The legislation will aim to attract investment and support consolidation, but seems to be a conciliatory prize for not progressing ‘fair share’ further during the current mandate
Many respondents plan to invest heavily in digital transformation
On 10 October 2023, the EC finally published the results of its exploratory consultation on the future of the electronic communications sector and its infrastructure. Having reviewed 437 responses, the EC has highlighted three key takeaways. The first relates to ongoing technological shifts in the market. Respondents acknowledged that copper networks will have to give away to new types of cloud-native digital infrastructure, leveraging technologies like AI. This transformation will have impacts across the sector, including on investment decisions. The majority of respondents anticipated investing up to 50% of their annual revenues over the next five years into digital transformation (e.g. removing high-risk vendors and upgrading physical infrastructure) – which is considerably above the 15-20% capex to revenue ratio often attributed to the telecoms industry. With the EC identifying a significant investment gap to meet the bloc’s 2030 Digital Decade targets, some respondents argued that state aid may become increasingly important.
A true digital single market is yet to materialise
The second takeaway relates to the single market, with most respondents considering that streamlining and simplifying regulation across the region while harmonising best practices could cut administrative costs, as well as speed up infrastructure deployments. However, the full integration of the telecoms single market is still hampered by the fragmentation of the sector into national markets, which often differ in their implementation and enforcement of EU rules. Removing investment barriers, promoting open standards and supporting cooperation on key technology developments were all proposed as ways to help create the single market and exploit the economies of scale it offers. However, public bodies (including national regulators and local authorities) stated that achieving a unified regulatory approach that promotes both fair competition and innovation remains a challenge.
Security is seen as a major challenge for Europe’s telecoms networks
The third takeaway focuses on security – an issue on which the EC received many similar views from respondents. Aside from the financial health of the sector and weak investment incentives, the increase of cybersecurity and security breaches was cited as a significant challenge for telecoms networks. The EC considers there are important loopholes when it comes to securing Europe’s infrastructure. On spectrum, respondents underlined that a more coordinated approach could improve coverage at national border zones and considerably strengthen the EU in cases of harmful interference from third countries.
Commissioner makes pledge to introduce new legislation
Accompanying the results of the consultation was a blog post from Commissioner Thierry Breton in which he promised a new ‘Digital Networks Act’ to reduce market fragmentation and remove regulatory barriers to investment. This was previously confirmed by Renate Nikolay (Deputy Director General, DG Connect), although referred to as a ‘Telecoms Act’. Breton considers that bold, future-oriented legislation is vital to redefine the DNA (and revive the fortunes) of the sector. This will be based on four pillars:
Facilitating cross-border operations and the creation of true pan-European players;
Adapting the regulatory framework to cuts costs and red tape for a fast deployment of technologies (building on the Gigabit Infrastructure Act);
Attracting more capital (especially private capital) into the telecoms sector; and
Securing networks, including by closing current loopholes.
The announcement received support from some large operators and industry associations, particularly for its focus on in-market consolidation. However, while Breton has pledged to do “whatever it takes” to boost European competitiveness, he said little of note on ‘fair share’ – despite it accounting for a discrete section of the consultation. Though there was a vague commitment to finding the right financial model for necessary investments, a decision on whether to progress the matter could be left for the next Commission to make. The Digital Networks Act therefore appears to represent a compromise, with any proposed regulation on contributions to telecoms network costs potentially not forthcoming until 2025.
