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CONNECTIVITY AND BEYOND 1
Connectivity & Beyond
How Telcos Can Accelerate a Digital Future for All
Research by Boston
Consulting Group
CONNECTIVITY AND BEYOND 2
06 Energizing the Spirit of European Innovation
Industrial strategy and cooperation
05
Advancing the Readiness of Citizens
Digital skills
Our Framework
04
Expanding the Reach of Opportunity
Digitalization of the economy and society
03 Taking the Lead
European solutions for data and services
02
Constructing the Full Foundation
Networks and connectivity
01
Our Commitment
We want to raise the ambition
CONNECTIVITY AND BEYOND 3
Executive Summary
Europe’s telcos want to raise the ambition. Digital and, in time, quantum computing. Europe
opportunities are big part of the future for the needs to move forward together, now.
economy and for society. Research shows that
5G alone can generate €113 billion an annual GDP Here are five critical areas in which telcos
impact and 2.4 million new jobs in 2025 in Europe. can make a difference and play a leadership
BCG analysis shows that €150 billion investment role for the benefit of the whole of Europe.
is still needed to achieve a full 5G deployment in
Europe. We—the European telecoms sector—call
for urgent and swift action to mobilize all the 1. Constructing the Full Foundation |
resources needed so that Europe can build on Networks and Connectivity
this foundation to do much more. Our ambition,
as a sector, is to achieve positive societal Europe’s telcos are building the infrastructure
impact and support our economies and our that is indispensable to digitizing society. This will
societies in the green and digital transitions. require an estimated additional €150 billion to
Essential services, such as education and upgrade fixed infrastructure to gigabit speeds and
health care, depend more and more on digital €150 billion to build full infrastructure to enable
delivery. Entire industries are digitalizing fast, a comprehensive 5G vision (for definitions, see
but the work towards full digitalization is still Chapter 1). Our companies are mobilizing massive
incomplete. Sustainability and climate change investment to build digital infrastructures and
are today top issues for us and for our customers, expand capacity and coverage with the ambition
and we are in a strong position to help. of connecting everyone through high-quality
networks. Our purpose is to ensure that all sectors
We have a clear vision. Our own futures as of the economy and society are in the position
businesses depend on our ability to deliver to benefit from new generation networks and the
innovative products and services, built on services they enable. Efficient usage of network
the foundation of high-speed and secure capacity, also driven by economic incentives, will
connectivity, that enable others to do more in be key to align increasing demand with improved
a sustainable digital economy and society. environmental standards. Sustainability is today
embedded in our decision-making and we
European cooperation is the starting point. Policy embrace the awareness that profitability must
makers and the telecom industry have long go hand in hand with our societal contribution.
debated the proper role for, and rules regulating,
Europe’s telcos. Meanwhile, technologies Governments and regulators must help to
advance, startups armed with new tech and speed the process and increase its impact.
business models disrupt long-established Investment in European network roll-out must
industries, and consumers embrace new ways become attractive again and the long-term
of doing things. The COVID-19 pandemic has sustainability of the telecoms sector fostered:
caused a global reset in how we lead our lives. this is a matter relevant to all sectors of Europe’s
economy and society. Spectrum and other
Looking ahead to the rest of this decade and public resources like installation sites should be
beyond, we see big challenges for the European made available in a timely and cost-effective
integration project and equally big opportunities way, at the right conditions: the common aim
for Europe’s digital future. Europe needs to up its should be to reach every European. Building
game. It has the know-how and the resources; global scale for our telecoms sector and
it has been a leader in such technologies as encouraging horizontal cooperation should be
cellular communications and semiconductor shared ambitions, as they enable both global
design. Having opened substantial leads in digital leadership and faster roll-out. A fresh,
foundational technologies such as cloud, the renewed policy attention to the demand side
US and China are now making rapid progress is highly needed: promoting uptake of new
on the advanced technologies of the future digital networks is Europe’s way to digitalizing
such as artificial intelligence, spatial computing, the continent and making it more sustainable.
CONNECTIVITY AND BEYOND 4
2. Taking the Lead | European Telcos can further develop solutions with the
Solutions for Data and Services goal of benefitting society, such as by enabling
continuity of education, improving the resiliency
It will take shared platforms—born from European of small businesses, and enabling other
values and tailored to Europe’s needs—to set a industrial sectors to improve their productivity,
new digital standard, that Europe can rely on innovation potential, and sustainability,
because it safeguards data, protects people, while cutting greenhouse gas emissions.
and secures connection. Today, 78% of the
global cloud market is controlled by the top four Policymakers can help by developing ambitious
players, none of which is European. We must policy targets for inspiring digitalization
set the ambition higher and be able to take a across industrial sectors and in the public
leadership position also in data and services. administration. Public funding packages
can be directed to create social benefit
Telcos are taking an increasingly active role through digitalization. Also, they can lower
in creating and implementing European bureaucratic hurdles to access digital funding.
leadership and standards in areas such
as edge computing, Open RAN, and cloud
solutions. We will work together in a united
and open way with other industrial players to 4. Advancing the Readiness of
enable scalable solutions where Europe can Europe’s Citizens | Digital Skills
take a lead and support rollout of an EU-wide Europe needs to upskill and reskill the population
solution, for example, via eID, by offering secure and workforce of tomorrow by taking digital
identification solutions, such as mobile ID. literacy to the next level. Today, over 42%
Governments and regulators can foster and Europeans do not have basic digital skills, while
incentivize European platforms and initiatives over 57% of companies are facing difficulties in
on RAN as well as cloud and edge computing. finding ICT personnel. The time for doing more
Collaboration at the network and service levels on upskilling, reskilling and inclusion is now.
should be supported. Digitalization of public Telcos can further scale up their upskilling and
services should be used as a lever to promote reskilling programs. Today, we are providing
broader digitalization of economy and society. training platforms, promoting responsible use
of technology and fostering digital inclusion of
everyone, including by becoming the partner
3. Expanding the Reach of Opportunity | of reference for promotion of digital skills.
Digitalization of the Economy and Society
The public sector can collaborate by
Europe needs products and solutions to professionalizing digital literacy across the EU
accelerate digitization in areas with the to help citizens in obtaining the skills required
most societal value. Today, 83% of EU SMEs for work and life in the digital economy,
do not use advanced cloud services and prioritizing digital upskilling and reskilling by
over 60% nine-years-olds are in schools setting clear targets and incentives for all EU
which are still not digitally equipped. governments, and promoting the importance
of digital skills via public institutions.
CONNECTIVITY AND BEYOND 5 5. Energizing the Spirit of European Innovation | Industrial Strategy and Cooperation Fostering development of digital innovation ecosystems can combat some of our biggest challenges, such climate change, and become the engine of invention and advancement for years to come. Our sector will intensify their active role in orchestrating cross-sector and cross-industry collaborations to develop innovations and new technologies. We invest in new and upcoming technologies and venture capital to strengthen the European tech sector. We can also share investments, resources, and knowledge across sectors and industries to create innovative use cases with a far-reaching impact. Policy makers should support collaborations and build scale by enabling entrepreneurial partnerships beyond infrastructure. They can allow consolidations within and across countries to enable telcos to build more scalable solutions and compete on a global level, and they can direct funding towards startups and venture capital to support the development of new technologies.
CONNECTIVITY AND BEYOND 6
Introduction: We Want to Raise
the Ambition
Europe is striving to frame its long-term societal ensure adherence with its privacy standards
vision for the next decade and digital plans if global tech players do not always adhere to
play a vital role in it: from defining its new “2030 European rules and values or employ business
Digital Compass” to reviewing its “Industrial models that withstand the scrutiny of such
Policy” and taking global leadership on digital rules? The lack of muscular European global
regulation. 2021 can represent a turning point in tech companies (to compare with the likes of
positioning the EU and its citizens so that they Google, Amazon, and Tencent) and the absence
can fully benefit from the digital revolution. of a strong and growing digital ecosystem, on
a par with those in the US and China, tilt the
A vibrant digital economy can enable concrete playing field toward the EU’s global competitors.
solutions to Europe’s major challenges. The ICT
sector stands at the center of the digital economy, Sustainability and climate change, in particular,
of course, and the telecommunications industry is have become high-priority topics on many CEO
the main enabler of essential digital technologies. agendas with 99% saying that it will be important
European telcos and their partners are uniquely for the success of their business. Almost three-
placed to advance solutions that can have quarters of consumers worldwide say they are
an outsize impact of the ability of Europe to altering their buying habits with the environment
push forward economic and social progress. in mind. Some 45% of investors actively consider
environmental, social, and corporate governance
Given the growing reliance on access to digital factors in their investment decision-making.
services, many of the societal and economic
challenges, such as an expanding wealth divide, We—the European telecom sector—want to raise
could be exacerbated when access is not equal the ambition. We understand that the service
or when individuals and businesses do not use the we provide is fundamental. We also know that
digital tools already available. At the same time, we can build on that foundation to do much
digital opportunities can play a major positive more. A company’s total societal impact defines
role in the future our economy and society. The its place in the economy and in society. We
efficient delivery of fundamental services, such understand that our own futures as businesses
as education and health care, depend more depend on our ability to deliver innovative
and more on digitalization. Entire industries are products and services, built on the foundation
digitizing fast, which has big ramifications for of connectivity, that enable others to do more
employment, among other things. As many as in a sustainable digital economy and society.
20 million manufacturing jobs worldwide will
be lost to robots by 2030. Massive training and We will focus our efforts on five opportunities:
upskilling programs are needed if people are to • Constructing the foundation for access,
find jobs and companies are to meet evolving building networks and connectivity
staffing needs. But the training itself often • Taking the lead, helping European establish
requires digital access and digital literacy.
leadership in data and services
While many of these challenges are common • Expanding the reach of opportunity,
across continents, Europe faces some additional digitalizing the economy and society
challenges. The economic, infrastructure, and
• Advancing the readiness of
regulatory environments have undermined
citizens, building digital skills
development of a word-class tech sector, which
impedes Europe’s ability to shape its own destiny • Energizing the spirit of European
and hampers the growth of its digital economy. innovation, working toward an industrial
Europe’s own policy standards in terms of strategy and sectoral cooperation
protection of fundamental rights (such as the
GDPR) cannot be guaranteed if Europe is not
on a viable competitive footing with the global
tech companies. For example, how does Europe
CONNECTIVITY AND BEYOND 7 In the pages that follow, we explore the role that Europe’s telcos strive to play and the impact we expect to realize. This report is the result of BCG’s research for ETNO, as well as interviews with 20 executives and leaders from tech, telecoms, NGOs and institutions.
CONNECTIVITY AND BEYOND 8
Connectivity is still treated as a luxury good in
some parts of the world. COVID has shown that
connectivity has to be put on par with other basic
infrastructure, like electricity and roads.
Doreen Bogdan-Martin, Director of the
Telecommunication Development Bureau of the
International Telecommunication Union
We can either take a lead in guiding society to
digitization or they will go there without us.
Atanas Dobrev, CEO, Vivacom
Telcos have a vital role and a big responsibility in helping
to address societal challenges. In five years’ time, I
would like to see headlines about how digitalization
enabled by telcos has allowed economic recovery post-
COVID, contributed to greater digital inclusion in all
its forms and accelerated the climate transition.
Allison Kirkby
CEO, Telia Company
CONNECTIVITY AND BEYOND 9
06 Energizing the Spirit of European Innovation
Industrial strategy and cooperation
05
Advancing the Readiness of Citizens
Digital skills
Our Framework
04
Expanding the Reach of Opportunity
Digitalization of the economy and society
03 Taking the Lead
European solutions for data and services
02
Constructing the Full Foundation
Networks and connectivity
01
Our Commitment
We want to raise the ambition
CONNECTIVITY AND BEYOND 10
Constructing the Full Foundation
Networks and Connectivity
The Plan contribution front and center
Invest in building the infrastructure that How Policy Cooperation Can
is indispensable to digitizing society: Speed Progress
• 2.5X: Total capex required • Increase the attractiveness of
between 2020 and 2027 to European telecoms investment in
unlock the full value of 5G network roll-out through a regulatory
shift and by supporting the long-
• €150 billion: Estimated costs to upgrade
term sustainability of the sector
fixed infrastructure to gigabit speeds
• Ensure availability of spectrum and
• €150 billion: To build full infrastructure
other public resources (e.g. installation
to enable full 5G vision
sites) in a timely and cost-effective
way, at the right conditions
• Support the development of global
scale in the European telecoms sector
The vision of European telcos and enable efficient market structures,
refraining from regulatory distortions
• Deploy the high levels of investment
for building secure and efficient digital • Encourage horizontal cooperation,
infrastructure that meet current and including for network sharing,
future needs and expand coverage, faster roll-out and development
so that everyone is connected of innovative services
• Seize the opportunity of new • Set ambitious policy targets for
generation connectivity to develop digital uptake: demand stimulation
new telecom business models that will positively transform society
empower citizens and businesses and, at the same time, strengthen
the case for faster roll-out
• Think purpose first. Take a longer-term
view when making business decisions • Ensure available funding packages
and put sustainability aspects at (e.g. Next Generation Recovery Fund)
the heart of our decision making are streamlined to complement
private investment, so that a
• Evaluate and prioritize business
larger share of citizens benefit
cases by putting societal
from increased network roll-outCONNECTIVITY AND BEYOND 11
Constructing the Full Foundation—Networks and Connectivity
Without networks and digital infrastructure, the
discussion about digital inclusion is only theory.
—Timotheus Höttges, CEO, Deutsche Telekom
If digital connectivity is fundamental, then fast, The reliability of Europe’s infrastructure has
reliable, and robust digital infrastructure is the been tested and proven during the COVID-19
foundation that must be within everyone’s reach. pandemic. A range of network technologies
and solutions have proven the resilience of
Europe’s telcos have deployed advanced fiber telecommunications throughout the past
connectivity across much of Europe, bringing year: the network upgrades of the past years
high-speed fixed broadband coverage to 84% of showed their value during the emergency.
households in the EU with speeds faster than 30 Video conferencing kept businesses running as
Mbps. By 2025, 50% European homes are expected millions suddenly worked at home. Mobile devices
to be reached with speeds way above 100 Mbps enabled remote health care and education
and up to 1Gbits by FTTH . Investments in mobile and connected millions more with family and
infrastructure have extended reliable 4G mobile loved ones. During this time of unprecedented
internet connectivity to 96% of Europe’s population mobile and online activity (global internet traffic
with average download speeds of more than 40 has jumped 50% during the pandemic), no
Mbps. The next frontier of super-fast and capable significant decreases in available bandwidth or
5G networks is being rolled out now, with almost outages resulting from the increased demand
25% of the population covered by the end of 2020 . have been reported anywhere in Europe.CONNECTIVITY AND BEYOND 12
European Operators Have Maintained Network
Performance Levels During the Pandemic
Mobile network performance
Average download speed in Mbps
Ramp-up Stabilization 2nd wave
100
80
60
40
Average
EU countries
20
0
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Week of 2020
Week of 2020
Fixed network performance
Average download speed in Mbps
Ramp-up Stabilization 2nd wave
200
150
100
Average
EU countries
50
0
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Week of 2020
Week of 2020
Note: EU countries, excluding. Malta
Source: Ookla Speedtest; BCG analysisCONNECTIVITY AND BEYOND 13
However, there are challenges ahead for both business usage and shifting traffic patterns
fiber to the home or office and 5G, which mandate networks and last-mile connections
collectively can be referred to as gigabit networks. that can handle speeds of at least 100 Mbps.
Europe is still far from achieving full gigabit Today, more than 30% of Europe’s households
coverage. Approximately 10% of households are do not have access to these speeds. Millions
not covered by any fixed network yet. Extending of people now work remotely; they meet and
mobile coverage to rural or hard to reach areas communicate using online tools. A July 2020
has its own challenges. This means that a number survey for the EU by Eurofound showed nearly
of people are still excluded from participating half of employees working at home during at
in the digital life. However, when it comes to least some of the COVID-19 pandemic. A third
inclusion, access to network is not the only issue. of these people reported working exclusively
Uptake of the latest connectivity technologies from home. Schools and health services interact
must also be addressed. According to Eurostat, with students and patients digitally. Households
in 2019, 10% of the EU-27’s population had never that had one, or maybe two, people online
used the internet, about around one third the intermittently during the day now have three,
level 10 years earlier in 2009. Still, joint solutions four or five family members online all the time.
are needed to rectify these deficiencies. These patterns are unlikely to fully disappear,
even with the arrival of COVID-19 vaccines. The
More broadly, download speeds of 30 Mbps deployment of a mix of 5G and fiber networks is
to 40 Mbps are good enough to meet most a priority to cope with this increasing demand.
