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European operators demand better regulation and financing of their infrastructures


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The large European fixed and mobile telecommunications operators have once again insisted in recent weeks on the need to better regulate the sector, with two specific but far-reaching demands: that mergers and acquisitions of operators can take place in a more flexible manner in Europe and that large information providers contribute “fairly” to investments in Internet infrastructure made by European operators.


The European regulatory bodies are studying both issues and should rule soon, but a preliminary report from the European Association of Regulators (BEREC) doubts that it is justified for providers to contribute to the investment of operators, because they consider that this investment is made mainly to expand coverage and not because of the increase in the volume of traffic carried out by the large information providers, which is the main argument behind the operators’ demand.


The regulation of the competitive framework in the telecommunications sector has always been a very contentious and difficult-to-solve issue, because regulatory aspects, technological evolution and a very changing market reality come into play, especially in Europe, with more than one hundreds of operators that must be subject to the regulations of each of the Member States of the European Union, apart from community and international legislation.

The final regulation of the European telecommunications sector, both fixed and mobile, will affect all consumers and businesses and will ultimately affect Europe’s competitiveness throughout this decade at least

Over the past decade and beyond, the development of the Internet and successive generations of mobile technology have generated friction between national regulators, operators and information providers. The operators have always complained that they had to make large initial investments in infrastructure and for the payments of the licenses to use the mobile spectrum without the information providers contributing anything, since the investments made were covered by the fees charged to consumers. endings.


With the launch of 5G technology and the explosion of Internet use at all levels, the situation has changed in the last two years. The deployment costs of 5G and of the fiber optic infrastructure have increased due to the need for greater coverage and capillarity of the networks, without it being expected that the operators’ income will increase substantially in the coming years, largely because consumers are already satisfied with current 4G mobiles and strong competition makes raising rates not very feasible.


The practice of the last two years of the large European operators of retaining their best customers with unlimited calls and data contracts, in many cases with the inclusion of 5G at no additional cost, gives operators little room for increasing billing. The environment of economic crisis and the virtual stagnation of users for the next few years causes an increase in competition between operators and lower rates for the most basic services. It has always been like this in Europe, but now even more so.


The European Commission is aware that the international competitiveness of the European Union depends on having gigabit connectivity in all homes and a large mobile phone coverage, preferably 5G, everywhere at the end of this decade. This means that the European Commission is open to negotiating a certain flexibility with the operators, especially in the most disadvantaged markets of the European Union, but always within a strict regulatory and legislative framework. Representatives of the European operators met a few days ago in Brussels with Thierry Breton, the commissioner in charge of these issues, to insist on their demands. The multitude of problems that have arisen in recent months, however, makes the negotiation margin narrower and with demands of all kinds on the rise.

José María Álvarez-Pallete, president of Telefónica and of the Council of the GSMA, the world association of operators, pointed out that Europe “urgently needs to strengthen its strategic autonomy to overcome the current serious crisis and the challenges of this new digital era” on last October 18 in Berlin, taking advantage of the celebration of the Spanish-German forum. “The concept of strategic autonomy must be built on firm internal pillars; It will allow a Europe more and better prepared to collaborate with its partners, being a fundamental step to strengthen transatlantic ties, relations between countries and global presence”, he assured.


“Telecommunications play a key role for Europe’s strategic autonomy, because they are the door to the future; That is why it is so important that there is a robust and sustainable telecommunications sector”, added José María Álvarez-Pallete. And he stressed: “It is necessary to review Europe’s regulatory and competition framework to guarantee everyone’s contribution and commit to a Europe with values. The regulations of the European Union should encourage negotiations between operators and large traffic generators so that all the agents of the digital ecosystem contribute to the investment effort”.


In a speech last week in Madrid at the agora, Pallete lamented the lack of investment made by six companies (not to mention Google, Amazon, Meta, Netflix, Microsoft and Apple), despite monopolizing 60% of the traffic from Internet. The president of Telefónica recalled that “European operators allocate between 30,000 and 40,000 million euros per year simply on network capacity” to respond to an increase in data traffic of 30% per year.


Four weeks ago, on September 26, the 17 CEOs of the main European operators, including Deutsche Telekom, Orange, Vodafone, BT, TIM, Swisscom, KPN, Telia, Telenor and Telefónica, signed a statement on the role of the connectivity to meet the current challenges of the EU. “Our purpose is to empower communities through access to inclusive digital infrastructure and services, while strongly reducing carbon emissions.”

Having a sustainable and thriving internet ecosystem is in the interest of all European citizens and enables the EU’s objectives to be achieved. Fast action must be taken: Europe has missed out on many of the opportunities of the consumer internet and must now be fortified for the age of the metaverse, the statement added. “But for it to happen, and to be sustainable over time, we believe that the large traffic generators should make a fair contribution to the high costs currently imposed on European networks.” We must ensure that there is no shortage of digital infrastructure in Europe, the operators point out in their joint statement.


“A fair contribution would benefit consumers first and foremost and help to have a faster and more inclusive [network] deployment, with greater coverage, resilience and quality.” It would also benefit, add the European operators, “small and medium-sized companies, which have recently supported the need for technology companies to “properly contribute” to their deployment: 5G and fiber are key to the competitiveness of small companies. And they welcome the declarations of Vice President Margrethe Vestager that the technological giants should share the costs of telecommunications networks, as well as the consultation announced by Commissioner Thierry Breton on the subject.

