Report Studies the Future of European Telecoms

The research firm, IDATE has published a strategic report on the present state and possible futures for the European telecommunications services and equipment industries. This report was commissioned by the Brussels Round Table which comprises leading European telecommunications operators and equipment vendors (Alcatel-Lucent, BT, Deutsche Telekom, Ericsson, France Telecom, Philips, Siemens, Telefonica and Telecom Italia).

This research has led IDATE to establish three contrasted and possible future scenarios for the European telecommunications services and equipment industries.

Beyond the influence of market driven exogenous drivers, these scenarios are deeply impacted by the regulation and public policies' role in shaping competition dynamics at both the application and infrastructure levels and influencing future investment behaviours. The key role played by active public policy through R&D funding programmes and the possible pan-European regulatory harmonisation are also considered.

The three scenarios are:

A Telepocalypse scenario consists in declining industry-wide revenues (due to decimated service revenues not matched by an increase in connectivity revenues) that trigger a competitive shake-out and transforms telecoms into a utilities-like industry with only a handful of large private cost-optimized operators and state-sponsored organizations surviving. It results from a "Mexican standoff" situation between carriers adopting a wait-and-see attitude and delaying or cancelling new network investments while the regulatory framework enforces a strict access at cost policy for new infrastructures and adopts a net neutrality stance in favour of application-based competition.

A Convergence Compromise scenario consists in moderate industry revenue growth derived from the coexistence of tiered basic and premium converged applications in addition to connectivity revenues for operators. This moderate growth produces contrasted strategic choices from operators to derive cost synergies: some focus on Pan-European consolidation and fixed/mobile integration whilst others turn away from application provisioning to become dedicated infrastructure providers. This scenario occurs within a regulatory framework that largely continues to ensure retail-based competition through unbundling of non replicable legacy infrastructures across most territories while introducing facilities-based competition in dense urban areas and facilitating European harmonisation, traffic prioritization and commercial freedom for converged services.

An Evernet scenario where the expanded role of the communications sector creates ample growth opportunities for both infrastructure and application providers and produced a vibrant, dynamic and competitive European telecoms industry. In this scenario, newly enabled services, particularly in the business-to-business and public administration domains (e-gov, e-health, machine to machine) generate cross-sector productivity gains for the European economy while pervasive fixed and mobile visiophony and seamless multimedia communications produce far-reaching benefits for European society at large. This scenario is made possible by (i) a proactive European public policy stance that encourages cross-industry collaboration on new application development and (ii) a regulatory framework which stimulates fixed and mobile broadband facilities-based competition and encourages massive new infrastructure investments across most territories.

Finally, LECG through its formal model underlines the fundamental difference in the interaction of regulation with existing, legacy, infrastructure on the one hand, compared to prospective new infrastructure on the other, for which new investment is necessary.

Its model shows that if there are two (or more) infrastructure competitors who invest in competition to each other, they create more investment and consumer welfare than a single firm which gives access to an infrastructure-less operator. The model also suggests there might be an important role for innovative co-operative models in which there is collaboration at the infrastructure level but then competition at the retail level. LECG notes that such arrangements have emerged in other industries and might be expected to have benefits in telecommunications, thus warranting further consideration.

You can download the full report (107 pages, pdf file) from the idate website (free registration required)."

Posted to the site on 23rd March 2007