RESTRICTING COMPETITION IN 5G NETWORK EQUIPMENT THROUGHOUT EUROPE - AN ECONOMIC IMPACT STUDY - Huawei
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
RESTRICTING COMPETITION IN 5G NETWORK EQUIPMENT THROUGHOUT EUROPE AN ECONOMIC IMPACT STUDY DECEMBER JUNE 2020 2019
Restricting competition in 5G network equipment throughout Europe
TABLE OF CONTENTS
Executive summary2
1. The 5G opportunity6
1.1 5G rollout in Europe 7
1.2 The impact of coronavirus on 5G rollout 8
1.3 The economic benefits of 5G 9
2. How the 5G infrastructure market works11
2.1 Who are the key players in the European market? 11
3. How we assess the impact of restricting 5G competition13
3.1 What happens if Huawei is restricted from competing? 13
3.2 Our three-stage modelling approach 14
3.3 Transmission mechanism of competition restrictions 15
3.4 Accounting for uncertainty 16
4. The economic impact of restricting 5G infrastructure
competition in Europe18
4.1 Total impact of restricting competition across Europe 18
4.2 Impact of restricting competition in each country 19
County-by-country analysis 20–80
Appendix 1: Glossary of terms 82
Appendix 2: Modelling approach and methodology 84
Appendix 3: The Global Economic Model 93
Appendix 4: Full results 96
1Restricting competition in 5G network equipment throughout Europe
EXECUTIVE SUMMARY
The next generation of mobile technology, RESTRICTING COMPETITION IN THE 5G MARKET
5G, offers enormous opportunities for
countries who facilitate its widespread In Europe as well as globally, the
provision. During the global coronavirus crisis, telecommunications network infrastructure
telecoms networks have kept vital health, market is dominated by three players: Ericsson,
education and emergency services online, Huawei, and Nokia. These companies were
helped many businesses to smoothly shift to largely responsible for the rollout of 4G
remote-working patterns and allowed friends networks via the deployment of mobile base
and family to stay connected. stations which facilitate connections to mobile
user devices.
As social distancing has become the norm (in
the short run, at least), digital infrastructure However, the participation of one of these
has played an ever-more important role in organisations—Huawei—in the rollout of 5G is
keeping the wheels of the economy turning. likely to be constrained by a series of political
Furthermore, the faster connection speeds decisions. The US and Australia have sought to
achieved using the 5G network, and the restrict competition for further 5G infrastructure
potential new-use cases for this technology, contracts. In several other markets, respective
will be crucial in boosting productivity levels governments have indicated that they are either
as countries seek to bounce back from considering exclusion or have imposed partial
financial collapse. Moreover, the act of 5G restrictions. In May 2020, the UK initiated a
infrastructure building can provide a stimulus fresh review of Huawei’s participation in the UK
for recovery in the short term. telecoms market.1
However, the recession associated with the The European Commission (EC) regulatory
coronavirus pandemic is set to delay its guidance on the issue does not make any
rollout, endangering the extent to which direct references to Huawei but recommends
these opportunities can be realised. Slower that member countries should make their own
economic growth and heightened uncertainty decisions by balancing security implications
has led telecommunications operators to against other economic and industrial priorities.
pullback on investment—an action that will
inevitably slow the rollout of 5G. Economic theory suggests that restricting
competition leads to higher prices—as such, it
can be expected that restricting a large player
€3 billion
from competing in the 5G network will lead to
higher investment costs, delaying the speed
of rollout. This, in turn, will result in slower
technological growth and innovation, lower
incomes for households, and slower recovery
Estimated additional annual cost
from the recession across the economy.
of building 5G infrastructure
across 31 European countries
if competition is restricted,
in our central cost scenario.
2 1
The Financial Times. 2020. “UK draws up plans to restrict Chinese inward investment”. The Financial Times, 24 MayRestricting competition in 5G network equipment throughout Europe
ECONOMIC IMPACTS OF RESTRICTING 5G COMPETITION
In this context, Huawei commissioned Oxford A delay in the rollout of 5G would also result in
Economics to assess the economic costs slower technological innovation and reduced
of restricting competition in 31 European economic growth. In our central cost scenario,
countries.2 To reflect the uncertainty inherent in this would result in reductions to national GDP
such a process, we modelled three alternative in 2035 ranging from €13 million in Iceland
scenarios termed “low cost”, “central cost”, to €7.3 billion in France. The total GDP in
and “high cost”. All give results relative to our 2035 lost in the 31 countries in our study is
(post-coronavirus) baseline scenario, in which estimated to be €40 billion in 2020 prices.
no competition restrictions are imposed on the
5G infrastructure market. When interpreting these results, it is important to
note that we have not made allowance for costs
Under the central cost scenario, our modelling that network operators would face if they were
suggests that restricting a key supplier of 5G to need to replace existing equipment built by
infrastructure in our 31 European countries the restricted provider. Such additional costs
would increase total 5G investment costs by would further delay rollout and technological
almost €3 billion per year on average over the innovation resulting in higher productivity losses.
next decade, in 2020 prices. This represents an
annual cost increase of 19%, which translates to
€3 million per year in Iceland but as much as
€40 billion
€479 million per year in Germany.
The associated restriction in competition
for 5G infrastructure would lead to delays in
the network rollout. Under the central cost Estimated reduction in Europe’s
scenario, we estimate that around 56 million annual GDP in 2035 if competition is
fewer people across Europe would be covered restricted (central scenario, 2020 prices).
by the 5G network in 2023.