of the demand, but rising consumer andCONNECTIVITY AND BEYOND 14
Connectivity Needs Are Rising in the New Reality
Mrs. Young Mr. Young Mary Ben Grandma
She is a mechanic He is a part-time Online student Middle school Enrolled in
in small town admin assistant and aspiring student national active
Typical (5% remote (100% remote YouTuber (2 days/week aging program
working) working) remote learning)
day
9am Measure and
Attend virtual Go on
ADo workout Track and
upload blood
conference with exercises upload sleep morning stroll;
pressure data
manager suggested by data smartwatch
fitness app uploads vitals to
Client platform
appointment at
garage Work on tasks View Join
from home prerecorded livestreamed
lectures online math class
Schedule next Reading
job via virtual
platform Read e-textbook
Do virtual Tutor online on remote
team lunch learning
File e-taxes platform Eat lunch,
following fitness
Consult app suggestions
Client
professor during Attend
appointment at Participate in virtual office guitar club
garage all-office virtual hours meeting using
staff meeting augmented Gardening
Take online reality
course to upskill
Order groceries Take online test
online from Go hiking in
Make bank supermarket nearby forest Attend
deposit using telehealth
digital app consultation
with family
Video-record physician; order
Check health Discuss group
Measure and homework medication
portal for blood project on
upload blood execution and online
test results video call
pressure data upload
9pm Livestream
Stream favorite Film and upload Play video Do a video call
basketball
TV show vlog about games with with son living in
game
on demand country life friends the city
Average1
data usage
estimates
per day
~5GB ~11.5GB ~10GB ~18.5GB ~4GB
Activities Digital Remote Leisure Other digital Offline Remote
healthcare education and social services working
1. Average of min. and max. assumptionsbehind gigabit consumption per activity
Source: BCG analysis.CONNECTIVITY AND BEYOND 15
The Benefits to Come. conferencing and remote collaboration. Fixed
wireless access (FWA) can take high-quality
In addition to just increasing broadband speeds, internet service to rural and underserved areas.
we need to ensure that 5G is available to all. Improved tracking of supply chains via the
The reason is that 5G brings the concept of Internet of Things (IoT) will optimize routes and
connectivity to a whole new level, enabling a reduce time and inventory requirements. Ultra-
range of use cases that can be transformative low latency with millisecond response will enable
at both the economic and societal level. At the exciting applications ranging from high-precision
moment, ETNO/Analysys Mason data show that manufacturing to life-saving remote surgery.
24.4% of the population in Europe is reached by
Other benefits include improved competitiveness
at least one 5G network. Robust 5G networks will
and better health and safety. Automated
serve as the foundation for tomorrow’s economy, tracking and digitally enabled machinery lower
bringing significant direct benefits, including: manufacturing costs, leveling the cost playing
field with emerging markets. Augmented reality
• Higher network reliability and instant response
will bolster employee capabilities by providing
• A better-quality experience for on-demand access to complex information and
European citizens and businesses experts. Sensor networks can provide detailed
data for such applications as precision agriculture,
• A smart digital infrastructure that can act
leading to a higher crop yields and more efficient
as the backbone for future expansion and use of natural resources.
as a platform for innovative services.
The types of use cases enabled by 5G will be the Health care and safety will undergo a revolution.
building blocks of the digital economy. Remote, robotic surgery and telemedicine provide
access to healthcare experts in any situation.
For example, enhanced mobile broadband will Autonomous cars will ultimately optimize traffic
enable full-service continuity for on-the-go safety and reduce car and pedestrian accidents.
5G Will Enable New and Improved Use Cases That Will Account for About
Two-Thirds of Telco Revenues in 2025
Estimated revenues in EU 2025 (€B)
Sensor
34 networks Logistics and 17
10% (e.g., smart buildings, tracking 5% Safety and
health
Fixed wireless 18 agriculture)
10 (e.g., remote surgery,
access Industrial
5% Consumer 3% health development,
16 (e.g., wearables,
automation
(e.g., self-optimizing
30 monitoring ...)
Extreme mobile 5% smarthome apps) production, inventory 9%
broadband
(e.g., streaming, 206 mgmt.) 14 Connected
vehicles
conferencing, virtual 5% 4%
offices, VR)
A B C D
Extreme mobile Fixed wirless Massive Mission-critical
broadband access IoT IoT
Faster and more reliable Ultra-fast, high-capacity Efficient and low-cost Ultra-low latency and high
user experiences stationary broadband comms with deep coverage reliability
206 18 67 54
60% 5% 19% 16%
Note: In brackets % share of use case category of total revenues.
Sources: 3GPP; Qualcomm; NGMN Alliance; IDC; Gartner; ABI; CMI; Omdia; BCG IoT study and estimate.CONNECTIVITY AND BEYOND 16
The Costs Are Substantial—But Worth It. While some of these investments will have a
positive impact on telco’s return on capital, most
Providing ubiquitous coverage that is both resilient will likely meet investors’ skepticism —in contrast
and secure requires major financial investments. with the overall positive economic impact—
As seen during the pandemic, the upgrades to particularly as the fiber rollout extends to semi-
legacy networks performed in the past years have urban and rural areas with weaker business
brought good results. However, as we look at the cases. BCG experience with the fiber roll-out in
future and at the longer term, the investment are various European countries, such as Germany,
skyrocketing. Austria, and the UK, shows that for rural and/or
less affluent areas the ROCE (Return on Capital
BCG estimates that overall investments of €300 Employed) for fiber investment would be below
billion by 2025 are necessary to achieve both the cost of capital for 20-40% of the country with
gigabit speeds and realize the full 5G vision in ROCEs falling to -20% or even worse in some areas.
Europe. About €150 billion will be necessary to Telcos will be investing for the greater good, but
achieve broadband speeds of 1Gbit and faster the financial returns for individual companies are
across Europe via fiber to the home or office not necessarily attractive. This cannot be ignored
(FTTX) and 5G FWA. Massive growth in wireless by policymakers.
data traffic, especially as the IoT ramps up, will
mandate an additional €150 billion to build the
infrastructure to enable the full 5G vision for
consumers and enterprises in Europe, according
to BCG’s analysis.
