5G: A bargaining chip for Europe's telecom industry

Are telcos bluffing or will the development of 5G depend on the regulatory agenda?

Last week, Europe’s telecom industry warned policymakers that the business case for “5G” is hanging in the balance. Ensuring the elephant in the 5G room was well and truly visible, the CEOs of leading European telcos and their suppliers contended that strict net neutrality rules could scupper many potential industrial “internet of things” applications.
By publishing a 5G manifesto endorsed by 17 CEOs, telcos are stepping up their efforts to negotiate a better regulatory deal at a time when their revenue is being squeezed by more agile internet-based players. As European policymakers are desperately keen for the region to be a global leader in 5G, the telcos now have a potentially strong bargaining chip. The telcos’ main argument boils down to this: Not all IP traffic is equal and connectivity isn’t a commodity; some 5G applications will need a fast lane, a secure lane or an ultra-reliable lane. “The current net neutrality guidelines, as put forward by BEREC (a pan EU group of national regulators), create significant uncertainties around 5G return on investment,” the manifesto says. “Investments are, therefore, likely to be delayed unless regulators take a positive stance on innovation and stick to it.”

Trying to make 5G attractive for investors

How much of this is posturing? Would European telcos really hold back on 5G investment if they can’t get a better regulatory deal? Although that would be a bleak scenario for Europe’s telecom industry and the wider economy, it could happen. Investors aren’t going to let telcos roll out new infrastructure unless they can achieve an ROI equivalent to that available elsewhere. Telcos are effectively competing for investors’ money with other sectors, such as pharmaceuticals, energy and retail.  In their 5G manifesto, the telcos rightly note that 5G will require significant investments in a new radio access layer, high bandwidth backhaul links, core network upgrades and, for certain scenarios, denser cell sites.
To pay for these investments, the manifesto argues that Europe’s new net neutrality laws need to be implemented in a way that allows for both innovative industrial services, such as automated driving, smart grid control and public safety services, and quality internet access for consumers. The telecom industry envisions that 5G networks will be divided into slices, each supporting separate industrial and consumer services while still using a shared infrastructure and benefitting from economies of scale. But balancing all the competing demands for connectivity won’t be easy and telcos say they need to be able to optimize their own networks, rather than having to follow a rigid rulebook. The manifesto contends that BEREC’s draft implementation rules, which are due to be finalized at the end of August, are “excessively prescriptive and could make telcos risk-averse, thus hampering the exploitation of 5G, ignoring the fundamental agility and elastic nature of 5G network slicing to adapt in real time to changes in end-user/application and traffic demand.”
Another potential regulatory sticking point for 5G is the difficulty in deploying new cell sites: In densely populated Europe, local governments often seek to block or delay the rollout of telecom infrastructure on aesthetic, environmental or health grounds. The manifesto called for the removal of these deployment barriers.

Carrots as well as sticks

The manifesto also dangled a carrot in front of EU policymakers. Telcos are targeting launching 5G in at least one city in each of the 28 European member nations by 2020, adding that “these smart cities will be strong and tangible innovation platforms for Europe, as hubs of social and economic activities.” Launching 5G in all 28 member nations by 2020 is ambitious, but the statement reflects the realpolitik of the EU – investment really needs to be spread right across the member nations to win support across the three key EU institutions – the Commission, the Parliament and the Council.
Responding to the manifesto in a blog post, Günther Oettinger, European Commissioner for the Digital Economy and Society, again emphasized the importance of 5G to Europe’s competitiveness and the speed with which the U.S., South Korea and China are moving. But he didn’t comment on the industry’s call for more flexible net neutrality and network deployment rules.
Commissioner Oettinger continues to prod the European telecom industry to work with other key European industries to test how new technologies can transform these sectors. Last week, various telecom and automotive trade bodies launched a joint project to test automated driving, road safety and traffic efficiency, and greater digitalization of transports and logistics. The project promises to explore high-density platooning, cooperative collision avoidance, remote-control parking, local-hazard warnings and traffic flow optimization using 4G technologies between 2017 and 2019, followed by a combination of 4G and 5G technologies thereafter.
Europe’s telcos are participating in such projects, but are looking for the public sector to share the risk. In the manifesto, they called for EU grants of between 500 million euros and 1 billion euros ($554.32 million and $1.10 billion) to incentivize vertical industries to experiment with new services that are enabled or enhanced by 5G. They also asked for the EU to establish a 1 billion euro EU venture fund to invest in startups developing 5G technologies and applications across verticals.
As it already spends billions of euros on research and development, the European Commission will probably stump up these funds. But European telcos’ call for less regulation and more freedom will be greeted with suspicion by many EU policymakers. In fact, it seems likely that the development of 5G in Europe is going to be subject to an elaborate game of poker between the public and private sectors. Last week, the telecom industry put a bid on the table. When the final net neutrality guidelines arrive at the end of the summer, it will be clearer whether EU policymakers believe the industry is bluffing.