A “New Deal” for EU Telco networks: a coordinated response for the digital decade

I had the pleasure of participating to a round table in Brussels on September 28th regarding the future of the telco sector in Europe, and I wanted to share my views here, as we aim to build a stronger, more digital Europe.

The COVID crisis has highlighted how vital it was to enable an inclusive digitalization for EU citizens, businesses, and public services. The internet traffic has tremendously increased during the last year, and we, telecom operators, have managed to cope with it and to answer our clients’ needs.

We are however facing quite an astonishing paradox: while everybody is calling for digitalization, with policy makers setting new ambitious targets such as 5G for all by 2030, Telcos in Europe are struggling to create value for their shareholders.

An ETNO report published in March stated that Europe can create 2.4 million new jobs within the next four years through digital transformation, boosting economic growth and accelerating green transformation, but that this will notably require a €300bn effort in terms of telecoms network investment. (https://etno.eu/news/all-news/704-etno-bcg.html )

As such, it is all the more critical that we can rely on an adequate framework that makes such efforts possible, and sustainable, for Telcos through sufficient returns, profitability and cash generation.

Our ambition at Orange is to pave the way for long-term growth and value creation. We have invested more than €.60 bn within the last decade, of which 13bn of fiber FTTH rollout, the biggest effort in the EU.

But it is challenging for a variety of reasons:

·??????Growth projects are resource intensive at the start,

·??????Revenues are constrained, with fierce competition in fragmented markets,

·??????and regulatory measures impact profitability and investment capacity.

European Telcos are therefore seen by investors as losing relevance in the TMT value chain, and this is reflected by a severe underperformance of their market value : European Telcos underperform their US peers by a remarkable 250% over the last 15 years. Today there is only one Telco left in the Euro Stoxx 50 index, compared to four ten years ago, and some companies are exiting public listing in order to regain some strategic flexibility.

The leading Tech companies in the world are neither Telcos, nor European, and we are witnessing another phenomenon that is in my view weakening the Telcos in the long run: the massive sales of infrastructure assets to Tower Companies in order to finance network deployment or spectrum auction. Giving away these crucial assets may bring us one step further away from digital sovereignty.

This is not a sustainable situation. We need solutions to boost EU digitalization that will feed our competitiveness and support Europe digital sovereignty.

But the good news is, the game is still far from over:

·??????There is currently a momentum to be seized. The next Generation EU plan is a revolution in funding method and a very important stimulus.

·??????And when it comes to digital sovereignty, there has never been such an alignment of the needs of business, consumers and political will, following the covid crisis and the geopolitical context.

We need a “New Deal” for EU networks to be able to create value and pursue our main goal at Orange, “to give everyone the keys to a responsible digital world”, with very concrete measures, along with 3 main priorities:

1.?????We need an EU approach based on the long term

We strongly welcome the new EU approach aiming at an industrial strategy based on the twin digital and green transitions, which should lead to more alignment and consistency in the legislative process. ?This notably means the need to properly assess the impact any new measure can have on the investment capacity of operators and define accompanying measures where needed. For instance:

-?????????The 5G security toolbox,

-?????????Recent decisions or projects to artificially create competition via spectrum policy,

-?????????Or the Digital decade objectives.

So far I haven’t seen any assessment of what those objectives, for instance on 5G, mean for operators. While we support such a target, it should come together with a robust assessment on how it is financed and by whom, as it is done in the US.

Today’s regulatory actions and decisions should provide the right incentives to fuel such investments. ?A long-term approach should also rely on innovative common projects of European interests. Alliance and IPCEIs (Important Project of Common Interest) are relevant tools and the EU is right to rely more on them. At Orange we are committed to work with other telcos and vendors on the IPCEI on Cloud, especially to deliver an EU Telco cloud solution. We are also working on networks virtualization, notably Open RAN and we expect to get support at the EU level to participate in the microelectronics and connectivity IPCEI. This is innovation today which will turn in digital sovereignty and value creation tomorrow.

2.?????Rules and mind-set should adapt to new investment and business models

I know it is a sensitive topic but it is clear that the EU market remains excessively fragmented.

First, Telco Consolidation will remain an important topic, including in country consolidation.

The US or China count 3 main players when Europe counts as many (or even more) operators in each of the 27 countries of the EU. We are in fact far from a digital single market. Second, co investment and network sharing are becoming more and more important in order to face these challenges and huge investments. With TowerCos, voluntary RAN sharing agreements are a very relevant tool to deploy networks in a more efficient and greener way. They have positive outcomes in terms of investment and competition.

We call on the European Commission to reassess its current position on RAN sharing agreements, to grant them a presumption of compatibility with the competition rules and a more secured legal framework for operators’ self-assessment. Today we face uncertainty.

Finally, we welcome the fact that the global digital picture is now better taken into account by policy makers, including looking at the role and responsibilities of large digital platforms. I refer in particular to the debate on the DMA (Digital Market Act), or on fair taxation. We also think that there is a need for a legislative intervention in order to have a more balanced contribution to networks costs.?Such intervention should aim at enhancing investments capacity and greening the digital sector as well as guarantying that players with a strong position do not enjoy free riding on our networks.

3.?????We need to enforce existing rules and make sure we have more harmonisation, e.g.more internal market !

The European Electronic Communications Code has introduced several investment friendly provisions on spectrum policy or co investment. The Commission should ensure its full enforcement. One easy example relates to spectrum. The Code foresees that Member States have to comply with certain criteria when designing auctions. However some national decisions differ from the spirit if not the text itself, notably when fixing reserve price, or conditions for potential new entrants, or license duration.

Better enforcement does not mean necessarily new rules in a sector already heavily regulated; it just means having the necessary tools to enforce them in a harmonized and fair way.

We are ready to take our part

At Orange, we are committed to be a strong actor of the digital and green transitions. Besides network roll out, we continue investing in R&D for the networks and services of tomorrow, as well as in cybersecurity, Cloud, AI or inclusion to make our digital life safer, easier and greener.

I strongly hope we can find consensus on measures which will support Telco activities, because if they are not strong enough, we will pay the price at some point.