Fig. 1: Total Europe-wide impacts of restricting a major participant in 5G network provision,
under our three modelling scenarios
Low cost Central cost High cost
scenario scenario scenario
Increase in average annual investment costs €1.4 billion €3.0 billion €4.5 billion
for 5G infrastructure over the next decade (9%) (19%) (29%)
Absolute number of people who will have 29 million 56 million 78 million
delayed access to 5G by 2023 (6%) (11%) (15%)
Estimated permanent loss in Gross Domestic
€12 billion €40 billion €85 billion
Product (GDP) due to delay in 5G rollout in 2035
2
In this study, we cover the following 31 countries: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway,
Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland and the United Kingdom. In a previous report published in 3
December 2019, we had covered France, Germany and the United Kingdom using the same methodology. The results for these three
countries presented in this report differ from those presented in the previous study due to differences in 5G rollout forecasts and
macroeconomic projections (particularly in light of coronavirus).Restricting competition in 5G network equipment throughout Europe
THE IMPACTS OF 5G
INFRASTRUCTURE RESTRICTION*
€98 mn (19%)
600,000 (11%)
€3 mn (19%)
NO €1.1 bn
20,000 (6%)
IS €13 mn €29 mn (19%)
800,000 (13%)
65 mn (19%)
DK €600 mn
1.7 mn (14%)
BE €1.1 bn €52 mn (19%)
2.1 mn (12%)
€374 mn (19%)
NL €1.6 bn
€120 mn (19%)
7.3 mn (11%)
UK €4.4 bn
PL
3.3 mn (9%)
€1.0 bn
€27 mn (19%)
345,000 (7%)
IE €700 mn
€5 mn (19%)
50,000 (7%)
LU €130 mn
€479 mn (19%)
11.9 mn (14%)
DE €6.9 bn
€63 mn (19%)
1.0 mn (10%)
PT €500 mn
€292 mn (19%)
€73 mn (19%) €4 mn (19%)
5.0 mn (11%)
ES
1.1 mn (12%) 20,000 (4%)
€3.7 bn
AT €1.1 bn MT €40 mn
€447 mn (19%) €94 mn (19%) €282 mn (19%)
4.0 mn (6%) 800,000 (9%) 6.9 mn (12%)
FR €7.3 bn CE €1.7 bn IT €4.7 bnRestricting competition in 5G network equipment throughout Europe
€64 mn (19%)
1.4 mn (13%)
SE €1.1 bn
€79 mn (19%)
€2.4 bn (19%)
600,000 (11%)
FI €400 mn
46.9 mn (11%)
€10 mn (19%)
130,000 (10%)
EU27 €32.4 bn
EE €60 mn
€8 mn (19%) TOTAL for all 31 countries
180,000 (10%)
LV €70 mn
€8 mn (19%)
200,000 (9%)
€3.0 bn 56 mn €40 bn
(19%) (11%)
LT €60 mn
€57 mn (19%) €31 mn (19%)
1.2 mn (11%) 200,000 (4%)
CZ €400 mn SK €200 mn
€55 mn (19%) Increase in average annual
500,000 (5%) investment costs for 5G
HU €300 mn
infrastructure over the next
decade; € millions (%)
€59 mn (19%)
2.4 mn (13%)
RO €80 mn
Absolute number of people
€20 mn (19%)
that will have delayed access
700,000 (10%)
BG €100 mn
to 5G by 2023; number of
people (% of population)
€23 mn (19%)
200,000 (6%)
HR €80 mn
Estimated permanent loss
€15 mn (19%)
in Gross Domestic Product
120,000 (6%)
SI €150 mn
(GDP) due to delay in 5G
rollout in 2035; €
€37 mn (19%) €7 mn (19%)
800,000 (8%) 38,000 (4%)
GR €600 mn CY €40 mn *Results for each country show the
central cost 5G impact scenariosRestricting competition in 5G network equipment throughout Europe
1. THE 5G OPPORTUNITY
As the next generation of As European economies Businesses are preparing
mobile wireless network emerge from the Coronavirus for millions of new wireless
technology, 5G will provide a pandemic, the building devices—from smartwatches
better consumer experience of digital infrastructure, and other wearable items to
and improve business especially 5G networks, is sensors embedded in industrial
performance through faster expected to play a significant products—to be connected
data transmission and more role in recovery from the to the next generation of 5G
reliable connectivity. 5G will recession. The construction mobile networks. These devices,
reduce the cost of mobile of 5G networks will support which together constitute the
internet use, with prices jobs, and this spending on Internet of Things (IoT), will not
expected to drop 10-fold per suppliers and employees is use a lot of data (a sensor built
gigabyte of data, compared expected to have significant into a highway, for example,
with current 4G mobile multiplier effects5 across will need to send only small
networks. the wider economy. Should amounts of digital information
remote working become across the network every
5G will also unlock new income more common in the long run couple of hours). But when
streams for businesses in all after restrictions are lifted, combined, these hundreds of
sectors of the economy, and the connectivity provided by millions—potentially billions—
increase their productivity 5G networks will help boost of new sensors will require
levels, through enhanced productivity levels beyond almost universal connectivity,
capabilities including higher the new-use cases that 5G is forcing operators to extend
data speeds, lower latency3, and likely to enable, and which are their networks to practically
network slicing4 (see Fig. 2). discussed below and in Fig. 3. every corner of a country. Fig.
3 gives an indication of how 5G
and the IoT will affect people
and businesses across a wide
range of activities.
Fig. 2: Summary of 5G’s key benefits to businesses and consumers
5G, characterised as Enhanced Mobile Broadband (eMBB), is expected to
Faster
improve mobile internet use with higher speeds and seamless user experience
connection
in dense or high‑mobility environments. It will support high-bandwidth
speeds
services such as Augmented Reality (AR) and Virtual Reality (VR) apps.
Greater 5G will enable Massive Machine-type Communications (mMTC). Put simply,
bandwidth for it will enable the connection of a very large number of connected devices,
more devices which together comprise the Internet of Things.
5G will also provide Ultra-reliable and Low Latency Communications (URLLC).
Low latency means the response times for 5G will be much quicker than
Quicker for previous generations of mobile technology, and that access to 5G will
response times be far more reliable. This will allow the development of “mission critical”
applications—for example, in transport (vehicle-to-vehicle communications),
healthcare (remote monitoring), and logistics (drone delivery).
Source: Ofcom, Oxford Economics
3
Latency is the amount of time between a command and its corresponding action over the internet.
4
Network slicing allows the physical infrastructure to be split into several virtual networks that can be tailored to different end-users,
6 thereby facilitating dedicated disruption-free networks for critical users such as health and transport services that are free from
disruption from other consumer and business uses.
