Telecom market fragmentation on agenda of next ministerial meeting

The next meeting of EU telecom ministers on 5 December will debate how to address the “market fragmentation and financial sustainability of the European telecommunication sector”, according to a discussion paper seen by Euractiv.

The discussion is meant to build up on the informal meeting of EU ministers responsible for telecoms in León, Spain, on 23-24 October.

Just ahead of that meeting, the Commissioner for the Internal Market Thierry Breton suggested opening up the discussion on market fragmentation and investment in a LinkedIn post, parking his controversial initiative on the senders-pay principle.

While the senders-pay initiative faced opposition from a mounting number of EU countries, the European Commission and the Spanish EU Council presidency intend to put on the table a broader discussion on the financial sustainability of the telecom sector.

“Telecom operators need scale and agility”, yet “are being held back by market fragmentation”, the document reads, suggesting the need “to guarantee financial sustainability” for European telecom companies.

Following this reasoning, European ministers will be invited during the next Transport, Telecommunications and Energy Council on 5 December to discuss the type of measures to “nurture a sustainable and secure digital environment” while guaranteeing “the EU’s digital sovereignty and independence” on the telecom market.

Some EU telecom operators and experts are worried about the EU’s decreasing sovereignty in the telecom sector.

In 2023, Telecom Italia announced the sale of its infrastructures to the US private equity fund Kohlberg Kravis Roberts, supported by an Abu Dhabi Investment Authority subsidiary.

Saudi Arabia’s telecom STC Group holds around 10% of Telefónica shares, making it a major shareholder. The United Arab Emirates investment group controls 14.6% of Vodafone shares and could raise its stake to 20% by the end of the year.

“All of us, the member states have to continue working to resolve identified problems […] characterised by important geopolitical challenges”, reads the Spanish Council presidency’s text, quoting as a challenge that “only a few European operators are active across multiple member states”.

This issue was raised by the CEOs of the largest telecom operators, Timotheus Höttges for Deutsche Telekom, Christel Heydemann for Orange Group, and Mik Fries for Liberty Global during a telecom event on 7 November. They complained there was no consistency in having four competing fixed operators in each national market across the EU.

Yet the Spanish presidency document does not hint at where the market fragmentation debate should go. Cross-border and trans-European concentration might be put at the table during the meeting.

Return on investment

Quoting from the report on the Digital Decade targets, the document also raises the question of financing in the telecom sector and the need to “steer investments […] and exploring financing to complement private investment”.

This is a long-standing complaint from large European telcos, who argue that the return on capital is just slightly higher and sometimes even lower than the cost of borrowing money, making the EU’s telecom industry not worth the cost of investments.

According to them, this creates an investment gap between the EU’s connectivity objectives and the industry’s capacity to invest in future networks.

The 2023 State of Digital Communications report by ETNO, the EU trade association of telecom operators, has supported this position.

The Spanish presidency document, therefore, pushes for finding a way for telecom operators to “monetise on their investments in modern networks”.

Simultaneously, Commissioner Breton is setting up a meeting on 5 December to discuss the financing of the telecom sector with investors from the private sector: from banks to institutional investors, and possibly pension funds as well.

Submarine cables

At the last informal telecom council in León, it was agreed that the Commission would come up with a recommendation on the protection of networks, particularly submarine cables, taking stock of the recent deterioration of these by rogue actors in the Baltic Sea.

The circulated document suggests discussing this issue as well, stating that “the EU must protect its interests as regards critical submarine cables”, quoting the “recent incidents” in the Baltic Sea as well.

[Edited by Luca Bertuzzi/Zoran Radosavljevic]