By Adrian Baschnonga, Lead Telecommunications Analyst at EY
It’s been 12 months since the European Commission unveiled plans for far-reaching reform of the European telecommunications sector entitled “Connected Continent”.
Proposed in September 2013, the package is a landmark attempt to create a single market for telecoms in the region through measures including the abolition of roaming premiums, easier switching processes for customers, the protection of open internet and co-ordinated spectrum allocation.
An ambitious reform, the Connected Continent package has provoked a range of reactions since it was unveiled. For its part, the EU has been keen to stress that a single telecoms market would add €110 billion to the EU’s GDP, while also recognising that greater regulatory certainty can drive higher levels of network investment.
This is crucial given Europe’s laggard status compared to other regions regarding the take-up of 4G service: while the US accounts for more than four in 10 LTE subscribers worldwide, Europe lays claim to barely one in 10.
The slow pace of spectrum release has made it difficult for operators to meet demand for mobile data, while low mobile data prices compared to other regions also signify high levels of competitive intensity.
Many leading European operators have felt that the package sidesteps the best way to overcome a fragmented industry landscape, namely through greater support for more rational national market structures.
In March this year, the GSMA sent an open letter to EU Commissioner Neelie Kroes, outlining the key elements required to deliver a single market: spectrum management reform, modernised regulation and, crucially, consolidation as a major catalyst for a better investment climate.
Since then, mobile mergers in Germany and Ireland have been approved by the EU’s antitrust authority, with concessions designed to sustain competition majoring on the provision of wholesale network access for MVNOs.
While such decisions suggest that regulatory views on the relationship between competition and investment are changing, explicit backing for consolidation remains absent from the proposed single market reforms.
Other areas flagged in the original proposals have also come under scrutiny over the last year. Debate regarding the open internet has rarely been out of the headlines this year – both in North America and Europe – and the single market reform’s treatment of net neutrality has unsurprisingly attracted attention.
In April, the European Parliament voted to approve the Commission’s single market reform package, yet significant amendments were made. The revised wording regarding open internet laid a greater stress on restrictions to traffic management, which some critics have seen compromising operators’ ability to manage their traffic loads effectively – and which could jeopardise essential services such as telemedicine in years to come.
Another issue that has proved divisive in recent months is the future of roaming charges within the EU. The Connected Continent package has underlined the need to abolish roaming premiums in their entirety, building on the most recent round of specific roaming reforms that sought to decouple home and roaming contracts in order improve competition and reduce bill shock for consumers.
The “carrot and stick” approach involved has been met with dismay by many, given that roaming prices have already fallen significantly over the last five years.
At the same time, timeframes remain uncertain. The Commission had originally pushed to abolish roaming premiums no later than 2016, before the European Parliament voted in April to end roaming fees within Europe from December 2015.
However, the most recent reports suggest that the EU has since softened its stance, with roamers able to use mobile voice and data at domestic rates as part of a ‘fair use’ policy, which would lead to extra charges if breached.
Any such development would be a fillip for larger operators, but may threaten smaller competitors if the wholesale rates they pay remain as originally proposed.
All told, the sheer level of ambition inherent in the Connected Continent reform has meant that it remains very much a work in progress. Wording and language used in key elements of the proposal have been altered following the European Parliament vote in April, while the reported alterations to roaming regulation again highlight the tricky balancing act underway.
The complex interplay of intentions that single market reform aims to enshrine – from job creation, to greater network investment to consumer protection – mean that trade-offs lie at the heart of the reform’s agenda.
At the same time, key issues such as net neutrality and consumers’ digital rights are subject to headwinds from other markets such as the US. Forging a package that creates a healthier business climate for the industry while sustaining competition and consumer choice will be no easy task.
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