There has been a seismic change in the telecoms industry in the past few years, says Andrew Lipman. Telecoms was global and borderless, but now, he warns, there’s a threat that the industry might be balkanised.
Lipman chairs the telecommunications, media and technology practice at global law firm Morgan, Lewis & Bockius, where he is a senior partner. And he’s worried about the future.
“One of the biggest issues, affecting national security, is that Western governments are distancing themselves from China, and now probably from Russia.”
In the US, the Federal Communications Commission (FCC), the regulator, refused a telecoms licence to China Mobile and has withdrawn licences from China Telecom and China Unicom as well as two subsidiaries of CITIC Telecom International – Pacific Networks and ComNet (USA).
At the same time, the US and many other Western countries have restricted the activities of two of the world’s biggest suppliers of telecoms equipment, Huawei and ZTE.
“The telecoms industry has always been global and borderless,” says Lipman. “It’s a very concerning development.” Until now, the industry has had “a seamless global footprint”.
There is a danger that the industry could be like the electrical grid, with a diversity of standards that confuse international travellers. Those standards of voltage and frequency were set some 80 years ago, long before travellers expected to plug a US hairdryer, designed for 110V, 60Hz, into a European wall-socket that delivered 230V at 50Hz.
This development is particularly unwelcome, says Lipman, because in the past few years telecoms has become recognised as infrastructure, “and the industry has attracted global infrastructure funds”.
That means telecoms companies have been assessed alongside categories such as highways, energy and airports, “with very sophisticated investors” and, “this leads to more investment and higher values”, he says.
Lipman has long been a key part of Capacity conferences, including ITW. Four years ago he chaired a panel at Capacity’s Metro Connect Europe in Amsterdam, where he asked how many acquisitions were enough as fibre companies merged. Lipman told the audience of investors and operators: “I thought it was enough a year ago, but I would have made a big mistake. It’s not too late. The customers are looking for network infill.”
At Metro Connect USA last year, he commented in another panel on interest rates, acquisitions and spectrum auctions. Costs could double, he said, because “we are also talking about another $90 billion to $100 billion for broadband funding, that’s a huge dynamic as well”.
This has become more vital during Covid-19, he says. “Emerging out of the pandemic, we are realising broadband is a necessity, a human right. It’s needed for access to education and healthcare and for first responders. That’s leading to a policy in the US and Europe for accessible broadband.” Governments are realising how important broadband is, and they are worrying about geographically less dense areas where broadband has not been constructed.
But there is another cause for concern among governments, says Lipman. They are worried about the role of social media and the hyperscalers. “It’s not just a US phenomenon; it is also in the EU and other democratic countries.” The real driver of growth in data centres and the subsea industry is “because of social media companies”, he says.
This investment “was based on a reasonable expectation that these would continue to grow”. But, thanks perhaps to suspected interference in elections, “the whole attitude has shifted, and the pandemic has caused it to shift at a higher pace”. There could, says Lipman, “be some shake-up”.
Look at the priorities of the FCC under the Joe Biden government, he says: economy, justice, empowerment, environmental concern “and scepticism on big business”. These are “very different priorities than we have seen historically under the previous US administration”.
And how did the big telcos respond? “A lot of them thought that telecoms was boring,” he smiles. They wanted to go into “more exciting areas”.
Lipman is clearly thinking of companies such as AT&T and Verizon, both of which spent billions – and lost billions – investing in content and social media companies.
“Now they are going back to basics,” Lipman says. “It’s a very different corporate philosophy, a very different structure.” Telcos are “reverting back” to a time when infrastructure should be the focus.
This is also being driven by “new classes of investors”, he adds: infrastructure funds and pension funds are “driving up values and forcing companies to build fibre broadband”. Finally, we turn to satellites. “We are seeing them provide service in the US, and it’s a very exciting time, with very, very powerful players getting into space and driving the cost down.
They are providing a very competitive offering. Now, even the most geographically remote customers can get access to broadband services.”
