EU 2024-2029: Telecommunications sector at the heart of competitiveness

In June, we launched the EU 2024-2029: Charting the Competitive Path series to share Telefónica’s vision to strengthen the competitiveness and better position of the European Union (EU) society and economy on the international stage. Strengthening competitiveness is undoubtedly a European strategic priority for the 2024-2029 cycle in the face of slowing economic growth in the EU.

While the first post analyzed the current state of EU competitiveness, the second focused on the first axis of the competitiveness strategy proposed by Telefónica: creating a regulatory environment that allows European companies to develop and compete. In this third post, we focus on the second strategic axis: the importance of strengthening the telecommunications sector as a competitive lever in society.

The telecommunications sector is the basis of competitiveness

Strengthening the competitiveness of European businesses means increasing their productivity. Productivity growth is influenced by many factors, such as innovation, productivity growth and technology diffusion.

In all cases, the telecommunications sector plays a key role. Telecommunications companies are at the forefront of developing and transforming the digital infrastructure and services that underpin the digital economy and society. Economic and social progress depends on the availability of high-capacity fixed and mobile networks. Similarly, it would not be possible to strengthen the EU’s digital leadership, which is crucial to maintaining the region’s international relevance in an era characterized by digitalization and new technologies.

Over the last decade, the telecommunications sector has invested an average of €50 billion per year to modernize and adapt network capabilities to anticipate and meet the growing demand for broadband-intensive digital services. It has also facilitated the development of improved products and services, as well as the creation of new avenues for technological innovation in a range of economic sectors.

The next wave of digital innovation, powered by technologies such as 5G, IoT, edge cloud computing and artificial intelligence (AI), will lead to new applications and economic opportunities. To fully exploit their potential, it is necessary to invest in these technologies, increase network capabilities and evolve towards programmable networks through the use of standard APIs (Open Gateway).

This evidence shows that the telecommunications sector is characterized by a continuous process of increasing efficiency, innovation and adaptation. The sector’s cooperation in disseminating technology to other sectors is of great importance, given the sector’s scope and technological advancement.

Market structure: a challenge for the EU telecommunications sector

The competitive landscape has changed significantly over the past 25 years following liberalization. The sector now faces competition from players from neighboring markets, as well as international platforms offering low-cost or free services in a two-sided business model.

For the sector to remain competitive, the market structure must be able to adapt effectively and dynamically, without introducing artificial policies that could distort the market. This is crucial because fair and sustainable competition stimulates innovation and investment, which in turn improves the quality of services provided to society and its citizens.

In this context, greater market concentration in terms of the number of competitors does not mean less competition. Indeed, in some markets, such as telecommunications, increased concentration has led to more efficient firms gaining market share while less competitive firms have exited the market. In other words, market concentration would be a consequence of the restructuring of a competitive market towards efficient and sustainable market structures.

In his report, Enrico Letta highlights the need to increase the scale of the telecommunications sector in the markets where its networks are deployed. In this sector, lack of scale is due to the high degree of fragmentation of each national market, which makes it difficult to achieve the level of market utilization necessary for its profitability. This fragmentation is facilitated by a regulatory and price competition approach that encourages the creation of new artificial competition through regulatory privileges.

Sector profitability and connectivity goals at risk

The regulatory and competition policy approach used to liberalize the sector in the late 20th century no longer works in today’s markets.

On the contrary, this approach hampers the sector’s viability and ability to invest at a crucial time when the EU needs to stimulate investment to achieve the 2030 Digital Decade connectivity goals, for which the investment deficit is estimated to exceed EUR 200 billion.

As the data shows, we are far from the targets, which affects the well-being of European citizens, who in any case must be defined as more than ordinary consumers.

Source: Telefónica based on the European Commission White Paper How to meet Europe’s digital infrastructure needs? ; Report on the state of the digital decade 2023

Public policies for the telecommunications sector as the basis for competitiveness

European public policy should encourage investment in ultra-wideband networks. This should create incentives for investment, innovation and job creation and reduce barriers to the deployment of connectivity infrastructures. Therefore, it is recommended:

• Promote sustainable and less fragmented market structures at national level to ensure an adequate return on investment, encourage investment and innovation in the telecommunications sector and avoid exit barriers that create artificial competition.
• Promoting an investment-friendly spectrum policy by increasing certainty on future spectrum availability through license renewals, increasing the supply of harmonized low and mid-band spectrum for terrestrial mobile networks, and ensuring fair allocation to maximize value for users.
• Urgent development of the Digital Networks (DNA) Act strengthening digital leadership with advanced fiber connectivity and 5G, recognizing the importance of the telecommunications sector and making it a priority on the EU legislative agenda.
• Promote a level playing field in the digital ecosystem:
  • Eliminate asymmetries with horizontal regulatory frameworks which concern competition, taxation, consumer protection, content production and use, access to emergency services and avoid a sectoral approach.
  • Provide additional guidance on net neutrality to enable innovative applications such as Open Gateway or network slicing, creating a level playing field and respecting users’ rights.

In the next posts, we will delve into the next strategic axis of a more competitive EU: how to increase competitiveness “digital through innovation, green by design”.