Bureaucrats in Brussels have long tried to sell Europe as the natural home of 5G.
“5G is becoming a concerted global effort in which Europe is playing a leading role,” the bloc’s then-digital commissioner Günther Oettinger told telecoms executives at Mobile World Congress in Barcelona in 2015.
Yet almost a decade later, that claim looks unfounded. While the US and Asia have made significant strides with their new mobile networks, Europe is a global laggard.
“Europe is drastically falling behind on 5G,” says Joakim Reiter, Vodafone’s chief external and corporate affairs officer. “We’re getting beaten by some middle-income countries that we normally would not consider to be competitors in this space of technology and innovation.”
Bangkok has a faster 5G network than the best-performing European capital Helsinki, while Guatemala has a better network than Sweden.
Executives argue that fixing this problem is not simply a matter of improving mobile connectivity for consumers but ensuring that Europe has the infrastructure it needs to underpin an increasingly digital economy.
“It’s important because it will influence whether we have manufacturing jobs in the future in Europe or not,” says Reiter. “That’s why people need to care now.”
European network operators have lacked the firepower to invest the billions needed to deploy cutting-edge infrastructure.
Many in the industry place the blame at the door of the European Commission, which stands accused of pursuing an overzealous approach to regulation at the expense of innovation.
Now, with EU elections looming, executives are warning that the bloc’s sluggish shift to a digital economy could have long-lasting repercussions.
Just 4pc of the first 500 million users of 5G globally came from the EU, compared to 71pc from China, according to data from the GSMA.
This lacklustre performance can in part be blamed on muted enthusiasm for 5G, which lacks the transformative consumer impact offered by previous mobile network upgrades.
“We know that one of the main problems for a slow rollout is the lack of a consumer use case for 5G at this point,” says Matthew Howett, founder and chief executive of Assembly Research.
Mobile bosses have instead trumpeted the benefits of 5G in underpinning future technologies ranging from smart manufacturing to connected homes and self-driving cars.
Rival superpowers seem to have cottoned on to this opportunity. However, there is frustration across the industry that European policymakers have not been as supportive as many other nations.
“The Americans are much more focused on driving innovation,” says one executive. “In Europe, we have a tendency to go for innovation by permission, and I think that’s an intellectual difference.”
Europe’s telecoms market is a patchwork of 27 markets, with little consistency between different network infrastructure, spectrum management and regulations.
Moreover, a dogmatic desire for competition has led to a highly fragmented market. Last year Europe had 45 large mobile network operators with more than 500,000 customers, compared to eight in the US, four in both China and Japan, and three in South Korea, according to industry group ETNO.
Scores of European operators are building their own networks. Bosses lambast this as an inefficient approach to building infrastructure, comparing it to running multiple railway tracks side by side.
Heightened competition in Europe has also kept prices down, throttling returns and leaving companies with less firepower to invest. This is true of the UK too, which has seen much of the terms of its 5G rollout dictated by legacy EU terms post-Brexit.
Since the first 5G auction in 2018, service revenues for UK mobile operators have fallen by almost 10pc, according to data from Enders Analysis. Even still, capital expenditure has jumped by close to a fifth.
The pressure on returns has been compounded by expensive spectrum auctions, which extracted £2.7bn from UK operators, and government orders to rip out kit made by controversial Chinese tech firm Huawei out of networks.
BT has said this process will cost it £500m, while analysts have warned it will push back the UK’s deployment of 5G by up to two years.
As a result of all these types of pressures, investment across the bloc has diverged with the rest of the world. In 2022, telecom capex per person in Europe stood at €109 (£93), compared to €113 in South Korea and significantly lower than the €240 seen in the US, according to ETNO.
For many critics, the issue could be resolved by reducing the number of network operators, leaving a smaller number of larger players benefiting from economies of scale.
Yet efforts to consolidate have been vehemently opposed by Brussels, which has repeatedly blocked so-called “four to three” mergers on competition grounds, including a £10bn UK tie-up between O2 and Three in 2016.
Where deals have been given the green light, the regulator has extracted bruising concessions.
CK Hutchison’s merger of Three Italia with Wind Telecomunicazioni was approved only after the companies agreed to divest assets. More recently, regulators told Orange and MasMovil they had to grant spectrum and roaming access to rival Digi as part of their Spanish merger.
Howett says these remedies have “only compounded the problem” by allowing new entrants into the market just as the existing players are trying to consolidate.
“Where four to three has been allowed to happen, the remedies that you put in place have often just recreated the problem you’re trying to solve,” he says.
Karen Egan, head of mobile at Enders Analysis, says a refusal to allow consolidation has made investment “very difficult”, particularly for smaller operators.
“It’s a real balancing act between consumer prices and investment and I certainly think that regulators and policymakers in Europe have got that balance wrong of late,” she adds.
There are signs officials in Brussels are starting to take note. EU Digital Commissioner Margrethe Vestager last month admitted that fragmentation of the EU market was a “missed economic opportunity”, seemingly opening the door to consolidation.
The Commission has set out plans for boosting digital infrastructure in a new white paper, which is expected to play a key role in wider single market reforms being drawn up by the bloc.
The outcome of an in-depth competition investigation into Vodafone’s planned £15bn merger with Three in the UK is likely to be a litmus test of the new attitude towards telecoms deals.
Meanwhile, telecoms companies have also been campaigning for data-hungry Big Tech firms such as Netflix and Amazon to contribute towards the cost of maintaining networks, which would help ease the burden and give them more space to invest.
Ultimately, most industry insiders feel that the EU’s current approach is not sustainable. Something has to give.
“You can have low prices and investment, but not four networks,” says Egan. “You can have four networks that are cheap but not great. Or you can have four networks that are really good quality but not cheap.
“You really can’t have your cake and eat it.”