5
The multiplier effect comes about because the money paid to suppliers and employees will be create demand for other goods and
services in the wider economy, which in turn will stimulate further rounds of spending. The eventual final effect on employment and
output could be bigger than the initial spending on infrastructure.Restricting competition in 5G network equipment throughout Europe
Fig. 3: Examples of 5G and IoT applications by sector
Sector Examples of applications
Health and IoT enables remote health monitoring, creating timely alerts for patients,
social care nurses, or carers.
Automotive Connected smart cars for tracking mechanical diagnostics, autonomous
vehicles (e.g., driverless cars), locations, and media streaming.
Smart cities Optimisation of street lighting, monitoring of parking, rubbish collection
timing, and environmental monitoring.
Utilities Smart meters and smart thermostats allowing for more accurate billing and
better control of energy consumption.
Manufacturing Digitisation and automation of production lines, and remote control of
industrial processes.
Logistics Connected containers to record and share the item’s location and temperature
to streamline production and reduce the risk of damage to temperature-
sensitive produce.
Source: Ofcom, Oxford Economics
1.1 5G ROLLOUT IN EUROPE
Amid hype and high Fig. 4: 5G rollout in Europe as of May 2020
expectations, the 5G rollout
Single launch
has begun. Before the onset
of coronavirus, GSMA6 had Multiple launches
forecast that there would Fully launched
be 1.2 billion 5G mobile
users globally by 2025, with
network coverage extending
to roughly a third of the
planet’s population.7 Due to
the restrictions in response to
the pandemic, the rollout of
5G services is expected to be
delayed in the short run. GSMA
expects that 5G connections
in 2020 will be 25% lower than
the levels planned before the
onset of the coronavirus.8
Source: GSMA
6
The GSM Association (commonly referred to as ‘the GSMA’ or Global System for Mobile Communications, originally Groupe Spécial
Mobile) is an industry organisation that represents the interests of the mobile network operators worldwide.
7
GSMA. 2018. The Mobile Economy 2018 7
8
Mobile World Live. Intelligence Brief: How will Covid-19 impact 5G?Restricting competition in 5G network equipment throughout Europe
The European Commission operators have also switched in industrial espionage, nor
(EC) established a Public on their 5G networks in allowed its technology to
Private Partnership on 5G (5G Belgium, Latvia, Norway, the be knowingly hacked by the
PPP) in 2013 to accelerate Netherlands, and Spain. Chinese state.10
research and innovation in
5G technology. The EC had Commercial 5G networks Within Europe, the EU
earmarked public funding began going live in 2019, and has introduced regulatory
of €700 million through its the rate of new launches is guidance that allows countries
Horizon 2020 Programme to expected to pick up in 2020, to balance the security risks
support the development and with an estimated $160 billion from a vendor against other
deployment of 5G in Europe. being invested each year priorities—including the
EU industry was expected to in the construction of 5G economic implications of
amplify this investment by up networks globally. restricting any vendor from
to five times, to more than €3 participating in 5G network
billion. These activities have However, concerns expressed deployment. In July 2019,
been accompanied by an about cyber security have led the Intelligence and Security
international plan to ensure a several countries to consider Committee (ISC) of the UK
standardised implementation imposing restrictions on Parliament issued an official
of 5G.9 Chinese network providers statement on 5G suppliers
from selling 5G network that “limiting the field to
Fig. 4 offers a snapshot of equipment to telecoms just two […] would increase
5G networks as of October companies. In particular, as of over-dependence and reduce
2019. Multiple operators June 2020, Huawei has been competition, resulting in less
have launched services in blocked from competing in resilience and lower security
Austria, Finland, Germany, any 5G provision tenders in the standards”.11 More recently, in
Hungary, Italy, Ireland, United States and Australia, May 2020, the UK initiated a
Romania, Switzerland and despite the company stating fresh review of Huawei’s role in
the United Kingdom. The first that it has never engaged 5G deployment.12
1.2 THE IMPACT OF CORONAVIRUS ON 5G ROLLOUT
The restrictions put in place As of early April 2020, delays However, in the medium-to-
across Europe to tackle the were already confirmed in a long term, it is likely that this
spread of coronavirus and the number of countries due to crisis will increase the appetite
associated delays in spectrum the coronavirus pandemic for digital solutions (such as
auctions have had a significant such as France and Portugal remote medical check-ups)
impact on 5G rollout plans. and potentially others13. for services that traditionally
In the short-to-medium Further, the shutdown of required face-to-face
term, a number of European government offices has interaction.
mobile network operators slowed the process of granting
are expected to delay their permits to mobile operators to
investments in 5G networks. build new cell sites.
9
Towards 5G. European Commission. https://ec.europa.eu/digital-single-market/en/towards-5g
8 10
The Guardian. 2019. “Huawei boss: UK ‘won’t say no to us’ over 5G rollout.” The Guardian, 16 August.
11
The Intelligence and Security Committee, UK Parliament. “Statement on 5G suppliers”, 19 July 2019..
12
The Financial Times. 2020. “UK draws up plans to restrict Chinese inward investment”. The Financial Times, 24 May.
13
The European Commission. 2020. “5G Observatory Quarterly Report 7”. March 2020.Restricting competition in 5G network equipment throughout Europe
BOX 1: HOW 5G CAN BOOST RECOVERY FROM THE CORONAVIRUS CRISIS
In common with the rest of the world, Europe to improve the quality of life for residents
is currently experiencing a deep recession. by enabling diverse economic activities,
At the time of writing, we are expecting a reducing environmental impacts, and providing
decline in real GDP this year of nearly 7.6% enhanced services and amenities—all of which
in the Eurozone, compared with a 2.8% could be boosted by greater 5G provision.
contraction globally.
Moreover, the coronavirus pandemic may well
Deployment of the 5G network will play an accelerate trends towards remote working and
important role in stimulating the region’s e-commerce. Such trends would place an even
economic recovery. The investment in network greater imperative on ensuring high quality
building will not only spur activity on-site, but network connectivity.
also boost the economy through associated
supply chain spending, and as a result of However, restricting a large player from
employees spending their wages in the wider competing in the 5G network at such a crucial
consumer economy. time will lead to increased investment costs,
delaying the speed of rollout which, in turn,
In addition to its significant economic benefits, will result in slower technological growth and
5G has the potential to bring quality-of-life innovation, and lower incomes for households
benefits to both cities and rural communities. and slower recovery from the recession across
Cities are increasingly searching for ways the economy.
