Policymakers have called for pro-growth regulation, but what should this look like in practice for the telecoms sector? We analyse past approaches and consider if and/or how they might be reframed and reapplied for modern times through government interventions or regulatory reforms.
Digital infrastructure is the foundation of a healthy economy, but sectoral growth in Europe has slowed, challenging operators’ capacity to invest. Some stakeholders want to see a reduction in the regulatory burden to free up financial resources to help support growth ambitions.
Governments and regulators around the world, including in the EU, the UK and the US, have begun to consider how a deregulatory approach to telecoms or alternatively a simplification of the sectoral framework could support efforts to drive investment and economic growth.
Both Japan and South Korea enabled rapid fibre rollouts in the early 2000s by coupling the deregulation of infrastructure sharing with public funding and state-led deployment programmes, positively impacting specific digital industries and the countries’ wider economies.
Operators are in a position to fuel productivity, innovation and growth through their own infrastructure investments, with network sharing and co-investment projects two available options to reduce individual costs and help connect less commercially viable areas.
Regulators have a key role to play in driving competition and investment through market reviews, but are being urged to adopt supposed pro-growth reforms, including relaxing net neutrality rules and lowering barriers to in-market consolidation.
While there is opportunity for pro-growth regulation, governments appear to have the greatest scope to improve the investment environment via targeted policy interventions, such as state funding projects, fiscal measures and revisions to planning rules.
Policymakers are eager to explore how the telecoms sector and its regulators can support their push for growth and competitiveness
Alongside a focus on security and sovereignty, governments are looking at policy levers to drive the growth and relative strength of their economies, typically via increased investment, productivity and employment. The UK Government took office in July 2024 with growth as its top priority, while the current EC (which formed in December of that year) is focused on the EU’s competitiveness with global superpowers, formalising its ambitions within its 2025 work programme and Competitiveness Compass, as well as in Commissioners’ individual mission letters.
Amid this common push for growth, policymakers are exploring how different sectors – and their respective regulators – can make a meaningful contribution to the cause. Telecoms is seen as a critical economic multiplier; Sir Chris Bryant (Minister for Data Protection and Telecoms, DSIT, UK Government) has stated that there is “no route to growth without digital infrastructure”. However, in many countries, growth in the telecoms sector itself has slowed or even reversed despite rising penetration and data usage, and the expanding adoption of technologies such as fibre and 5G. A challenging commercial market, often with flat or declining revenues, has led to a worsened investment environment, limiting the ability of operators to maintain deployments of increasingly necessary infrastructure, raising concerns that this is hindering wider economic recovery and/or prosperity.
To tackle the problem, some industry groups have called for a loosening of regulation on operators, from spectrum licence fees to wholesale obligations to taxes, and regulators themselves have begun to consider the scope for deregulation or, at least, a simplification and/or streamlining of the rulebook. In the US, the second Trump Administration has established the Department of Government Efficiency (DoGE) to cut unnecessary spending and bureaucracy in the public sector. Meanwhile, the Federal Communications Commission (FCC) – under the leadership of Brendan Carr (Chair, FCC) – has launched a planned annexation of telecoms regulation via the ‘Project Delete’ initiative. In the UK, the Government has called on sectoral regulators to implement “pro-growth regulation” that spurs private sector investment.
Historic examples from countries in APAC indicate how regulation can support operator investment in the rollout of advanced telecoms networks and in turn boost growth. While economic and competitive landscapes in the region and elsewhere have since changed dramatically, these examples can still be instructive when exploring the various initiatives that could be adopted today to boost investment and growth in the telecoms industry. The question then is whether and how regulatory and policy interventions in the sector could help achieve the desired spill over effects for the economy at large.
A hands-on approach from governments in leading APAC countries enabled rapid fibre rollouts, with positive impacts seen across the wider economy
In the early 2000s, a number of governments sought to kickstart growth in their economies through measures to support investment in advanced technologies by the telecoms sector. In particular, Japan and South Korea’s approaches to public spending on, and regulation of, the industry led to an accelerated pace of fibre deployment and migration of end users away from copper networks.
Japan’s approach focused on enabling infrastructure sharing for new technologies and supporting the nationwide deployment of broadband infrastructure. The Ministry of Internal Affairs and Communications (MIC) loosened rules on unbundling and co-location as the rollout of new fibre and ADSL networks began, allowing competition to be created at the service level rather than the network level. A key reason behind this move was the market power held by NTT (which was about 30% state-owned at the time) in fibre infrastructure. Through its part ownership of NTT, the Government was able to accelerate and streamline the operator’s fibre rollout. The fast deployment of infrastructure enabled the opening up of fibre networks to competition at the retail level, which encouraged rapid take-up by consumers and businesses, supporting GDP growth as well as helping domestic digital industries such as animation to maintain international competitiveness.