Coverage cost
Fiber coverage in 2020 across Europe
43% ~€150B
of European households for 100% Gigabit networks
BCG experience with the fiber roll-out shows that for rural and/
or less affluent areas the ROCE for fiber investment would be
below the cost of capital for 20-40% of the country
1. Very high capacity networks
Note: Upgraded fixed infrastructure refers to networks capable of delivering min 1 Gbps speeds to % of households
Source: HIS Markit; European Commission; ETNO/Analysys Mason study, BCG analysisCONNECTIVITY AND BEYOND 17
Estimated €150B to Build Full Infrastructure
to Enable Full 5G Vision
Estimated ETNO CapEx needed for full 5G
deployment (€B)
57
53
Other1
11 23 Rural
35
Base
19
11 11
21
24 23 23
2018 Wave 1 Wave 2 Wave 3
(pre 5G) (19–21) (22–24) (25–27)
Investment costs
~€150B
for full 5G vision
1. "Full 5G vision/deployment" includes rail coverage and capacity increase, macro- and micro-edge centers,
reliability, roads and highway coverage, and capacity increase.
Note: mmWave deployment not considered here—it would cost ~10.2B in Wave 2 and ~10.2B in Wave 3.
Sources: ETNO; BCG Shannon; BCG analysis.CONNECTIVITY AND BEYOND 18
But—and this is a very important but—the money for the Fiber Broadband Association found that
does not only flow one way. Deployment of 5G will communities with more than 50 percent of the
generate massive economic and environmental population connected to FTTH broadband with
benefits, which the EU estimates at €113 billion speeds of at least 1,000 Mbps had per capita GDP
a year in Europe as well as direct employment 0.9 to 2.0 percent higher than those without fiber
of some 2.4 million jobs by 2025. A 2020 study broadband.
5G Can Generate €113 Billion of Annual GDP
Impact and 2.4 Million New Jobs in 2025
Annual vertical and environmental
benefits in 2025, in €B
113 42
6
8
6
8
11
1 31
Total Auto- Health Transport Utilities Smart Non- Smart Work-
motive care city urban Home place
First-order benefit, in verticals Second-order benefit, in environments
Money does not only flow one way.
5G will generate massive economic and environmental benefits
1. Very high capacity networks
Note: Upgraded fixed infrastructure refers to networks capable of delivering min 1 Gbps speeds to % of households
Source: HIS Markit; European Commission; ETNO/Analysys Mason study, BCG analysisCONNECTIVITY AND BEYOND 19
What’s Holding Europe Back? Globally, the telecom industry produced an
average annual return for shareholders of just
The dilemma facing the telecommunications 6% between 2015 and 2019, ranking 28th out of 33
sector is neither new nor unique to Europe. But it industries tracked by BCG. (By contrast, the tech
is becoming increasingly acute, especially in light sector, which includes internet players using the
of Europe’s weakened and fragmented telecom telco infrastructure, finished third.)
markets.
The situation is even worse in Europe, which
In a nutshell, the industry needs to make has seen considerable value destruction
enormous capital investments to secure fast, compared with telcos in the US, for example. As
reliable, world-competitive connectivity for Deutsche Telecom’s Tim Höttges put it, “We have
all users. But its ability to make the level of catastrophic value creation for telcos in Europe.
investments required is hobbled by its own sub- While our revenues are declining, the need for
par performance as an investment vehicle. further investments is increasing.”
Telco Total Sharholder Return Is Among the Lowest of all Industries …
3-yr. annual average TSR 2016-19 (in %)
Total median: 8.5%
19 17
13 12 12 12 11 10 10 10 9 9 8 7 5 5 4 2 1
Medical Tech.
Tech.
Media
Health Care
Aero Space & Defense
Insurance
Retail
Power & Gas
Travel Tourism
Chemicals
Fashion & Lux
Mining
Transportat & Log
Banking
Mid-Cap Pharma
Telco
Oil
Cons. Durables
Automotive OEMs
High-low range 75th cut-off Industry median 25th cut-off
Note: n=2,233; companies with Total Shareholder Return of -100% were excluded
Source: S&P Capital IQ; Refinitiv; BCG Value Creators Report 2019; BCG ValueScience® CenterCONNECTIVITY AND BEYOND 20
Europe’s Telcos Are Destroying
Value While Others Thrive
Value creation in the US versus value destruction in the EU
Market capitalization in Telco markets, 2010-20201
+283 MRD.€
EU peak 2 +213%
+248 MRD.€
~57%
01/12 01/14 01/16 01/18 01/20
USA3 EU4
EU Telco players lacking “weight”
Market capitalization as of Aug 15th 2020 (€B)
206
181 169
73
35 26 19 11 9 8
VZ
AT&T
CMCS
DT
ORA
KPN
VOD
TEF
LBTY
TIM
Source: Capital IQ; Deutsche Telekom; Analysys Mason Country Reports; Notizen: 1. Market cap as from 05.08.2010 to 15.08.2020
(indexed) 2. EU peak on 23.04.2015 3. US Telcos: TMUS, Sprint, AT&T Verizon (VZ), Charter, Altice USA, ComcastCONNECTIVITY AND BEYOND 21
The telecom industry in many markets has been is rated below investment grade. Europe needs
weighed down by such factors as risk aversion, to take steps to guarantee competitiveness of
lack of scale, overly national footprints, heavy the EU industry by bringing our finances in line
investment efforts coupled with strong regulatory with revenue expectations while we continue to
pressure on returns, the entry of subsidized explore new egies and revenue models. One such
competitors, and business models that have not step is pursuing new ownership models involving
changed in a long time. Looking ahead, though, the
voluntary infrastructure sharing, which can allow
industry is making efforts to move forward despite
faster roll-out, reduced overall environmental
the adversities: in Europe, our sector understands
its responsibility to extend and improve high-speed impact, and increased knowledge transfer
coverage and have stepped up investment in fiber among partners. Another is cooperation and co-
and 5G. Telcos have done so because customers investments, including various models for new
and businesses need the connectivity, Europe infrastructure such as fiber joint ventures, and 5G
benefits from state-of the-art telecommunications, active spectrum sharing. In January 2021, the first
and it’s good business. Digitization and connectivity European co-investment offer at national scale
have also proven to be key during the pandemic. was launched in Italy by TIM. Infrastructure funds
have shown significant interest in co-funding
Our sector wants to continue delivering better, passive infrastructure investments through joint
faster service to all of the EU. To do so, the industry ventures and dedicated investment vehicles, and
must persuade investors and rethink long-standing
co-investment vehicles between operators and
strategies and models, a process that is already
investors have proliferated. Governments and EU
well underway. Companies are constrained,
however, by issues of high-cost spectrum, institutions can help facilitate these developments
regulation that affects everything from the ability with regulatory easing. A third voluntary option
to scale up, to pressure on revenues, to the cost of is the separation of infrastructure construction
capital, and challenges to its ability to innovate in and telecommunications services businesses, as
the service and data economy. has occurred in European and American markets,
where operators have used divestitures and IPOs
to increase their valuations and reduce debt.
