Regulatory and competition control processes widely neglect the nature of the telecom business from today and tomorrow and are strongly based on a backward-oriented, static view, not recognizing the dynamics of markets and newer concepts like “dynamic efficiency gains” and “unit pricing”.

The thinking of many of the actors in charge of such procedures is resistant to change and not acknowledging that “telecom business” does not mean primarily phone calls and text messages; today and tomorrow’s challenges are defined by the data tsunami driven by exponentially growing video production, distribution and consumption, new players, new platforms and intermediaries. All this creates a complex ecosystem comprising traditional telecom companies, OTT players, application providers, app developers, content and application providers and many more.

Such an assessment process also fails to take account of the many technological developments which can transform our economy and society if only the right regulatory framework and conditions are put in place to facilitate it. To name but a few:

• E-government – More competitive and efficient public sector will save around €5 billion by 2017 (European Commission)
• E-health – Health and social care costs are projected to rise to 9% of EU GDP by 2050. E-health can improve the efficiency of health care by 20%. In Denmark, e-health services have led to cumulative savings of $120 million a year (European Commission)
• Connected cars – Global penetration of connected cars is expected to increase to around 65% by 2020, with around 250 million vehicles globally. The Commission will allocate about €650 million from research and innovation fund Horizon 2020 by 2017 and over €190 million from the Connecting Europe Facility by 2016 (European Commission)
• Smart meters and smart grids – Improvements in energy efficiency, leading to increased energy security and environmental/economic benefits the UK could save £8 billion a year by 2030 (British National Infrastructure Commission)
• Data will create hundreds of thousands of new jobs in the EU – 69.000 jobs will be created in the UK alone by 2017 (European Commission).

This presents two key questions:

(1) How can such a dynamic ecosystem, driven by the pace of Moore’s Law properly treated and developed with the tools and the thinking from yesterday?

(2) How can a merger control policy, which aims to rigorously preserve national silos, be changed in order to promote the over-arching objective to create a Digital Single Market?

Call for a new approach:

Time is not our friend and we need to act swiftly if we want Europe to play its role in the global game:

• Most importantly, the Commission should come up with a master plan how to align the different lines of actions
• If the plan to build a Digital Single Market (DSM) is serious, we need to set milestones how the implementation of the DSM can be aligned with merger control. This has to be done in a controlled and straight-forward manner
• Other industries, such automotive and health, need to be brought in to discuss the most promising way forward on a new industrial policy for telecoms
• We need to initiate a “virtuous circle” built on investment, innovation and supported by a smart regulatory system (The Virtuous Circle: New Regulations, Innovation and Investment – How to bring Europe back to the Top, at http://www.serentschy.com/the-virtuous-circle/ ).
• The thinking of most of the regulators needs to be changed: the incremental value of enabling a fourth or fifth retailer in a market is marginal in comparison with the aim to minimize monopolies
• We need to accept, that in fixed line business duopolies will become the norm and we need the instruments to handle them properly
• In the mobile business a healthy 3-player market with strong operators able to compete on par is much better for public welfare than a duopoly with two shadow weak operators at the low end of the market.

Georg Serentschy, 06 April 2016