Nov 24, 2015
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The European Union’s Digital Single Market plan offers an opportunity to foster the investment-friendly environment for mobile network operators and technology companies needed to bolster wireless commerce across the region and prevent the EU from falling further behind other regions in the use of wireless tech.
That is the conclusion of a new white paper from the French consulting firm IDATE, which examined the level of mobile revenues, investments and mobile usage in the so-called EU5 (France, Germany, Italy, Spain and the U.K.), the United States, Japan and South Korea. The study was in part funded by Qualcomm and Ericsson.
The IDATE report touches on an important set of policy questions for the European Union, which is taking major steps toward creating what it calls a Digital Single Market (DSM) that depends on reliable, cutting-edge wireless technology and infrastructure.
"More than ever, Europe needs top-class connectivity. This will ultimately determine the success of the Digital Single Market,” Günther H. Oettinger, Commissioner for the Digital Economy and Society, said earlier this year. “We therefore need rules that underpin sustainable, market-based, high-performance fixed and wireless broadband infrastructures for 2020 and beyond. And it is not just about the telecoms sector; every part of our economy and society has a vital stake in these issues.”
But the current economic state of mobile technology in Europe could place those ambitions at risk. In Europe, there is simply not enough investment in mobile communication infrastructure to keep up with the rest of the world, let alone deliver top-class connectivity. The reasons aren’t complicated:
While the populations of the EU5 and the United States are roughly the same, and mobile revenue was roughly equal in 2008, over the next six years U.S. mobile revenue grew steadily and European mobile revenue declined. Average mobile revenue per user also decreased in Europe at that time while rising across the Atlantic—at least in part because European Union and national regulators on the Continent made efforts to transfer the economic benefits of mobile to end consumers. And while the evolution of mobile revenue followed the growth of private consumption in Japan and South Korea, and exceeded consumption in the United States, it declined significantly in the EU5.
“This indicates that Europe dedicates an ever smaller fraction of private consumption to mobile services, even though consumers benefit from much improved services,” IDATE says. “In other regions consumers maintain or even increase their expenditure on mobile network services, in relation to their overall consumption.”
The consequence is that European mobile network operators’ investment in infrastructure—to update their networks and deploy new technologies—has been almost flat even as such capital expenditures per capita grew sharply in the United States, Japan and South Korea.
“This reflects the fact that MNOs are large corporations who cannot commit to investments that are not correlated to increasing revenues. In other words, MNOs worldwide are subject to the same constraints set by investors,” IDATE says. “EU MNOs are investing as much as they can, but their declining revenues simply prevent them from keeping up in the innovation and investment race with other regions.”
But Europe’s wireless future is brighter than it seems: The cause of the present situation is known and can be fixed. The root of the problem lies in the EU telecommunication market regulatory framework that was adopted in the early 2000’s.
“The relative decline of revenue in recent years for [European] Mobile Network Operators (MNOs) appears to be due to policy decisions aimed at maximizing short-term consumer benefits at the expense of long-term investment incentives,” IDATE says. “The data suggest this strategy is backfiring. The lower revenues in Europe have deterred MNOs from investing, which in turn delays the roll-out of networks and the adoption of services by consumers. Consequently, the unit costs of some services to consumers are higher than in other regions.”
But that framework is currently under review as EU officials stake out an ambitious effort to make Europe a technological leader. And the findings of the IDATE study suggest the effort would pay off.
"Investment in mobile communication infrastructure creates local employment and significantly contributes to growth, as an enabling factor for the digitalization of other industries,” IDATE says.
So with the EU making the DSM a top priority and politicians acknowledging the importance of investment and top-class connectivity there is hope the new regulatory framework will address these issues. IDATE expresses optimism that Europe can find ways to “put investment at the heart” of its regulatory strategy.
“The Digital Single Market initiative is an opportunity to adopt a pro-investment and pro-innovation mobile regulatory framework, enabling Europe to lead in mobile communication through its attractive market size, growth potential and technology expertise,” IDATE says. “The findings and data of this study suggest consumers, businesses and individual European economies will benefit from policy makers’ adoption of a balanced regulatory framework that encourages investment in mobile infrastructure and technologies.”