The world is going digital, and Europe is no exception as it sits on the brink of an enormous and unavoidable transformation.
In April 2013, former vice president of the European Commission (EC) Neelie Kroes – a divisive figure in the market – first unveiled her idea of a Digital Single Market for Europe. She envisaged a streamlined market, focussed on three key pillars for success.
The first and third are dedicated, respectively, to better access to digital goods and services across Europe for consumers and businesses, and maximising the growth potential of the digital economy. The second and most relevant pillar to carriers is the development of a level playing field across the region, to enable digital networks and innovative services to thrive.
More than two years later and her vision is starting to become reality.
Time to market
“The European Digital Single Market proposal has taken a lot of time, but it is trying to do an awful lot,” explains Alex Holt, UK head of telecoms at consultancy giant KPMG. “You’re talking about a huge amount of jurisdiction so in reality, it was never going to happen that quickly.”
But one change that has already been enforced by the European Union (EU), is the abolition of roaming fees across the region. In line with the design for a singular and unified telecoms market, the agreement covers all 28 member states in Europe, and will enable mobile users to use their voice, text and data allowance in any EU country, at no extra charge.
Latvia – which holds the rotating EU presidency – confirmed in a statement earlier this year that “roaming surcharges in the European Union will be abolished as of June 15, 2017”.
While this is welcome news for consumers, what does it mean for European carriers?
Many European travellers are wise to the roaming fees they are charged outside of their home countries, and the majority switch off their data roaming when travelling – instead opting for the vast number of Wifi possibilities in local hotels, airports and cafes when they travel.
As a result, Mikael Schachne, VP of mobile data business at BICS, predicts there will be an enormous spike in data traffic across the region when the ruling comes into effect.
“When the data roaming charges are fully abolished – if it comes to reality – we will see a very sharp growth in data roaming traffic,” he says. “It can only accelerate from what we see today, and from our perspective, this is very good for the industry.”
Mark Lewis, VP of communications and connectivity at Interoute, also expects the abolition of charging to raise rather than lower revenues. Although he notes that this may not be the case across the board.
“There could be losers, particularly operators relying on seasonal tourism to drive up their revenues,” he adds.
And there is certainly an air of apprehension among operators over the ruling.
In Eastern Europe, for example, there are concerns that cheap domestic rates will increase as local operators look to supplement the wholesale charges they will have to pay other operators when their customers travel abroad.
“The main risk of the abolishment of surcharges for roaming services lies in a likely further reduction of roaming wholesale price caps as part of the foreseen wholesale review,” a representative from Deutsche Telekom states. “A significant reduction of these wholesale price caps…could create an artificial bypass of local wholesale markets.”
If wholesale prices are reduced to a level where it is easy for European operators to start offering domestic services in foreign EU member states on a permanent roaming basis, Deutsche Telekom predicts that this may go below existing domestic pricing.
“This would disrupt national retail mobile markets that are already competitive,” our source claims. “‘Permanent roaming’ offers could be used to challenge national offers by players who haven’t invested in their own infrastructure and spectrum in the given member state.”
However, Ursula Pachl, deputy director general for European consumer organisation BEUC, has knocked down such concerns. “Yes there are related problems such as wholesale costs between operators, however neither this nor Southern European countries’ interests in the tourists who come to their shores excuse inaction,” she states.
Widely, it is agreed that the abolition is an inevitable and largely profitable movement for the market, but some changes are needed to prepare for its implementation.
Driving investment
Networks play a crucial role in the vision of a Digital Single Market. With the expected surge in data traffic as a result of the roaming fee abolition, operators will need to upgrade and advance their networks to be able to absorb the additional traffic.
Schachne highlights a report from BICS earlier this year which found that the company had experienced double digit growth of LTE roaming over its IPX network each month during 2014. And this is only expected to increase in the run-up to 2020. Over the last few years, major OTT players have also established more of a presence across Europe in order to bring their content closer to end users.
“The OTT players are building a new high capacity, low latency internet for rich content, which in turn is driving bigger access networks,” Lewis says.
Netflix, Facebook and Google are all piling into the region to bring their content closer to consumers, which Lewis says is leading to large investments in access networks.
Aaron Partouche, director of smart mobile backhaul at Colt, says that “mobile operators [in Europe] are struggling a bit with the increase in data, and they need to be more efficient in the way they manage and operate their networks”.
