21 October, 2013

EU Telcos: “A regulatory reform is needed to put the sector back on track”. Luigi Gambardella (ETNO) interview

The 2013 FT-ETNO Summit “One Single Telecom Market for Europe?” took place in Brussels on 8 October. The event represented an important occasion for discussion, at the highest level, around the future of European telecommunications and marked a turning point in the industry’s strategic development.

During the Summit it was frequently underlined that the sector badly needs a change of pace in order to unleash a new phase of growth. The discussion focused on the recovery of the continental economy, keeping in mind the forthcoming European Council (24-25 October) which will be devoted to the European Digital Agenda.

Taking part in the summit were some of the key actors and decision-makers in and around the sector, at European and national level, from Commissioner Neelie Kroes, to the French Minister Fleur Pellerin and the Chairman of Berec Göran Marby; from the industry itself figures including Stéphane Richard, CEO of Orange, Timotheus Höttges, Chief Financial Officer of Deutsche Telekom, Randall Stephenson, CEO AT&T, Hakam Kanafani, Group CEO Turk Telekom, Mike Fries, President and CEO Liberty Global and Ben Verwaayen, former CEO Alcatel-Lucent; and from the financial world, including Peter Golob, Managing Director, Chairman of EMEA TMT Bank of America, Merrill Lynch, Stephen Howard, Head of Research at HSBC and Robin Bienenstock of Sanford C. Bernstein. The participants discussed where we stand now and the strategies that need to be adopted in order to stimulate investment and restart digital innovation. The Communication and the proposal for Regulation for the achievement of a Single Market recently adopted by the Commission provided the background for the debate.

It is clear that the ETNO Summit on the EU regulatory framework for telecommunications has reshaped the debate, shifting the focus on all the challenges that the continuing technological revolution is presenting to EU operators and legislators.

What are the proposals and the obstacles identified during the Summit?

What is the industry point of view on the sector’s prospects and on the necessity to support investment?

How will Europe be able to successfully position itself in the new global arena of digital technologies and electronic communications?

We touched on all these issues with Luigi Gambardella, Chairman of the Executive Board of ETNO.

BB4E. The FT-ETNO SUMMIT 2013 has just concluded…your first thoughts?

Luigi Gambardella.  I believe that our Summit has made an effective contribution to the October European Council, which will be devoted, indeed, to the Digital Agenda subjects. Now it is necessary to address those issues that we believe should inform a review of policies in the electronic communications sector in Europe, keeping in mind that we cannot afford a short-sighted public policy in this field.

BB4E. What is the role of the overall ICT sector, and, in particular, the telecommunications sector in boosting the European economy?

Luigi Gambardella.  In his recent address on the State of the Union, President Barroso stressed the key role that the ICT sector and the digital economy are playing, and will play, in the recovery strategy of the European economy. We share the same view. However, President Barroso has also recognized that the sector is far from being fully integrated. Even if we have an internal market for physical goods, we still have 28 national digital markets.

BB4E. So Europe is approaching a review of the regulatory framework?

Luigi Gambardella. The Commission has just adopted a Communication which addresses this important challenge. In its Communication, the Commission identifies many areas which still need to be addressed: for example the need for market restructuring (by means of market consolidation), the creation of a level playing field for all actors in the ICT value-chain and the need for further steps to deregulate the sector. On the same day, the Commission tabled a draft Regulation laying down measures concerning the European Single Market for Telecoms. As with any legislative proposal, there are parts of this text that the sector welcomes and parts that we are more critical of.

BB4E. What will be the ETNO position?

Luigi Gambardella. ETNO commits itself throughout the legislative process to explain its point of view on this Regulation. We are confident that the European Parliament and the Council of the EU will undertake their analysis with the understanding that the EU market for e-communications must start a new phase of growth.

BB4E. Bearing in mind the last initiatives of the Commission, what are the outcomes expected?

Luigi Gambardella.  With regard to the Commission proposal, the main areas of concern that we see are those that increase the level of uncertainty in terms of direct impact on operators’ revenues at a moment when European telecom operators are already suffering from decreasing revenue streams.

BB4E. Are these measures included in the Commission proposal for regulation?

Luigi Gambardella. Exactly. By introducing price regulation for certain competitive services, the proposal gives a negative signal to investors, because the perception will be that further regulation is always around the corner. By contrast, in other areas such as spectrum policy, the proposed rules would improve the investment climate in Europe. We share the diagnosis, but we have to ask ourselves very frankly whether what is on the table is enough to put Europe back on track.

