The Draghi Report: Analysing the impact

As The Draghi Report draws attention to Europe's lagging telecom market, which struggles with fragmentation, stifled investment, and intense competition, stakeholders are encouraged to understand the implications of these proposed reforms to navigate the evolving landscape.

According to Robert Condon, Ericsson’s head of government and policy advocacy in Europe: "The Draghi Report matters because it provides a timely and comprehensive analysis of the challenges Europe faces in today’s global economic and geopolitical environment."

The report underscores the shifting international dynamics, presenting a crucial call to action for the European telecom sector.

Condon highlights that The Draghi Report is particularly relevant to telecoms because it stresses the importance of sector consolidation and the harmonisation of spectrum policies across the European Union (EU).

"These measures are essential to achieving a true Single Market and fostering the infrastructure needed to bridge Europe’s productivity gap," he notes, positioning the telecom industry as a pivotal driver of innovation and emerging technologies such as artificial intelligence (AI).

The report draws from various perspectives, including insights from think tanks, universities, NGOs, and companies, offering a well-rounded analysis that resonates with the European Commission’s mandate for policy alignment.

Europe’s telecom sector is considerably fragmented, with a multitude of national players competing in their respective markets.

This stands in stark contrast to the U.S. and China, where a handful of major carriers dominate, creating a consolidated market with the scale necessary to invest heavily in next-generation infrastructure like 5G.

Industry expert Chris Lewis observes: "Fundamentally, scale is the issue. Europe’s fragmented market has prevented telcos from building the critical mass needed to remain competitive on a global scale."

In the U.S., companies like AT&T, Verizon, and T-Mobile, operating in a relatively open market, benefit from this scale, while in China, government-mandated consolidation has created large, cohesive players capable of rapid technological expansion.

In Europe, however, fierce competition has kept consumer prices low, but this has come at the cost of financial health and long-term investment in innovation.

"The health and the investment and the innovation potential for the telcos has been somewhat thwarted," Lewis adds. Condon echoes this sentiment, noting that the European market’s fragmented nature limits the ability of telecoms to make the necessary investments in advanced technologies like 5G and the Internet of Things (IoT).

One of the significant regulatory challenges identified by The Draghi Report, and reiterated by Condon, is the high cost and inconsistent approach to spectrum licensing across Europe.

"During the 5G auction process, operators paid over €25 billion for spectrum licenses," Condon notes, arguing that this has placed immense financial strain on the industry.

"Many countries have prioritised short-term revenue gains through high auction fees, rather than focusing on encouraging investment in network deployment and quality."

This piecemeal approach, where spectrum pricing and licensing vary across member states, fragments the market further, making it difficult for operators to plan cross-border investments efficiently.

The Draghi Report advocates for stronger EU-wide coordination on spectrum licensing, aiming to create a more favourable environment for telecom operators to invest in infrastructure.

The Draghi Report recommends increased telecom consolidation, which, according to Condon, could be transformative for innovation and consumer choice.

"Currently, the European market is highly fragmented, with over 100 mobile communication service providers (CSPs), each with a relatively small subscriber base compared to global counterparts," Condon explains.

Consolidation would allow operators to achieve the scale necessary for more substantial investments in advanced technologies, thereby improving network quality and service offerings for consumers.

However, concerns about reduced consumer choice persist. Condon counters this by explaining that consolidation does not necessarily lead to fewer choices for consumers.

"By focusing on long-term dynamic efficiencies—such as greater investment in infrastructure and better network performance—consolidation could actually enhance consumer choice by offering higher-quality services."

One of the core themes of the Draghi Report is the emphasis on innovation as a driver for the future of the telecom industry. However, Lewis points out a troubling trend: "Innovation is increasingly being driven by suppliers—companies like Ericsson and Nokia—rather than by the telcos themselves."

The once powerful research and development (R&D) arms of telecom companies now play a secondary role, with much of the innovation occurring within the broader equipment and software provider ecosystem.

Condon further underscores the impact of this shift, particularly in the context of 5G and IoT, both of which are critical to Europe’s digital transformation.

The Draghi Report highlights how markets like the U.S. and China have already gained early leadership in 5G deployment, thanks to their scale and significant investment in R&D. "In contrast, Europe’s fragmented telecom market reduces the financial resources available for R&D," Condon notes. Without sufficient scale and capital, European telcos risk falling behind in the global race for technological leadership.

Cross-border integration is seen as a critical factor for achieving the necessary scale for effective investment in infrastructure.

However, efforts to create pan-European telecom operators have been historically unprofitable due to regulatory barriers and competition policies. According to Condon, many operators have exited markets due to the challenges of maintaining profitability across fragmented national markets.

For Europe to compete on the global stage, Condon advocates for regulatory reforms that allow operators to earn sufficient returns in each market. By encouraging cross-border investments and simplifying spectrum licensing, Europe could create a more competitive, sustainable telecom landscape.

The Draghi Report suggests a shift in how competition policy is approached in the telecom sector. Instead of merely evaluating short-term consumer price impacts, it recommends a more forward-looking perspective that considers innovation, future competition, and security.

Condon supports this, stating: "This approach would prioritise long-term benefits, including the rollout of new technologies and improved network resilience, ultimately benefiting consumers and businesses by enhancing Europe’s technological leadership."

In addition to fostering competition, such reforms would enable operators to invest more in advanced communications infrastructure, facilitating the deployment of 5G and the growth of IoT.

These investments are crucial for driving Europe’s digital economy forward, creating the foundation for new services that could enhance productivity and job creation across industries.

The risks associated with Europe’s fragmented telecom market are stark. European telecom operators, according to Condon, currently see a return on capital employed that is only half of what their U.S. counterparts achieve.

"This limited return undermines their ability to invest in the advanced infrastructure needed for future growth," he explains. Without sufficient scale, many operators struggle to recover even the cost of capital, putting future innovation at risk.

Furthermore, Europe faces a significant funding gap in the 5G innovation ecosystem, with venture capital funding lagging behind the U.S. by €4.6 to €6.6 billion annually. This shortfall in investment limits the continent’s ability to compete globally in the race for digital transformation.

From a consumer perspective, a more competitive telecom environment could deliver several benefits, particularly as operators gain the financial capacity to invest in 5G and IoT technologies.

Consumers can expect better-quality networks, faster speeds, and broader coverage, especially in underserved rural areas.

As Condon points out: "Improved network quality will enhance the experience of data-heavy applications, such as streaming, video conferencing, and IoT services."

In addition to improved service quality, consumers may also see lower prices over time. Although monthly rates may remain stable, the amount of data and quality of service delivered for that price will increase, continuing a trend seen in previous generations of mobile technology.

The Draghi Report represents a crucial opportunity for Europe to rethink its approach to the telecom sector. However, as Chris Lewis cautions, meaningful change will take time, given the slow-moving nature of European regulation.

Nevertheless, as Condon and other industry leaders emphasise, the long-term benefits of regulatory reform, including consolidation and spectrum harmonisation, could significantly enhance Europe’s position in the global telecom market.

The future of Europe’s telecom industry depends on finding the right balance between maintaining affordable services for consumers and fostering the innovation necessary to compete with global players.

As Condon aptly concludes: "For Europe to benefit from the digital economy, it needs a strong digital foundation—one that is supported by competitive telecom operators investing in advanced technologies like 5G and IoT."

The decisions made in the coming years will determine whether Europe can regain its footing in the global telecom industry or continue to fall behind its international counterparts.

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