1.3 THE ECONOMIC BENEFITS OF 5G
To date, only a small the total contribution of 5G $13.2 trillion in 2035 (5% global
number of studies have value chain alone over the real output in 2035).
attempted to estimate the 2020–2034 period at $2.2
macroeconomic impact of trillion—5.3% of total GDP An EC study forecasting the
5G around the world. The growth during this period. qualitative and quantitative
magnitude of the findings socio-economic benefits of 5G
varies greatly across different In a 2019 report, IHS Markit estimated that 5G deployment
studies, reflecting different predicted that the global 5G costs would have been
underlying assumptions value chain would generate approximately €56.6 billion in
and methodological a US$3.6 trillion contribution EU28 member states in 2020.
approaches taken. to GDP, and support 22.3 Analysis focusing purely on
million jobs, by the year the economic benefits of this
Summarising these findings, 2035. 5G will enable new investment spending suggests
5G-enabled economic activity market opportunities and that 5G investment will lead
is forecast to contribute may even profoundly change to ‘trickle-down’ or multiplier
between US$1.4 trillion and some industries. IHS Markit effects with a value of
US$13.2 trillion to global estimates that potential global €141 billion. These effects are
GDP by 2035. A 2018 study sales of products and services likely to create 2.3 million jobs
commissioned by GSMA put enabled by 5G could reach in EU28 Member States.14
14
Identification and quantification of key socio-economic data to support strategic planning for the introduction of 5G in Europe.
European Commission. 2016. 9Restricting competition in 5G network equipment throughout Europe
As previously discussed, 5G capabilities in vehicles will estimated that 5G is expected
various industries will use the enable transport authorities to generate benefits of €62.5
improved capabilities of 5G to better monitor vehicular billion in these industries in
to create new and enhanced flow and manage traffic. An 2025—of which 63% will arise
products, which will produce a in-depth analysis of these for business, and 37% will be
knock-on benefit to consumers benefits for four key sectors— provided for consumers and
and the wider economy. For automotive, healthcare, society.15
example, the incorporation of utilities, and transport—
Fig. 5: Estimates of 5G’s contribution to GDP growth
Country 5G investment Direct multiplier Jobs associated with investment spending
2020 (€ millions) effect (€ millions) and associated multiplier effects
Austria 970 2,170 25,200
Belgium 1,230 3,150 36,300
Bulgaria 840 2,320 128,900
Croatia 480 1,540 64,400
Cyprus 100 470 20,800
Czech Rep. 1,200 3,990 143,000
Denmark 620 1,480 14,800
Estonia 150 560 13,600
Finland 600 1,501 19,900
France 7,030 17,110 224,700
Germany 9,280 20,740 211,100
Greece 1,220 2,180 101,300
Hungary 1,130 3,450 134,600
Ireland 490 1,210 10,700
Italy 6,830 15,700 186,830
Latvia 230 570 16,800
Lithuania 330 700 28,200
Luxembourg 60 122 600
Malta 50 190 3,900
Netherlands 1,870 5,030 68,300
Poland 4,350 13,040 569,553
Portugal 1,170 3,730 127,300
Romania 2,270 4,660 252,300
Slovakia 620 1,980 71,500
Slovenia 240 610 14,700
Spain 5,190 14,600 329,400
Sweden 1,060 2,450 25,300
UK 7,040 16,520 172,100
EU28 56,640 141,840 2,394,800
Source: European Commission (2016)
Identification and quantification of key socio-economic data to support strategic planning for the introduction of 5G in Europe.
15
10 European Commission. 2016.Restricting competition in 5G network equipment throughout Europe
2. H
OW THE 5G
INFRASTRUCTURE
MARKET WORKS
To understand the impact of 2.1 WHO ARE THE KEY PLAYERS IN THE EUROPEAN MARKET?
restrictions on 5G equipment
providers, it is important to Ericsson (29% market share), Fig. 7: Regional market shares
understand the current market Huawei (31%), and Nokia (23%) in the RAN market, 2018
structure, and the nature of are the largest players in the 2% 1%
competition in this market. global RAN market, across
all generations of mobile
The telecoms infrastructure technology. These three 6%
underlying the 5G network companies have the broadest
consists predominantly of the product portfolios and widest
Radio Access Network (RAN), global reach (see Fig. 6), as 35%
24%
which in turn consists mainly well as the strongest service
of mobile base stations that support, and are expected to
connect telecom networks remain key global players as
wirelessly to mobile user 5G becomes more prominent.
devices.
31%
Fig. 6: Key players’ European shares of RAN market and
relative market positions, 2018
Huawei Ericsson
Niche Challengers Leaders
Nokia ZTE
Nokia Samsung Others
Breadth of portfolio and services
Huawei
ZTE Source: Oxford Economics
Ericsson
While network providers are
global players with a worldwide
footprint, there are some
Samsung differences in their regional
market shares (see Fig. 7).
Currently, Huawei has a small
presence in North America,
where Ericsson and Nokia
Others
dominate with a combined
market share of close to 90%.
On the other hand, ZTE has a
Global reach small but significant presence
Source: Ovum, Oxford Economics in the Asia Pacific region, at the
expense of Nokia and Ericsson.
Despite these differences,
responses to a 2015 EC review
suggested that there are no
obvious geographical barriers
to the reach of the largest
network providers.16
16
Nokia/Alcatel-Lucent Merger. 2015. Case No COMP/M.7632 - REGULATION (EC) No 139/2004 Merger Procedure (European
Commission, 24 July). 11Restricting competition in 5G network equipment throughout Europe
BOX 2: CROSS-COUNTRY DIFFERENCES IN THE 5G NETWORK MARKETS
In Europe, there are 45 network operators common set of measures aimed at mitigating
who provide mobile telecoms services across the main cybersecurity risks of 5G networks.
various national markets. Operators with cross-
border presence must meet EU-wide regulatory However, despite these measures, the
requirements (if they operate in the EU) as well differences in regulatory requirements across
as those of the respective national markets. countries remains a major challenge for
operators. For those that have cross-border
The EU telecoms market is one of the most interests, restrictions or additional regulatory
highly regulated in the world through the requirements with respect to procurement of
Framework Directive, Directive on Privacy network equipment in one country may have
and Electronic Communications, Directive an impact in all the countries they operate
on Network and Information Security (NIS), in. These cross-border effects could lead to
Cyber Security Act (CSA) certifications, the economic consequences of restricting
European Electronic Communications Code competition in one market being felt more
(EECC), and Radio Equipment Directive (RED). broadly outside its borders.
