Taking action on the future of European telecoms policy

To : EU Telecommunication Ministers Brussels, 26 May 2023 Subject : Taking action on the future of European telecoms policy Dear Minister, We write as CEOs of leading telecom and technology companies active in Europe– small, big, traditional and challengers. We believe that, when it comes to technology, Europe is in a “lead or lose” situation. If Europe’s vision for Open Strategic Autonomy and the EU Digital Decade targets is to be realized, we need to put ubiquitous, secure and resilient connectivity infrastructure at the top of the political agenda. Europe can lead. The future of telecom technology, coupled with our efforts in innovation and investment, provide a major opportunity for Europe’s citizens and businesses. With 5G and fibre our networks are increasingly being virtualized, transforming ‘telcos’ into ‘tech- comm’ companies. This will enable our sector to deliver Network-as-a-Service (NaaS), by moving connectivity to the cloud. Leadership requires building scale in the telecom sector and rebalancing the relationship with tech giants and global software companies. In another scenario, however, Europe might lose. With connectivity shifting to a service world, we need meaningful policy change, or we risk replicating what happened with the consumer internet. Leadership in connectivity and in the services related to it are of essence, if we are to seize the opportunities offered by the digital economy and avoid becoming just passive buyers of tech services developed elsewhere. Today, our sector invests over €55 billion a year in Europe and capital intensity is nearing 20% in many Member States, proving that we reinvest a much higher portion of our revenues compared to global peers. Despite this significant effort, 45 million Europeans risk missing out on Very High Capacity Networks by 2030 and we are trailing the US, South Korea and Japan on 5G roll-out and 5G standalone1. This is both a matter of inclusion and of economic competitiveness, with geostrategic implications. As a regulated sector, we believe that more should be done to achieve the EU Digital targets, ensuring that all citizens have access to the best networks and services. The magnitude of the challenge was recognized in the European Commission consultation on the future of the sector2, to which we provided a united response. Our view is that urgent action should be taken in the following areas: • Creating a real European telecom single market by simplifying and harmonising legislation across the EU, including areas such as telecoms rules, spectrum policy, security and consumer protection; 1 ETNO, State of Digital Communications, 2023 2 European Commission, 2023, Consultation on “The future of the electronic communications sector” • Building scale and allowing cooperation on innovative technologies: in a service world, we need European operators that are globally competitive; • Introducing a fair contribution based on a framework that allows balanced negotiations between telcos investing in networks and large traffic generators. Today, a small number of tech giants obtain the most benefit from telecom investment, while creating a cost burden with their traffic3. This leads to a market failure causing underinvestment4. A fair contribution would address this: we can make roll-out faster and more inclusive, improve network quality for users, and create incentives for big tech to be more mindful of their data traffic and its environmental impact. From delivering secure connectivity, to empowering the twin digital-green transition and helping people in crises such as COVID-19 or the war against Ukraine, our sector stands ready to continue supporting Europe’s policy ambitions. We believe that governments and the telecom sector have a shared interest in accelerating sustainable investment in connectivity and in creating the conditions for European tech leadership. The letter is supported by the following CEOs: 1. Thomas Arnoldner, CEO, A1 Telekom Austria Group 2. Ana Figueiredo, CEO, Altice Portugal 3. Edward Bouygues, Chairman, and Benoit Torloting, CEO, Bouygues Telecom 4. Philip Jansen, Chief Executive, BT Group 5. Timotheus Höttges, CEO, Deutsche Telekom 6. Oliver Loomes, CEO, eir 7. Christian Salbaing, Deputy Chairman, Hutchison Europe 8. Thomas Reynaud, CEO, Iliad Group 9. Mike Fries, CEO, Liberty Global 10. Joost Farwerck, CEO and Chairman of the Board of Management, KPN 11. Christel Heydemann, CEO, Orange Group 12. Guillaume Boutin, CEO, Proximus Group 13. Sigve Brekke, President and CEO, Telenor Group 14. Michel Jumeau, CEO, TDC NET 15. José María Alvarez Pallete, Chairman and CEO, Telefónica 16. Allison Kirkby, President and CEO, Telia Company 17. Pietro Labriola, CEO and General Manager, TIM 18. Victoriya Boklag, CEO, United Group 19. Margherita Della Valle, CEO, Vodafone Group Annex: Joint Telecom Industry Response to the EU Consultation 3 GSMA with Kearney, 2022, “The Internet Value Chain” 4 Compass Lexecon for Telefonica, 2023, ‘Why TELCOs’ Fair Share Proposal Makes Economic Sense’ Summary of the Joint Telecom Industry Response to the EU consultation on “The future of the electronic communications sector and its infrastructure” The GSMA is a global organisation unifying the mobile ETNO has been the voice of Europe’s telecommunication ecosystem to discover, develop and deliver innovation network operators since 1992 and has become the principal foundational to positive business environments and