Friday, 17 November 2017

A man walks into a bar...A tale of telecom investment woes

By Mary Lennighan, Total Telecom
Friday 13 October 17

Telcos, policymakers and industry watchers come together to debate the investment and regulatory climate facing European operators. Ultimately, fair regulation is in the eye of the beholder

The European telecoms market is very much like a young man going out on the pull and failing. As unlikely as that metaphor might seem, that was the message from many of the stakeholders gathered in Lisbon this week for Connected Europe, although it took industry industry analyst John Strand to put it into those words. Discussions with the investment community show that Europe is considered a less attractive region to invest in than others worldwide, Strand said. "It's basically like if you're single, you go to a bar, you meet a nice girl and she says, 'listen, you're the least attractive man in this bar,'" he said. Strand blames over-regulation for that situation. Telecoms policy in Europe is effectively "a nationalisation of the industry without paying the shareholders a financial compensation for taking over the infrastructure," he said. "We are falling behind," compared with the U…

The European telecoms market is very much like a young man going out on the pull and failing.

As unlikely as that metaphor might seem, that was the message from many of the stakeholders gathered in Lisbon this week for Connected Europe, although it took industry industry analyst John Strand to put it into those words.

Discussions with the investment community show that Europe is considered a less attractive region to invest in than others worldwide, Strand said. "It's basically like if you're single, you go to a bar, you meet a nice girl and she says, 'listen, you're the least attractive man in this bar,'" he said.

Strand blames over-regulation for that situation. Telecoms policy in Europe is effectively "a nationalisation of the industry without paying the shareholders a financial compensation for taking over the infrastructure," he said.

"We are falling behind," compared with the U.S., which has taken more of a free market approach to regulation, he said. "The investment per capita in the states is double what we have seen in Europe over the last 12 years."

Telekom Romania CEO Miroslav Majoros picked up on the same theme, sharing figures recently presented by Timotheus Hoettges, chief executive of parent company Deutsche Telekom. In 2016 European operators generated €33 billion in EBIT, down by 49% from 10 years earlier, while over the same period U.S. EBIT grew by 189%, he said. In 2006 European telecom companies generated 33% of industry EBIT, he added. "Now it is 9%."

If the pattern continues, five years from now "this conference will be half empty and we will take bicycles to come here because unfortunately we'll have no money to fly in, because the companies will be completely without any cash," he said.

Pearse O'Donohue, acting director at the European Commission's future networks directorate, took exception to the comparisons with the U.S., challenging Strand's figures in particular.

If you include things like content creation, "of course the U.S. investment figures are going to be higher than in Europe," he said.

Investment in Europe is lower, but "the prices are also lower in the European Union," when you look at things like 1 GB of data, for example. However, "the ARPU is also lower and this is a major challenge for European operators," he admitted.

"But the sustainability, that we have seen already, allied to the fact that the consumer has greater choice and that therefore there is greater pressure for innovation means that European Union providers are much more efficient in providing services, but also in rolling out new services to the benefit of their users and consumers," he insisted.

"Focusing more on the user...is a completely different mindset to some of the international comparisons that are made," he said.

That may be the case, but that focus is too short-sighted, according to Davor Tomaškovic, CEO of Croatian incumbent Hrvatski Telekom.

"If you are worried about the consumers, then you should not worry short-term about the consumers, you should worry long-term about the consumers," he said.

Brussels over-regulates 28 markets, where there are 200 operators, compared with the U.S. which has four main players for a similar size of population, he said. It will not even allow countries the size of Croatia to reduce the number of mobile players to three from four, "because they say that's going to kill the competition," he said.

"We are far, far away from the single market. And this will kill Europe in terms of competitiveness versus the U.S. and Asia," he warned. "Yes, we need a balanced approach, but we definitely need less regulation."

Some European telcos are benefiting from favourable national regulatory regimes that are facilitating investment though.

Portugal Telecom recently reached 4 million homes passed with fibre-to-the-home (FTTH) and is "well ahead of schedule" when it comes to reaching 100% of its 5.3 million homes by 2020, said Alexandre Fonseca, chief technology officer at Portugal Telecom.

"This, of course, is a major investment," he said, noting that the telco is spending €500 million over five years. "We have created in Portugal the regulatory conditions to allow fast-growing next-generation networks deployment, especially fibre."

The country's three main operators are all rolling out fibre and are all using the same passive infrastructure, such as ducts and pole, and the vertical networks within buildings, he explained.

Vodafone Portugal and Nos announced a fixed and mobile infrastructure-sharing deal earlier this month, with a view to offering commercial services from the start of next year.

"There's a successful regulatory environment in Portugal which allows for the market to regulate itself," he said. "We can see the result of this regulatory standpoint...People are investing in next-generation networks, using the regulatory frameworks for for infrastructures where we believe it doesn't make sense for over-build."

There is a similar situation in Spain, where Telefonica is offering 300-Mbps FTTH as standard, said Enrique Blanco Nadales, global CTO at Telefonica. There was a time when Telefonica was passing as many as 400,000 homes per month with fibre, Blanco said, and even though the rollout has now slowed, it is still passing 200,000 per month.

Spain and Portugal "have had the support of a very favourable regulatory environment and they've had certain unique build conditions that are not necessarily available in all the other markets," said Ronan Kelly, chief technology officer for EMEA and APAC at Adtran.

The reality is that in most markets operators will need a "toolkit approach," using a mix of technologies including fibre in various forms, copper extension technologies like G.fast, and advanced wireless solutions, he said.

That was certainly the case for Hrvatski Telekom.

"We have done a smart investment and technology mix," using both fibre and copper infrastructure, said Tomaškovic. That "allowed us to benefit in both temporal and financial terms," he said, the telco rolling out networks quicker and more cheaply than it would have been able to with just FTTH.

Some companies insist that nothing other than full fibre will do, especially when it comes to connecting up mobile base stations, but they are not always keen to make the investments themselves.

"Luckily, the markets we are in...allow us good, affordable access to fibre and fixed infrastructure, said Alison Kirkby, CEO of mobile-only telco group Tele2.

On that note, Kirkby had a message for the European Commission: "It will be extremely important for everyone to have access to fibre," for efficient 5G rollout, she said. Vertically integrated operators have a "clear advantage" in 5G, she said, "and these operators are not always willing to provide access on commercially attractive terms."

Which leads us to a simple conclusion: the relative merits of any regulatory regime depend entirely on your point of view.

Or, to return to the metaphor of the young man in the bar, attractiveness is very much in the eye of the beholder.

Friday Review 13 October 2017

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