Telecommunications operators, especially European ones, are concerned about the great strength shown by big technology in the telecommunications market, especially in future business services and private 5G networks. Operators fear that technology companies will snatch a substantial part of the applications demanded by companies, the most lucrative of their business, in the short term, while they increasingly depend on technology in the management of cloud computing.
It has been repeated ad nauseam that 5G is a great technological breakthrough. What is not said so often is that 5G can change the existing rules of the game, especially in Europe, between the highly regulated telecommunications operators and the Internet giants, the GAFAM (Google, Apple, Facebook, Amazon and Microsoft, all American). The main problem is that the latter have abundant technological and financial resources to enforce their law and have much fewer easements than the operators, especially the dominant ones in each European country (Telefónica, DT, Orange, BT, TIM, etc.).
European operators repeatedly complain about what they consider to be unfair telecommunications market regulation because, they say, they are required to comply with many obligations and pay taxes and very few, on the other hand, from large technology companies. In reality, the balance has already begun to unbalance with the arrival of the Internet, but with the current massive use of the Internet, instant messaging and streaming video in the hands of technology companies, the situation is much more unfavorable for traditional operators. And now, with the arrival of 5G, much worse.
It is becoming possible for large technology companies to play a leading role in the provision of the most important business networks and services, to the detriment of traditional operators
“How can it be that WhatsApp is not treated as an operator?” Asked Timotheus Höttges, head of Deutsche Telekom, the German dominant operator, in the past MWC in Barcelona, and stated that GAFAM mobilize almost 80% of the passband [of European operators] without paying a penny. At the inaugural MWC conference, operators once again called for more flexible and fairer regulation, as they had done on multiple occasions before, especially to face the challenge posed by 5G.
The European Commission, and now it also seems that the US Administration, is aware of the unfavorable situation of operators and of the greater strength exhibited by large technology companies, which it hopes to partially rebalance with two directive proposals, the DSA and DMA, which It is precisely now being fiercely debated in the European Parliament, which must reach a compromise on 8 November for December to be definitively approved in the European Council by the Member States. The recent blackout of Facebook and the revelations of some of its practices have put it in the eye of the hurricane and, by extension, the rest of technology.
The European Commission wants to regulate the possible abuses of the Internet behemoths ex ante, both for consumers and for companies based in Europe, so as not to have to prosecute them ex post. In principle, the parliamentarians agree to impose severe conditions on the Internet giants, although they are divided by the thorny issue of forcing the removal of content considered illegal. They also want to put limits on other actors that are not GAFAM, such as Booking, Alibaba or TikTok, among others.
The driving idea behind both texts, as the vice-president of the European Commission, Margrethe Vestager, said in her day, is that what is reprehensible offline is also reprehensible online. But putting it into practice is not easy and the powerful pressure groups in Brussels will put all possible obstacles to delay or nullify its effects. To further complicate the situation, there is doubt about the legal capacity of a State of the European Union to demand the withdrawal of content hosted on a platform from another Member State. For this reason, one proposal is to speak of the “country of destination” and not the “country of establishment” of the information that is the subject of the dispute. Another parliamentary controversy is how to deal with online advertising.
Services provided to operators
An additional problem, and nothing less, is that operators are increasingly dependent on the technological giants when providing their services. And it is not only that many operators use GAFAM’s servers and clouds to host their data, but also that they hire their computing services in the cloud, highly competitive thanks to their artificial intelligence programs, which later serve to enable them to operators offer multiple business services to their customers. Even in the favorable assumption that the clouds are located in the territory of the European Union and that there are no information leaks, this dependence on operators, which is increasing, raises many questions.
Le Monde illustrated the problem that operators have with the example that Orange has just opened a laboratory so that companies can test the new applications that 5G offers, such as piloting drones remotely, analyzing videos to detect fires, measuring quality in time real of the products manufactured or launch a telemedicine service, among many others. Thanks to 5G and cloud and edge computing services, smartphones and IoT devices can be connected in real time in Orange’s lab. The downside, the newspaper adds, is that the operator had to rely on a technology partner to provide this demonstration service, which, in this case, is Google, although it could be any other Internet giant.
