The European telecoms sector’s declining profits and international competitiveness have long been a cause for concern amongst business practitioners, leading to louder calls for the sector to be restructured.

The past few years have seen a major reorientation in national and European policymaking to prioritise digital development, as its centrality to innovation and everyday life only grows.

As both policy goals and the market have evolved, Europe’s fragmented telecoms sector has struggled to reverse the trend of falling profits, and many are now calling for a rethink of how the industry is regulated and internally organised.

In Brussels, meanwhile, the Commission launched its Connectivity Package earlier this year, which included initiatives to boost fibre and 5G deployment, shape national regulators’ decisions, and – controversially – require large traffic generators to contribute to network infrastructure costs.

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A report released by the European Telecommunications Network Operators’ Association (ETNO) in February found that, despite Europe having reached record levels of investment, it still falls significantly behind global peers in terms of investment and other factors, such as 5G coverage.

The impacts of this are wide-reaching, affecting the overall competitiveness of other European sectors and the achievement of broader digital targets set by Brussels.

The past two decades have seen a significant change in the telecoms sector, particularly with the shift from fixed to mobile services and the increasingly diverse range of digital technologies and infrastructures offered by a widening range of providers.

The sector’s declining profitability has been an area of increasing concern for telecom companies, with some pointing to low investment rates and high levels of regulation as culprits.

Speaking to EURACTIV, Innocenzo Genna, a specialist in European telecoms and internet regulation, detailed some factors that have contributed to this decline, including the development of new technologies, scarce adaptation to new market conditions, for instance retaining a high number of employees, and increased competition in the telecoms market.

Genna also noted, however, that discussions of the sector’s current crisis often hinge on comparisons to the state of the industry in the early 2000s.

This contrast, he said, is flawed given the technological and market changes that have occurred since and the fact that the sector’s success at this earlier point was in some ways artificial, with fixed incumbents and mobile operators experiencing high margins and profit that were likely to experience a downwards turn eventually.

Stakeholders have also pointed to policy decisions, particularly those made at the EU level, as contributing factors to the situation the sector currently faces.

In a report published in April, Vodafone singled out what it described as extractive spectrum policies, the prioritisation of short-term pricing and light-touch approaches to regulating tech giants as among the choices that had hindered the sector’s development in Europe.

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The fragmented nature of Europe’s telecoms market is also often cited as a key hindrance and a contributing factor to the region’s lagging international performance.

Two key factors have stood in the way of the development of a single market for telecoms, Zach Meyers, a research fellow at the Centre for European Reform told EURACTIV.

“One of those things is the spectrum markets, which are still national, which means that it’s very difficult for companies to kind of coordinate a rollout of a mobile network across different countries at the same time”, he said, adding that “different land access regimes are also a real problem, but obviously politically extremely difficult to fix.”

For Meyers, both these factors, jealously guarded national competencies, obstruct coordination between companies when it comes to rolling out networks in different countries simultaneously.

Both Genna and Meyers also highlight the fact that there are areas that the telecoms sector has not branched out into, namely the cloud market.

One of the reasons the sector is struggling, Genna said, is that many opportunities for innovative and new businesses have been missed.

“The most important is the cloud market, which currently is dominated by American companies, such as Google, Microsoft and Amazon,” he said. “The question is why telecom operators are not managing that market. That’s a huge missed opportunity.”

Similarly, Meyers notes that investing in cloud computing could be a way for the sector to develop new business models. However, he adds that telcos will still struggle to compete with the large US tech companies currently dominating the scene.

In general, there is broad agreement in the sector that change of some kind is needed.

Genna, for instance, calls for a new business model to be found that would allow companies to adapt to the new technological environment, such as the separation of networks and specialised network providers, to allow telecom operators to concentrate more on services and innovation.

At the same time, major players such as Vodafone have focused on regulators, calling for a reset of their approach to the sector, but have also teamed up with other large operators in a bid to enter the profitable advertising market.

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