EU Regulations Hamper Telco Network Investments

Published April 2, 2012

European Union regulations are impeding network investments by large telecom operators, according to an industry survey released in March. The frustration over burdensome regulations is prompting investor groups to call for reducing government controls on areas such as copper pricing, the report states.

The London Financial Times reported in March that the survey—conducted by Credit Suisse, a world-leading financial services company—is evidence of government policies stifling investment opportunities.

The survey concluded 90 percent of respondents with a combined 1,800 billion euros of managed assets say EU telecom regulations hamper market predictability, favor resellers, and promote too much deflationary, deflationary bias that forces prices below levels that justify investment, according to FT.

Investment Climate Uncertain
Richard Bennett, a senior research fellow at the Information Technology and Innovation Foundation, explains European law requires facilities-based providers of broadband (phone and cable companies) to make their wires available to independent ISPs on a wholesale basis at a price set by the regulators.

“The investment climate for advanced fiber networks is uncertain in part because the European regulators’ power to set wholesale prices spells the difference between profit and loss,” Bennett said.

The EU has reportedly requested views on how regulations could be used to encourage greater investment in fiber access and speed economic growth. On June 1, 2010 the European Commission released a report stating EU telecoms markets have become more competitive thanks to the commission’s guidance.

“Commission guidance to national telecoms regulators has guaranteed a level of consistency and predictability that gives investors confidence,” said Neelie Kroes, EU Commission vice-president for the Digital Agenda, in a press release. “However, we need more coordinated regulation to ensure harmonised implementation and proper functioning of a single EU telecoms market.”

Lower Revenues, Impaired Investment
According to FT reporter Daniel Thomas, the study reveals that the EU’s Digital Agenda policy is supported by investors, “with 62 percent saying better consumer broadband speeds would lead to higher economic growth.” Nearly 75 percent of the survey respondents added that EU telcos should invest more in next-generation networks for high-speed broadband.

Investors also expressed concerns over current regulations controlling fiber access. More predictable regulations over fiber access, they responded, would better promote high-speed broadband buildout.

“Investment in fiber networks is also moving slowly in Europe because their benefits to consumers remain unproven,” explained Bennett. Technology enables network operators to squeeze more and more speed out of telco and cable networks, he explained, and most applications run well at the speeds provided by these copper networks, which is estimated at 40-160 mbps.

“While many advocates of public broadband tout the need for speeds from 100 mbps to 1 gbps, there are simply no applications on the horizon that require so much performance. As people spend more time accessing the Internet from smartphones, the average connection speed is actually declining on a global basis,” he added.

‘Burdensome Regulatory Regime’
The survey reports most investors say the best way to promote fiber is to create more predictable regulation of fiber access.

Despite low investment results due to heavy regulation, investors remain supportive of the EU’s digital agenda policy, with 62 percent saying better consumer broadband speeds would lead to higher economic growth. Almost three quarters said they thought European telecoms groups were not investing enough in next-generation networks capable of high-speed broadband.

The United States is heading toward stricter regulation of the Internet, as indicated by the FCC’s imposition of net neutrality rules in December 2010.

“Europe has a much more burdensome regulatory regime for broadband than we have in the United States,” said Bennett. “This goes far beyond the network neutrality rules that the FCC adopted a year ago, which are currently undergoing a court challenge.”

U.S. Behind EU Spectrum
The EU sector has cause to worry. According to the survey, more than 90 percent of investors believe revenues in the European fixed-line sector will shrink, and more than 60 percent think revenues in the mobile sector will fall.

Almost 90 percent admitted it was not clear how the amended European telecom framework worked.

“The priority for economic growth in the near term is faster mobile networks based on LTE technology,” said Bennett. “The United States leads the world in LTE adoption because our regulatory system is much more permissive and friendly to investment than Europe’s, where regulatory approval is required before mobile networks can be upgraded to the latest generation of technology,” he said.

However, he notes, “The continued adoption of LTE in the United States depends on the availability of spectrum, and we unfortunately lag the Europeans in this department because the U. S. government has allocated more spectrum to itself than the Europeans have.”

Attempts to obtain a copy of the survey by InfoTech & Telecom News were unsuccessful. “I heard back from the contact person in London and unfortunately that report is not being broadly distributed,” said Perrin M. Wheeler of Credit Suisse corporate communications.

Alyssa Carducci ([email protected]) writes from Tampa, Florida.

Internet Info

“EU Regulation Hampers Investment, Survey Says,” Daniel Thomas, Financial Times, March 4, 2012: