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What you need to know: This weblog captures key data points about the global telecoms industry. I use it as an electronic notebook to support my work for Pringle Media.

Wednesday, September 11, 2013

Europe’s Connectivity Crisis

This post is sponsored by the Enterprise Mobile Hub and BlackBerry

The sale of Nokia’s devices and services business to Microsoft has prompted some serious soul searching in Europe’s mobile industry. Although the rise and fall of Nokia is an extraordinary story, it shouldn’t obscure a much more fundamental issue – Europe's slide from mobile leader to mobile laggard and the impact of that on the competitiveness of individual companies and the region’s economy.

In Europe, the quality and quantity of mobile connectivity now lags well behind North America and parts of developed Asia. At the end of 2012, just 0.3 per cent of mobile devices in Europe could access LTE connectivity, compared to 11 per cent in the U.S. and 28 per cent in South Korea, according to a report published last week by mobile trade group the GSMA at its Mobile 360 event in Brussels. 

And the availability of LTE isn't the only issue. At the GSMA event, Jon-Fredrik Baksaas, CEO of Telenor, described how his mobile device dropped a connection as he travelled through a road tunnel on his way into Brussels. Baksaas noted that if Europe’s mobile operators had matched their U.S. counterparts by spending 15% of sales on capex (rather than 8%) in the past few years, “that would have led to a tremendous difference to connectivity when we travel in Europe.”

The GSMA’s report claims the average mobile data connection speed in Europe today is 1.49 Mbps, well behind North America’s 2.62 Mbps (see chart above). For mobile workers, looking to access documents on the go, that disparity is big enough to have a significant impact on their user experience and mobile productivity. 

The under-investment in Europe is a reaction to intense competition, tough regulation and a shortage of reasonably-priced spectrum. Although the GSMA report shows a sharp decline in the average price per minute in the major five European economies over the past seven years (see chart below), you get what you pay for. Enterprise CIOs should be concerned about the number of dropped calls in congested areas of Europe, such as central London's South Bank, where it can be tough to hold a signal. While Wi-Fi hotspots are taking some of the strain, Europe clearly needs more investment in both 3G and 4G networks.

But European mobile operators' are grappling with a deteriorating business case – the GSMA report says that Europe is the only region of the world to see mobile revenues decline – from €162 billion in 2010 to €151 billion in 2012.

At the GSMA event, Neelie Kroes, vice-president of the European Commission, contended that Europe should look to regain the lead with the rollout of 5G technology. But her remarks were greeted with some skepticism. “I don’t know if there is a 5G that can solve this," responded Baksaas. "I haven’t seen him or her.” He was more concerned with the need to develop a separate mobile data channel for machine-to-machine communications that would ensure that the transmission of critical healthcare data, for example, is not competing in real-time for bandwidth with consumers watching video.

For ardent advocates of net neutrality, that kind of concept could be anathema. But the European Commission seems more pragmatic. Referring to the potential of telecoms to improve healthcare, energy, transport and the administration of cities, Anthony Whelan, a senior European Commission official and close advisor to Kroes, told the Mobile 360 event: “We need connectivity solutions that are managed, managed in a way that are reconciled with the recognisable public interest in the open Internet as a low barrier, cheap means of entry and innovation for society and the economy as a whole. That is a very delicate balance to reach.” Whelan stressed that the Commission won’t take a populist approach to policy in this area (as it has done on roaming prices).

As an aside, Whelan described roaming as “crack cocaine”, suggesting the mobile industry will have to be weaned off this revenue stream, but it can’t be done overnight.    

As Whelan is probably one of the primary architects of a far-reaching package of telecoms reforms being prepared by Kroes, his words on net neutrality, at least, should provide some comfort to Europe’s beleaguered telecoms industry and its enterprise customers. With enough capacity to support the managed connectivity Europe's businesses need, LTE is a potential game-changer. But the game won’t change until there is a better business case for 4G.

This post is sponsored by the Enterprise Mobile Hub and BlackBerry

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