societal policy group for European electronic communications network change. Our vision is to unlock the full power of connectivity so operators. Its 40 members and observers from Europe and that people, industry, and society thrive. Representing mobile beyond are the backbone of Europe’s digital progress. operators and organisations across the mobile ecosystem and They are the main drivers of broadband and are committed to adjacent industries, the GSMA delivers for its members across its continual growth in Europe. three broad pillars: Connectivity for Good, Industry Services and Solutions, and Outreach. This activity includes advancing ETNO members are pan-European operators that also hold policy, tackling today’s biggest societal challenges, underpinning new entrant positions outside their national markets. ETNO the technology and interoperability that make mobile work, and brings together the main investors in innovative and high-quality providing the world’s largest platform to convene the mobile e-communications platforms and services, representing 70% of ecosystem at the MWC and M360 series of events. total sector investment. We invite you to find out more at gsma.com ETNO closely contributes to shaping the best regulatory and Follow the GSMA on Twitter: @GSMA and @GSMAEurope commercial environment for its members to continue rolling out innovative and high quality services and platforms for the benefit of European consumers and businesses. We invite you to find out more at www.etno.eu Follow ETNO on Twitter: @ETNOAssociation Joint Telecom Industry Response 2 / 10 Our key messages: By 2030, digital technologies and connectivity will In our view, policy change can help shape a future be the very fabric of our societies and economies: in which Europe innovates, grows and stays in 5G, IoT and edge computing have already started control of its connectivity. shaping our digital decade and empowering sustainable economies and societies. As European members of GSMA and ETNO, we call for: Europe is in a “lead or lose” situation. We must develop our own technology solutions and Addressing barriers to the European telecom our strategic interest is to lead the future of single market by simplifying regulation, including connectivity. As European telecom operators, for telecoms rules, spectrum policy, consumer we work to stay ahead of the curve in roll-out of protection, taxation; 5G and FTTH, development of new network and cloud technologies, digital inclusion and the twin Urgently building scale through in-market green-digital transition. consolidation, as well as cooperation on innovative technologies, as a fundamental Networks will be increasingly virtualised and steppingstone for creating European telecom cloudified, with ‘telcos’ transforming into ‘tech- operators that are globally competitive; comm’ companies and delivering Network-as-a- Service (NaaS) by making connectivity functions Introducing a fair contribution based on a available to customers and developers based on framework that allows balanced negotiations standardised APIs. between telcos and large traffic generators who obtain the most benefit from telecom European operators, who have a national base, investment, while creating a high cost burden will increasingly compete across markets with a with their traffic and exerting disproportionate range of players, such as tech giants or specialised power across markets. There is precedent for software companies. The gap in scale will become this, for example with the Copyright Directive, an even more relevant barrier in 5G ecosystems, which addressed imbalances affecting creators impacting the EU’s Open Strategic Autonomy. and rightsholders. Today, we are not where we should be: Europe Addressing the policy challenges above will help witnesses underinvestment in telecom networks accelerate the achievement of the EU Digital and services (i.e., a €174 billion investment gap Decade targets, while empowering sustainable as estimated by the EC), with overall declining or economies and creating more homegrown flat revenues in the sector, returns below the cost opportunities in the digital space for European of capital, weak market valuations and high levels citizens, SMEs and for society at large. of debt. Joint Telecom Industry Response 3 / 10 Technological And Market Developments European telecom operators are transforming into sophisticated tech-comm companies playing a proactive role in the new digital era. Today, telecom services are characterised by speed, security and mobility. Tomorrow, services will also be defined by improved processing capabilities, capacity, reliability and, above all, customisation. The following trends are driving change: Technology The climate change challenge requires telecom operators to achieve two goals: the greening of Trends from industry reports clearly show a rapid our networks, by switching off older, less energy acceleration of data-driven technologies and use efficient networks, while achieving full use of cases (e.g. AI, the metaverses, Web 3.0), which are renewables (today, 83% of energy used by telcos driving a re-design of network operations. is from renewable sources); and greening by our networks, as 15% of global carbon emissions can We expect a ‘metaversification’ across use cases, be slashed if all sectors of the economy and society Virtual Reality and immersive technologies to adopt connectivity-enabled solutions (BCG, 2021). become increasingly common, a massive shift