Europe’s digital transformation hinges on modern infrastructure

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Nokia Networks

Nokia Networks robustness center for Core networks. [Nokia Solutions and Networks]

Quality connectivity and mobility are critical if Europe’s strong vertical industries are to take a leading role in Industry 4.0 and the Internet of Things, writes Markus Borchert.

Markus Borchert is Senior Vice President, Head of Nokia Networks Europe.

Europe has a strong position in vertical industries, such as automotive, advanced healthcare, medical, engineering, and utilities. They contribute significantly to Europe’s GDP and are in a transition period from traditional business to a new Industry 4.0 era.

Digital technologies are changing the way we communicate, manufacture goods, and drive cars, how we do sports and how we get medical treatment. Technology – specifically telecommunications technology – is enabling this transformation by building bridges between our physical, virtual and social worlds.

As a consequence, quality connectivity and mobility are critical if our strong vertical industries are to take a leading role in Industry 4.0 and the IoT. McKinsey[1] estimates the potential global economic benefit of the IoT at up to 11.1 trillion US-Dollars per year in 2025. If we calculate the potential for Europe at 25% of the total, and take only the Industry 4.0 related sectors, we end up with an EU figure of up to 2.8 trillion USD per year in 2025. But only if Europe does its homework.

Without a modern digital infrastructure as the backbone for this transformation across industries, Europe will lag other regions and be unable to tap into the full economic potential of Industry 4.0 and the IoT. In other words, a strong and successful telecommunications industry is the foundation for the competitiveness of Europe overall.

Connectivity is key for Europe’s economic future

The 5th generation of communication networks, or 5G, will be the technology of choice when it comes to use cases in conjunction with the IoT, because it will have the features and functionalities needed. But without 4G or Long Term Evolution (LTE), 5G will not be feasible. We cannot leapfrog 4G and go directly to 5G. Areas without 4G coverage in Europe will be the 5G white spots of the future.

Therefore, Europe simply must catch up with the 4G roll-out. In the second quarter of 2015, a mere 13% of total connections in Europe were LTE, compared to 55% in Japan, 50% in North America and 70% in South Korea. Equally, Europe reached just 70% in 4G network coverage by population, whereas Northern America had 98%, Japan 99% and South Korea 100%[2]. This is alarming for the European economy as a whole.

Europe needs the political will to foster investments

The regulatory framework is decisive. The European Commission’s plan to review the telecom regulation as one of the pillars of the Digital Single Market Strategy and to establish the right regulatory conditions for innovation, investment, fair competition and a level playing field is a move into the right direction. A true digital single market with a modern regulatory framework is essential for Europe to thrive in a digitalized global economy. But this is not enough. The European economy needs fast and efficient implementation.

Therefore, member states must act now to improve investment conditions under existing regulations – and in parallel to the review of the framework. The Commission and member states should focus on investment as a matter of priority. Boosting investments in telecommunications infrastructure, and specifically in 4G, is a precondition for Europe to regain leadership.

Under the right conditions, operators will have a business case for investing in 4G. For example, in the 3rd quarter of 2014, the ARPU (Average Revenue per User) of operators in North America was almost triple that in Europe[3]. Boosting investment requires a faster shift to volume- and value-based pricing to monetize growth in data and value creation of modern services. This means embracing a shift in regulatory thinking: the sign of effective competition in the market for electronic communication services is not how much consumers spend in total but rather what they get for their money. The price per gigabyte and the quality of connectivity are more important indicators than the absolute cost per month.

In addition, rules should be simple and symmetric. The value chain in the sector has changed since the current regulatory framework was adopted. Traditional telecom services can increasingly be replaced by less regulated Internet services. The historic dichotomy between electronic communication services and information society services contributes to the lack of investment and creates an unlevel playing field.

Regulators should also accept that market consolidation can have dynamic effects and boost investments. To this end, horizontal merger guidelines should be reformed and merger-specific dynamic effects on investment in networks should be added. Even without consolidation, efficiency gains by cross-border operation can be substantial – and yet are blocked because European regulation is not harmonized.

More harmonized and affordable spectrum is also key in order to meet the services capacity and coverage needs of 4G and 5G, in particular for communities beyond the reach of wired broadband. Less than half of EU member states have allocated 800 MHz for mobile broadband using existing policy instruments. A decisive and coordinated EU release of 700 MHz is needed. In the future, 5G will require additional spectrum above 6 GHz.

European “Silicon Valley for Industry 4.0”

As mentioned, the IoT offers opportunities for all industries, and Europe has strong industrial base to leverage. Europe also has strong assets in the field of security and privacy, which will both play a role in Industry 4.0. But nobody can drive the whole value chain alone. We need to orchestrate an ecosystem where expertise in a specific vertical industry, its processes and challenges, meets expertise in digital infrastructure and security and leverages the innovative mindset in the many start-up hotspots across Europe..

Europe must set an ambitious goal

Korea and Japan – already leaders in terms of LTE rollout – have ambitious plans for 5G as well. Korea has announced plans for a pre-commercial trial at the Winter Olympic Games in 2018, and Japan is aiming at commercial 5G networks at the Summer Olympic Games in 2020.

Europe must be equally ambitious. We should make the 2020 UEFA European Football Championship our goal for the commercial launch of 5G. To take place in 13 cities, of which 11 belong to the EU, the Championship will be truly European. This launch would make Europe the first region with commercial 5G – and would be a powerful symbol of restored innovation leadership in Europe.

[1] The Internet of Things, Mapping the Value beyond the Hype, June 2015

[2] Source: GSMA

[3] 61.01 EUR (North America) vs. 21.10 – Source: GSMA

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