Is Europe ready for a sprint?

As the last candidates for the new European Commission are confirmed, it’s clear we are at a crossroads when it comes to determining Europe’s place in the world.

Even before the US election, the backdrop to the start of President von der Leyen’s second term couldn’t have been more different to the start of her first term in 2019, with the pandemic, the Ukraine war and geopolitical tensions making the world an unpredictable place. Now, with a new President about to enter the White House, it’s even more imperative for the EU to carve out its place in the world – by aligning on pro-growth, pro-investment and pro-competitive policies.

Mario Draghi recognizes this in his recent report – The future of European competitiveness – in which he declares that we are at a turning point for the European economy and we have to do ‘whatever it takes’ to improve productivity and growth so we can maintain our European values and way of life. Draghi believes the time to act is now, and President von der Leyen has geared up her team to do just that. The shift to encouraging innovation and investment is a welcome one – and companies like ours are willing to play our part. We see a lot of potential in Europe, and have proven that through continued investment over the past thirty years. However, we need a supporting framework to help us.

Renewed regulatory framework

The key driver for growth and increased productivity in the US has been through the digital economy. Draghi’s report outlines how Europe will fall behind if we do not unlock the full potential of our European Digital Single Market. Connectivity is the founding stone for driving this growth, which is why the telecoms sector features prominently in his report. If we ensure Europe is better-connected, the possibilities are endless.

Executive Vice President Virkkunen indicated she will take swift action during her hearing, on tackling the regulatory burdens our industry faces. We have over 270 regulators involved in digital networks in the EU[1] today. The time and costs, both public and private, of these administrative burdens are no longer proportionate to the task at hand. The new Digital Networks Act should look at harmonizing existing rules as well as executing on the final stages of moving away from the ex-ante (and outdated) current regime to ex-post.

The Digital Decade Targets of 2030 were set to usher in a ‘new connectivity era’, but we are still far from it. The investment gap is estimated around €200 billion by the European Commission, which cannot be closed through ‘business as usual’.

We need strong accelerators to the deployment of gigabit networks, and there are several tools in the toolbox to get there. We hope Henna Virkkunen and her team will seize the opportunity, take on the recommendations of the recent White Paper on Connectivity and help us bridge the gap. But also, the targets should better align with actual customer demand – consumers are looking for the best combination of speed, quality and price and these should be reflected in targets for what Europe really needs. Hence, we should strive for realistic targets.

Equally important for investment is long-term regulatory certainty. Regulation should promote sustainable investment in gigabit networks – firms making large and risky investments must have regulatory confidence that any regulation will reflect a fair return on investment, commensurate to the level of risk incurred at the time of making the investment decision.

Strategic industrial policy

By assigning the digital and competition portfolio to Executive Vice Presidents in the European Commission, we see Ursula von der Leyen sending a strong message that these issues will be a top priority for the next five years. We agree with that choice, and hope to see substantial reform to stimulate the potential industrial wealth this continent has. Scale is key to boosting innovation and investment, which Executive Vice President Ribera will have as one of her priorities.

But scale is not just an issue in our sector. It is a plea from across industry, where a wide range of sectors are asking for a reform of the way competition rules are applied in Europe. We need to look at all the elements involved in a merger, which includes consumers, market dynamics but also innovation and investment to sustain the market. Competition rules do not operate in a vacuum, and Europe needs a flexible competition toolbox to make the necessary strategic choices to boost its competitiveness on the global stage. An interesting case in point is the provisional finding by the UK’s CMA that the behavioral remedies, proposed by Vodafone and Three, are convincing them to allow for the merger to go ahead. We find this very positive, paving the way for future investment. It also connects well to the Draghi report in noting wider investment as being crucial to boosting competitiveness and market resilience and to achieving Gigabit connectivity goals.

So as the new Commission ‘hits the ground running’ – as Von Der Leyen asked of her team – we hope the messages of the Draghi report will continue to resonate throughout the Commission mandate. We need a sprint of reforms, but a marathon of investment-friendly policies to keep Europe as a front-runner.