Invest, Innovate and Compete (and growth will come organically)
Times are challenging in Europe. And for some it is tempting to use a wide brush to paint a dark picture for the whole continent. While there are difficulties for some players in the ICT arena, it is too early to draw comparisons to a Lehman Brothers-style collapse for the sector. It’s no coincidence that companies peddling negative messages are the ones with negative or flat growth. But it’s not just a “can’t do” attitude that is holding some in the sector back. The debate kick started by Vice President Neelie Kroes’ “Connected Continent”, pro- posed EU telecoms legislation, represents an opportunity to get Europe back on track.
28 Elephants, 28 Rooms
Judging from the importance that governments across the globe give broadband policy, Commissioner Kroes is right to be pushing the broadband envelope. She also makes an important link between investment and performance. But to invest, you need a good investment environment where risk levels are not aggravated by significant variations in the market that Europe is still trying to turn into a single one. One cannot ignore the differences in Europe among member states – it remains the
proverbial elephant in the room for both the business and political community. And it’s a big enough elephant that it got a mention in European Commission President Barroso’s State of the Union address. He asked a poignant question, “Isn’t it a paradox that we have an internal market for goods but when it comes to digital market we have 28 national markets?”
The F Word
The European Parliament who will be combing through Neelie Kroes’ proposals along with the European Council which brings together relevant ministers from Europe’s 28 members (which the Commissioner recently referred to as “28 ring-fenced telco markets”). Breaking up Kroes’ proposed package into pieces – an – other kind of equally unwanted fragmentation – brings with it significant risks in urgent times, as the Commissioner warned the European Parliament (its first reading is expected to take place in March 2014).
Cable Europe Chairman, Matthias Kurth, has made observations on fragmentation in the European market and the benefits of cable’s presence, “There are still 28 different Europes – not yet just one. In terms of frontrunners, look to Denmark, Finland, Sweden, Germany, the UK or the Benelux region where broadband penetration rates are at the top of the Europe league, above the European average of 72%. And in Benelux 100% high-speed broadband coverage over 30 Mbps is already a reality. Isn’t it interesting to see the effect of cable’s presence in the marketplace?”
The key factor in these front-runner markets that Kurth observes is the early presence of the cable industry, which invested heavily in Docsis 3.0 technology that enables high speed broadband and creates competitive pressure on incumbent competitor to respond with upgrades. The best lesson we can learn in Europe is that Infrastructure-based competition is key to driving investment in broadband. Where there is no cable presence, such as in Greece and Italy, we see broadband penetration hovering around only 50% and high speed broadband above 30 Mbps is less than 10%, well below the EU average. The European Commission is very aware of this point and is continuing its drumbeat to encourage investment today in tomorrow’s networks.
Time to Choose
So for those who are calling for less regulation to get in the way of investing in Europe’s future (many of whom have come out in public support of a Digital Single Market which is not without its appeals) while at the same time suggesting that regionalized regulation is the way forward, we have a clear message: We are not your partner and refuse to join you in taking one step forward and two steps back.
We are also not your partner if you are suggesting that further micromanagement of regulation be used as an instrument to selectively regulate in specific geographies. It would be extremely odd to start with regulatory remedies in the markets where, thanks to infrastructure-based competition, Europe has had success for broadband penetration. The Benelux market is a brilliant example of this success.
So, are you with us?
There is a bright future in a Europe where less regulation and more pricing flexibility allows for space to grow, compete with one another to the letter of the law, consolidate and push for a more international, bundled and service-oriented Connected Continent.
Deals like the Vodafone purchase of Kabel Deutschland, a novel take on the buzzword of convergence, are based on delivering additional growth in a fast-paced market characterized by constant change. The deal also represents a healthy appetite for the attractive connectivity that cable offers – a product of smart investments. But most of the deal provides hope that Germany can provide a good European blueprint for healthy consolidation to encourage further consolidation that the European Commission seems to recognize is needed to stimulate growth.