Europe’s digital future at risk without regulation reboot

Vodafone is calling for decisive action from the European Commission to address challenges facing the telecommunications sector, and to ensure Europe’s digital targets for 2030 are achieved.

Joakim Reiter, Chief External and Corporate Affairs Officer, Vodafone said: “This is a critical point for the EU. It has already fallen behind on 5G and its Digital Decade targets now look increasingly unattainable. If the EU wants to move from words to actions, it must now show seriousness and resolve in delivering the urgent changes needed to protect and ensure Europe’s digital future.

“We are convinced that Europe’s Digital Decade ambitions are the right ones. But they can only be achieved through a fundamental reboot of EU policy that truly encourages investment in connectivity, removes barriers to growth and reflects the significant transformation underway in every aspect of the digital ecosystem. Things are changing and, to remain relevant, it is high time that EU policies change with them.”

Europe’s connectivity challenge

Europe needs high-quality, modern, and secure connectivity. This enables consumers to continue accessing the latest digital services, and businesses to benefit from new and emerging technologies.

Providing that upgraded connectivity requires significant, sustained investment in new 5G and fibre networks. An estimated €174bn is needed for Europe to meet its digital targets. This comes at a time when the entire connectivity and communications value chain is undergoing a fundamental shift driven by technology, market changes and new and emerging market players. While these bring many opportunities for Europe, there are also risks of EU and European companies falling behind unless a new policy approach is adopted.

A fair contribution

In its response to the Commission’s consultation on the future of the connectivity sector, Vodafone argues that the companies generating the most data traffic – excluding public broadcasters – should make a proportionate contribution to the costs of the networks that carry it.

The volume of traffic on Vodafone’s network has grown considerably in recent years – with 360% growth between 2019 and 2022 alone. Nearly 50% of this traffic was generated by just four of the world’s largest digital content providers, also known as over-the-tops (OTTs). Vodafone anticipates a continued annual growth of 21–30% in peak traffic year-on-year.

In 2022, nearly 20% of Vodafone’s overall expenditure on network upgrades could be directly linked to managing traffic growth driven by those OTTs. The evolution of services like virtual worlds – which will also require more costly, low-latency networks to function – could exacerbate this issue.

Focusing investments towards managing data traffic demands, driven by OTTs, could make it more difficult to invest in other areas such as eliminating rural coverage gaps, or supporting the digitalisation of public services like education and healthcare.

The situation is unsustainable. Simply put, telcos want to continue investing in network upgrades for the benefit of Europeans, but cannot continue shouldering that cost alone.

Europe can address this situation with new rules that ensure those companies extracting the most value from investment in network infrastructure, such as the largest content generators, also make a fair contribution to the costs of telecoms networks.

This could be based on a regulatory framework that facilitates direct payments from the largest traffic generators to the telcos that provide them with network-based services.

Europe has said before that all companies benefitting from the evolving digital world should make, “a fair and proportionate contribution to the costs of public goods, services and infrastructures,” and Vodafone supports this message.

Scale is critical to supporting investment

Vodafone also highlights the significant challenges with excessive fragmentation of EU Single Market, including gaps in rules and inconsistent application of common rules. All these undermine the necessary scale needed to underpin investments in EU connectivity infrastructure.

In this context, Vodafone stresses that in-market consolidation is needed to achieve the scale required to strengthen the sector against growing financial headwinds, and the intense competition from other parts of the value chain. The positive effects of in-country scale on investment incentives and efficiencies – and therefore consumer welfare and the ability to fund the investment needed to reach the Digital Decade goals – would be significant. It is also important to stress that the European telecom sector, contrary to many other industries, does not enjoy any real benefits from the EU Single Market. As long as this is the case, and since this situation is unlike to change in foreseeable future, there simply is no compelling argument for cross-border consolidation. Scale will have to be achieved, first and foremost, at EU Member State level.

As a starting point, and as a strong advocate of both competition and investments, Vodafone believes the Commission should use its flexibility to adapt its approach to reviewing in-country consolidation for European telcos in line with the fundamental market, technology and competition developments that have taken shape as well as taking into account longer timelines when assessing their potential efficiencies and benefits on investment and competition.

Spectrum needs solving

Vodafone believes that is high time for genuinely harmonised EU rules on spectrum. Europe’s model for managing spectrum allocation – the process of regulating how radio frequency bands are licensed and divided between telcos – is inconsistent across Member States and is one of the root causes of the problems of Europe’s investment gap in digital infrastructure.

A new fully harmonised approach to spectrum management is needed to ensure efficient auction formats, and that spectrum is allocated for much longer time periods, therefore encouraging more sustainable and long-term investment in mobile networks everywhere in the EU.

Going forward, a fresh approach towards these challenges is required, strengthening the EU Single Market, supporting in-market consolidation, driving efficient spectrum management and determining how network upgrades are funded. This should be specifically aimed at solving Europe’s investment gap and accelerating the EU’s digital transition.