Report against providers paying

On October 7, a preliminary report was published by BEREC, the body that brings together European regulators of electronic communications, on the premises on which European operators are based to request “direct compensation” from information providers through Internet to operators. BEREC makes it clear, and underlines it in bold, that the report only refers to the assumptions on which the need to regulate the remuneration of content and application providers (CAP) to Internet service providers (ISP) is based. BEREC adds that it will contribute to the debate on the contribution of CAPs to network investments and the development of the European Internet ecosystem and the achievement of the EU 2030 objectives.


The report, however, is a jug of cold water for the expectations of the operators that the CAPs, at least the largest ones, pay for the use they are making of the networks of European operators. According to the operators, in the last ten years they have invested close to half a trillion euros in Europe’s fixed and mobile infrastructures and a very small number of leading providers, with little or no contribution to the development of national telecommunications networks, represent now about 55% of all the traffic supported by the networks, as stated in a report last May carried out by Axon commissioned by ETNO and which was mentioned in this observatory last May.


The issue, therefore, is not new and the BEREC preliminary report does not deny it either. The association of regulators recognizes that Internet traffic has grown in a stable and very high way in recent years in Europe and that the networks support a greater traffic of content coming, very majority, especially from Netflix, Google, Facebook and Amazon.

The regulations of the European Union should encourage negotiation between operators and large traffic generators so that all the agents of the digital ecosystem contribute to the investment effort, considers the president of Telefónica

But BEREC is of the opinion that this does not alter the basic premises of the current payment regime and that the conclusions of the 2012 World Conference on International Telecommunications are still valid, although it is willing to continue studying the issue. The problem, for BEREC, is that “deviating from the current principles could cause significant damage to the Internet ecosystem and could exploit its monopoly on terminations.”


BEREC has expressed its doubts that network capacity expansions are necessary to meet the increase in the volume of IP traffic, which is one of the central arguments for demanding the contribution of the big technology companies. For BEREC, the proportion of network expansion costs is very low in relation to the increase in traffic volume. Most of the increase in networks is due to expanding coverage, he says.


For the organization, there must be an “adequate justification for intervening in the market” and the Internet has demonstrated its ability to self-adapt to changing conditions, such as increased traffic and changes in types of demand. The conclusion is that a change in the payment model should require, in any case, a very studied and thoughtful regulatory intervention.

Cooperation and merger between operators

The other great demand of European operators is that their concentration be facilitated, based on mergers or cooperation between them, to achieve greater synergies, both nationally and between different European countries. This is an issue that is also extraordinarily complex, because it can affect market competition within the same country and benefit some to the detriment of others, apart from the fact that the national regulators involved must agree, at the community level and also international.


A recent report on “Efficiencies in cooperation and mergers in telecommunications networks”, on October 11, carried out by the Brattle Group on behalf of ETNO, the European Association of Telecommunications Network Operators, analyzes the subject. The thesis of the report is that the European Commission does not currently recognize the improvement in efficiencies that a cooperation or merger between operators can represent and its benefit for consumers.


At the moment, two major mergers are being studied at European level, on the outcome of which the future of the mobile phone market in the countries involved may depend. One of them deals with whether the European Commission acted correctly in 2016 by denying Telefónica UK (O2) to buy Hutchinson 3G UK (Three). An October 20 conclusion by the Advocate General of the Court of Justice of the European Union, Juliane Kokott, “proposes that the judgment of the General Court be annulled and that the matter be returned to it so that it can rule on the litigation,” among others. considerations. A final pronouncement is expected sometime next year.


Depending on how the 2016 litigation ends, the merger proposal in the United Kingdom between the British mobile operators Vodafone and Three, as well as the merger proposal between the Spanish subsidiary of the French operator Orange and MásMóvil, may have an impact in one way or another. . This last operation would have important repercussions in Spain, because if the merger were to take place, there would be three national mobile operators: Telefónica, Vodafone and the combined Orange-MásMóvil, in the event that a fourth operator with surpluses imposed by the merger was not created.


Altering the rules of competition when a merger is approved always entails multiple concessions from all sides, to minimize the impact on the previous market situation, the so-called “remedies” in the jargon of the sector. In the case of a merger between Orange and MásMóvil, the amount of 5G spectrum that both would have together would also have to be reduced, since by law it cannot exceed 100 GHz. The remaining spectrum, if the cap is not extended, should be distributed among the other operators or leave it for a future auction. The amount of 5G spectrum is probably a minor issue with an operation of this size, but it gives an idea of ​​its great impact and alteration of the current status quo.


In his speech on November 11 at the event, José María Álvarez-Pallete considered that the regulatory model that prevails in Europe comes from the old monopolies of the telecommunications sector (the so-called incumbents) and that “the time has come to change it and look at the world as the United States does”. In his opinion, the European regulators try to fragment the market shares coming from the state monopolies, always with deflationary objectives.


Pallete showed his support at the Madrid event for the announced merger between Orange Spain and MásMóvil, since “we cannot say some things and do others”, referring to the advisability of consolidation movements within the sector. “If the merger results in more investment and more competition, it shouldn’t stop,” added the president of Telefónica. His opinion is important because, apart from being the head of Telefónica, a few days ago he was ratified as chairman of the GSMA council for at least one more year, the organization that brings together the vast majority of telecommunications operators from around the world .


Cooperation between different operators is a simpler process and in fact it is already common and fully accepted for operators to share the same network, in search of greater efficiency. But it is also advisable that clear rules of cooperation be established so that everyone knows what they can stand for. Many experts consider that, depending on how the community rules of the game for financing European networks and the merger process end, European telecommunications networks may be one way or another by 2025 and beyond. In the recent reports sponsored by ETNO and the GSMA it is clear that it is an issue that affects all European consumers and companies and not only telecom operators, content providers, regulators and politicians.