EETT’s 6th International Conference Advanced Communication infrastructures as a cornerstone for Europe’s Digital Agenda

ETNO Executive Board Chairman, Luigi Gambardella, spoke at the EETT’s 6th International Conference.

Regulatory challenges towards achieving the Digital Agenda goals

Intervention by Luigi Gambardella
ETNO Executive Board Chairman

• The European commission has just published the Digital Scoreboard, as you all know, and the main messages coming from the aggregate data create quite a concern within the industry. However, we need to look ahead and think about what can be done to overcome the current situation, that sees a decline both in revenues and in the level of investments.
• Data on Internet usage and broadband market report that:
• With 133 million broadband fixed lines, the EU broadband market continued to grow in 2010 with some 9.4 million new lines (7.5% year-on-year growth) and still remains the largest in the world. China is very likely to overtake the EU as the largest broadband market in 2011, as this country is expected to reach 160 million lines in 2011.
• Almost all internet connections in Europe are broadband (88% at EU level). Prices have consistently gone down and performance has increased. 86% of fixed broadband lines in the EU are above 2 Mbps and as many as 40% of all lines provide speeds between 10 and up to 30 Mbps.
• Growth in the take up of fixed broadband market in the EU however is declining and recorded the slowest growth rate since 2002.
• In 2010, 74% of the EU population had used the Internet at least once. Regular Internet users currently represent 65% of the population, up from 60 % in 2009. At this rate, the European Digital Agenda target of 75% will already be met in 2012, well ahead of 2015.
• Another important issue is the ever increasing traffic of data:
• According to industry sources fixed data traffic is growing 30% per annum, while mobile data traffic is growing by more than 100%.
• In order to look at the proportion of the increase of data traffic, it’s useful to look also at data just released by Cisco on IP traffic:
  • Globally, IP traffic will grow 4-fold from 2010 to 2015, a compound annual growth rate of 32%.
  • Global IP traffic in 2015 will be equivalent to 241 billion DVDs per year, 20 billion DVDs per month, or 28 million DVDs per hour.
  • In 2015, the equivalent of an archive of all movies ever made will cross Global IP networks every 4 minutes.
  • Globally, average IP traffic will reach the equivalent of 204,100,000 people streaming Internet HD video simultaneously, all day, every day.
    
    
• The Digital scoreboard, looking at the mobile sector reports that:
• The enormous increase in traffic is a result of several interrelated factors. First, the increasing penetration of smart phones and tablets(and also notebooks). By 2014, 83% of all Western European mobile connections will be 3G. Second, the fast evolution of the mobile applications market, which offers an increasingly wide range of attractive content optimised for mobile handsets. Mobile application store downloads are expected to grow by 117 % in 2011 reaching 17.7 billion downloads worldwide, with increasingly bandwidth-hungry applications driving up the average data consumption per user
• However, the scoreboard points out that “the overall growth of the telecom sector in Europe is negative in 2009 and 2010. Revenues for the EU electronic communications sector were down from € 350 billion in 2008  to €332 billion in 2009.
• Revenues from voice (still 57% of the revenues for the EU telecom operators) experienced important declines (-6.7% in the case of fixed voice telephony and -4.2% in the case of mobile voice telephony) while revenues from data (still a 25% of the total for individuals and households, 7% for companies) are increasingly higher (+5.6% in the case of fixed internet access and +9.4% in the case of mobile data services).
• The importance of the sector is also given by the labor force employed. In the EU and US, the ICT sector employs 11 million people (5,6 million in Europe and 5,4 million in the US)
• The telecom sector in Europe employs over 1.2 million people.
• Although the Scoreboard reports that “Coverage of fixed broadband access as proxied by  copper pair (DSL) coverage is nowadays close to 100%” and that regular internet usage is increasing a lot, the Commission also points out that “Deployment of NGAs requires a much higher level of investment since new fixed infrastructure based on fibre needs to be built in. Depending on the level of ambition and the way in which targets are interpreted, it is estimated that between €73 and €221 billion would need to be invested to meet the targets”
• These investments will be driven mainly by the private sector, although the public sector may in certain specific cases play a role.
• Against this scenario, we have to take into consideration that theincrease of the amount of data exchanged, as recognized by the Commission itself, does not correspond to an increase in revenues of those players that invest in networks
• Next Generation Access networks were already at the top of the intense policy debate which led to the adoption of the new Directives that, just entered into force
• Figures show that despite the crisis, operators devote on average 12% of their revenues to investment. ETNO members account for more than two thirds of total investment in the sector and of the deployment of high speed access networks.
• Revenue decline is not only conjectural but also linked to more structural adjustments in the sector. We are seeing structural challenges that are influenced by regulation under the EU framework
• This requires a much broader reflection on the sustainability of the current economic model of the Internet. We need to find a new equilibrium which would encourage all players of the value chain to contribute to the challenges ahead.
• The approach adopted so far by the European Commission to allow new business models from market players is an important prerequisite for a sustainable internet model.
• The regulatory environment is also a key factor influencing the investment case for NGA.
• The new Directives provide the Commission, with a stronger involvement of BEREC, with tools to achieve more consistency in the implementation of the Regulatory Framework, in line with the Digital Agenda objective of accelerating a digital single market.
• The new EU telecoms rules give the European Commission the power to oversee regulatory remedies proposed by national regulators. Further progress towards a single market is essential. We believe however that the Commission and BEREC, in line with their new role in the notification process, should encourage national regulators to make full use of the more proportionate regulatory instruments introduced in the revised EU framework to encourage NGA investments.
• Any regulatory approach to NGA must allow for:
  • taking into account varying competitive situations withindifferent geographic areas in a member state;
  • appropriate symmetric obligations for all NGA investors to provide a level playing field and ensure choice for all end-users; this should include access to ducts of non-telecoms utility companies, which is not part of the EU e-communications framework but could be imposed under national law.
  • more flexibility in pricing access to NGA networks as well as mechanisms for investors and access seekers to share the risks of NGA roll-out.

• During the transition period, pricing of current wholesale access products is another important factor influencing investment decisions. As recently underlined in a study carried out by Plum for ETNO, artificially reducing wholesale access prices for copper broadband networks would undermine the NGA investment case, inter alia by discouraging consumers to take up high speed broadband.
• For Next Generation access, a systematic application of cost-based access obligations acts as a deterrent to investments, since a key factor influencing the investment case for NGN deployment is consumer demand and his willingness to pay.
• Not all consumers make the same usage of high speed broadband. Some of them may wish to pay more in order to get higher speed and more capacity while others may have lower needs. Pricing flexibility is therefore essential.
• Our approach to NGA must remain technology neutral. Investing companies will need to choose the network architecture and technology which adapt better to the market needs of the area where the investment takes place.
• Finally, as demonstrated by the Commission Digital Scoreboard,competition overall is increasing rapidly in the broadband market. New entrants hold now up to 60% of the broadband market share.
• Consumers are increasingly accessing high-speed broadband through alternative infrastructures, such as cable or wireless access networks. The broadband targets of the Digital Agenda will be achieved through a mix of technologies and platforms.
• Ladies and Gentlemen, in view of the long lead times for rolling out new NGA networks, the year 2020 is just around the corner. A pragmatic, market-based approach supported by targeted public measures and an incentivising regulatory framework will best serve Europe’s broadband ambitions.

  
  

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