For the past 30 years, telecoms regulation has largely been designed to keep the market power of incumbent telcos in check. Now, the growing maturity of the market, the massive power of global digital players, and the pressing need for more investment are combining to prompt a regulatory rethink. How should telcos and regulators change their approaches to accelerate the cycle of growth and innovation?
As one of the most regulated sectors of the economy, telecoms services are the product of a complex mix of market forces and a multitude of rules governing everything from prices to the availability of spectrum. Many of these rules date from the days when an incumbent telco, often state-owned, was the dominant player in the market and needed to be carefully scrutinised by regulators. However, some of these rules, such as those governing Net Neutrality, are relatively new and relate to telcos’ role as the gateway to the Internet, which has become so fundamental to modern life. For more on this topic, please see STL Partners’ recent report: Net Neutrality 2021: IoT, NFV and 5G ready?
As telcos’ profitability has come under increasing pressure, they are lobbying hard for greater regulatory freedom. This report outlines and analyses telcos’ various campaigns to improve the business case for infrastructure investment and level the playing field with Internet players, such as Google and Facebook. It also considers whether telcos are actually putting their money where their mouth is. Is the current regulatory and competitive climate actually prompting them to cut back on investment? What will be the impact on 5G?
For their part, governments are increasingly aware of the need to stimulate new investments and new solutions in the digital economy. Greater digitisation could help solve important socio-economic problems. For example, most governments believe that digital technologies can improve the business environment, and support lower-cost, but effective, healthcare, education and security services, that will make their economies function and grow. The EU, for example, is trying to build a Digital Single Market, while the Indian government’s Digital India initiative aims to make all public services available online.
Thus governments need telcos and tech companies to succeed. Given that telcos are typically more national than global in their outlook and organisation, they tend to seem a more natural partner for national governments than the giant Internet players, such as Google and Apple.
In light of these factors, this report explores whether policymakers’ priorities are changing and how regulatory principles and competition policy are evolving. In particular, it considers whether policymakers and regulators are now taking a tougher stance with the major Internet platforms. Finally, the report analyses several areas of uncertainty – arenas in which telcos and others are likely to concentrate their lobbying efforts in future, and gives our high level analysis of areas of potential for telcos – and regulators – to make progress.
- Executive Summary
- The regulatory constraints on telcos
- Telcos’ lobbying efforts
- More than just talk?
- Policymakers change their priorities
- Taking a tougher line with Internet players
- Conclusions and areas of uncertainty
- Figure 1: EBIT margins for various segments of the digital economy
- Figure 2: ROCE in various segments of the digital value chain
- Figure 3: Western Europe isn’t investing enough in telecoms infrastructure
- Figure 4: Europe’s big five have stepped up capital spending
- Figure 5: Vodafone & Telecom Italia invest more than 20% of revenues
- Figure 6: The capital intensity of European telcos has been rising
- Figure 7: Europe’s large telcos are seeing ROCE fall
- Figure 8: Europe lags behind on LTE availability
- Figure 9: In the UK, mobile operators already share infrastructure
- Figure 10: The EU alleges Google uses Android to unfairly promote its apps
- Figure 11: The key issues in telecoms regulation & their relative importance
- Figure 12: The flywheel that can be driven by ROCE-aware regulation