National governments and telecoms authorities
have taken steps to coordinate regulations. Given the uncertainty surrounding these
For example, EU member states set up the effects, we have not included these in our
EU Toolbox for 5G Security to identify a estimates of the economic costs of competition
coordinated European approach based on a restrictions in the 5G market.
2.2 THE 5G INFRASTRUCTURE TENDER PROCESS
Having declined over the last processes are already under made any direct references
few years, the RAN market way in many countries, with to Huawei. The regulatory
is expected to start growing the duration of such contract guidance indicates that these
again—driven by the rollout awards being around three countries will have to balance
of 5G networks. In 2019, years, on average. the security implications against
worldwide RAN sales was other economic and industrial
forecast at around US$31 billion, Economic theory implies priorities.
to which 5G equipment is that a competitive tender
expected to contribute roughly will typically yield benefits In the next chapter, we discuss
US$3.6 billion. The contribution for consumers, in terms of the theoretical impact of
of 5G is then expected to grow prices, quality of service, and restricting competition on
rapidly over the next decade technological innovation. the 5G network provision
as the contribution of 4G market, before going on
declines, resulting in total RAN Across Europe, 5G services have to explain our three-stage
sales exceeding US$35 billion been launched in 10 countries modelling approach. Then in
by 2023. as of March 2020. However, the Chapter 4, we quantify the
EU and the UK have introduced economic consequences of
Mobile network operators, regulatory frameworks that such a restriction across the 31
such as EE and Vodafone in could potentially exclude one of countries in our study, in terms
the UK, issue tenders to the the vendors from participating of increased investment costs,
network providers for building the 5G network building delayed 5G rollout, and lost
5G networks. These tender process. The EU has not yet productivity.
12Restricting competition in 5G network equipment throughout Europe
3. H
OW WE ASSESS THE
IMPACT OF RESTRICTING
5G COMPETITION
The technological benefits 3.1 WHAT HAPPENS IF HUAWEI IS RESTRICTED FROM
of 5G are expected to COMPETING?
be transformational, and
potentially revolutionary. As For this study, we assume that We also assume that 5G
the world prepares to roll out if Huawei is restricted in each network equipment market
5G, a healthy and competitive country’s 5G infrastructure shares over the next decade
market will help to ensure that market, network operators in the baseline scenario (no
the network infrastructure is in that market would switch restrictions on Huawei) will
installed as efficiently, quickly, to one of the two other large remain close to 4G market
and cheaply as possible. providers, Ericsson and Nokia, shares in 2018. In that year,
in proportion to their existing Huawei had 29% of the global
Economic theory suggests market shares. We believe 4G market, while Ericsson
imposing restrictions on a major that the other providers do and Nokia had 27% and 25%
global provider such as Huawei not have the same global respectively of the global
would be expected to increase reach or breadth of products 4G market.
prices, which might in turn slow and services that would allow
down 5G rollout. Furthermore, them to successfully compete With Huawei blocked from the
the quality of the infrastructure for Huawei’s customers, and market, our assumption means
may be diminished, and therefore their market shares that Ericsson and Nokia’s
productivity growth delayed would remain unchanged. market shares would increase
and possibly lost. to 42% and 39% respectively,
while Samsung, ZTE, and the
other operators would not
see a change in their market
shares (see Fig. 8).
Fig. 8: Worldwide market shares, with and without restrictions
on Huawei (based on 2018 4G revenues)
2% 1% 2% 1%
6% 6%
35%
24%
39% 51%
31%
Huawei Ericsson Nokia
ZTE Samsung Others
Source: Oxford Economics
13Restricting competition in 5G network equipment throughout Europe
This results in an increase in In this study, we only consider advantage over its competitors
concentration17 in European the economic impact due to due to its technological
markets. In our study, we focus increases in concentration and prowess.20 Therefore, the rest
on 31 technology markets in do not account for the loss of of the modelling, described
Europe. 18 Given the proximity the technological know-how, further in the following
and similarity of the markets, experience and capabilities that chapter, is more appropriately
we use European market are unique to Huawei or the described as being based on
shares as the basis for our potential additional transition the exclusion of a competitor
calculations.19 Huawei has costs related to moving of Huawei’s size.
a significant market share from Huawei 4G equipment
in Europe and therefore, to a different vendor’s 5G
restrictions on Huawei in equipment. Huawei is among
Europe will lead to a significant the leading spenders on R&D
increase in concentration. and is considered to have an
3.2 OUR THREE-STAGE MODELLING APPROACH
Reduced competition due Stage 1: Impact on investment costs
to restrictions on Huawei
can be expected to increase
To calculate the economic • merger simulation
impact of restricting techniques that are used
investment costs, slow down
competition, we started by by competition authorities
rollout and delay productivity
estimating the increase in to estimate the price
improvements. Using Oxford
mobile network operators’ impact following changes
Economics’ world-leading
investment costs when a to the market structure e.g.
Global Economic Model
major infrastructure provider following the completion of
(GEM) and a host of other
is restricted from the market. a merger; and
sophisticated industry and
We did this using a range
market structure models,
of techniques developed in • empirical evidence from
we analysed the impact of a a range of studies across
collaboration with Dr Martin
supplier of Huawei’s size being industries that estimated
Pesendorfer from the London
restricted from each market’s the change in price
School of Economics.