Finances, Strategies, and Models.
Already today, our sector is pursuing seven
Incumbent telcos have invested 18% or more of distinct avenues for improving valuations and
revenues in capex annually from 2015 through rethinking operating models for both business
2018. Globally, the debt of almost half of all telcos purposes and broader societal benefit.
Seven Avenues for Increasing Business & Societal Value
Long-term, structural priorities Product-/service-related priorities Enabling priorities
Network New Next B2B Data-driven Adjacencies Radical Capabilities
leadership collaboration generation customer & up-stack simplification & new ways
models approach innovations & digitalization of working
Intelligently Explore Smartly migrate Use advanced Build an Simplify ops Ensure
rollout fiber & alternative customers to analytics and innovative and leverage required
5G to create models for asset next generation customer non-core digital including capabilities
a leading ownership, solutions to centricity to portfolio AI to achieve are available
edge while collaboration, maintain better target (including radical gains to deal with
taking action and partnerships position and proposition and M&A) to in efficiency the challenges
on legacy protect the core go-to-market to compensate and client ahead
systems secure revenue for losses in satisfaction
growth core business
Impact on valuation (high = full) Impact on business model (high = full)CONNECTIVITY AND BEYOND 22
Our sector is confident it has the right vision Many European governments have mostly favored
and strategies in place to help Europe seize the the first two or three priorities with result that telcos’
opportunities that come from the deployment— capital expenditures for spectrum are high, leaving
and uptake—of new generation networks. This less money available for infrastructure deployment.
offers also strong opportunities of growth for our In addition, most European countries lease valuable
spectrum bands to commercial operators,
own sector. At the same time, we cannot ignore
meaning that operators do not own the essential
one of the big unresolved issues that affect
asset and must plan with uncertainty what the
network investment: the lack of monetization
asset will cost them in the future.
of data traffic. The load on our networks keeps
on rising, which means an increased pressure Contrast this approach with the more investor-
on the infrastructure. However, our revenues friendly regulations in the US, which allows for
remain sluggish, both when compared with outright ownership of spectrum, or a market
companies running data heavy activities on such as Singapore, where the regulator prioritizes
top of our networks and when compared with different goals and pursues a very different
those of non-European telecom companies. spectrum allocation process. (See the sidebar,
This unbalance, over the past years, has Spectrum Allocation in Singapore.) In France, the
already damaged the speed of Europe’s roll- “new deal” struck in 2018 among the government,
the telecom regulator, and several industry players
out. More delays are foreseeable unless we
with regard to allocation the 900 MHz spectrum
create the right conditions for growth.
band contains an innovative approach under
which spectrum allocations are renewed without
fees based on improved coverage.
Spectrum.
Governments have a choice in how they set
spectrum policy, and they typically consider several
competing priorities:
• Maximizing the value of a scarce
asset and raising revenue
• Fostering competition, including
by sometimes subsidizing new
entrants, to keep retail prices low
• Extending coverage
• Enabling competitive mobile
broadband infrastructureCONNECTIVITY AND BEYOND 23
Conflicting objectives require trade-off
decisions in setting spectrum policy
Maximize
proceeds from
Low consumer spectrum Extra industry
prices limit state taxes impair
revenues from auction investments in new
industry players infrastructure
Enable
Foster competitive
competition mobile
to enable low broadband
consumer prices infrastructure
Low consumer
prices come
at the cost of
slower network
developments
To maximize societal benefits and ensure
inclusion, focus should be on rolling out
infrastructure
Source: BCG analysis.CONNECTIVITY AND BEYOND 24
Case Study:
Spectrum Allocation in Singapore
Singapore has long been a leader in digital Two operators, Singtel and a joint venture
technology. It is the world’s second most between StarHub Mobile and M1, were
digitally competitive country according awarded licenses to build two nationwide
to IMD, and the government sets telecom standalone 5G networks, and each were
regulatory policy accordingly. Because allocated 100 megahertz of spectrum in
of its regional standing as a financial the 3.5 GHz band. The two winners are set
services hub, Singapore prioritizes strong to deploy 5G networks starting in January
B2B-focused, as well as consumer- 2021. They will provide coverage for at
oriented, mobile networks and sets least half of Singapore by year-end 2022
specific criteria for such factors as security, and scale up nationwide coverage by the
resiliency and indoor/outdoor coverage end of 2025. Importantly for a market such
in its spectrum allocation procedures. as Singapore, the 5G networks will deliver
full 5G capabilities, including network
slicing, high reliability and low latency, and
massive machine type communications.