from SD video to HD (incl. from 4K to 8k), and an Markets acceleration of AI-generated content. We expect telecom operators to face increasing Upcoming trends require investment-intensive competition, both on the network and on the service deployment of new network technologies, layer. Tech conglomerates with global scale and including: FTTH and FTTx, 5G standalone, edge market power will compete with telecom operators computing, open RAN and increased integration in fragmented European markets. This will put of terrestrial-satellite communications. further pressure both on the profitability of the sector in Europe and on its overall strength in terms of The transition to new generations of connectivity innovation, investment capacity and strategic focus. means that the network of the future is software- defined and virtualized – which makes it highly On the network layer, we are witnessing the programmable, disaggregated and cloud-native. creation of more and more infrastructure companies This also increases vulnerabilities. Staying in the form of NetCos and TowerCos. Such ahead of the network security game will require companies are an attempt to create fresh value in increased investment, including in security EU telecom markets plagued by decades of slow automation and quantum encryption. growth, restrained by high levels of regulation. Business models evolve accordingly, with On the service layer, hyperscalers and content application programming interfaces (APIs) providers will increasingly leverage their market enabling Network-as-a-service (Naas) and telecom power and global scale in selected markets operators becoming orchestrators more and more. such as cloud as well as Wide Area Networks (WAN) and (Content Delivery Networks) CDN infrastructures, to compete against European telcos in Business-To-Business markets. Joint Telecom Industry Response 4 / 10 Telecom companies have been proactive and Geopolitics also plays a role in today’s markets, are transitioning towards a “Network-as-a- with new supply chains bottlenecks (e.g., network Service”, with value-creation shifting from simply equipment) as well as strategic considerations on selling connectivity to becoming more and more security and strategic autonomy (e.g., the need “orchestrators” of highly customised network needs. of developing European leadership in certain technology segments). A key challenge in achieving this the creation of a uniform standard for network APIs, with initiatives In light of the trends above, scale continues such as CAMARA and the Open Gateway. to be a major challenge in European telecom markets, both in terms of ability to compete with In terms of revenues, the monetization of 5G and hyperscalers and in terms of innovation capacity. fibre networks will be key, with business models In addition, cooperation within the telecom relying on the provisioning of new connectivity industry will also become increasingly important services. In order to continue generating growth, for global competitiveness, as European players operators will also have to increasingly invest in face the disadvantages coming from lack of scale. markets adjacent to connectivity, such as cyber security, edge-cloud and others. Vertical industries (e.g., automotive, manufacturing) will be more and more important in terms of collaboration aimed at optimising the deployment of new innovative services, rather than deploying and operating networks directly. Joint Telecom Industry Response 5 / 10 Fairness For Consumers Whether they are residential, business or government, our users are and will remain at the centre of the provision of innovative networks and services. We are a customer-facing industry characterised by high levels of competition and innovation, driven by purpose and strongly motivated by social impact and responsibility. Successfully serving users is a multi-dimensional challenge, implying high levels of network investment, inclusive availability of the latest technologies, great quality of service and good prices. Our views on policies ensuring fairness for all consumers are as follows: Affordability Funding Net of inflation, prices for telecommunication services In Europe, Universal service funds have lost their in Europe have decreased or remained flat for the “raison d’etre” in light of the market-drive dynamics past decades – unlike those of electricity, fuel, or described above. While partly useful and appropriate water. Competition is thriving at both the retail and in the past, it is no longer fit-for-purpose. Efficient infrastructure level. When looking at trends for the next private investment in network roll-out is and remains decade, we believe price levels are likely to remain the main tool expected to deliver the EU Digital the same for most broadband packages, or even to Decade targets on connectivity. decrease in some cases (e.g., speeds <30Mbps). However, a targeted role for Member States funds Social tariffs through social security mechanisms still exists in some cases. For example, it could be have, and will continue having, an important role in envisaged for those limited areas in which private helping those in need to stay connected. Voucher investment is not economically viable, or where mechanisms also continue being desirable, both in demand-side measures will support low-income social terms and in terms of demand stimulation. families, or to improve uptake (e.g., voucher schemes). Such funds, based on the general state Availability