5G network infrastructure, in following a merger.
terms of the projected increase
The techniques used were:
in investment costs, delays Given the worldwide nature
in 5G rollout, and reduced • a theoretical model of of the network infrastructure
national GDP levels. We used oligopoly characterising the market, we made some
a three-stage modelling 5G network infrastructure adjustments to standardise
framework to assess the market that simulates the the price impacts across our 31
economic impact of restricting change in price of network countries of interest.
competition in the provision of infrastructure associated with
5G network equipment. restrictions on competition;
17
A concentrated market is one where a small number of firms account for large percentage of the total market. Concentration
increases as the size of the market controlled by the small number of firms increases.
18
In this study, we cover the following 31 countries: Austria, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland,
France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland,
14 Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland and the United Kingdom.
19
Ideally, we would have used national market share data to tailor our analysis to the individual markets, but we had to use regional
market shares as the corresponding national data was not available.
20
Strategy Analytics. 2019. “Comparison and 2023 5G Global Market Potential for leading 5G RAN vendors - Ericsson, Huawei and Nokia.”Restricting competition in 5G network equipment throughout Europe
Stage 2: Impact on rollout required to extend 5G coverage is partly due to the increase
on a per person basis. The in the costs of building the 5G
We translated the increase in
increase in investment costs network and partly due to the
investment costs to delays in
due to restricted competition, reduced investment in 5G and
rollout using a network rollout
as estimated in Stage 1, was related services due to delays
model built in collaboration
used as an input into the rollout in rollout.
with Dr Edward Oughton
model. Assuming that nominal
(University of Oxford). This
investment remains unchanged, These were then fed into the
model translates an increase in
the higher cost of rollout results Oxford Economics Global
investment costs to a reduction
in lower coverage. Economic Model to estimate
in the share of the population
the impact on a range of
covered for each country and
Stage 3: Impact on macroeconomic indicators
scenario by assuming that
productivity and such as GDP and household
the overall operators’ capex
macroeconomic growth consumer spending.
remains the same.
The increase in investment
Our baseline—i.e. with no costs and delays in rollout
competition restrictions— were translated into lower
forecasts for 5G rollout and productivity growth using
capital expenditure were estimates of the productivity
sourced from GSMA. Based on benefits of 5G from various
this, we calculated the average academic and industry studies.
investment expenditure The lower productivity growth
3.3 TRANSMISSION MECHANISM OF COMPETITION RESTRICTIONS
There are a large number Our modelling approach does competitor such as Huawei.
of ways through which not account for a number
restrictions on competition of other potential costs of The higher network equipment
in the network infrastructure restricting competition. For prices translate into higher
market results in loss in example, in addition to the investment costs, which
productivity and GDP. Fig. 9 increase in prices, there may translates into delays in rollout.
summarises the transmission also be a reduction in quality We assume that network
mechanism, highlighting the and technological innovation operators do not suffer from
channels that have not been in the 5G network equipment any capital constraints or
included in our modelling. as the unrestricted firms do increased costs of capital as
not face the same pressures to they increase their investment
In general, restricting invest in R&D and innovation. expenditure.
competition in the 5G network
infrastructure market leads to Further, network operators The increase in investment
lower competitive pressures and providers may face costs and the consequent
on the unrestricted network some transition costs as they delays in rollout lead to
providers, who will be able to adapt their plans and existing productivity losses across the
charge higher contract prices infrastructure to adequately economy.
for 5G equipment. fill in the gap left by a large
15Restricting competition in 5G network equipment throughout Europe
Fig. 9: Transmission mechanism of restrictions in competition
Restrictions on network providers leads to reduced competition as unrestricted
providers fill the gap in the market
Unrestricted
Increased network providers Reduced Loss in restricted
investment costs face transition costs investment in R&D providers’ R&D
for network (e.g. increasing by unrestricted and technological
operators capacity) to match network providers knowhow
increased demand
Capital constraints and higher cost of capital
Reduced returns from investing in networks
due to increased investment costs lead to
lead to delays in rollout
delays in rollout
Reduction in productivity in the Spillover productivity impact across the
telecoms sector wider economy
Note: The grey boxes indicate channels that are not considered in our modelling approach.
Only the channels described in the blue boxes are modelled.
3.4 ACCOUNTING FOR UNCERTAINTY
The precise extent of this year, which is based on the of the range of estimates
negative impact will depend on lower end of estimates from from our three price models
the potential future benefits of various studies. To account in Stage 1. In the central cost
5G, and the market reactions for limited increases in prices scenario, we assumed that 5G
to competition restrictions. To in the low cost scenario, we leads to productivity benefits
capture the uncertainty around assumed that investment costs of 0.15% in GDP growth per
the future benefits of 5G and increase by the lower end of year in the first year of 5G
the different market responses the range of estimates from rollout, increasing to 0.30%
to competition restrictions, we our three price models. in five years. The increase in
modelled three scenarios which investment costs was based
are summarised in Fig. 10. For the high cost scenario, on the median of estimates
we assumed that 5G leads to from the three price models
The modelling assumptions productivity benefits of 0.30% in Stage 1.
corresponding to these in GDP growth per year, which
scenarios are shown in is based on the higher end
Fig. 11. To model the low cost of the estimates from the
scenario, we assumed that 5G various studies. Similarly, the
leads to productivity benefits increase in investment costs
of 0.15% in GDP growth per was based on the higher end
16Restricting competition in 5G network equipment throughout Europe
Fig. 10: Definitions of scenarios modelled to reflect uncertainty
Source of
LOW COST scenario CENTRAL COST scenario HIGH COST scenario
uncertainty
Potential 5G, characterised 5G enables Massive Machine- 5G is revolutionary, providing
future as Enhanced Mobile type Communications Ultra-reliable and Low
benefits Broadband (eMBB), (mMTC): i.e. the connection Latency Communications
of 5G provides higher broadband of a very large number (URLLC) that enables
speeds and supports high- of connected devices applications which are heavily
bandwidth services such (one million per sq. km), dependent on low latency
as Augmented Reality supporting low-power, low- and high reliability, and
(AR) and Virtual Reality energy devices which enables supports critical applications
(VR) apps. large-scale IoT deployments in transport, healthcare
across sectors. and energy.
Market We assume that the scope Other vendors are able to Given the revolutionary
reaction to for other 5G infrastructure increase their prices to some impact of 5G, infrastructure
competition vendors to exercise their extent but are not fully able to vendors can fully exercise
restrictions market power and increase exercise their market power. their market power and
prices is limited. increase prices to the
maximum extent.
