Europe certainly has the world’s attention these days. The Greek elections may or may not have staved off the sovereign debt problems plaguing the PIIG (Portugal, Italy, Ireland and Greece) countries that have financial markets around the world very jittery. The European Football (UEFA) championships are dominating the sports news. And, last but not least, the continent is abuzz with telecom news on two possibly related fronts:
Time to invest
According to the just-released annual digital scorecard by the European Union, Europe needs to put its money into IT and telecom now, or suffer the consequences. Digital Agenda Commissioner Neelie Kroes said in a statement that accompanied the scorecard, "Attachment to 20th century policy mindsets and business models is hurting Europe's economy. It's a terrible shame. We are shooting ourselves in the foot by under-investing. Europe will be flattened by its global competitors if we continue to be complacent.”
The numbers are bleak:
There was good news in that mobile Internet take-up in the past year grew by 62 percent to 217 million mobile broadband subscriptions; 68 percent of Europeans are online regularly and 170 million use social networks. Plus, for the first time, a majority of economically disadvantaged Europeans have used the Internet.
The context for concern is that the commission has set ambitious digital targets for Europeans to keep pace with the rest of the developed world. The goal is for every European citizen to have access to 30M bps (bits per second) broadband by 2020 with half of all subscribers connected to 100M bps services. As the statement concludes, "The telecoms sector has a key role to play in the race towards a digital E.U. society, where growth and jobs can be delivered by better and faster online activities." However, it noted that more coordinated implementation of the telecom rules are needed if the objectives are to be reached as is acceleration in investment by the operators.
Restructuring is afoot
The report comes out at a time when there is lots of speculation about the future structure of the European telecom sector. Bloomberg news and other sources are saying that Everything Everywhere, the U.K. mobile joint venture of France Telecom SA and Deutche Telekom AG (that used to be called Orange U.K.) and is the number one mobile provider in the U.K., may be on the verge of getting a takeover bid from former CEO Tom Alexander for around $12 billion with backing from U.S.-based buyout specialists KKR and Apax Partners.
While the rumor has been vociferously denied by France Telecom, it comes at a time when there are other rumors saying FT and DT might be looking to merge their mobile operations. Other atmospherics include:
The reality is that Europe appears to be suffering from a surplus of operators in many countries and brutal competition which is not enabling operators to fund next generation mobile expansion, never mind earn a reasonable profit.
It turns out that while competition may be good for customers, it is bad for business. In fact, Commissioner Kroes has endorsed consolidation, saying that it could help European carriers compete against U.S. and Asian companies who he believes have adopted new technologies faster as a result of consolidation. Interestingly, this was the same point made a few days ago by AT&T chairman Randall Stephenson during a panel discussion on how to further the mobile technology revolution that was held in Washington, D.C. and sponsored by the Brookings Institute, still licking his wounds over the failed attempt to buy the U.S. assets of T-Mobile.
Good or bad?
All of this sudden found belief that consolidation is good is a bit perplexing. While I understand the arguments about economies of scope and scale, a look back at the long history of telecommunications, particularly in the U.S., says that competition not consolidation is what drives the introduction of new products, services, and business models that are win/wins for operators and customers. There is more than a little irony in seeing Commissioner Kroes bemoaning 20 century policy mindsets, while seemingly extolling 20th century business practices that were only disrupted by regulatory reforms that gave consumers more choice.
It would seem that between over-the-top (OTT) providers, and alternative networks that leverage WiFi, cable TV and other technologies, extending the life of cooper plant through VDSL vectoring, etc. — such as is being done by Free Mobile in France — protecting incumbents by allowing consolidation may not be the best course of action for meeting his ambitious goals. Complacency may be a bigger enemy than worrying about overseas threats. It is clear that demand for broadband in Europe, in all of its varieties, is strong. Getting operators to place their bets on that demand, rather than spend valuable time and resources on consolidation, seems to be a path toward further hand wringing down the road.
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