budget, should be handled in a timely, proportionate and non-discriminatory manner. Availability of advanced telecommunication networks and services was mainly driven by the market. Trade-offs Broadband coverage and inclusion were boosted by the advent of 3G and 4G technology, rather than by European policymakers should remain aware of the universal service policies. When looking ahead, this intrinsic trade-offs between affordability objectives trend will be further strengthened by the availability and quality, innovation and strategic autonomy of 5G, Fixed Wireless Access (FWA) and terrestrial- objectives. The European telecom sector, when satellite integration. compared to global peers, has been suffering from historically low ARPUs (Average Revenue Per User) Accessibility and returns below the cost of capital, which severely limited the pace of investment and roll-out in new Accessibility for physically or cognitively impaired generation networks in Europe. Arguably, it also users is and will remain a priority of our sector. contributed to a weaker telecom ecosystem, with Innovation as well as the advent of the smartphone effects on Europe’s innovation capacity and on the and app era have boosted the development of, and industrial strength of vendors. access to, solutions for disabled users. Continued dialogue between telcos, mobile phone manufacturers and disability groups will remain crucial. Joint Telecom Industry Response 6 / 10 Barriers to the Single Market With users excited about new digital services and our companies heavily investing in future technologies, the vision of our sector is full of opportunity. However, the reality is that the European telecommunications sector is weak, held back for too long by excessive regulatory costs, market fragmentation and lack of sufficient scale. With so much of Europe’s competitiveness, innovative potential and strategic autonomy objectives depending on leadership in telecom networks and services, this is relevant for the whole of society, and not just for one sector. Succeeding at the network virtualization and cloudification game – which is one with a pan-European as well as global nature – requires scale. The creation of a real European telecom single market can help, as follows: Market and regulatory fragmentation markets with high fixed costs, as well as evaluations that take longer time horizons and also appropriately weigh quality and efficiency benefits. Prices are In 2021, the number of operating groups with more important, but they cannot be the sole measure of than 500.000 customers was 38 in Europe, as regulatory success for the telecom sector. opposed to 3 in China, 4 in Japan and 7 in the US. Similarly, Europe counts over 580 MVNOs (mobile virtual operators) compared with 162 in US and Scale across EU markets Canada, and 127 in China, Japan and South Korea. This plainly asymmetrical situation is no longer With the markets and technology dynamics described tenable and should be urgently addressed. in previous paragraphs, a strong, European telecom sector is of vital importance if the EU is to When it comes to regulation, we see the need of a win at the network virtualization game and stay in simplified European regulatory framework, including control of its strategic assets. Building scale within removal of regulation where appropriate, and of a national markets is a steppingstone for cross-border fully harmonized implementation. Introducing further consolidation. Ensuring that synergies can be gained EU-wide best practices in areas such as telecoms from greater cross-border scale in the telecoms sector regulation, consumer protection, taxation and other would be in the strategic interest of the EU and it is areas would make investment in telecom markets likely to bring benefits mostly in the long-term. more attractive. Spectrum policy Scale within markets We support a more harmonized and investment- friendly approach to spectrum auctions across With economies of scale in the sector being mostly Europe. Better aligning licensing conditions to best local (e.g. efficient non-duplicated investment, practices is key. However, we do not support EU-level optimised used of assets, spectrum efficiencies, …) spectrum licenses, which would carry a number of fragmentation of telecom markets at the national unintended consequences: forcing the use of certain level remains a key issue for the sector. We bands only, for example, could create even more propose a re-evaluation of EU merger policy that fragmentation, or timing of the auctions might become acknowledges the role of minimum viable scale in difficult to coordinate. Joint Telecom Industry Response 7 / 10 Digital single market and future border integration is likely to be costly if it encounters technology intra-EU limits to data sovereignty and security limits. What is more, involvement of non-EU actors (e.g., neutral hosts infrastructure, hyperscalers) poses If done right, network virtualization and cloudification questions of strategic independence and security, can contribute to integrating markets across borders which require a clear and stable ruleset. and reduce EU fragmentation. However, such cross- Fair Contribution by All Digital Players An EU regulation is required to ensure that, according to the European Declaration on Digital Rights and Principles, “market actors benefiting from the digital transformation assume their social responsibilities and make a fair and proportionate contribution to the costs of public