“They need to identify where to upgrade and how to implement new technologies in an efficient way,” he adds.
He believes that there is a real urgency for network innovation and investment in Europe. “If we compare European networks with American or South Korean networks today, they are both investing more than we do in Europe,” he says.
The US and South Korea in particular have traditionally been ahead of the game when it comes to network and technology innovation, and the Digital Single Market initiative is designed to help Europe catch-up.
Part of the EC’s proposal includes a focus on creating incentives for investment in high-speed broadband networks, as well as more effective spectrum coordination, and common EU-wide criteria for spectrum assignment at national level.
“Telcos are heavily regulated. They have to invest billions of pounds in infrastructure, and the return is somewhat uncertain because of regulatory environments,” KPMG’s Holt says.
“The OTT providers are then coming across that network, pretty much unregulated – compared to telco standards – and they have access to monetise the customer-base of the telcos.”
It is yet to be revealed exactly what incentives the EC will offer telcos to make network investments, which could have large implications for the success of the Digital Single Market initiative.
“I think it is important that telcos are really incentivised to deliver the infrastructure that we all need,” says Holt. “Digital infrastructure underpins all of business and the economics of a country, as well as society, and anything to promote network investment and innovation will be absolutely crucial for the development of the industry.”
An overhaul of the spectrum auction process will also benefit the investment strategy of telecoms operators. With better procedures in place to ensure spectrum pricing goes down, operators will be more likely to invest outside their home market.
Securing the region
But how will a more open, more unified and more singular approach to connectivity impact data security?
Europe, like much of the Western world, was rocked by the Snowden files scandal back in 2011, heightening consumer interest on data protection.
Unsurprisingly, the EC has proposed a focus on reinforcing trust and security in digital services, particularly in its handling of personal data, in the Digital Single Market agenda.
A set of data protection rules are due to be adopted across the region by the end of 2015, designed to strengthen online privacy rights. Coming in as a single law, this is hoped to reform the existing, highly fragmented security market in Europe and lead to estimated savings of approximately €2.3 billion each year.
Building on this, the EC has also said it will review the e-Privacy Directive; legislation drawn together in 2002 surrounding the processing of personal data and the protection of privacy in electronic communications.
“The ability to have a uniform set of standards, that are universally met and applied, certainly has huge benefits,” says Holt.
“But in many economies, telecoms incumbents are the source of some of the greatest expertise you will find in cybersecurity, and I think the ability to protect the data of their users remains as critical as it’s always been; in a digital world there is just more data to protect.”
And the EC is also proposing to do just that with the promise of closer collaboration with the industry when it comes to cybersecurity, specifically in the areas of technologies and solutions for online network security.
In sharp contradiction to this, BICS’ Schachne says that security is one of his largest concerns with the proposal.
“That’s the downside when you want to fully open your network and provide maximum reachability, you open yourself to fraud,” he says.
“The more open the network, the more traffic they will carry and the more difficult it will be to track fraudsters.”
It is Schachne’s view that as part of their preparation for the Digital Single Market, operators need to be investing in fraud prevention solutions to ensure their networks and customers are fully protected. “They will need to invest in an advanced security solution, especially in the roaming sector,” he says.
A future in tune
The move to a truly Digital Single Market will be a tough one which will force operators to change the way they look at and run their business models.
“Take the music industry – a streaming model with a subscription where you can basically access every back catalogue of music ever – 10 years ago that would have seemed a pretty unbelievable feat,” says Holt.
“That change was brought about by the consumer. It brought about innovation, and new types of business models and it has massively impacted the music industry in terms of where they make their money from. They are now essentially using the same kind of content, but distributing and monetising it differently.”
The transition to a singular, digital market could prove difficult while operators rethink their business models.
“But in my view, the ones that will win will be the ones that are able to really understand what it is that the end users want from their service providers, and be nimble enough to make that move,” Holt concludes.
This need for innovation and change is echoed across the industry, not least from Europe’s leading man, Jean-Claude Juncker, president of the EC.
In his introduction to the Digital Single Market proposal, Juncker says that fragmentation of the existing European market is holding digital back, before stating that “Europe needs to change to become competitive again”.
The legislation has been written, the building blocks are in place and the region is slowly, but surely, stepping into the unknown.
