Europe must up its game to bridge digital connectivity gap

Over the last 12 months, the coronavirus pandemic has underlined just how important digital connectivity is to the lives and livelihoods of citizens all over the world.

European policymakers have emerged with a new sense of purpose regarding digital development across the bloc, earmarking 20% of the bloc’s coronavirus recovery funds for digital issues and emphasizing the need to build up the continent’s digital sovereignty and turbocharge the rollout of 5G and ultrafast broadband networks.

A new report, however, has revealed that despite modest improvement in recent years, Europe still lags considerably behind its main rivals in several key metrics in the digital communications arena. Investment in digital infrastructure is one of those areas. At the same time that an alarming funding gap is opening up, non-financial barriers including unfriendly spectrum auction designs are further constraining network investment.

In order for Europe to catch up with more well-connected regions like Asia, it will need to match its growing awareness of the importance of the issue with a concerted effort to engineer an environment in which investment and infrastructure can both prosper in tandem.

Plenty of room for improvement.

This year’s report on the state of digital communications across Europe, published by the European Telecommunications Network Operators’ Association (ETNO), did make for encouraging reading in some respects. While most European countries still lag behind Asia and the United States in terms of connectivity, the European rollout of both full fibre and 5G is accelerating. Some 50% of European premises are now expected to enjoy full fibre coverage by the end of 2022, up from 43% today. 5G availability, meanwhile, nearly doubled over the course of 2020, though coverage with the next-generation mobile network remains low at 24.4%. As previous evaluations such as the DESI Index have highlighted, even this connectivity is highly localised, with some countries—such as the Netherlands—achieving near-total 5G coverage while others, such as Portugal, are still carrying out spectrum auctions.

Part of the problem is a lack of investment. Though European telecom companies are spending a higher percentage of their revenue on investment than their peers in Japan, South Korea, or the USA, these private funds are not proving sufficient. An EU report identified additional funding needs of some €125 billion a year to accelerate the digital transformation, including a €42 billion boost for network infrastructure.

It’s not just a lack of funding that is holding European digital infrastructure back, however, but a regulatory framework and a market environment that stifles the telecom industry’s efficacy. Although all EU nations have recently renewed their commitment to tackling the digital divide, it will take comprehensive reform of existing regulations to engender greater flexibility if they are to ensure that EU funds are put to good use in bolstering Europe’s digital infrastructure.

Portugal a perfect case study.

One member state which can be viewed as something of a microcosm for Europe’s digital dilemma is Portugal. The Iberian country is vying to become a tech hub and has indeed produced some big names in technology in recent years, including software coders OutSystems and online luxury fashion outfit Farfetch, as well as a number of successful fintech firms. Portugal has reaped the economic benefits of this development, racking up its highest-ever FDI in the IT and software industries in 2018 and 2019.

In some ways, Portugal has tried hard to create a welcoming regulatory environment to entice digital entrepreneurs from the world over. Tax holidays and other benefits, however, can’t compensate for the fact that Portugal’s digital infrastructure is not where it needs to be. In stark contrast to somewhere like Finland, which managed to allocate all of its 5G spectrum quickly, efficiently and affordably, Portugal has begun its auction, yet the details of the final regulation are still wrapped up in litigation.

In particular, Portugal has struggled with the regulatory framework surrounding its 5G spectrum auction. Communications regulator Anacom decided to offer preferential treatment to new entrants into the market in the shape of a 10-year period of roaming access to rival networks, mobile coverage of just 25% and 50% of the national population, which considering the geographic distribution of the Portuguese population translates into a very small geographic scope. What’s more, the obligations imposed on new entrants may be fulfilled over very long periods, while the speeds required for new entrants are also lower than those for established operators, a situation that has ruffled the feathers of telecom providers and the European Commission alike.

Major players in the Portuguese telecoms industry have already voiced their dissatisfaction with the framework and have highlighted the fact that it’s likely to curb investment. In response, the EC itself stepped in to ask Anacom to clarify the terms of its 5G auction regulations. Failure to take stock of the situation and revise the framework to create a more equitable environment for all could forestall Portuguese progress in the digital sector, throwing a wrench in its plans to become Europe’s latest tech hub.

Funding must be accompanied by appropriate frameworks.

Indeed, it’s exactly this kind of short-sighted stance from Anacom – which encourages an already fragmented market to splinter even further to the detriment of long-standing industry players and the short-term gain of opportunistic investors – that is emblematic of a wider regulatory problem in Europe. Unless the continent can prioritise consistency in its approach and foster an environment optimised for a fast, efficient and far-reaching rollout of digital services, Europe will continue to lag behind its cohorts.

The growing consciousness surrounding the importance of digital infrastructure within the bloc is a highly encouraging sign, as is the billions of euros that are being earmarked for allowing countries to stabilise themselves after the upheaval of the pandemic and chart a route towards a brighter tomorrow via a green and digital transformation.

However, that funding will be for nothing if it is not accompanied by the creation and implementation of regulatory frameworks which invite investment and channel it into the areas that can benefit from it most. The EU has long proclaimed its intention to act as a digital pioneer – the time to back up those words with affirmative action has arrived.

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Phillipe Jeune

Phillipe Jeune

Phillipe Jeune is a Paris-based freelance journalist, and an occasional contributor to EU Today. He has a background in intelligence gathering, and he specialises in business and political matters, with a particular interest in Central Asia, the Middle East, and the Americas.

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