Breton pushing single market but telcos want in-country consolidation first

Thierry Breton (pictured) is once again banging the cross-border consolidation drum, extolling the virtues of a single European market for telecoms, but operators are still asking for in-market tie-ups.

The European Commission’s Internal Market commissioner shared a lengthy LinkedIn post this week to accompany the publication of the results of the EU’s consultation into the future of connectivity and infrastructure in Europe. The big tech versus telco element of that consultation has captured most of the related headlines over the past year or so, including earlier this week, when it emerged that Breton is unlikely to set out his strategy on the matter in the near future, thereby pushing any legislative action into the lap of the next Commission.

But aside from a cursory mention of the idea of compelling the Internet giants to contribute financially to the development of fibre and 5G networks in Europe, Breton largely ignored it and chose to focus instead on another of his favourite causes: the creation of a single telecoms market.

“Telecoms operators need scale and agility to adapt to this technology revolution, but market fragmentation holds them back,” Breton wrote, having liberally peppered his previous two paragraphs with buzzwords such as AI, cloud and quantum computing, and the metaverse.

“Too many regulatory barriers to a true telecoms Single Market still exist, on spectrum acquisition, consolidation, legacy networks, security, and so on. This is the clear finding from the consultation, the results of which we published today,” he said. “Low returns on investment, long payback periods and market uncertainties, in turn, reduce the attractiveness of the telecoms sector for investors who want to put their money in building the networks of the future, rather than squeezing legacy copper networks. In the long run this can weaken the sector and expose it to hostile take-overs, despite the critical nature of its assets.”

Whether that last point refers to the ongoing saga of Saudi Telecom’s proposed acquisition of a 9.9% stake in Spain’s Telefonica only Breton himself knows. Either way, he chose his words very carefully there and throughout the post.

Insisting that the single market would foster growth and innovation, Breton turned his attention to the infrastructure layer needed to make it happen.

The EU must “facilitate cross-border operations and the creation of true pan-European infrastructure operators, with the scale to reap the full potential of an EU-wide telecoms market,” Breton said. “Pan-European operation of core networks and network slices is the technical solution that technology offers today to make it happen.” He conceded that there are a number of issues to be addressed around security, data retention and so forth. “There is no secure connectivity without healthy telecoms operators with sufficient investment capacity,” he said.

The operators doubtless agree there. But the trouble with the single market idea – aside from manifold practical issues – is that the operators themselves aren’t really that invested in it, as a closer look at the actual results of the consultation demonstrates.

“Some ECN (that’s electronic communication networks) providers indicated that there are no obstacles to cross-border consolidation other than the lack of a business case due to the insufficient efficiencies that cross-border consolidation could achieve,” a document detailing the results of the Commission’s consultation reads. “Furthermore, responding ECN providers and their business associations noted that cross-border consolidation of operators does not bring the same synergies as intra-market consolidation.”

And there it is. The document goes on to explain that the operators consider cross-border consolidation a possibility once their financial situation improves at a national level, but it’s pretty clear that the goals of the EU are not really aligned with those of the telcos, despite Brussels’ endeavours to prove otherwise.

For instance, in its key takeaway messages from the consultation the Commission notes: “Among the examples provided, it is indicated that being able to operate on the basis of a single 5G core network across the EU, would result in benefits in the range of €200-300 million over the next five years.” In the results document itself though, the Commission notes that this is an estimate provided by one respondent, which puts a slightly different slant on it.

But perhaps that’s unfairly nit-picky. And it’s an interesting statistic nonetheless. The broader point here is that the operators are way more interested in merging with their domestic rivals than they are in creating European super-telcos.

“ECN providers proposed consolidation of operators at intra-market level as a first step instead and urged a review of the European merger control policy,” the consultation document states.

Breton acknowledged this in his LinkedIn post, but moved swiftly on. “The issue of market consolidation should also be addressed for operations in a Member State while preserving consumer benefits and innovation,” he said.

Is that enough to raise hopes that the EU is softening its stance on facilities-based competition? Many European telcos will hope so, none more than Orange, which is still awaiting a Commission ruling on its proposal to merge with rival network operator MasMovil in Spain.

All in all, Breton did not say much that we haven’t heard before, and the consultation appears to have yielded little of real note. Which in all likelihood means that the issue of making the Internet giants pay for network usage will continue to dominate thoughts across the continent, despite the fact that Breton is clearly trying to distance himself from it.

“Some have tried to reduce the issue of investment to a battle over the ‘fair share’ between Big Telco and Big Tech. A binary choice between the vested interests of those who provide networks today and those who currently feed them with the traffic,” he said. “But while finding a financing model for the huge investments needed is an important issue that we will need to deal with, so much more is at stake. It is about achieving the giant leap ahead of us: not only in the telecoms sector, but more broadly in digital technologies.”

As the commissioner well knows though, giant leaps cost money, and the investment issue isn’t going away any time. We’ve heard plenty about the €200 billion funding gap that could prevent the EU reaching its 2030 gigabit and 5G connectivity targets, but there appear to be few solutions at present, apart from the Commission urging member states to explore all options. It’s starting to look like Breton is laying the groundwork for moving the goalposts.

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