The lobby for EU telecom incumbents Connect Europe often tells policymakers that the industry is suffering, but Deutsche Telekom (DT) boasts results that exceed expectations.

The EU telecom industry does not have the funds to invest in infrastructure, lobby group Connect Europe has repeatedly told EU policymakers.

Meanwhile, DT, a member of Connect Europe, is “stronger than ever” and it is “tough to compete with them,” read slides presented by DT’s CEO Timotheus Höttges to investors at a meeting with investors on 10 and 11 October.

DT is one of the fastest growing telcos in Europe and can continue to grow said company’s board member in charge of Europe Yvette Dominique Leroy at the meeting. The company has “continuously invested in fiber and in 5G,” she said.

The two lines of argumentation are consistent, a DT senior representative told Euractiv on Monday (14 October).

“Figures by the European Commission, Enrico Letta, Mario Draghi as well as analysts converge on the fact that the EU telecom sector is currently not able to invest enough in networks due to a weak return on capital,” said Maarit Palovirta, senior regulatory affairs director at Connect Europe.

This is a historic, sector-wide trend that is not affected by one good performance of one operator,” she added.

Investment gap

Connect Europe has repeatedly called for deregulation of the sector at the EU level to bridge an “investment gap” to reach EU’s 2030 digital decade targets.

The “gap” was estimated between €174 and €200 billion in a Commission study, and the Commission seemed to support deregulation in a February white paper.

The senior representative pointed to DT’s activities in the US as a driver of their financial results, where it owns a 52% in T-mobile, one of the three largest mobile network operators in the country.

“DT’s overall revenue is coming between 60% to 70% from the US, and gives us the possibility to flex muscles in the EU,” said the senior representative.

But the firm’s activities are also profitable in Europe. In 2023, DT earnings before interest, taxes, depreciation, and amortisation (EBITDA) in Germany were €10.2 billion, and €4.1 billion in the rest of Europe, according to DT’s annual report.

Competition

Connect Europe has repeatedly told EU policymakers that policy-driven competition is excessive and that the industry’s fragmentation was negatively influencing telcos results, whose only choice is sometimes to divest from national markets. It therefore called on EU policymakers to minimise ex ante rules and focus more on ex post oversight in competition cases within the EU’s telecom Code (EECC), in a September policy agenda for the new EU mandate.

But according to Leroy, DT does not “want” to move out of European countries at this moment.

DT is present in seven EU countries, beyond Germany: Austria, Croatia, Czechia, Greece, Hungary, Poland and Slovakia. It also operates in two Western Balkans countries: Macedonia and Montenegro.

While DT is turning a profit in EU and European markets, it is concerned by what is happening to the rest of the industry in Europe, said DT’s senior representative. Vodafone exited Spain and Italy in 2023, and Telecom Italia split its infrastructure and mobile activities in Italy into two companies, selling the former to US private equity fund KKR, he said.

DT is “doing well in countries where there are three mobile network operators,” he said. DT left the Netherlands in 2022 and is currently winding down its business in Romania, he added.

The discussion around “three MNOs” is part of the consolidation debate between the Commission and telco incumbents, who argue it is the right number to ensure competition in national markets.

During Margrethe Vestager’s ten-year stint as Commissioner for competition, most decisions by the EU authority seemed to consider that the preferred number of providers in a given country is four.

“Countries with four MNOs display a lower level of capex [capital expenditure] per user compared to European countries with three MNOs,” said the senior representative, pointing towards the Commission’s competition report published in June.

However, the Commission’s report stated that “one must be very cautious in drawing such conclusions,” because countries with three MNOs are smaller markets with fewer users, which affects capex.

It is “natural for an operator like DT to aspire to a market structure with very few operators to get a higher share of market revenues,” Pinar Serdengecti, the director of competition and regulation at the European Competitive Telecommunications Association (ECTA), told Euractiv

The three to four MNO debate does not speak about DT’s impact on EU welfare and competitiveness, said Serdengecti. “For example, the deployment of fiber in Germany, […] is one the worst in Europe and non-existent in the US,” she said.

Prices for consumers in markets with four MNOs are 7%-9% lower than in markets with three MNOs, said the Commission report.

Germany’s fiber roll-out stands below 30% in 2024, compared to 82% in France, 77% in Cyprus and an EU average of 64%, the Commission said.

T-Mobile recently announced a joint venture with KKR to deploy fiber in July 2024.

Competing with Big Tech

The telecom industry advocates for a regulatory playing field between telcos and Big Tech, as the two industries are converging.

Among their arguments is that Big Tech provides cloud services, which telecom operators need for the digitisation of their operating software.

Leroy presented cloudification as a positive development in front of investors, which DT will highly benefit from.

“We want to cloudify much more our network and our IT,” she said, adding that cloudification should increase to 70%, from 40%.

But calls for such a regulatory playing field amount to “protectionism” by telco operators, senior vice president and head of CCIA Europe, Daniel Friedlaender, told Euractiv.

Telco operators should not “call for regulatory intervention […] as it will damage them more than anyone,” he said.

[Edited by Eliza Gkritsi/Owen Morgan]

Source: Euractiv.com