The traditional European operators demand a more flexible regulation that does not benefit, as they believe it is happening now, to large technology companies, but technological evolution is so accelerated that it can hardly be solved with a Community directive
The operators have the license to use the spectrum and the fiber laying to reach each of their clients, but alternatives are emerging that can allow the technological giants to offer their services directly, via satellite for example, or simply by renting fiber from an operator. in a hurry. You only need to see what is happening in many European markets with alternative operators, fixed or mobile broadband.
Totally private networks
The operators, obviously, have never worked alone, but have relied extensively on the different companies and intermediaries that make up the ecosystem and the value chain, either with network equipment or with software, which is increasingly important. But the end customers, although they were very important companies, depended in a certain way on the operators, especially with external communications.
Now it is becoming possible for big technology to take a leading role in the most important business accounts, which are also the most lucrative, and take control of the main business. They have the financial resources to do this and have shown, in recent years, that there is no technology that can resist them. And if they have any deficiencies, they pull the checkbook and the matter is solved because, in addition, they withdraw a potential competitor from the market.
The touchstone will be the establishment of private 5G networks. At the moment, the development of 5G business services is still embryonic, because many aspects have to be fine-tuned, but it is a matter of relatively little time for them to be truly competitive and, above all, to be within the reach of any large company and, over time, small and medium-sized, as applications are democratized and their catalog of possibilities increases.
In the last edition of the Hannover Messe, before the pandemic, a lively debate was raised about whether private 5G networks had to be installed, managed and maintained by an operator, at least the external communications of the company, or if it could do all the end customer. It should be borne in mind that, for example in Germany, there is 100 MHz of the 5G medium band (3.7 to 3.8 GHz) reserved for private networks and many companies, the large ones, have already applied for the license to operate indigenously, without the need for third parties (Huawei has a license, with which it could operate and provide 5G business services to third parties, without problems because it is Chinese). Also reserved for private networks is part of the band 3.8 to 4.2 GHz in the UK and 2.57 to 2.62 GHz in France.
At that fair, Nokia was in favor of being able to offer its network equipment directly to an end customer, who would thus have full control of its data and its technology (and take responsibility for its operation). Ericsson, on the other hand, was more cautious and, in order not to have to confront its main customers, which are the operators of each country, it considered it better not to sell directly to the end customers but for them to contract the service to the operator and go the one responsible for everything working properly.
But, as he hinted a few days ago, Ericsson has changed his mind and is now in favor of offering its network technology equipment, and its maintenance, directly to the end customer, without going through the operator. It is understood that it will not be the usual, among other reasons because becoming the operator of your network is not available to everyone. In any case, the issue sets a dangerous precedent for major operators, because their most important customers, as well as the most profitable, can escape them. In addition, the use of telecommunications technology, even in private 5G networks, will be simplified and the temptation to do it yourself will be greater.
As if this were not sufficiently problematic for the operators, it is foreseeable that it will be the big technology companies that, as time goes by, will get more clients to bring them all their communications. Apart from supplying technology and services to operators, they will also do so directly to end customers. It is clear that this will not happen overnight, but if connection rates to convergent services continue to fall, as is the case in Spain due to intense competition, operators will have fewer resources to invest and remain competitive compared to companies. big tech.
For dessert, operators, especially European ones, will continue to be unattractive to investors, which will further precipitate their market value and force them to sell assets to reduce debt, further eroding their competitive position in the market. The above mentioned may be a bit apocalyptic, but various studies corroborate that it can happen. See, for example, a March report from ANRT, the French Research and Technology Association, entitled “5G in data value chains: the technological and industrial challenge is ahead of us.”
The ANRT report warns, among others, that networks are being virtualized, which means that the functions that were previously ensured by equipment, by hardware, now lie mainly in software. Networks will be increasingly complex, especially 5G, which will make their management have to be almost completely automated, among other reasons because there will be no human who can do it. The software that will make this network automation possible will, however, require a lot of talent and a lot of investment. If big techs succeed in attracting the highest value-added business services, which are the most profitable, incumbents may be depleted of their main source of profit and lose competitiveness.