Overall it was clear there is still no unified vision on the future regulatory path for the EU telecoms sector
How far should the Digital Networks Act go, and what protections will remain?
The first panel of the day saw the EC face Europe’s operators – both incumbents and access seekers. Overall it was clear there is still no unified vision on the future regulatory path for the region’s telecoms sector. While the DNA is seen as an opportunity for significant change, stakeholders are cautious about its scope, pace, and the potential risks of premature deregulation. The EC’s challenge will be to balance simplification and harmonisation with market realities and Member State diversity. Operators broadly agreed on the need for better investment conditions but diverged on whether these should be delivered through deregulation, harmonisation, or just better implementation of the rulebook.
Kamila Kloc (Director Digital Decade and Connectivity, DG CNECT, EC) began proceedings with now familiar lines of now being the time for action. As we’ve heard elsewhere recently, the DNA is not yet at the drafting stage, with all options still on the table as regards to its contents. Also repeated was that operators shouldn’t rely solely on the DNA to reverse their fortunes. Kloc stressed that operators need to act themselves to improve their fate and that they can’t always ”hide behind regulation”. Perhaps the one area in which we did get some new detail was on the ‘safety net’ under the complete deregulation scenario. Kloc stressed that the EC will look at all the proposals being put forward, but that currently she has a preference for it to be the existing ‘three criteria test’ in light of its “futureproofness”. Maxime Lombardini (Vice President and Board Member, Iliad Group) said what a lot of people must be thinking in that it’s hard to comment on a document we don’t yet know – in reference to the fact the EC hasn’t yet started drafting. He cautioned against deregulating too quickly, and anticipated legal challenges to any safety net that might be put in place.
Thomas Arnoldner (Deputy CEO, A1 Group) and Pascal Rogard (Senior Vice President, European and Institutional Affairs, Orange) both praised Letta and Draghi, and advocated a movement away from ex-ante regulation (i.e. abolish the SMP regime), but stated that “some sort of safety net” should be in place. Rogard’s reference to a safety net probably reflects the fact that Iliad and Orange are both incumbents and access seekers and so may need an access product where bottlenecks remain or where new entrants aren’t able to establish a foothold. He jokingly remarked that moving away from ex-ante regulation would free up NRAs time to be able to work on other things.
Izabela Iglewska (Counsellor, Counsellor, Ministry of Digital Affairs of Poland) asked for the DNA to be written in a clear and simple way that doesn’t require excessive guidelines on how it should be implemented. She drew parallels with the Gigabit Infrastructure Act – a regulation but that was written in the style of a Directive, which led to problems with its implementation. She referenced the fact that poor or late implementation (including of the EECC in Poland) has contributed to criticisms of the effectiveness of the current framework.
DG COMP is not against M&A per se but is unsure that behavioural remedies (such as used in Vodafone/Three in the UK) resolve competition issues caused by consolidation
The subsequent session was billed as a discussion on the importance of consolidation and scale for European competitiveness; however, Carlota Reyners Fontana (Director IT and Digital, DG COMP, EC) began by recounting her favourite statement from the Draghi Report that “there is no competitiveness without effective competition”, adding that this is not an ideological statement but one based on empirical evidence. She acknowledged though that competition alone is not a silver bullet to address all challenges weighing on the telecoms sector, stating that her department is against market power rather than scale itself, with the majority of in-country mergers proving unproblematic. For Ben Wreschner (Chief Economist and Head of Public Affairs, Vodafone Group), consolidation can be a means of addressing the low prices-“small factories” problem facing many operators. For example, the merger with Three in the UK “hit the sweet spot” by enabling Vodafone to increase the size of its factory by creating an operator with the right scale, lower unit costs and increased capacity, which did not involve a trade-off between consumer and producer welfare. Wreschner considered that Three/Vodafone could be a template for how mergers could be looked at going forward, although Reyners Fontana sounded unconvinced that investment-based remedy (the principal commitment in this case) is the right way for competition authorities to go. Nicolas Cote-Colisson (Head of Research, France & Global Head of Communications Equity Research, HSBC) agreed with Wreschner that telecoms is a fixed cost industry and so a certain level of scale is needed, but also underlined regulation as perhaps the biggest single influence on the market, highlighting the stable and predictable regulator frameworks established in France and the Netherlands as example for other countries to follow.
Meanwhile, Juan Montero Rodil (Chief Public Policy, Competition & Regulatory Officer, Telefonica) painted a dour picture of European telecoms, stating that the region lags comparator markets on the availability and performance of high-quality digital infrastructure – something for which he considered both industry and policymakers were to blame. Manuel Kohnstamm (Senior Vice President and Chief Corporate Affairs Office, Liberty Global) stated that while consumers get a good deal, he bemoaned the fact that operators are subject to different rules across Member States, even down to the type of end user equipment they can supply. Cote-Colisson felt that returns in the sector could be higher but that while about half of operators were currently earning below their cost of capital, “no one is dying” – at least none of those that had joined him on stage.
Strengthening Europe’s global standing in tech requires a focus on driving demand for domestic solutions
During a discussion on tech sovereignty, panellists questioned Europe’s tendency to import digital solutions – more so than any other region – rather than building them in-house. Thibaut Kleiner (Director for Future Networks, DG CNECT, EC) stated that, for instance, purchasing from leading US cloud providers brings value and benefits to Europe but without wanting to engage in protectionism, there should be a viable domestic alternative. Similarly, Katinka Worsøe (Digitalisation attaché, Permanent Representation of Denmark to the EU) stated that EU policymakers should not shut the market off from technologies from elsewhere as that will only harm the bloc’s competitiveness. However, she added that the focus has been on regulating the supply side and that there is a need now to drive demand – and that she is eagerly awaiting the Cloud and AI Development Act to support that objective. Jakob Greiner (VP European Affairs, Deutsche Telekom) agreed, but also considered that the region shouldn’t shy away from a ‘buy Europe’ conversation in the interests of security and industrial policy. He recommended that public institutions act as anchor companies for European cloud platforms in order to spur demand and investment, suggesting as well Deutsche Telekom (owner of T-Systems) would be open to including a “Europe preferred” clause into the public procurement process. While Worsøe agreed with Kleiner that the EU’s Data Act will make cloud switching more efficient, she also considered the role of the Digital Markets Act (DMA) as equally important in stimulating competition, calling for its improved enforcement.
Despite a shift from ex-post competition law to ex-ante regulation, Europe is failing to rein in the power of large tech companies
In her closing keynote, Cristina Caffarra (UCL, Co-founder CEPR Competition Network) – introduced as the “mother of the EuroStack initiative” – reflected on the ongoing rethink of antitrust policy in Europe. With Article 102 “dead and buried”, Caffarra welcomed the review of EU merger guidelines as the EC “at least coming out of the cave” and recognising the need for change. She also claimed that nothing has been achieved despite the EC’s pioneering focus on competition in the digital economy, which led to its pivot to regulation (i.e. the DMA) because competition law wasn’t delivering. Even then, Caffara argued that it is an open secret that the DMA is not working and that Europeans should not delude themselves that it’s taming big tech. She considers that the baton has now passed from Europe to the US on big tech enforcement, with the country having been on an intellectual and policy journey since 2018. With reference to EuroStack, Caffara stated that Europe’s preoccupation with regulating app stores, social media and other markets has meant that it has overlooked a whole level of infrastructure beneath the surface, resigning itself to being a digital colony. While concerned that Europe had seemingly forgotten about building things itself, she considered that it was not without the skills or wherewithal to change course.
