Five reasons why Europe lags behind on high-speed internet

Fred Roeder

March 19, 2019

Connectivity and low latency times are crucial for economic progress in developed states. While European policymakers don’t shy away from grand plans to keep the continent competitive, the essential ingredient for a successful digital strategy is the creation of a real digital single market within the European Union. Here are five major reasons why Europe is lagging behind the United States and parts of Asia, along with a possible solution.

1. A lack of incentives for long-lasting investments in broadband

Countries like Germany, Italy, and the United Kingdom see broadband spectrum mainly as a cash cow for public finances and not as necessary infrastructure for economic growth in the information age. As such, broadband spectrum is auctioned off to the highest-bidding companies, which typically keep that spectrum for 20 years. Given the fact that telecom companies pay over €600 per resident in these countries, they would have to charge €30 a year per user just to amortise the spectrum license fees they pay before losing the license after two decades.

Those lucky companies that win the spectrum auctions have very little wiggle room to invest in building out the network after paying an average of €50bn per market for the licenses.

Thankfully, the EU recently reformed and partially harmonised the process of awarding spectrum for data to telecommunications providers. But instead of awarding spectrum permanently to the auction winners – and therefore creating a secondary spectrum market – they mainly increased the usage time to 25 years.

2. Europe’s export powerhouse falls behind digitally

Given that Germany is the EU’s largest economy, its developed broadband accessibility is pitiful. One out of 11 households does not receive a 3G signal in their home – only Slovakia ranks lower. One out of nine rural households do not have access to broadband DSL internet, and merely 65 per cent of households have access to the internet at a rate faster than 100Mbps.

Germany’s southern neighbour, Switzerland, on the other hand, provides nigh-on 100 per cent access to speeds beyond 100Mbps. Germany’s weak performance when it comes to broadband infrastructure is especially surprising given that, as the EU country with the fifth densest population, network infrastructure per square kilometre should be much cheaper and easier to improve.

3. Market entry barriers within the single market

Despite having a single market, there are still many barriers for telecom companies based in one EU country that wish to enter the market in another member state. Pre-selections by regulators on which companies are even allowed to bid for spectrum licenses, complicated and dispersed application procedures for licenses, and other red tape hinder innovative competitors from entering telecom markets.

The European commission needs to be bold in breaking through these barriers in order to enable consolidation of telecommunication and broadband markets in Europe. This would provide consumers with faster connections at lower prices.

4. The missed opportunity of 5G

A report from last year estimates that, by 2025, half of all American households will have access to ultra-high-speed 5G network technology. In contrast, the figure is 31 per cent in Europe. Indeed, some of its major members like Germany and Italy will most likely have even lower levels of coverage due to their spectrum auctioning systems.

By overcharging network providers for spectrum licenses, European governments are trading long-term economic competitiveness for quick household surpluses. While fiscal stability is something governments should strive for, they should at the same time not take broadband spectrum and future technologies hostage for these purposes, but instead fix their structural overspending.

5. Politicians fall in love with the wrong technologies

Instead of merely defining a framework for innovation, many policymakers and regulators too often bet on specific technologies and demand that companies use them.

One recent example of this was the EU’s push to determine ITS-G5 technology as the way for autonomous vehicles to communicate with surrounding cars. A more innovation-friendly solution would be to simply define the maximum tolerated latency of the communication and then let various solutions compete on the market against each other. The EU mandate for specific catalytic converters on motor vehicles displays the same worrying trend.

It’s hard to imagine that the DVD would have emerged if governments had mandated that all video material be stored on VHS cassettes. A “tech-neutral” approach to regulation allows consumers to access newer and better technologies without having to wait for legislative changes.

Europe still has a long way to go before it can fully achieve a digital single market for its hundreds of millions of consumers. It must now turn its attention to breaking down barriers within the single market and reducing artificial costs for network providers. Both would reflect positively on the network quality and phone bill of consumers. The coming decades will be defined by digital innovations, and – for the sake of its consumers – Europe must adopt smart policies to keep up.


Written by Fred Roeder

Fred Roeder is a health economist and Managing Director of the Consumer Choice Center.


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