Fig. 11: Modelling assumptions to reflect uncertainty
Source of uncertainty LOW COST scenario CENTRAL COST scenario HIGH COST scenario
Potential future benefits of 5G 0.15% per year from 0.15% in 2020; increasing 0.30% per year from
modelled using GDP growth per 2020-2035 to 0.30% in 2025 and 2020-2035
year in the baseline constant at 0.30% per
(no restrictions) scenario year after.
Market reaction to competition 8%-9% increase 16%-19% increase 24%-29% increase
restrictions modelled using per year per year per year
increase in investment costs
(varies by country)
17Restricting competition in 5G network equipment throughout Europe
4. T
HE ECONOMIC IMPACT
OF RESTRICTING 5G
INFRASTRUCTURE
COMPETITION IN EUROPE
Our analysis suggests that 4.1 TOTAL IMPACT OF RESTRICTING COMPETITION
throughout Europe, there ACROSS EUROPE
would be significant economic
impacts from restricting a key Our modelling suggests As highlighted, there is a
supplier from participating restricting a major participant large amount of uncertainty
in the development of 5G could increase the cost of attached to these results, so
infrastructure. As explained building the 5G network in the we also present result ranges
in Section 3.4, our findings 31 countries in our study by €3 based on our low and high cost
are based on modelling billion per year over the next scenarios. Restricting a key
three different scenarios decade (19% of baseline costs) supplier of 5G infrastructure
(low, central, and high cost) in our central cost scenario. in all 31 countries studied was
which capture both the found to increase the total
potential future benefits of Due to these price increases, 5G investment costs across
5G, and the market reactions 56 million people (11% of Europe by between 9% and
to competition restrictions, the population) who would 29%. This equates to a total
for each of the 31 European have otherwise had access increase in investment costs of
countries in our study.21 to the 5G network could be €1.4 billion to €4.5 billion per
left without access to a 5G year over the next decade.
We begin this chapter by network in 2023.
presenting Europe-wide According to our low and high
results, which are the sum of Restricting competition in cost scenarios, between 29
all our country-specific results. the network infrastructure million and 78 million fewer
In each case, the results are market may significantly European residents would be
given relative to our (post- reduce economic growth covered by the 5G network in
coronavirus) baseline scenario in Europe over the next 15 2023 if all 31 countries faced
in which no competition years. We estimate this could restrictions.
restrictions are imposed on reduce GDP in the 31 countries
the 5G infrastructure market. in 2035 by €40 billion in Europe’s economic growth
All monetary figures are in aggregate (see Fig. 12). would also be significantly
2020 prices. reduced over the next decade
and beyond, due to the delays
in 5G rollout and associated
slower technological growth.
In 2035, we estimate a total
(permanent) loss in GDP
of between €12 billion and
€85 billion.
The results presented for Europe in this report do not cover all European countries. In particular, our study does not cover Russia,
21
Ukraine, Belarus, Serbia, Moldova, Bosnia and Herzegovina, Albania, North Macedonia, Montenegro, Andorra, Monaco, Liechtenstein,
18 San Marino, or the Vatican City.Restricting competition in 5G network equipment throughout Europe
Fig. 12: Total Europe-wide impacts of restricting a major participant in 31 countries, under our
three modelling scenarios
Low cost Central cost High cost
scenario scenario scenario
Increase in average annual investment costs €1.4 billion €3.0 billion €4.5 billion
for 5G infrastructure over the next decade (9%) (19%) (29%)
Absolute number of people who will have 29 million 56 million 78 million
delayed access to 5G by 2023 (6%) (11%) (15%)
Estimated permanent loss in Gross
Domestic Product (GDP) due to delay in 5G €12 billion €40 billion €85 billion
rollout in 2035
4.2 IMPACT OF RESTRICTING COMPETITION IN EACH COUNTRY
Over the remainder of this two baseline rollout rates,
chapter, we detail our results reflecting the impact of the
for each of the 31 countries coronavirus pandemic on
in our study, according to all our short‑term 5G forecasts.
three scenarios. In each case, All of the country results are
we include a chart showing given relative to our “post-
projected 5G rollout rates for coronavirus” baseline scenario,
that country, with and without in which no competition
competition restrictions. In restrictions are imposed on
fact, these charts include the 5G infrastructure market.
BOX 3: ECONOMIC COSTS OF REPLACING EXISTING 4G/5G INFRASTRUCTURE
Our results for each country reflect the built by the restricted vendor. Estimates of the
macroeconomic impact of network competition replacement costs are not readily available
restriction for future 5G rollout. In other words, on a consistent basis for the countries in our
they capture the loss in productivity and study and would involve a detailed review of
increased investment costs resulting purely the operators’ network assets on a country-
from restrictions in competition to build by-country basis. The replacement costs could
network infrastructure in the future. be significant and consequently our estimates
of the impact on rollout and productivity are
However, if a large network vendor is restricted, potentially conservative.
then operators may also incur significant costs
in replacing existing telecoms infrastructure
19Restricting competition in 5G network equipment throughout Europe
AUSTRIA
IMPACTS OF RESTRICTING A MAJOR PARTICIPANT
Low cost Central cost High cost
scenario scenario scenario
Increase in average
annual investment costs
for 5G infrastructure €35 mn €73 million €111 mn
over the next decade (9%) (19%) (29%)
Absolute number of
people who will have 600,000 1.1 million 1.5 mn
delayed access to (6%) (12%) (17%)
5G by 2023
Estimated permanent
loss in Gross Domestic €300 mn €1.1 billion €2.3 bn
Product (GDP) due to
delay in 5G rollout in 2035
5G ROLLOUT RATES, WITH AND WITHOUT COMPETITION RESTRICTIONS
Percentage of population covered
100%
90%
80%
70%
60%
50%
40%
Baseline
30% Low scenario
Central scenario
20% High scenario
Pre-COVID-19 baseline
10%
0%
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: Oxford Economics
20Restricting competition in 5G network equipment throughout Europe
MARKET ANALYSIS
The Austrian economy is While most industry players The resulting loss in
suffering from strict lockdown expect 5G to transform the productivity has significant
measures as the Coronavirus economy, 5G may end up economic consequences.
pandemic brings activity to an being merely an enhancement Lower economic growth
abrupt halt. We now see GDP to the existing 4G technology. due to delays in 5G rollout
falling 7.5% this year before Or it could be revolutionary in and the associated slower
rebounding next year. In the the way the steam engine or technological growth reduces
context of the recession and electricity was. The uncertainty GDP by between €300 million
the subsequent recovery, a about the nature of benefits and €2.3 billion in 2035.
competitive market for 5G will also be reflected in the
infrastructure would help economic consequences of Operators may also have to
maximise the gains from restricting competition in the incur additional investment
technological innovation and network infrastructure market. expenditure replacing existing
growth in Austria. 5G services network equipment built by
and associated activities will To account for this, we have the restricted operator. This
stimulate economic activity modelled two additional could further delay rollout
worth €2 billion in GDP and scenarios that capture the lower and technological innovation
support around 25,200 jobs and higher end of the range of which could result in larger
in Austria. potential future outcomes from GDP losses.
competition restrictions in the
On the other hand, restricting 5G network market.
competition can have
significant adverse economic Across our scenarios, we
impacts. Our modelling expect the increase in average
suggests restricting a major annual investment costs
participant could increase over the next 10 years due to
the cost of building the 5G competition restrictions to
network by €73 million per vary between €35 million (9%)
year over the next decade and €111 million (29%). The
(19% of baseline costs) in our wide range in these estimates
central cost scenario. Due to is due to the uncertainty
these price increases, 1.1 million around the reaction of
people (12% of the population) other vendors of network
who would have otherwise infrastructure.
had access to the 5G network
could be left without access to This increase in prices would
a 5G network in 2023. translate into delays in rollout.
We estimate that these delays
Restricting competition in the would leave up to 1.5 million
network infrastructure market more people (17% of the
may significantly reduce population) without access to
economic growth in Austria 5G by 2023.
over the next 15 years. We
estimate this could reduce
GDP in 2035 by €1.1 billion. The
potential future benefits of 5G
are hard to predict.
21Restricting competition in 5G network equipment throughout Europe
BELGIUM
IMPACTS OF RESTRICTING A MAJOR PARTICIPANT
Low cost Central cost High cost
scenario scenario scenario
Increase in average
annual investment costs
for 5G infrastructure €31 mn €65 million €98 mn
over the next decade (9%) (19%) (29%)
Absolute number of
people who will have 900,000 1.7 million 2.3 mn
delayed access to (8%) (14%) (15%)
5G by 2023
Estimated permanent
loss in GDP due to delay
€300 mn €1.1 billion €2.5 bn
in 5G rollout in 2035
5G ROLLOUT RATES, WITH AND WITHOUT COMPETITION RESTRICTIONS
Percentage of population covered
100%
90%
80%
70%
60%
50%
40%
Baseline
30% Low scenario
Central scenario
20% High scenario
10% Pre-COVID-19 baseline
0%
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: Oxford Economics
22Restricting competition in 5G network equipment throughout Europe
MARKET ANALYSIS
Lockdowns to contain the While most industry players The resulting loss in
Coronavirus pandemic are expect 5G to transform the productivity has significant
taking a massive toll on the economy, 5G may end up economic consequences.
Belgian economy. We now being merely an enhancement Lower economic growth
see GDP falling 8.9% this year to the existing 4G technology. due to delays in 5G rollout
before rebounding next year. Or it could be revolutionary in and the associated slower
In the context of the recession the way the steam engine or technological growth reduces
and the subsequent recovery, electricity was. The uncertainty GDP by between €300 million
a competitive market for 5G about the nature of benefits and €2.5 billion in 2035.
infrastructure would help will also be reflected in the
maximise the gains from economic consequences of Operators may also have to
technological innovation and restricting competition in the incur additional investment
growth in Belgium. 5G services network infrastructure market. expenditure replacing existing
and associated activities will network equipment built by
stimulate economic activity To account for this, we have the restricted operator. This
worth €3 billion in GDP and modelled two additional could further delay rollout
support around 36,300 jobs scenarios that capture the lower and technological innovation
in Belgium. and higher end of the range of which could result in larger
potential future outcomes from GDP losses.
On the other hand, restricting competition restrictions in the
competition can have 5G network market.
significant adverse economic
impacts. Our modelling Across our scenarios, we
suggests restricting a major expect the increase in average
participant could increase annual investment costs
the cost of building the 5G over the next 10 years due to
network by €65 million per competition restrictions to
year over the next decade vary between €31 million (9%)
(19% of baseline costs) in and €98 million (29%). The
our central cost scenario. wide range in these estimates
Due to these price increases, is due to the uncertainty
1.7 million people (14% of around the reaction of
the population) who would other vendors of network
have otherwise had access infrastructure.
to the 5G network could be
left without access to a 5G This increase in prices would
network in 2023. translate into delays in rollout.
We estimate that these delays
Restricting competition in the would leave up to 2.3 million
network infrastructure market more people (20% of the
may significantly reduce population) without access to
economic growth in Belgium 5G by 2023.
over the next 15 years. We
estimate this could reduce
GDP in 2035 by €1.1 billion. The
potential future benefits of 5G
are hard to predict.
23Restricting competition in 5G network equipment throughout Europe
BULGARIA
IMPACTS OF RESTRICTING A MAJOR PARTICIPANT
Low cost Central cost High cost
scenario scenario scenario
Increase in average
annual investment costs
for 5G infrastructure €9 mn €20 million €30 mn
over the next decade (9%) (19%) (29%)
Absolute number of
people who will have 300,000 700,000 900,000
delayed access to (5%) (10%) (14%)
5G by 2023
Estimated permanent
loss in GDP due to delay
€30 mn €100 million €250 mn
in 5G rollout in 2035
5G ROLLOUT RATES, WITH AND WITHOUT COMPETITION RESTRICTIONS
Percentage of population covered
100%
90%
80%
70%
60%
50%
40%
Baseline
30% Low scenario
Central scenario
20% High scenario
10% Pre-COVID-19 baseline
0%
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: Oxford Economics
24You can also read
