Europe’s digital infrastructure will drive its future prosperity. We need powerful robust and secure networks that enable pervasive and data-intensive communications between everyone and everything. Despite trading blows on trade, both China and the US agree that 5G is a cornerstone of competitiveness and each has policies in place to ensure their future leadership. European governments must urgently decide which 5G variant will best serve the continent.
For a limited version, in which 5G is a quicker and more efficient version of 4G, the path is relatively straightforward and well-trodden. But for an expansive version, where consistent, fast and low latency communications capacity is available everywhere it is required and “digitises” industry verticals not yet much penetrated by intelligent connectivity, policy makers need to chart a new course. If the destination is expansive, such cartography should propel an exponential boon in positive externalities, an asset government should value today.
The US estimates that being a 4G leader generated $100 billion of annual growth. It expects expansive 5G to deliver more: 3 million new jobs, $275 billion in private investment, and $500 billion in economic growth. To get there, the US has a one page plan: flood the market with spectrum, improve the economics of network densification and ensure innovation across the ecosystem.
The European Commission called out a €155 billion investment shortfall to meet its 2025 connectivity objectives. This gap could have been plugged by the €160 billion spent on spectrum fees since 2000.
Near term decisions by European governments will have a huge bearing on whether expansive 5G is realised and the extent to which Europe can catch up and compete with the super powers.
Few European countries have assigned 5G spectrum. As more do so it is vital that spectrum is awarded for optimal deployment. While auctions can be a non-distortive means by which governments monetise a scarce resource, they can, and often do, go wrong. In the pursuit of revenue maximisation, governments risk lower take-up, higher prices and reduced connectivity which stunts economic growth and diminishes the associated tax receipts over the long term.
To deliver the externalities associated with expansive 5G, governments should adapt auction processes and reconfigure their pricing objectives to ensure spectrum buyers are incentivised to deliver powerful and pervasive networks where these are required. In doing so, governments would accept less revenue upfront but attain a better and more equitable market outcome within a given timeframe.
Looking through the rear-view mirror
Spectrum renewal decisions are another opportunity to reconsider sectoral objectives. Politicians are increasingly dissatisfied with the outputs generated during the license term with a lack of pervasive coverage often a sore point.
While regulators have taken several ex-post measures to address these gaps, France has found a way to fill them. Looking back, the newly elected government concluded that their predecessor’s approach to spectrum licensing, revenue maximisation, had not delivered the desired output, geographic coverage. In a landmark new deal for mobile, the French government waived renewal fees for binding investment commitments to extend network coverage and in so doing, adopted a new set of principles: coverage trumps revenue maximisation, the relevant metric is landmass and indoor coverage, financing is private, and costly and lengthy deployment barriers will be removed.
Indeed, expansive 5G requires more sites. China’s landmass is double that of the European Union and it already has nine times as many sites. The EU is some 40 times larger than the Republic of Korea but this year the nation state will deploy the most sites. The US needs 10 to 100 X sites and has taken steps to facilitate this by speeding up access to utility poles, establishing a 60-day shot clock for small cell approval and improving the economics with a cost recovery approach to municipality fees.
Europe needs to act fast if this critical national infrastructure is going to be built. Restrictions on mast height, sharing sites and spectrum should be removed. Regulators should ensure spectrum is defragmented and synchronised both nationally and across borders. For small cells, a simple process to access street furniture is required with de minimis planning rules. Infrastructure builders also require timely and cost-based access to public real estate.
Standardisation drives economies of scale that propelled mobile into the fastest scaling technology platform ever. And it’s an outstanding European success story which, in the spirit of Adenauer and Schuman, germinated through the cross-country collaboration that delivered GSM.
This is an open model that attracts innovators from across the globe, underpinned by cutting-edge patented technology contributed to cellular standards and made available on fair, reasonable and non-discriminatory terms. The process protects a level playing field for small and large research and development teams and is responsible for incremental downstream innovation as third parties have an ever-expanding technology menu to choose from.
The backbone for this kind of innovation is fair competition in global markets. However, this can be strained. Some leading smartphone manufacturers, for example, do not license the patented technologies they use. Not only does this give them an unfair advantage, but it also jeopardizes the business model of the patent holders and threatens the sustainability of standardisation.
As European leaders choose between a limited or expansive 5G variant, they also need to unite and ensure that the standards-based system the continent has nurtured continues to be sustainable by safeguarding fair competition, open standards and respect for intellectual property rights.