When Singapore allocated new licenses
in 2019, it eschewed the auction process
in favor of requests for proposal involving
the country’s four main operators. In return
for licenses allocated at a set minimum
base price, the successful operators were
required to extend standalone 5G coverage
to 50 per cent of the island by end of 2022,
thus furthering the government’s coverage
goals. Set prices also left winning
operators with capital for building out
state-of-the art 5G network infrastructure.CONNECTIVITY AND BEYOND 25
Regulation. small-cell deployment. In addition, opposition
to 5G rollout can involve dissemination of
Regulatory roadblocks that constrain the misinformation or disinformation, and some local
pace of infrastructure deployment can take authorities can, or are tempted to, delay permits
different forms. One of the most significant based on mistaken assumptions. Regulatory
for telecommunications infrastructure is the approaches to electro-magnetic frequency
permitting process for new construction since radiation are still not fully harmonized across
this often involves securing lengthy and complex EU, with some countries imposing extremely
bureaucratic approvals. For example, in Germany, low limits, that require the installation of more
it takes at least one year to get the necessary antennas (instead of fewer) and that are much
allowances from authorities to build and launch stricter than the international WHO guidelines
a new cell tower site. Europe is estimated to need without any justification.
more than 50,000 new towers in 16 countries
by 2023 to support the rollout of 5G. Tower Governments can hasten industry investment by
construction is often controversial, particularly at loosening restrictions. Make affordable spectrum
the local level. available on a transparent schedule that
facilitates planning. Reconsider whether the goals
Inner-city small cell densification and the of competition regulation should be continuing
cellular coverage of major transit routes (such as adherence to the idea that more network
highways and rail lines) are additional challenges operators equals lower prices for consumers or
(and cost centers) for 5G rollout, and here as the more current need to address a situation in
well, slow approval processes are a hindrance. which the ability to invest in advancing higher
Some regulators also look askance at shared quality networks and innovative technologies
infrastructure deployment among operators, leads to broader benefits for all. Today, Europe
even for small cells. Regulators and other relevant still favors a static view of competition, instead of
authorities need to take a broader view of what a dynamic one. Regulators can also further look
constitutes available cellular infrastructure, into adjusting the burdensome restrictions and
especially in urban areas where fixtures such as requirements on the deployment of advanced
streetlamps and benches can be pressed into cellular technologies such as small cells.
service and even manufactured to facilitate small
cell installation. A high degree of collaboration Business models or approaches that could be
among the industry, government, and other incentivized with regulatory changes include:
stakeholders will be a prerequisite to fully
extending 5G coverage. • Co-investment models and RAN-sharing
agreements that require more legal certainty
At the same time, the need for investment • Mergers that further growth
continues to rise. A September 2020 report by the in domestic markets
European Round Table of Industrialists found that • Supporting the migration from copper to fiber
many European countries haven’t yet allocated
sufficient planning and construction permits • Vet all regulatory choices to ensure they
for cell towers, which is slowing the deployment do not negatively affect investment
of 5G. (This is ironic since Europe was an early
pioneer in digital-cellular communications and
a world leader in making the transition from
analog to digital networks in the 1990s.) As a result
of slow approvals, operators must put much
more financial muscle behind both macro andCONNECTIVITY AND BEYOND 26
Operators Need to Invest Significantly
More to Enable the Full 5G Vision
COSTS WITHOUT SPECTRUM PRICES
2.4x
Total capex required between
3.2x
Yearly capex required
2020 and 2027 to enable all use in Wave 3 (2025–2027)
cases vs. urban capacity-driven compared to pre-5G area
densification and rural DSS
+40%
Additional macros required
6:1
Small cell to macro ratio
by 2027 to provide additional by 2027 after massive
coverage and densification mmWave densification
New network architectures and sharing of infrastructure can
help reduce the investment burden
Source: BCG analysis.CONNECTIVITY AND BEYOND 27
Viable Competitive Footing. Putting Europe back on a fast highway to the digital
future requires a rethinking of goals and priorities
Europe requires the rollout of fiber and 5G to by both the telecom industry and the public sector.
remain competitive with other markets. An All of the opportunities that we discuss in the
economy based on services and data also balance of this report—new platforms and busines
requires vibrant innovation and competition that models, bringing the power of digital engagement
to education and small businesses, advancing
also adhere to European standards of privacy
digital literacy, and fueling innovation—require a
and security. We need fit-for-purpose regulation
fast, robust, reliable digital infrastructure.
that does not disadvantage telcos or European
companies (particularly relative to global As part of our commitment to raise the bar, the
tech players) so that Europe’s cab help drive industry is committed to build out the infrastructure,
innovation and growth of the digital economy. both fixed line and 5G mobile, that Europe needs.
The EU is taking leadership in this regard with the Our businesses and futures depend on it. To fund
Digital Markets Act (which seeks to address the this commitment, the telecoms sector needs to see
gatekeeping power of certain global tech players) adequate returns on its investment. Also, as it thinks
as well as with the Digital Services Act (which beyond just average revenues per user, it should
would regulate digital services). be able to develop the new business models and
income streams that technologies such as 5G
enable.
EU telcos are ready to compete, but we need
Europe to regulate major tech companies in
Our technology and innovation departments
way that empowers the furthering of European are working on enabling new services and new
innovation and competitiveness. Policy makers opportunities to empower users. For example, can
and regulators can provide Europe’s telcos with the industry place itself at the center of services
fresh flexibility to effectively compete with the that require data to be stored and shared securely,
global tech companies. This means allowing meaning that the telco would ensure that only
the sharing infrastructure and the needed authorized users access the data and that the
cooperation to build scalable products and usage of data is logged and traceable? This
services. But it also means fully acknowledging capability could be applied to a variety of settings,
the need of building scale in the European including sharing of school and university grades,
telecoms sector. When we compare the tech and medical records, and also business data: all
aspects on which trust is paramount and European
the telecoms sectors today, the main differences
values must be respected. Can it deploy a digital
can be found in privacy protection, ex-ante
“toolkit in a box” to small- and medium-sized
regulation, controls of cooperation, acceptable enterprises (SMEs) that provide a one-stop solution
levels of market concentration, and taxation—just for digital enablement? Can it work in partnership
to mention a few. Instead of taking a silo-view with both private- and public-sector players to
on the regulations constraining the telecoms rethink critical societal services, such as education
sector, we should embrace a horizontal and and health care, using digital connectivity,
comprehensive approach to unlock telcos and resources, and tools?