In December 2004, the Government also adopted the three-stage u-Japan Policy Package, which in its first phase prioritised deploying the infrastructure needed for the entire population to have superfast or ultrafast internet access by 2010. This initiative sought to create a “seamless ubiquitous network environment” specifically to enhance the potential for infrastructure sharing and network collaboration, which the Government believed would promote competition at the wholesale and retail levels. With close oversight from the MIC, the strategy helped to establish high-speed internet access nationwide, connecting so-called ‘zero broadband’ towns and villages. Efforts in the second and third stages focused on promoting adoption and usage of ICT services throughout society, including among businesses, vulnerable groups and public institutions, with the aim of tackling social issues while creating a world-leading technology-driven economy.
A similar approach was taken by the Government in South Korea. In 1995, the Korean Information Infrastructure (KII) Project began, aiming to build a nationwide “backbone” broadband network to deliver the Government’s vision for a knowledge-based economy. The resultant widespread rollout and adoption of broadband services played a significant role in the development of South Korea’s economy, transforming traditional industries while driving employment and competitiveness in fast-growing digital sectors, including online content, gaming and e-commerce.
As in Japan, the rapid deployment of fibre in South Korea came as a result of government funding and the streamlining of network build-out (arguably supported by the country’s population density and property makeup). Through the KII Project, the Government often acted as a mediator between regulators and the private sector, adopting a cooperative and harmonised approach between different players that has recently been advocated by regulators in Europe. Further, the KII Project’s investment structure incentivised operators to join the project by using the motto “investment first, construction next”, so operators benefitted from significant state funding for their network deployments before they had to begin building. To further incentivise telecoms operators to invest in the rollout of new fibre, the Government offered preferential tax treatment and the granting of new business licences. Similar to Japan, this process was supported by the fact that KT was partially state-owned, boosting the efficiency and investment behind its fibre rollout.
Network sharing and co-investment can help accelerate the rollout of high-quality digital infrastructure that supports productivity and innovation
Despite differences between these historic examples and the current situation in Europe, operators may still be able to apply aspects of these approaches that could boost investment in fibre and 5G, and as a result contribute to wider economic growth. Operators in Europe already make significant network investments, with annual capex equating to approximately €57.7bn (£48.8bn) in 2023, but more can be done. Infrastructure sharing has proved, and will likely continue to be, a valuable means of making an efficient use of scarce resources and reducing a duplication of investment, thereby helping to increase coverage and competition – particularly in high-cost rural and remote areas. A more recent trend is network co-investment, which reduces the costs on individual operators and therefore lowers the barriers to investment and economic growth. Fibre co-investment agreements – either between operators or between an operator and a financial institution – have been made in several European countries, including Belgium, Germany, Ireland and the UK. However, more infrastructure sharing and co-investment approaches would likely require regulatory approval, potentially slowing rollout programmes.
A key reason behind the growth of the fibre market in Japan was the speed at which operators, particularly NTT, migrated end users from copper connections (such as ADSL) to fibre. A major challenge faced by European operators has been the take-up of fibre broadband, often due to softer-than-projected demand for the technology or weak switching incentives. In Japan, in the early 2000s, there was also an initial lack of demand for fibre, signified by the sharp growth in the take-up of copper-based broadband from 2000 – see Figure 1. Though millions of customers moved to ADSL between 2000 and 2006, fibre adoption grew quickly from around late 2002, eventually surpassing the declining ADSL subscriber base.
This transition was enabled by operators providing clear, simple and fast routes for switching. NTT did so particularly well by offering existing ADSL customers the option to upgrade to fibre for free. By making it as easy as possible for customers to migrate to new fibre networks and at a low cost, NTT was able to significantly grow its fibre base despite some areas and customers initially lacking demand. While the need to ensure a return on fibre investment may mean this is not a replicable strategy, there are ways (beyond effective marketing) operators can make the migration process quicker and easier. For incumbents specifically, developing and implementing a comprehensive copper retirement programme underpinned by appropriate notice periods, effective communication and suitable replacement wholesale access products can help facilitate a smooth switch-off that preserves competition and protects consumers. Ultimately, enabling a country’s progress from ageing copper to high-capacity, reliable fibre infrastructure can have positive economic implications in terms of productivity and innovation.
Regulators and competition authorities can support economic growth, although it is contentious whether this should include enabling more in-market consolidation
In parallel, regulators in Europe also have an important part to play in enabling economic growth. Their exact role may seem hard to pinpoint at first as regulators’ principal function has traditionally been seen as ensuring fair and competitive markets and protecting the interests of end users. However, in the UK, Ofcom has argued that it has always been – long before the extension to it of the Growth Duty – a “pro-growth regulator” and stated that its past, current and future activities align with the Government’s priorities. In a letter to the Prime Minister, the Chancellor and the Secretary of State, Ofcom outlined its belief that good regulation and economic growth go hand in hand, highlighting its regulation of fixed telecoms and management of spectrum resources as examples of how the former leads to the latter.
