Europe’s Single Market Movements

The EC Is Nudging the Market in That Direction

EU_flag_lWe recently wrote about the decision to eliminate mobile roaming fees (see Daily Insight: Free-Range Subscribers). In these days of constant data connections and heavy content, it’s easy for subscribers to run up a tab by using a foreign operator’s network. Pricing can appear arbitrary, and sometimes shocking.

Market intervention by the European Commission (EC) here reflects an ongoing discontent among constituents, but could also be regarded as interference. European Union (EU) officials are treating the cellular industry like a single marketplace, similar to that of China (which has three major operators) or the US (which has four). In contrast, there are about 100 mobile operators across the EU, with vastly different fee structures and quality of service. Europe’s mobile services industry is fragmented.

The EU’s decision to regulate mobile roaming has been a point of discussion for about two decades, and is part of a larger vision to create a single, smooth telecommunications market across member borders. Europe’s cellular market has the potential to morph into something akin to America’s, with a few mobile operators providing connectivity across state borders.

The question was raised on CCS Insight’s blog by an interesting comment that asked whether there could be a handful of mega operators in Europe providing seamless service in the longer term. Firms like Orange, T-Mobile and Vodafone each operate in several EU countries, but there’s no real European operator to speak of yet.

Roaming fees appear to be a small — albeit lucrative — source of revenue for operators, though foreign subscribers in some tourist hot spots could be a more important part of the business model. After the charging structure for roaming is changed in 2017, there could be pockets of pressure but no real shock to the system. We believe that it’s unlikely to prompt an explosion of cross-country consolidation, but some operators could be nudged into making deals.

Revenue from roaming has been falling over the past few years as operators offer inclusive bundles and subscribers become more tech-savvy. Wi-Fi, over-the-top services and disposable SIM cards have been changing the market.

A greater motive to make the European market more concentrated and less fragmented would be the need to accelerate technology roll-outs across the EU. Europe’s lead in mobility has faded, and EU officials are aware that the industry needs a power boost.

Looking ahead a decade or two, CCS Insight believes that there will be fewer European operators as the commission gives its blessing to more acquisitions (likely to be by the larger incumbents). Such consolidation could be important in the roll-out of new cellular technology, and could potentially strengthen Europe-based infrastructure suppliers Ericsson and Nokia. Operators have long said that consolidation is needed to justify investment in next-generation networks, though the more desirable method would be through domestic mergers and acquisitions.

In 2012, the European Commission published its Connected Continent proposal, looking to support electronic communications across the EU “without cross-border restrictions or unjustified additional costs” to subscribers. That was one side of the equation. At the same time, the EC said that operators could continue to “provide electronic communications” within the EU wherever their subscribers are. It was a general statement to “liberalise and integrate” markets, and to drive innovation and service quality across Europe.

Steps are being taken to harmonise Europe’s telecommunications segment. There’s a general vision of something closer to a single market with fewer local regulations and complexities. Obstructions should be coming down for subscribers and service providers alike.

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