goods, services and infrastructures, for the benefit of all Europeans.” Today, the total annual investment by European telecom companies in 2021 amounted to €56.3 billion, which goes into deployment of advanced networks and services reaching over 500 million citizens. Regulatory intervention to ensure large traffic generators fairly contribute to network deployment would bring about significant improvements for European users and for our economies and societies as a whole, including: A fairer deal for consumers, as today their internet More resources for a faster, more inclusive roll-out bills effectively cross-subsidize the revenue models of 5G and FTTH networks as well as innovative of large traffic generators; services with edge-computing and network slicing; Gains in network quality, resulting in improved users’ Better incentives for large traffic generators to online experience; reduce the energy consumption linked to heavy data traffic loads, with positive environmental impact. Regulatory Intervention Today, the situation is not balanced: on one side, a small number of large digital platforms with asymmetric market power are responsible for most traffic growth. They generate enormous revenues for themselves through digital access to European citizens, whilst creating significant costs for telecom operators. Yet, most of the investment burden needed to meet the requirement of these large digital players falls on the shoulders of European operators. Due to significant differences in bargaining power, operators are currently not in a position to reach fair commercial agreements with those creating the greatest cost burden. Joint Telecom Industry Response 8 / 10 This calls for harmonized EU regulatory action, which we believe should be informed by the following principles: Private investment average busy hour traffic measured at the individual network level. Other criteria could also be envisaged The achievement of the EU Digital Decade targets cumulatively to the 5%, such as the need of meeting is expected to come mainly from private investment, the threshold in at least three EU Member States, to rather than public funds. Today – with the annual reflect the overall impact on European networks. telecom investment per capita in Europe being 50% less than in peer markets such as the United Exclusions States (Analysys Mason, 2023) – the main problem of the EU is the lack of adequate incentives for The proposal for a targeted and limited scope private investment. Therefore, regulatory measures outlined above would prevent any unintended should address investment conditions, rather than harm to innovation and competition. Smaller traffic increasing the size of existing public funds or generators would be exempt, for example actors universal service funds, which are often inefficient. such as public broadcasters, who also have an We need a framework that re-establishes fairness overarching social obligation to provide content to in the relationship between Large Traffic Generators end users. Similarly, intermediaries like commercial and telecom operators, so that we allow adequate content delivery networks (CDNs) should not be prices for data transport services.. considered LTGs, but the traffic conveyed via such intermediaries should count toward the LTG Obligation to negotiate designation threshold. A contribution mechanism should be based on Beneficiaries commercial negotiations enshrined in a framework that obliges the parties to negotiate, in good faith Competition in EU telecom markets should not be and based on common EU principles, a fair and disrupted: all telecom companies who invest in reasonable contribution for traffic delivery. infrastructure for connectivity – no matter big, small, traditional or challengers – should benefit from the Arbitration mechanism new rules. If no agreement among parties is reached, dispute Transparency and accountability settlement mechanisms should be foreseen, with a third, neutral party adjudicating the negotiation based The financial resources resulting from the new rules on EU guiding principles (e.g., final offer arbitration). would correct the current imbalance and ensure that LTGs start to adequately contribute to the Targeted and limited scope achievement of network roll-out, including in the context of the EU Digital Decade targets. Additional We propose a clear threshold to ensure that transparency and accountability measures could be only large traffic generators (LTGs), who impact foreseen to ensure that the resources are effectively substantially on operators’ networks, fall within the invested in network deployment as well as improved scope. LTGs would only be those companies that capacity and efficiency of networks. account for more than 5% of an operators yearly Joint Telecom Industry Response 9 / 10 GSMA Head Office ETNO aisbl 1 Angel Lane Boulevard du Régent 43-44 London, EC4R 3AB 1000 Brussels U.K. Belgium Tel: +44 (0)207 356 0600 Tel: +32 (0) 2 219 32 42 Email: [email protected] Email: [email protected] Saatja: "Daniel Pataki" <[email protected]> Saaja: "MKM info" Teema: Taking action on the future of European telecoms policy | Letter to EU Telecommunication Ministers Kuupäev: 2023-05-26 15:00 Dear Minister, Please find enclosed a letter by the CEOs of Europe’s leading telecom companies expressing their concerns on the future of European telecoms policy. Kind regards, Daniel Pataki Vice President, Policy and Regulation & Head of Europe GSMA +36 30 466 3109 gsma.com .