Speech - Investing in a digital future

European Commission

Neelie Kroes

Vice-President of the European Commission responsible for the Digital Agenda

Investing in a digital future

Morgan Stanley Thirteenth Annual Technology, Media and Telecoms Conference /Barcelona

20 November 2013

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Today I want to talk to you about the European telecoms market. But also, why that market matters so much to me: and so much to Europe. How we have listened to the needs of the investment community: and delivered what you need.

We have an ongoing digital revolution. One that supports performance and productivity, employment and growth, across the economy.

One that relies on fast next generation broadband.

That is why we have clear EU broadband targets to get every European digital.

But we need a European telecoms sector up to the challenge. Strong, healthy and dynamic. Able to invest and innovate.

How well are they doing?

Not too well. As you well know.

Earnings down, markets fragmented, investment low, broadband coverage low, the situation precarious.

Maybe we are starting to see a turnaround. But that needs to be sustainable, and supported by the right framework.

In most sectors, booming demand and diversifying applications would be positive. And there is booming demand for connectivity, with new applications from smart cities to cloud computing.

In other parts of the world, telcos are seizing those opportunities and have prospered. So why have they not been in Europe?

This is a sector that needs not incremental improvements. But a fundamental change for a different reality. The sector needs that, our economy needs that, investors need that.

You, investors, have asked for a predictable and certain framework fit for the future. Providing the right balance of risk and reward. And allowing the dynamism to innovate, and the opportunities to think big. You asked and we have delivered.

First, we have a recommendation to create the right framework for investment: predictable, stable, certain. It includes measures so alternative operators can have truly equivalent access to incumbents' networks. A way of calculating regulated copper network access prices, so practices converge, and prices remain stable. And with guidance to allow the price flexibility needed for next generation services that may face uncertain demand. Because ensuring competition where it matters allows us to reduce the burden of regulation elsewhere. Investing in tomorrow's technology is radical - but risky. And it deserves the corresponding reward.

Most of all, this recommendation provides the certainty needed for investment: and already since it was announced we have seen more investment begin to flow in.

Second, we have proposed rules for a telecoms single market. Bringing down the barriers that most plague the sector, that stop them thinking big. Like giving operators the access products they need in new markets. More coordination of spectrum. And making it easier for telcos to operate in more than one country, with single authorisations and consistent consumer rules for each.

Third, we have measures to cut the cost of rolling out broadband. Improving access to networks, better coordinating civil works between and within utilities, avoiding duplicate digging, more streamlined permits, and making new broadband-ready buildings the default.

The first of these measures is already in place - and already having a positive impact. The second and third have been endorsed by EU leaders, but need agreement by the legislator before they become law.

Let me set out my vision. I am not in favour of regulation for the sake of it. Quite the opposite. The number of regulated "relevant markets" was cut from an original 18 to just 7 in 2007. And the forthcoming review could remove still more markets from regulation.

And longer term we can look at areas like the balance between telecoms and over-the-top players. Convergence between the audiovisual and online sectors. At even greater regulatory consistency.

Many of you ask about consolidation. Moving to a single market may have consequences on how operators see their future business plans and strategies. So, yes some consolidation may be a consequence in the long run. But this is not our policy objective in itself. Our aim is to enable operators to provide their services on a cross-European basis and to create business opportunities. And where consolidation happens our job is to safeguard competition. And when that is threatened we suggest remedies - though, I would remind you, the European Commission has never blocked a merger in this sector, not even in-country mergers.

We deal with those issues case by case.

My ultimate vision is for a telecoms sector that is strong and dynamic, innovative and investing. One that operates in a true single market - where working across borders is as easy and integrated as within them. One where a number of pan-European operators work alongside smaller, local ones, offering on the one hand pan-European economies of scale; on the other flexible services tailored to specific needs. A sector that does not frustrate the economy's need for connectivity, nor frustrate its customers; but that offers plentiful broadband, and great services that users value. A sector that forms a normal part of a competitive economy, relying on general competition rules rather than specific burdensome ex ante regulations.

Maybe you share that vision. But one thing is clear. If this comes to be seen politically as too difficult, a sector too scared to change, a lobby too vocal, then this whole issue will be put into a dusty corner, into the box most politicians mark as “too difficult”. I hope not. But that is political reality. We need to show this is a sector that can and is prepared to change.

How do we achieve that kind of sector?

One thing is clear: it's not just from hanging on to things like roaming charges. Which never really led to investment. Roaming is not just a major irritant; but a major obstacle to people and businesses freely operating across the single market.

Fortunately they are on their way out. I know many investors agree, even many telcos. And over in the US some of them have come out in public and said so. In Europe, it's only a matter of when, and how. So let's do it in a way that's not based on endless price regulation: but market-based, freely negotiated between commercial partners, and consistent with our single market. So this sector faces the future, and doesn't cling to the past.

This is why we are building on existing roaming rules, and enabling those who want to, the chance to offer roaming at domestic price levels. Those who want to take up those opportunities will have a clear legal framework, and plenty of time to adapt.

Likewise we are taking action on the cost of calling and texting across the EU. Because still today, unfairly high prices remain a hangover of borders that are supposed to have disappeared.

Again that is inherent to our single market. Businesses and citizens should have the freedom to operate across borders,and unjustified extra costs stand in their way.

And, again, it's hard to see those surcharges staying around for long. Consumers increasingly have other, better-value alternatives, like voice over IP.

A business model that relies on that kind of revenue is not going to be relevant for long. With or without EU regulation.

So again, we are both safeguarding our single market: and anticipating how telecoms markets will develop.

Because - if you want investment - you need the sustainable revenues that reward it, not making a fast buck out of things like roaming or intra-EU calls.

You need to offer innovative, next generation services: deals that users will value, and pay for.

And, also supporting investment, you need the policies and procedures that make it easier for the sector to adapt to the future. Take an issue like spectrum. Today, each EU country sets its own rules, and its own timetables. Between the first and last movers among member states, there can be as much as 6 years. With different conditions in each. And wide variations in prices.

No wonder we are trailing the world. As of January, EU 4G coverage was at just 27%; in the US Verizon alone covers 95%.

No wonder it's so hard to set up cross-border wireless networks or services.

No wonder some smartphone makers do not design devices to fit European bands.

Our spectrum proposals are a significant boost to European investment. I know many of you agree.

But here's what I want to ask from you today.

Our proposals were endorsed by EU leaders, Presidents and Prime Ministers. But they still need to be agreed by national telecoms ministers and European Parliamentarians. We are working closely with them to deliver it in time before the Parliament rises.

But it's clear that in that debate they hear many voices.

From incumbents, from challenger operators, from domestic regulators, and from others.

But many of those have other interests. Business models, however dated, that they want to defend. Rents they want to continue charging. Powers and privileges they want to protect.

My ultimate goal is to promote a healthy European telecoms sector. I think that's your goal too. And it is investors who know best how to achieve that. So I want to hear your voice in this debate too.

So I hope you will help us make that case. I want to offer the strong healthy telecoms sector worth investing in, delivering returns, and offering Europe a digital boost. I hope you can join me, and help us make Europe a connected, competitive continent.