Digital infrastructure must look forward, not back

By Nick Read, Chief Executive Officer at Vodafone Group

At Vodafone we’ve sometimes differed with the EU’s competition authorities. But broadly, EU competition law aims at the right target: policy should encourage both competition and continued investment in digital networks and telecoms services.

Lately however, some national governments and regulators are in danger of losing their way. In Italy, the government is pushing toward effective renationalization and re-monopolization. In Portugal and the Czech Republic, even though telecoms is already one of Europe’s most deflationary sectors, officials are chasing short-term price reductions for consumers. New players are being artificially pushed into the market at the sacrifice of long-established players who have invested significantly to deliver high-quality digital infrastructure.

Neither approach is good for consumers or for the health of the digital economy in Europe. And both are arguably in breach of EU law. For the sake of all Europeans, it is time Brussels took notice of these trends. With Europe ever more digitally connected due to COVID-19, the EU must not get its digital infrastructure strategy wrong.

Starting in the 1980s, the European Commission took an active interest in ensuring effective competition in the telecoms sector. Under the aegis of the EU’s competition law and telecoms-policy framework, state-owned monopolies were privatized, new competitors were encouraged to invest in wireless markets, and wholesale access to local loops and essential telecommunications facilities was mandated to allow new entrants a path to market in wireline services.

Vodafone got its start in the early years of this new era, acquiring the U.K.’s second cellular radio license in 1982. Today, we are Europe’s largest mobile and fixed operator: present in 11 EU countries with partnerships in nearly all others. Vodafone is one of the few major pan-European operators spawned by Europe’s regulatory opening to telecoms.

Now, we merely ask for the opportunity to continue to compete on a fair equitable playing field.

In Italy, the government has been seeking to recreate the fixed-line monopoly in the country that previous governments and EU institutions over time had dismantled. For some time, the government has been seeking a way to consolidate the fixed-line network of Telecom Italia, the former state-owned monopoly, with OpenFiber, a government-controlled wholesale-only fiber-network.

This would leave would-be fixed broadband providers with only one seller of wholesale access to the combined network — yet again Telecom Italia. OpenFiber’s wholesale customers, including Vodafone, would have to compete against Telecom Italia’s retail fixed broadband offerings without any other option than to buy wholesale access from them.

Creating any form of competition in Italy’s fixed market has been notoriously difficult; only with the establishment of OpenFiber a few years ago did Italy start to modernize its fixed networks, providing more comparable high-speed services to those of other EU member countries. So, reverting to a failed monopoly model cannot possibly be good for either competition or investment. It also contravenes four decades of anti-monopolistic policy and EU law.

Portugal and the Czech Republic are, in a sense, moving in the opposite direction. Each country is seeking to draw a new fourth operator into their existing competitive three-player wireless market by offering them preferential access to spectrum and an open-ended right to roam on existing operators’ wireless networks while the new entrant builds out.

Officials might hope that a new entrant will help drive down prices for everyone. But the truth is that these heavy-handed interventions of forced cross-subsidization between operators and state aid by government’s spectrum preferences, rarely end well for anyone involved. Compelling existing operators to provide long-term, open-ended roaming access creates a disincentive to actually build out — for the new entrant and for the established players.

This is amplified, as is the case in the Czech Republic, when the roaming access must be provided with no margin. If operators can’t earn a return on the capital they’ve deployed to build out a network, and are instead compelled to make that network available to a competitor at zero risk, it becomes hard to justify — or even to raise capital for — network expansion and upgrades. Meanwhile, the new entrant itself is deprived of any incentive to deploy its own network because it has open-ended access to its other operators’ infrastructure.

In Portugal, the situation is similar, although the regulator there has at least allowed the incumbents to set market-based prices for roaming access. Even so, the new entrant is being offered very favorable terms to come in, including the state subsidizing the entrant’s spectrum bill compared to other operators, when it’s not clear that there is a business case for four national operators in the country.

EU law does permit governments to impose these access rights on incumbents — but only when the state has made a formal finding of a market failure or serious lack of competition in the country. This is not the case in either Portugal or the Czech Republic. In fact, in the Czech Republic’s case, the EU Commission has ruled previously that there is no justification for intervention as part of its recent market review. But the national authorities try to circumvent the EU’s decision by putting the interventions under its spectrum auction.

The EU Commission should more forcefully defend its prerogative against such blatant attempts to deviate from EU law.

By any measure, competition policy and the wireless economy are two great European integration economic success stories. But in too many cases we seem in danger of looking backward rather than building on what made Europe so successful at the dawn of the internet age.

A policy framework that has encouraged fair competition, on equal terms, whilst creating an environment that encourages investment has helped ensure a vibrant and competitive landscape across most of Europe. A return to a monopoly, as threatened in Italy, would be a giant step backward. But equally, forcing operators in already competitive markets to subsidize their competitors is bad policy. All at a time when the industry is suffering all-time lows in returns, while everyone needs the telecoms critical infrastructure to support the recovery of our economies and deploy 5G.

Europe must get serious about closing its widening digital infrastructure gaps. China’s significant lead and the U.S.’s 5G deployment over the EU should concern European leaders.

Fair competition, incentives for investment and scaled healthy telecoms players will give Europe’s telecoms infrastructure the resilience and high quality needed to underpin our digital ambitions, and for Europe to be successful.