other European players to develop new business
models and especially data-driven business In the subsequent chapters, we explore a number
models. of the opportunities for the industry to move
beyond connectivity and rwaise the bar for the
services—and the value—that it provides. The
Back to the Future. opportunities are real—as are the benefits they can
bring for the industry and for Europe. But they have
If you are world leader in dirt roads, you may only three prerequisites: digital infrastructure, digital
get to build tractors, not fast cars. In the same imagination, and digital readiness. Without either
way, the digital ecosystem will not be built if the one, the road ahead is one lane wide and largely
infrastructure isn’t there to deliver. unpaved.
—Börje Ekholm, CEO, EricssonCONNECTIVITY AND BEYOND 28
06 Energizing the Spirit of European Innovation
Industrial strategy and cooperation
05
Advancing the Readiness of Citizens
Digital skills
Our Framework
04
Expanding the Reach of Opportunity
Digitalization of the economy and society
03 Taking the Lead
European solutions for data and services
02
Constructing the Full Foundation
Networks and connectivity
01
Our Commitment
We want to raise the ambitionCONNECTIVITY AND BEYOND 29 Taking the Lead European Leadership in Data and Services The Plan. It will take open platforms—born from our values and tailored for our needs—to set a new European digital standard, a standard we can rely on because it safeguards data, protects people, and secures connection. The vision of European telcos. • Take an active role on creating European leadership and interoperable, pan-European solutions in edge computing, Open RAN, and cloud • Work together in a united way with other industrial players and commit to significantly invest into scalable solutions where Europe can take a lead • Support rollout of an EU-wide e-ID by offering secure identification solutions, such as mobile ID How Policy Cooperation Can Speed Progress. • Foster and incentivize the use of European platforms such as GAIA-X and the broader alliance for industrial data, edge and cloud—including by using EU funds • Empower telecom companies to collaborate, share infrastructure and deliver scalable products and services that matter on a global level, while ensuring they compete on a fair playing field with tech companies • Drive the digitization of public services at the national and local levels
CONNECTIVITY AND BEYOND 30
Innovation has to be at the benefit of our clients and
society over all, preserving our values and privacy.
Stéphane Richard
CEO, Orange
Telcos have been stagnant for about 25
years. They are missing in action on many key
aspects on digitization and innovation.
Cedric Neike
Member of the Managing Board and
CEO Digital Industries, Siemens AG
The Telco industry has unfortunately not been ground-
breaking enough. It needs to rethink the way it is
positioned in the wider equation of the economy.
Sonia Jorge, Executive Director,
Alliance 4 Affordable InternetCONNECTIVITY AND BEYOND 31
The last few years have been difficult for the European Platforms.
global community. Even before the onset of
the pandemic, rising geopolitical and trade There is growing recognition in Brussels and other
tensions among the world’s leading powers were European capitals of the dangers of overreliance
taxing long-standing alliances and institutions. on technologies provided exclusively from abroad
The future may see more collaboration on and the resulting need for Europe to build its
global challenges such as climate change and own platforms that rely on open standards and
inequality, but recent history is a reminder of how ecosystems. Stéphane Richard, CEO of Orange
suddenly global alliances and partnerships can put it this way: “In a digitalized and data driven
come under strain. economy, cloud computing is becoming essential
in terms of innovation, competitiveness, and
For all of its considerable strengths in important digital sovereignty.”
industries such as automaking and green
technologies, Europe relies for most of its digital Such platforms can ensure compliance to
capability on the US and China. There is a growing fundamental European values (such as privacy
belief at the EU level and among individual and data protection) and EU-wide law (such
governments that Europe must re-establish digital as GDPR) to ensure a secure and EU-controlled
leadership for itself. This requires high quality environment. They can also help in building
internet access for, and usage by, all, but it also the trust in technology by protecting data
means that Europe needs to: and reflecting European fundamental values.
• Invest in creating and implementing Combining forces across Europe to work on
European platforms such as telco edge cloud innovative solutions and share investments and
capabilities, GAIA-X for cloud specification and resources will avoid multi-country fragmentation
solutions, and Open RAN for infrastructure of effort and contribute to economic prosperity
and growth.
• Drive a real and swift digitalization of the
public sector in its interactions with citizens Europe should aspire to be a major contributor
and businesses. This can have tremendous to innovation in multiple areas, but to do so, it
impacts on the productivity of the public must sew a net of strong global relationships.
sector, on its ability to amplify positive societal This is one key to building European digital
change and on the economy overall leadership at the global level. In the wake of the
• Work with the ecosystem of industrial start of a new administration in the US, there may
players and commit to invest in scalable be an opportunity for Europe to relaunch the
solutions where Europe can take a lead transatlantic digital partnership as a means to
create value-based partnerships on technology,
platform, and telecommunications policies that
Europe can lead in each of these areas and in
further the economic and strategic interests of
the process put itself on more equal footing with
both regions.
other countries and regions. As Tim Höttges of
Deutsche Telcom said, “We need an Airbus in the
telco industry to compete on a global level.”
We believe that there are several areas in which “In a digitalized and data driven economy, cloud
Europe can reestablish its digital proficiency. computing is becoming essential in terms of
Telcos and European governments and institutions innovation, competitiveness, and
can work together to make this happen. Indeed, it digital sovereignty.”
is in the business interests of the former and the
geopolitical interests of the latter to do so. Two —Stephane Richard, CEO of Orange
of these areas are European platforms and the
digitization of the public sector.You can also read