BB4E. It does not seem easy at all…

Luigi Gambardella.   While Europe was once a leader in the technologies that comprise the backbone of the digital economy, many markets in Asia and North America now enjoy fibre access penetration that is up to 20 times higher and an LTE penetration that is as much as 35 times greater than that of Europe. This is true in markets which are larger but sometimes also smaller than the EU markets. Fast connectivity to the Internet is the foundation of a modern digital economy and a key enabler of innovation. Without it, Europe will fall behind on the world stage.

BB4E. What is at stake for Europe?

Luigi Gambardella.  Up to 750 billion euros in GDP growth and as many as 5.5 million jobs in the economy of the EU are at risk by 2020 because of the lack of next generation network investments. Such data come from a Report produced by the Boston Consulting Group and have been brought to the attention of policy makers by ETNO in recent months. This report underlines the fact that investment in telecommunications infrastructure in the EU declined by approximately 2 per cent a year over the last five years. Investment in other international telecoms markets grew by roughly 2 per cent a year over the same period.

BB4E. In such a situation, it seems more difficult than ever to reach the Digital Agenda targets …

Luigi Gambardella.  Let me be very frank in terms of the scenario that we face: by 2020, we estimate that that the shortfall in investment needed to meet EU Digital Agenda targets for broadband coverage and penetration will be between 110 and 170 billion euros, leading to an enormous missed opportunity for the broader EU economy.

But those trends can be turned around.

Europe must now fight to keep a seat at the global competition table!

BB4E. How can those trends be reversed?

Luigi Gambardella. We strongly believe that the time has come for a rethinking of the current regulatory framework. Without such changes, we can expect the revenues of the European telecommunications sector to continue to contract over the next decade, further diminishing investment. Competition is vital for innovation and consumer welfare but we see that competition is there today, it is vibrant and it comes also from players that are not subject to the strict rules that apply to European telecoms operators.

BB4E. It is always a challenge to bring regulation and market into the right alignment…

Luigi Gambardella. ETNO believes that a shift in the regulatory approach should be undertaken along the following main lines:

Firstly, moving from sector-specific regulation, enacted at Member State level, to a fully harmonized and simplified pan-European approach, relying mostly on competition law.

Secondly, shifting from a view of the market that is based on narrow and rigid definitions of networks, services, technologies and national borders, to a paradigm that embraces a full view of the value-chain including content provision, in a technologically agnostic manner and with a differentiated geographic lens, based on the service provided.

BB4E. That said, how can the role of Europe be enforced, how can the competitiveness of the EU and its international leadership be re-launched?

Luigi Gambardella. We should start by recognizing that the EU is lagging behind and that we need a winning strategy and a roadmap for the years to come.

BB4E. What are the priorities that the telecommunications industry intends to point out to the next European Council?

Luigi Gambardella. We have to think ahead. Therefore, we ask the European Council to adopt a forward looking approach, giving the necessary policy guidance to start, as soon as possible, a policy review process that will be mostly implemented by the next European Commission. Then, the Council should consider the underlying reasons why Europe’s tech and telecoms champions are now falling behind, why Europe lags behind other – large and small – advanced economies in the roll-out of new networks, and why Europe has generally lost its edge in the global digital economy.

BB4E. During the Summit, ETNO illustrated its 4 proposals. Can we briefly mention them?

Luigi Gambardella. We recalled the necessity to undertake an overall reform of the sector, along the following lines:

First: support for the necessary costly investments in new high-capacity infrastructures by establishing a clear deregulatory agenda, given the high degree of competition already achieved in the EU;

Second: build an open European Internet model which guarantees the maximum level of innovation and choice for European consumers. This should be done by ensuring best-in-class levels of privacy and security and by avoiding gatekeepers working across the value-chain. For this reason, it is paramount to establish a real level playing field , especially between OTT services and telecom services, which will ensure that nobody enjoys unfair competitive advantages and that consumers can enjoy the same rights when using the same services;

Third: allow operators to reap the full benefit of European scale by allowing the flexibility needed in order to achieve an efficient market structure, taking into account the medium and long term benefits for consumers;

Finally: we need to support EU innovation. We need to build a sound policy framework to encourage entrepreneurship, including European financial measures and the participation of venture capital for the promotion of digital talent, projects and start-ups in the digital field.

BB4E. All of these proposals seem very ambitious…

Luigi Gambardella. The EU Digital Single Market should effectively turn into a springboard for the resurgent global competitiveness on the part of EU players. I am sure we will continue to have a close dialogue between the industry and EU policy makers so that this can become a reality. The challenges we have to face are not only about the telecoms sector, but the overall strength of our European economy. But I’m confident we can face these challenges.

Interview by Raffaele Barberio, Broadband4Europe www.broadband4europe.com

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