EU needs single telecoms market to stay competitive

broken telecoms in germany
A fractured market. Source: ddp

Deutsche Telekom will be a predominantly American company in the future, at least in terms of revenues and earnings, provided cartel authorities approve the merger of its US division, T-Mobile, with rival Sprint. That’s precisely what Telekom’s management wants because it sees more growth potential in America than Europe. The US has a population of around 325 million, and ever more people are using multiple devices these days.

Although the European Union has a larger population of 512 million, the market is too fragmented to offer US levels of growth. America only has four players in the mobile market, three if the merger goes through. In the EU, each of the 28 member states has three providers on average.

There’s overlap, of course, as some telecoms companies are active in more than one country. But even a major European player like Deutsche Telekom only has a potential customer base of less than 200 million in Europe. In addition, each country has its own rules and regulations, which makes it hard for companies to provide uniform services for all.

That’s why all the top mobile providers are seeking growth outside Europe. Spain’s Telefonica is particularly active in Latin America, while France’s Orange is targeting Africa, and the UK’s Vodafone is focusing on Africa as well as India.

5G network, telecoms in germany
Waiting for 5G. Source: picture alliance

The EU Commission didn’t want this to happen. Its plan was to create a unified digital single market to help domestic telecoms firms fend off powerful rivals from outside Europe. And it wanted them to set up a modern digital infrastructure to help promote the digital economy in Europe. Politicians, managers and researchers kept stressing that Europe was at risk of falling behind in high-tech industries, but the warnings fell on deaf ears.

Many governments appear to have stopped listening — after all, top firms in the industry such as business software group SAP and Deutsche Telekom have stood their ground so far. It can’t be that bad, they appear to be thinking, and have allowed themselves to be lured by national pride.

Instead of creating European telecom champions, governments have promoted national firms, often from once state-owned enterprises. But the national approach is hurting Europe. Instead of agreeing a common auction process for fifth-generation wireless licenses, every country is going it alone as no one wants to surrender control of this crucial technology. While the French government and business sector have already agreed to the terms of the 5G rollout, a dispute continues to rage in Germany over government demands for companies to commit to setting up a nationwide network. That means companies will again have to contend with different regimes from country to country. In the US, it’s simple: 5G frequencies are sold to the companies, and that’s that.

The telecoms sector is special.

In the telecoms sector in particular, size really matters. Infrastructure investment is so expensive that it only pays off if many customers use the network. Sure, big firms can hurt customers by charging higher prices and innovating less — that’s an economic fact of life that applies to most industries.

But the telecoms sector is special. Without it, digital progress stalls because companies also have to provide the lines and the cellphone masts. Governments have understood that and are asking, nay, demanding that companies invest in networks even though demand for high-speed internet lines will only increase in the years to come. The companies are in effect being asked to make an advance payment without the prospect of said economies of scale.

In that environment, consolidation is the better alternative for companies like Vodafone, which is attempting to buy the continental European assets of US cable giant Liberty Global. Let’s see what the EU has to say about that.

To contact the author: karabasz@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!