The report confirms the bleak outlook for Europe’s telecoms sector, but offers the possibility of growth, if not leadership, for the EU in some tech markets
The EC published the long-awaited Draghi Report, offering a bleak outlook for the telecoms sector
On 9 September 2024, the EC published the highly anticipated report from Mario Draghi (former Prime Minister of Italy) on the future of European competitiveness. The Draghi Report follows on from the EC’s white paper on digital infrastructure and the EC-commissioned Letta Report on completing the EU’s single market. Similar to the Letta Report, the Draghi Report offers a diagnosis of the EU’s broader economic outlook and a series of sector-specific recommendations to better align internal markets and regulation and improve the bloc’s global competitiveness. While it paints a now familiar picture of the financial state of the telecoms industry and needed reforms, Draghi takes up the issue of European tech regulation, including the impact of the GDPR and AI Act, in greater detail than its predecessors and emphasises the importance of digital markets to the growth of the EU economy.
Draghi tells a similar story of financially strained operators but finds cause for optimism in the sector’s supply chain security
In a similar assessment to the EC’s white paper and the Letta Report, the Draghi Report cites lagging ARPU and CAPEX as well as shrinking market capitalisation in comparison to US and Asian markets as evidence of the EU telecoms sector’s bleak financial outlook. Though the report makes the argument that a lack of operator scale and continued regulatory fragmentation across the bloc is harming growth, it also points out the EU’s lack of foothold in device manufacturing, mobile ecosystems and satellite connectivity markets as signs of weakness in fast moving communications markets. Draghi notably justifies the need for consolidation in the sector by citing claims from the EC’s white paper, drawing some criticism on whether these conclusions represent externally informed analysis. The Draghi Report does commend the relative security of the telecoms supply chain in comparison to other sectors, noting that the strength of European vendors including Nokia and Ericsson has furthered aims in network resilience, cybersecurity and data protection. As with most of the other sectors detailed in the report (a document of 400 pages, of which around 20 are dedicated to telecoms), Draghi finds that the sector is in need of swift and substantial remedies in order to counter an existential threat to Europe’s standing in the world.
The report envisages a similar set of legislative proposals to the EC’s white paper, including bringing back fair share (absent from Letta’s report)
Aligning closely with prior reports, Draghi recommends the harmonisation of competition policy and spectrum management across the bloc to encourage the creation of pan-European operators. In its vision for an “EU Telecoms Act,” the report recommends:
Abandoning ex-ante market regulation in favour of ex-post intervention and applying the same regulatory standards to all providers of similar services, including traditionally tech-oriented services;
Encouraging commercial arrangements between platforms and operators to support network development (also known as fair share agreements) backed up by mandatory final arbitration through NRAs;
Defining telecoms markets at the EU-level and making additional consideration for innovation and investment commitments in merger decisions;
Harmonising EU spectrum licensing, extending licence durations, banning spectrum reservations and limiting the use of spectrum caps only to the most dominant operators (over 50% of retail market share);
Setting bloc-wide deadlines for the retirement of copper and 2G networks; and
Enforcing compliance with the ‘EU Toolbox for 5G security’ within a set timeframe and providing research funding for work on the virtualisation of networks and 6G.
In the short-term, the Draghi Report also prioritises improved cooperation among cybersecurity agencies and adopting a country of origin standard to better facilitate service offerings across EU borders.
The report holds its hopes for EU growth in AI and computing industries against its sharp criticism of the bloc’s digital policymaking
The Draghi Report does deviate from earlier writings from the EC in its focus on developing the EU’s digital economy, particularly in the context of high performance and quantum computing and artificial intelligence (AI). Despite detailing the vast competitive advantages held by the US and China in platform services and cloud computing sectors, the report suggests there is reason for optimism in the EU’s potential for growth in certain tech subsectors. Through a proposed “EU Cloud and AI Development Act,” the report recommends that the EC continue to invest in computing capacity to grow existing leadership in supercomputing and quantum computing and develop sectoral AI strategies to embrace emerging strengths in the deployment of AI systems. As the debate on cloud sovereignty continues throughout the EU, the report also attempts to balance strengthened rules on the localised control of cloud security and encryption standards against its support for greater collaboration with the US on facilitating international cloud and data markets. Most notably, the report strongly criticises the regulatory burden imposed by the EU’s flagship digital regulation, including the GDPR and AI Act, as stifling growth in the tech sector. That criticism, which was met with praise from US-based tech leadership including Elon Musk, will contribute to the context around the forthcoming review of the GDPR as well as the ongoing effort to implement the AI Act alongside in particular the Digital Markets Act and the Digital Services Act.
