This opinion piece has been been published in the Wall Street Journal on January 22, 2014
by Michel Combes, CEO, Alcatel-Lucent
Michel Combes, CEO, Alcatel-Lucent
This week leaders of some of the world’s largest telecommunications and technology companies will debate the potential opportunities promised by next-generation smartphones and fast-changing digital consumption habits.
Discussions about the so-called “New Digital Context” at the rarefied altitude of the World Economic Forum coincides with another panel in the Swiss Alps titled “Is Europe Back?”—questioning European competitiveness.
There is a neat, and alarming, synergy to these twin debates. Because there is a real danger—amid record demand for smartphones and ever-more sophisticated devices—that Europe is losing ground in the information era.
Here in Europe a growing gap is emerging between what the latest devices can do and the capability of telecom networks to support them. That’s because, in terms of network quality, Europe is now lagging other parts of the world.
There is one main and eminently dangerous reason for this stall. Europe is locked in a vicious circle of competition focused exclusively on price, one that forces operators to reduce their investments and destroys their innovation capacity. This type of competition is bad news for a digital Europe and its consumers.
Conscious of the need to advance, Europe has defined ambitious objectives concerning its digital agenda. But there’s a long road ahead. The European Telecommunications Network Operators’ Association (ETNO) estimates that between €110 and €170 billion in additional investment will be necessary between now and 2020 to achieve this roadmap. The association also warns that failure could cost up to €750 billion in lost GDP growth, as well as 5.5 million highly-skilled jobs for young qualified European graduates. That’s a high price to pay for accepting life in a slow-motion telecoms world.
In 2014 the European telecommunications industry has a critical need for a strategy that is more favorable to investment—particularly for latest-generation technologies. Europe must decide to fully embark on a race for ultra-broadband fixed and mobile infrastructures. And Europe can win this race, which it already demonstrated by leading the massive rollout of 3G services well before the U.S. or Asia.
In terms of infrastructure, the time has come to move to “all-IP” (Internet Protocol) networks, supported by what our industry calls “virtualized” infrastructures based on cloud technology. It will be a tough transition for a market built around incumbent service providers, with today’s new players constantly able to disrupt the industrial landscape.
Europe must likewise innovate and invest in applications. Today eight out of the top 10 global Internet platforms are American. The other two are Chinese. A new model of international work distribution seems to be taking shape in which the profitable operators are in the U.S. and the American Internet platforms are taking most of the residual value in Europe, while the application development centers are in India and the manufacturing is in China.
To avoid becoming too naïve in the global village, Europe must do the following: First, end a competition model that is only based on reducing prices in the short term. European operator revenues are expected to decline 2% in the coming years. It will therefore be increasingly difficult for them to take risks or invest, while services are more and more necessary for our society. Spectrum allocation also needs to be reviewed—this scarce natural resource can and must be better used than it is today.
Europe needs to establish shared and efficient policies on net neutrality to allow operators to differentiate themselves and revive investment.
We also need to come back down to earth and stop thinking that the telecom sector can continue with 120 operators in Europe, subject to rules and procedures that change from one country to another. In both the U.S. and China there are three or four incumbents who lead the game, cooperating efficiently with the big Internet players and offering a diverse range of high-quality services.
Europe’s response should be regulatory standardization through a common digital market, while allowing the consolidation of networks through sharing agreements or mergers. To keep up the pace of the European digital agenda, European players should explore partnerships.
This move will, without protectionism or injustice for the consumer, bring back competition in Europe that favors innovation in a framework where consumers are able to make clear choices in terms of connection quality, speed and capacity—not just retail price.
Continental equipment providers and other European telecom players must be allowed to compete on a level playing field in Europe.
The digital agenda for Europe sets an ambitious and clear framework. For Europe to once again make its citizens dream and make them proud, innovation must be its No. 1 priority.