EU's digital economy relies on telecoms infrastructure investment, say experts

Out-Law News | 07 May 2015 | 11:51 am | 3 min. read

The success of the European Commission's new digital single market strategy will largely depend on the ability of telecoms operators to invest in new infrastructure, experts have said.

The Commission published its digital strategy (20-page / 373KB PDF) on Wednesday and announced a range of measures aimed at boosting cross-border trade in the EU, from reforms to copyright laws and harmonisation of EU rules on contracts and consumer protection for e-commerce purchases, to plans designed to remove barriers to the use of cloud services.

The strategy also contained proposals that will affect telecoms operators.

Telecoms regulation expert Diane Mullenex said that it is important that the regulation of telecoms companies does not stifle their ability to invest in the infrastructure and technologies that EU businesses rely on to help them compete with global rivals.

"Europe lags behind other areas of the world on the digital economy," Mullenex said. "A successful digital market relies on infrastructure and EU policy makers have been wondering why telecoms operators have been slower to invest in their networks and infrastructure than counterparts based elsewhere. Falling revenues from voice services, tightening rules on roaming charges and unsympathetic competition authorities are factors that have previously stifled telecoms infrastructure investment in the EU."

"The European Commission has now taken steps to improve the environment in which telecoms companies are operating, including taking steps to harmonise the way EU countries manage the liberation of radio spectrum. This will offer a degree of certainty to telecoms companies," she said.

"The plans to make VOIP service providers and other internet-based communications services subject to the same regulatory regime as traditional communication providers will also be welcomed," Mullenex said. "This is because these newcomers to the market, whilst delivering innovative new services to consumers, tend to be barely regulated and therefore able to undercut the price of services delivered by traditional operators. This puts at risk the revenues that the Commission wants the companies to put towards developing better, faster mobile and fixed-line broadband networks. The Commission must balance facilitating innovation with regulating in a way that supports sustainable business models."

Telecoms expert Florian von Baum of Pinsent Masons said that it is the way competition rules are applied in the telecoms market which will have the most significant impact on telecoms operators' ability to invest in the infrastructure underpinning the digital economy in Europe.

"Falling revenues in the communications market is prompting many telecoms operators to consider mergers with other operators in an effort to cut their costs by achieving economies of scale and acquiring a broader network and skills base than they would have if operating alone," von Baum said. "However, the EU's competition commissioner Margrethe Vestager has been quite clear recently that she is opposed to mega-merger deals in the telecoms market for fear of the impact consolidation would have on the price of services paid by consumers."

"Consolidation is likely to push the price of communication services up for consumers. Competition authorities will have to consider if this is a necessary effect of ensuring telecoms companies have the means to invest in the infrastructure and technologies that will deliver growth in the digital economy in Europe," he said.

In its strategy, the Commission said that digital single market it desires "must be built on reliable, trustworthy, high-speed, affordable networks and services that safeguard consumers' fundamental rights to privacy and personal data protection while also encouraging innovation". It said that this "requires a strong, competitive and dynamic telecoms sector to carry out the necessary investments, to exploit innovations such as cloud computing, big data tools or the internet of things".

The Commission said it intends to lay out plans to overhaul existing telecoms regulations next year. The reforms will be aimed at ensuring "a consistent single market approach to spectrum policy and management" and "delivering the conditions for a true single market by tackling regulatory fragmentation to allow economies of scale for efficient network operators and service providers and effective protection of consumers".

The plans will also aim to ensure "a level playing field for market players and consistent application of the rules" across the telecoms sector, and look to incentivise investment in high speed broadband networks.

"The deployment of very high capacity networks needs to be encouraged while maintaining effective competition and adequate returns relative to risks," the strategy said. "The question of how to cover the most inaccessible areas and to realise public-interest objectives (like high-capacity connectivity for schools and universities/research hubs) will be considered, also as part of the review of the Universal Service Directive."

Existing plans to curb cross border mobile data roaming charges and implement a new 'net neutrality' framework will also be taken forward, the Commission said.