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Digital Infrastructure Investments Are Expensive. Here’s Where the Debate Stands on Securing Funding for a Market-Wide Rollout in the EU

Laurent Eymard

April 2024

The “Fair Share” proposal, telecom M&A, and what to expect in 2024 and beyond for digital infrastructure

To meet key elements of the European Commission’s (“Commission”) digital strategy, European telecommunications operators need to make significant investments in 5G deployment and fiber rollout to replace aging existing infrastructure.

This comes with a hefty price tag and fierce debates about who will foot the bill. For example, while the European Court of Auditors estimates that 5G deployment in the EU could cost approximately €400 billion, only around €60 billion has been invested to date. And according to the European telecom operators in question, the massive investments required to connect 450 million Europeans to gigabit broadband and 5G by 2030 are placing a considerable strain on their resources.

Plenty is at stake. Should Europe lag other regions in making critical infrastructure upgrades, it could have wide-ranging and long-term economic consequences. Yet the fragmented nature of the region’s telecoms market is throwing up roadblocks and slowing down investments.

With three possible solutions under consideration, here’s what industry stakeholders need to know about the debate.

Making Data Drivers Pay a “Fair Share”

Big Tech companies’ consumer services account for a large share of the growth in network use. In the past few years, leading European telecom providers rallied around the idea of having the companies that generate traffic pay their “fair share” of the needed investments in maintaining and improving network infrastructure. After all, they benefit from these improvements, attracting audiences and building revenue on faster, more reliable, and more widespread connectivity.

This suggestion aligns with the European Union’s (EU) 2022 Declaration on Digital Rights and Principles, which argued for having all market actors that benefit from digital transformation make a “fair and proportionate contribution to the costs of public goods, services and infrastructures.” The proposal drew support from EU Commissioner and former telecom CEO Thierry Breton and the European Parliament.

Yet not everyone supports the idea. The companies that would foot the bill—Google, Amazon, Netflix, Meta, and Microsoft—have decried it as an “internet tax” that would unfairly penalize the biggest content and application providers. They’re not alone: The Dutch government and Body of European Regulators for Electronic Communications (BEREC) argue that 1) tech companies already make substantial investments in telecom infrastructure; 2) the “Fair Share” proposal poses a threat to net neutrality, which treats all internet traffic the same; and 3) it could lead to price hikes for European customers.

Without consensus, the European Commission postponed further discussion on the matter until 2025, after this year’s election. There is unlikely to be much movement on this front until then, and the proposal’s future is uncertain.

Easing Restrictions around Mergers

While the “Fair Share” proposal could help shift the burden of building out more advanced infrastructure, most telecom companies see mergers as a more expedient option to reach scale and speed up investments.

Compared to the US, which has just three main providers, each of the twenty-seven countries in the EU has multiple providers (Luxembourg, for example, has four despite having only around 650,000 people). This makes it challenging to develop the economies of scale that can help build and update telecom infrastructure across the bloc, particularly in rural areas.

Providers argue that allowing them to merge within their country’s borders would enable them to pool their resources and lower the cost of rolling out new infrastructure. Yet regulators have long been skeptical about the positive investment impact from such consolidation and are worried about the immediate chilling effects on competition. In 2016, the Commission decided to block the Three-O2 merger and impose large divestment conditions on the H3G-Wind merger. Since then, the industry has been working under the assumption that, though there is no “magic number” of operators, the Commission is typically loath to approve intramember state consolidations that reduce the number of providers from four to three.

However, in February, the Commission cleared the creation of a joint venture between Orange and MasMovil, two of the four existing multinational organizations in Spain. To some, this could signal that the Commission’s competition regulator, DG Comp, has softened its stance on intramember state consolidation. However, the Commission has denied such a suggestion, and given the significant remedies the parties had to offer to secure clearance, this development alone cannot be heralded as a true paradigm shift.

Fostering Integration of the Telecoms Single Market

With the prospect of intramember state consolidation remaining largely uncertain, European operators could seek to integrate across borders. Proponents suggest that this would help them reach scale and foster integration of the telecoms single market. The Commission has repeatedly signaled that it would welcome such consolidation and that competition rules do not stand in the way.

Yet rules around mergers are just one impediment to the creation of a single telecoms market in the EU. Other major challenges include differences in consumer demands and pricing models in markets that are deeply fragmented across EU countries, variations between member states’ spectrum management and telecom regulations, and disparities in network architectures across the continent. What works in France may not work in Germany, and vice versa. And while the EU previously has taken steps to break down these barriers, such as eliminating roaming charges across the EU, integration is still a long way off.

As a result, even if providers could merge across borders, the advantages that stem from such consolidation could be too limited without further harmonization of the regulatory environment. While the EU could move toward such a model, this reality is likely years away.

The Future of Telecom Infrastructure in the EU

According to the Commission, “The future competitiveness of all sectors of Europe’s economy depends on […] advanced digital network infrastructures and services…” This makes financing the necessary investments all the more crucial to the EU’s future.

With the funding debate ongoing and a major Commission election on the horizon in 2024, stakeholders would do well to keep an eye on how these proposals evolve. Hundreds of billions of dollars in investment—whether from fees levied on Big Tech or the creation of a single market—will fuel a transformation in connectivity that will have profound implications for one of the world’s most powerful regions.

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Laurent Eymard

Managing Director

Brussels, Paris