EU uses key telco stage to press the case for rethinking network funding

The European Commission has given its clearest signal yet that it intends to make a significant intervention in how Internet connectivity is funded in the bloc in the coming years.

In a keynote speech on stage this morning at mobile industry association the GSMA’s annual trade show, Mobile World Congress (MWC), Thierry Breton, the European Union’s internal market commissioner, warned current gen networks aren’t up to the task of the “massive transformation” just starting, driven by increasingly immersive technologies such as virtual worlds and developments in AI powering nascent tech like connected cars and smart cities — that rely on high speed and bandwidth and low latency but massive interconnectivity to deliver on their disruptive promise.

“We will need to find a financing model for the huge investments needed that respects and preserves the fundamental elements of our European acquis,” he told delegates up early on Day 1 of the annual telco conference in Barcelona — while emphasizing that the coming pivot must ensure freedom of choice for end-users and respect the bloc’s existing rules on net neutrality as well as delivering on competitive freedom by ensuring a fair, competitive level playing field for services.

The EU set out its own future-gazing stall last year under the Digital Decade policy program — which includes targets for connectivity, alongside plans for fostering digital skills, digital businesses. But with network infrastructure central to all things digital, the Commission’s policy goals here are tethered to the evolution of network infrastructure — giving telcos a new degree of leverage when it comes to conversations about evolving the regulatory landscape in this area.

In his speech today Breton acknowledged that the “connectivity revolution is putting the traditional model of vertical integration into question”.

“The digital industry will have to move towards decentralisation and interoperability, focusing on developing open, interoperable systems enabling different devices and applications to work together to create a more connected and efficient world,” he predicted. (And right on cue this morning the GSMA announced a new industry-wide initiative on a framework of universal network APIs — called GSMA Open Gateway — which it said will be “designed to provide universal access to operator networks for developers” — apparently singing from a similar hymn sheet.)

“The real transition will be the Web 4.0 where everything is seamlessly interconnected. With virtual twins, the copy of everything, to manage and predict the behavior from a building to a car, the human body and even planet Earth,” Breton further predicted in his speech. “This transition will not be possible without the use of supercomputing. We will need to be able to quickly move massive amounts of data. And this should be underpinned by interoperable systems all over the world.

“In other words, tomorrow, everyone will have a supercomputer in their pocket, in their car, at their home.”

Enabling this necessary leap forward in connectivity is what’s at stake of a consultation the EU launched Friday, he said. The EU consultation floats a number of options for how to fund fixed and mobile broadband network infrastructure into the future — including the possibility of direct payments from all digital service providers; or from a sub-set of so-called “large traffic generators”. (The latter is what telcos have been publicly calling for.)

At the same time the bloc also adopted a proposal for a regulation, the Gigabit Broadband Act, which it said will put forward new rules to enable faster, cheaper and more effective rollout of Gigabit networks across the EU.

“Just a few days ago, we launched a broad consultation on the future of the connectivity sector and its infrastructure. The consultation has been described by many as the battle over fair share between Big Telco and Big Tech. A binary choice between those who provide networks today and those who feed them with the traffic. But let me be clear: Much more is at stake. It is not about whether one vested interest should prevail over another. It is about achieving the giant leap for connectivity ahead of us,” Breton went on. 

“We are not making the most of the potential of our EU Single Market with its 440 million citizens (480 million with Ukraine on its path to join the EU). It is time that we have a serious discussion about the possible existing obstacles to cross-border consolidation of electronic communications providers in the EU as well as the benefits of an integrated radio spectrum market. I see these two issues as currently holding back our collective potential compared to other continents.”

“We are at the beginning of a new revolution,” he added — before signalling an appetite to shake up the economic order with a nod to the power of creative destruction. “In the coming years, the whole industry will need to undergo a radical shift and revisit its business models. Some could describe it as a Schumpeterian moment. Industry will have to adapt to survive. Or, to put it more positively, adapt to succeed.”

His speech followed opening keynotes by the CEOs of carriers Telefonica and Orange.

Jose Maria Alvarez-Pallete, CEO and chairman of Telefonica, painted a picture of root and branch network transformation acting as the engine powering the disruptive technologies (and economic growth) of the future — but he said all this radical change hinges on telcos getting a “fair share” from those generating the most traffic on the networks.

Alvarez-Pallete suggested carriers are ready and willing to do the work to retool their infrastructure — into what he described as a “massively decentralized supercomputer” — and develop new business models to adapt to an era where their reconfigured pipes are acting as an “innovation platform” (or a “real-time massive enabler” for all sorts of disruptive apps). But he argued carriers deserve a much more “balanced” contribution from the ecosystem than they’ve currently been getting — singling out Big Tech as needing to make a contribution for the traffic their (popular) services generate.

Orange’s CEO Christel Heydemann was even blunter in her message: Arguing that European telcos are in a completely “paradoxical” situation whereby their networks are recognized as critical societal infrastructure and yet the “massive” investments she said they are required to make are “hard to monetize”, with consumers always expecting to pay less and get more.

“The entire sector is at a crossroads,” she warned, dubbing the situation “unsustainable” — and citing a survey of European telcos in which almost half of the polled chief execs said they do not expect their businesses to make it through another decade.

“Fair play rules start with acknowledging the unbalanced situation today,” she added, urging EU lawmakers to “recognize that the telco industry has been one of the greatest contributors to our economies”; and to accept the carriers’ complaint that it’s unfair they should be saddled with billions in costs while a handful of large traffic generators get to ride on top of their networks, laughing all the way to the bank.

A “proper funding framework” for the networks of the future must focus on these large online traffic generators, she urged — calling the EU’s consultation a “first step” towards an “open but fair” future.

While Breton’s speech did not literally spell out a surrender to the telcos’ demands, the EU’s mood music will surely please this audience packed with industry suits.

The commissioner told MWC delegates that his message to them is they can “count on my determination to jointly reach our 2030 targets” — targets that demand the bloc seizes on what his speech also couches as a “connectivity revolution”.

“The consultation is of course only part of the puzzle we have been putting together over the past few years,” he added. “Ladies and gentlemen, let’s stop looking at the world with the eyes of today, or looking at the rear mirror. Let’s focus on the future, where we want to be and the steps we need to take to get there.

“I encourage you all to participate in this reflection. Every time there has been a major technological revolution, Europe has been there, and this time, I want Europe to be there too. We simply cannot afford missing our chance to lead the technological revolution we are experiencing in the connectivity sector and to craft it as a European revolution.”

EU uses key telco stage to press the case for rethinking network funding by Natasha Lomas originally published on TechCrunch