Europe: claim that the now settled reforms to the EU telecoms legislation do not address the major challenges ahead

[wsj] The financial crisis has slammed into the European telecommunications industry. As suddenly thrifty consumers hang on to their old mobiles, the telephone-equipment sector is suffering from tumbling demand. And like other industries, telecoms are experiencing funding shortages as banks deleverage and become more risk-averse.

Yet despite all this, the industry outlook is not all doom and gloom: Many service providers are forecasting profits in 2009. The question is whether the telecoms industry can help fuel Europe's recovery -- and whether new EU regulations coming down the pike will help or hurt the industry's chances of doing so.

The good news is that the telecoms sector represents as much as 4% of the European Union's gross domestic product, and that the information and communications technology sector represents 25% of the EU's GDP growth and more than 40% of its productivity growth. Also, the industry is entering an epochal transition to full convergence among fixed and mobile telecommunications, broadcasting and the Internet.

All in all, it seems that telecoms are a natural candidate for massive countercyclical investments that promise to help the economy recover. High-speed broadband infrastructures have been allocated funds both in the stimulus plan launched by President Barack Obama in the U.S. ($7 billion) and in the EU's Economic Recovery Plan (€1 billion). However, this is still peanuts if you consider that the cost of fiber-optic rollout throughout the EU is estimated at €300 billion.

So is Brussels ready to open up the floodgates for private investment? Sadly, no. The review of the e-communications regulatory framework launched in November 2007 faced a serious backlash at the end of last year, when national governments rejected many of the European Parliament's proposals. EU institutions spent the ensuing months discussing how the proposed new pan-European regulator would work, whether to allow national regulators to forcibly separate the operation of existing networks from the provision of services to end users, and whether to centralize spectrum policy, among other things.

Today, all this looks like a tempest in a teacup. Even if EU institutions seem to have reached a partial agreement in the last few weeks, the current debate is focusing on the wrong problems. Industry players are clueless on the regulatory approach to new high-speed networks or the rules that will apply to spectrum reform. They don't even know what will happen to the radio frequencies that will be freed up once analogue TV is switched off.

In a nutshell, they lack clear rules to encourage investment in risky projects such as the deployment of high-speed networks. And, as the U.K. industry expert Martin Cave recently estimated, the current fragmentation of telecoms rules and remedies in the EU costs European businesses at least €20 billion per year.

Digital Delay While EU institutions bicker over a law's details, the future of the telecom industry waits