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07/12/2016

Telecoms increase pressure on Brussels

Innovation & Industry

Telecoms increase pressure on Brussels

Telecoms want more freedom to merge, to enable large investments.

[G. T. Wang/Flickr]

Orange, Deutsche Telekom and Telefonica have launched a new demand for reform in the EU telecommunications sector. They want new regulations to be extended to the Internet providers that piggyback on their services. EurActiv France and La Tribune report.

The battle between traditional telecoms companies and Internet providers rages on.

On 16 June, the directors of Europe’s biggest telecoms addressed a letter to Donald Tusk, the President of the European Council, in which they urged Brussels to take immediate action to reform the sector’s regulation. The signatories of the letter, which include giants Orange, Deutsche Telekom, KPN and Telefonica, criticised the “asymmetries between traditional e-communication providers and internet players”.

On the firing line are established providers of Internet services and new kids on the block, like instant messaging application Whatsapp.

While these companies use the expensive networks of the traditional operators, they do not invest so much as a cent in their upkeep.

This situation has long angered companies like Orange and Telefonica. They say the EU must immediately “initiate a fast-track set of targeted regulatory reforms”. In other words, they are calling for the establishment of a fairer system, which takes into account the “dramatic changes in markets [and] consumers’ habits”.

Net neutrality makes waves

This is by no means the first attempt of the European operators to achieve reform. For months, they have been increasing the pressure on Brussels, fearing more restrictive European rules. But the sector, where competition is ferocious and investments are worth billions of euros, has to face up to the growing data appetite of the Internet’s big players (companies like Google, Apple, Facebook and Amazon).

Large consumers of bandwidth, these American Internet giants are growing steadily, with a helping hand from the generous tax regimes of European countries like Luxembourg and the Netherlands.

Günther Oettinger, the European Commissioner in charge of the Digital Single Market, unveiled the Commission’s digital agenda strategy in May.

This scheme stresses the need to establish a Digital Single Market as soon as possible, and to encourage the emergence of “European champions” in the sector. Key issues for the telecoms industry, including regulation and competition in the sector, will be covered by this agenda.

Concentration, an economic given

The traditional telecommunications companies are upping the pressure across the board. They are calling for a certain amount of flexibility on matters of Net Neutrality – a principle whereby all data on the Internet must be treated equally.

At the Mobile World Congress in March, Tim Hoettges, the director general of Deutsche Telekom, said, “We are in favour of a neutral net, but we need different quality categories to enable the Internet of Things”.

Telecommunications is a rapidly consolidating sector. For many players, takeovers and mergers are the only means by which they can make the necessary investments in their networks and support their customers’ ever increasing appetite for data.

“Horizontal concentration is an economic given. This is caused by the need to invest in fibre and 4G,” Orange boss Stéphane Richard told Bloomberg at the Davos Economic Forum.

For some time, Stéphane Richard has advocated greater consolidation in the sector. A position he toned down this Tuesday at the 2015 Digiworld Future conference.

Richard acknowledged that outside Europe, and particularly in the United States, there are “many fewer operators” vying for “infinitely larger markets than the biggest European countries”.

His view is not unanimously supported in Brussels. The European Commissioner for Competition, Margrethe Vestager, expressed her doubts on Monday, 15 June. “Incumbent operators argue that if they cannot merge with their rivals in the same country they will be unable to increase their investment,” she said. “I’ve heard this claim quite often, but I have not seen evidence that this is the case.”

But, Vestager added, “Excessive consolidation may lead not only to less competition and more expensive bills for consumers, it also reduces the incentives in national markets to innovate.”

This may throw a spanner in the works for telecoms.

This article originally appeared in La Tribune