19 October, 2011

ETNO Executive Board Chairman, Luigi Gambardella, spoke at the Polish Presidency — Perspectives for the development of the electronic communications market in the EU - Conference

Session on Next Generation Access Networks – Business models

Intervention by Luigi Gambardella, ETNO EB Chair

  • Good morning to all,
  • It’s a great pleasure to be here in Warsaw, so let me thank the Ministry of Infrastructure for inviting ETNO to participate in this conference. Our members are glad to note that the Polish Presidency has placed the ICT sector so high on its agenda.
  • We need policy makers to give priority to the electronic communications sector because it urgently needs a strategic vision for the future. Policies for the sector should aim before all at maximizing its positive impact on the economy and the society as a whole.
  • On the eve of the European Council which will focus on the financial crisis, it is important to highlight the key potential of our sector to drive growth and jobs and increase productivity. A new study by Oxford Economics and AT&T revealed that if by 2020 Europe builds its ICT capital stock to the same relative level as the US, EU GDP would increase by 5%, equivalent to about €760 billion.
  • For enabling our sector to fully play its role we need bold policies to stimulate the deployment of high speed broadband networks and services, coupled with measures to encourage the other sectors of the economy to embrace broadband.
  • A step to the right direction has been the Commission's communication on the Connecting Europe facility. The Commission's decision to allocate 9.2 billion euro in the multi-annual framework for new networks and services through this facility will be a tool for bridging the digital divide.We firmly believe that such facility, together with the already available public funds, will be complementary to private investment in those areas where no commercial deployment is envisageable.
  • However, the fact remains that the greater part of network deployment will be driven by the private sector. 
  • ETNO members are playing an important role to delivering on the ambitious objectives set by the European Commission and offering fast internet at 30 MBit/s to all by 2020 and at 100 MBit/s to at least 50% of European citizens.
  • However, meeting these targets is particularly challenging in today’s economic context of the sector. It is therefore important that the right policy environment is in place. Otherwise the whole Digital Agenda might be endangered.
  • Data traffic is growing today at an unprecedented pace due to the rapid uptake in usage of social networking sites and over the top applications, and the emergence of new devices as smartphones and tablets.
  • By 2015, global Internet traffic is expected to grow 4-fold.
  • At the same time, however, the overall growth of the telecoms sector in Europe was negative in 2009 and 2010. Revenues for the EU electronic communications sector were down from €350 billion in 2008 to €332 billion in 2009. Revenues from voice (still 57% of the revenues for the EU telecom operators) experienced large declines (-6.7% in the case of fixed voice telephony and -4.2% in the case of mobile voice telephony).
  • As a result, overall investment figures have dropped considerably (by up to 12%).
  • This disconnection between the rapid increase of data traffic on one hand and a reduction of revenues on the other, demonstrates that so far the rapid data traffic increase, mainly driven by over the top players based outside the EU, has not benefited those who have to bear the costs of investing in new infrastructure.
  • In order to be able to meet the investment challenges ahead, operators have to search for new revenue streams and the rapid increase in data traffic across all networks needs to be turned into an opportunity for growth in Europe’s telecoms sector in the years to come.
  • None of this can be made without sound business models that allow rewarding investment efforts to be made in the years to come.
  • In fact, investments need an attractive business case. Investing in next generation networks without the prospect of a fair share in the revenues generated by the traffic on these infrastructures, is not an attractive, or even a realistic, business proposition.
  • The choice of costing methodology influences the price that regulated operators may charge for access to their networks and is therefore a key part of the equation of how to foster high-speed broadband deployment in the EU. If regulators get prices wrong the investments by network operators may not pay off and may not take place at the scale necessary to meet the targets of the Digital Agenda.
  • Over the past days several investors and analysts have already voiced their concerns that a reduction of wholesale charges on current networks would have an hampering effect on network investment.
  • To price current copper networks below their economic value would penalize those operators that have invested in their own networks and critically reduce investment incentives for the future.
  • It will not be possible to deliver ultra-fast internet for the price of the current 4 Mbit connections. This is a plain business fact. In order to ensure the take-up of the ultra-fast internet, no pricing formulas should be excluded.  For example, it should be allowed to combine attractive connections charges encouraging the user to go for ultra-fast internet, with a contribution from the new services that the new networks make possible.
  • What investing operators really need is a certain degree of flexibility to develop new business models and a more proportionate regulatory approach which takes investments’ risks into account.
  • Network operators are increasingly in competition at retail level with over-the-top applications and services which are not subject to the same constraints. The regulatory approach to next generation access networks needs to reflect the increased competition from alternative platforms. For new fibre networks, intrusive remedies like cost-orientation obligations are the best way to discourage investments in the current, gloomy economic context.
  • We have several examples in Europe showing that when regulators apply a geographically segmented approach and allow for flexibility in pricing of wholesale access, investments in high speed broadband networks have increased significantly.
  • Achieving the Digital Agenda goals will require a mix of technologies and platforms depending on the geographical and market circumstances. In rural and remote areas, mobile and wireless networks will play a key role to deliver high speed broadband access to citizens. It is therefore essential to ensure that the digital dividend band of 800 Mhz is fully opened by 2013, as proposed by the European Commission in its Radio Spectrum Policy Programme.
  • However, in the light of rapidly increasing data traffic, Europe will need more spectrum. The United States and Japan have decided to allocate respectively 1200 and 1500 Mhz to mobile broadband. Europe cannot lag behind.
  • We would therefore urge the Council, the Parliament and the Commission to achieve a forward looking and timely agreement on the RSPP.
  • Finally, one of the key factors dissuading investments is the uncertainty about consumers’ demand. It is therefore essential for Europe to take the necessary measures to remove regulatory obstacles and barriers in order to create a truly single market for innovative online services in fields such as e-health, smart grids, mobile payments and content, to name a few, that will drive demand.
  • In the same vein, as highlighted by a new research by the London School of Economics, policy makers should encourage the development of new quality-based offers that would both benefit consumers and lead to new revenue streams for operators.
  • Let me close my speech by making  a concrete proposal. TV could be a killer application which can stimulate demand. By encouraging the migration of TV from terrestrial to high-speed broadband platforms, including fibre or mobile/satellite networks where fibre networks is not available, we would create huge demand for new high speed broadband and boost investment. In addition, this would free up more spectrum which is much needed for mobile and wireless broadband networks, and would further help to bridge the digital divide.
  • I hope that all the proposals I have just made on behalf of ETNO members will be welcomed by the Polish Presidency and the other EU institutions and will soon converge in the far sighted strategic vision the sector is calling for.
  • Thank you very much for your attention. 
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