- Working groups
You can download the Executive Summary of the Report through this link.
The EU has set ambitious goals for digital development, including the digital decade targets for 2030 which set targets for expansion of European Communication Networks (ECN) with gigabit networks available to everyone and all populated areas covered by 5G, amongst others.
Indeed, ECN are critical not only to Europe’s digital future, but in securing European resilience, as glimpsed during the COVID-19 pandemic. ECN and the connectivity they provide are a pre-condition for digital transformation, with new ECN technologies laying the foundation for broader technological innovation (e.g. Network as a Service enabling smart cities). ECN are also critical infrastructure, underpinning Europe’s crisis response and being required to resist increasing cyber-attacks.
According to a study conducted by Deloitte for ETNO (later referred to as the study), Telcos have already invested EUR 500bn in fixed and mobile networks in the last ten years. However, European telecommunication operators face significant pressures currently: increasing investment and network upgrade needs, security challenges, and a fragmented and heavily regulated EU market, have resulted in declining profitability. High capex intensity and low returns put pressure on return on capital and eventually in market valuation triggering lower investment . In addition, increasing uncertainty over future monetization opportunities and growing competition from OTTs and non-traditional players such as hyperscalers pose risks of further value migration. These challenges all together reduce telcos ability to address the investment need for new infrastructure, currently estimated by the EU Commission to be at least EUR 174bn.
In response to these challenges, telcos have adapted by decoupling their business models, spinning off passive infrastructure, meaning the market is increasingly disaggregated into companies focused on the provision of infrastructure, network and services.
While there are benefits to this, in terms of increased market capitalization and more efficient business models, this trend creates challenges from an industry and policy perspective. Non-EU players such as hyperscalers and OTT players could have greater opportunities to enter the telco market and provide broadband services by renting towers, fiber and edge data centers. In addition, the ECN coordination and orchestration challenges arising from the value chain fragmentation will open the door to new types of industry players.
To support EU policy for ECN development an understanding of the key technologies that will transform the way in which networks are built, deployed and operated is required. The study identified seven key technologies that will characterize the future of ECN and will enable crucial EU policy objectives:
The investment need to deliver on these developments is high; in particular infrastructure technology (FTTH / FTTx and 5G SA) will represent the most significant technology investment area until 2030 for European telecom operators, with estimated investments levels beyond €100 Bn for each.
NFV / SDN and Open RAN may require the most investment among enabling technologies, with investment levels between € 10 to € 100 Bn for each, depending on the degree of uptake. LEO satellites, edge computing and quantum encryption will represent smaller investment requirements, in comparison (i.e., less than € 10 Bn).
If European telecom operators are able to reap the full benefits of these technologies, the networks of the future will greatly contribute to the EU policy ambitions to enable autonomous, resilient, and sustainable networks that secure digital sovereignty and industry competitiveness. More specifically, fiber, 5G SA, NFV & SDN, LEO Satellite Connectivity and Open RAN must be combined to ensure the network’s autonomy and resilience. Technologies such as Open RAN, NFV & SDN and Edge Computing can have the stronger impact on boosting the EU’s industry’s competitiveness by enabling the entry of new European players into the ECN ecosystem in segments that are currently dominated by non-European providers. Finally, virtualization technologies, as well as 5G SA and fiber, reduce energy consumption and promote more sustainable use cases and services in other industries.
ECN technological development cannot be analyzed in isolation and policymakers should recognize the broader industry trends occurring across the value chain. Many players will be impacted by the technological changes that will transform telecommunication networks.
Traditional telcos and network companies will become increasingly virtualized and able to outsource operations. In this context, hyperscalers will be in a prime position to establish themselves as key industry stakeholders by leveraging their leading cloud offerings and strong capabilities in the area. At the same time, hyperscalers will increasingly compete with telcos, not only in the services market but also potentially in the skills market. System integrators have the opportunity to come to play a central role in ECN, as networks become more open and the telecommunication value chain decouples, creating integration and orchestration challenges for telcos. Equipment and software providers will have new opportunities to develop the next generation of ECN equipment; technologies such as Open RAN will increase competition as they pave the way for new specialized players to enter the market. Finally, while service companies and OTT are less directly impacted by network technology developments, they could expand the types of services offered (e.g., application-specific connectivity plans, IoT offerings, B2B services…), their quality and create better customer satisfaction.
Telcos face both opportunities and threats with the technological development of their networks and its impact on the value chain. On the one hand, telcos can develop more flexible, resilient and higher-quality networks; the integration of AI and data analytics can significantly enhance network management and elevate customer experience; and opportunities for new, strategic partnerships can emerge. On the flip side, as emerging technologies and data analytics become integral to managing ECN, telcos will face the imperative of restructuring their workforce to acquire the specialized labor needed in these fields, which could be in short supply. Additionally, telcos may be faced with the challenge to monetizing increasing data traffic and the technological advancements due to overregulation, uncertainties in demand, high cost and low prices in a high-inflation economic environment, and the relatively limited scale of European markets. These challenges will be further amplified by the blurring of industry boundaries, new entrants and type of players that exert additional competitive pressures on telcos.
In light of the future transformation of ECN and their value chains, and of the technology trends that will drive such transformation, it is important that policy approaches support the key EU goals of enabling autonomous, resilient and sustainable networks, and of fostering digital sovereignty and industry competitiveness. To inform this, the study included a benchmarking exercise and identified the following policies building from examples from other countries.