The market review process demonstrates how regulators can – and currently do – support the effective functioning of telecoms markets, which in turn helps promote competition, investment and growth. In many cases, physical infrastructure access (PIA) – i.e. mandated access to the dominant provider’s ducts and poles – is a successful outcome of this analysis, acting as a crucial regulatory remedy in incentivising fibre rollouts by multiple players. While Japan's focus was on competition downstream, PIA enables it at the network level, with a workable regime essential to a holistic regulatory framework that can help foster economic growth. It is perhaps telling that even where access regulation has fallen away (rightly so where effective competition has become sufficiently established) some regulators – such as the CNMC in Spain – have maintained PIA as a foundational wholesale remedy. The EC’s Digital Infrastructure White Paper also foresees a future situation where PIA could become the only market regulated on an ex-ante basis given that it represents “the most persistent bottleneck” in deploying fibre.
Nevertheless, there are calls for regulators to go further and to reduce the perceived burden on operators that it is argued currently shackles investment. Both the Letta and Draghi reports recommended deregulation in a number of areas which, if implemented, would reflect the approaches taken in Japan and South Korea – see Table 1.
For example, South Korea’s KII Project mirrored a number of Letta and Draghi’s recommendations in how it incentivised investment from operators with preferable tax treatments and new spectrum licences. In Europe, this approach could be reflected through reductions in annual licence fees (ALFs) for spectrum, which would reduce financial constraints on operators, enabling them to invest more in improving mobile coverage and capacity. Better support for legacy network retirement could also help to reduce operator costs, increasing the ability and incentive to invest. The retirement of 2G and 3G networks in particular would free up more spectrum for 5G technologies. Further, regulators could consider extending spectrum licences at no extra cost to operators, rather than re-awarding them via auction. This approach has been taken in Germany and Spain with the goal of enabling infrastructure investment (sometimes in exchange for meeting new coverage obligations). The Letta Report also suggests deregulation in net neutrality rules to allow operators to compete with innovative specialised services. This may, however, require government involvement to amend primary legislation, while the direct link between such an intervention and the economic outcomes many policymakers’ are pursuing appear less clear cut.
Additional recommendations of Letta and Draghi, and the focus of many recent discussions within European policy circles, are for competition authorities to allow for greater in-market consolidation as well as for the creation of larger, pan-European operators. Whether national or cross-border, the rationale behind enabling operators to combine more easily is that it would help them reach the necessary scale to invest more in their networks while running them with improved cost efficiency. Advocates argue this would also boost Europe’s competitiveness by enabling firms to compete on a global stage – and have pointed to the approval of Three/Vodafone in the UK as a potential blueprint for merger control that could be replicated across the EU. However, DG COMP and competition authorities from several Member States currently appear resistant.
Government policy will be a more important driver of industry investment and growth than regulation
It is well understood that investment in telecoms networks alongside the widespread adoption of broadband services can stimulate economic growth across industries. Regulators can implement pro-growth frameworks, potentially through rolling back or simplifying regulation where appropriate, but they should not be expected to carry the burden alone. Governments are far better placed to effect policy interventions and reforms that incentivise the rollout of advanced digital infrastructure, which supports productivity, innovation and the development of emerging technologies. For instance, placing connectivity at the heart of a modern, long-term industrial policy would ensure that the sector is a key strategic focus in the pursuit of national growth ambitions, while simultaneously providing a signal to the market and investors.
Planning rules provide a specific example of where governments hold the pen. Reforms in this area can reduce the bureaucracy and costs faced by operators that often arise when attempting fibre deployments. In the UK, for example, roadwork permissions for rolling out fibre are granted on a street-by-street basis rather than by zones, arguably making the process less time and cost efficient as it could be. Also, operators do not have the necessary rights of access to connect multiple dwelling units (MDUs) – differing from those enjoyed by gas and electricity providers. Certain changes to planning laws would come at little to no cost to governments, yet revisions to outdated rules can provide a significant upside for the deployment of fibre and for wider growth objectives.
Further ways in which governments can better promote the rollout of telecoms infrastructure (and thereby growth) is through the tax system and public spending. These were two levers used in Japan and South Korea that may be pulled elsewhere today to help reach non-commercially viable areas where the need for, and impacts of, connectivity can be the most acute. Firstly, temporary tax initiatives such as business rates holidays on new infrastructure deployments can create a more supportive environment for operator investment, helping industry make the business case for extending coverage into more rural or remote locations. While this would involve the Government foregoing tax returns in the short-term, the capex stimulus that it generates can deliver wider economic benefits over the longer term. Secondly, targeted subsidy schemes can offset deployment costs in areas that would otherwise be prohibitive to the private sector. The Swiss Government, for example, has proposed to invest CHF750m (£657.7m) in the expansion of gigabit-capable broadband networks – close to a fifth of the total estimated cost of delivering nationwide coverage. The Letta Report also advocates an expansion of EU-level public spending to boost growth, emphasising the reality that though regulators can shift their approaches to better enable economic growth, it is best initiated via government policy.
Even where such fiscal measures may have to take a back seat to other political priorities, government leadership and coordination can be central to driving further network investment, particularly in areas with the greatest potential to increase productivity and/or where the commercial case for rollout is weak. Combined with regulators’ own interventions, there is a clear opportunity for policymakers to establish the conditions that unlock competition and investment in improving network coverage and quality, and to capitalise on this to power an overarching growth agenda.
