The EU Commission is looking to attract investment of €100bn to be spent on rolling out fibre broadband across Europe

The European Parliament and the EU’s Council of Ministers is considering a proposal from the European Commission for an ambitious project, worth up to €100bn ($140bn), to fund the rollout of fibre broadband and associated services across the EU.

The Commission has proposed to spend €9.2bn from 2014 to 2020, to give EU citizens and business access to broadband speeds of 100Mbps. However, this initial €9.2bn will be used to attract additional investment to a total of between €50bn and €100bn, with each Euro spent expected to attract another private investment of between €6 and €15, according to the Commission.

The additional funding would come via innovative financing tools and the purchase of high-value blue chip bonds. A blue chip bond is one that is well-established, financially sound, and historically secure. Blue chip companies are known for their strong executive management teams that make intelligent growth decisions, and for their high-quality products and services.

“EU funding from the Connecting Europe Facility would leverage other private and public money by giving projects credibility and lowering their risk profiles,” the Commission explained in a statement. “The money would be largely in the form of equity, debt or guarantees. This would then attract capital market financing from investors; the Commission and international financial institutions such as the European Investment Bank would absorb part of the risk and improve projects’ credit rating.”

Projects to enhance digital service infrastructure that would be selected for grants by the Commission include trans-European very high-speed backbone connections for public administrations, cross-border delivery of eGovernment and e-Health services, enabling access to public sector information and multilingual services and pan-EU authentication of electronic identification (eID) so that citizens and businesses can access digital services in any member state.

It would also be used to fund electronic procurement projects, making it easier to complete administrative procedures to set up a business in another EU country, cooperation to take down illegal content, such as child pornography, from the internet, coordinated responses to cyber-threats, deployment of ICT solutions for intelligent energy networks and for the provision of Smart Energy Services.

The EU Commission claims that investment in fast and ultra-fast broadband network infrastructure would immediately boost employment related to construction and related equipment. It states that, in Germany alone, the construction of broadband networks is expected to create almost a million jobs over the ten years up to 2020. In France, the construction of a fibre-to-the-home (FTTH) network would generate 360,000 jobs per year, which translates into some €20bn of added value.

The exact amount of funding available each year under the proposal to support broadband and digital service infrastructure will be set out in Annual Work Programmes.

According to FTTH Council’s European director general Hartwig Tauber, the proposed investment in fibre is crucial, despite the turmoil that Europe’s economy currently finds itself in.

“The amount set aside for ICT and Telecoms is quite small as a proportion the whole budget that the European Union intends to spend on upgrading Europe’s transport, energy and digital networks,” he said.

He added that he recently attended a meeting with the European Investment Bank, and found that broadband upgrades are high on Europe’s agenda.

“One main conclusion of the European Investment Bank meeting was that broadband and ICT are crucial for the productivity and success of the European economies in the next years. So saving on this side would make the current financial crisis worse, rather than better.”

He added that innovative financing instruments, such as blue chip bonds, will be instrumental in triggering additional private investment.

“This figure should not be taken as €9.2bn. If you look at how many households can you connect with fibre with just €9.2bn, you can see that it won’t satisfy the whole of Europe. But seeing it this way is a huge misunderstanding of the European budget and how financing of such a project works.”

The Commission’s proposals are now being submitted to the European Parliament and the EU’s Council of Ministers for adoption.

The first two Galileo satellites will be launched in October 2011

A project to provide Europe with more reliable satellite navigation technology is nearing fruition after the European Commission (EC) announced that the first two satellite-navigation spacecraft are ready for launch.

The aircrafts passed a technical review at the weekend, ahead of their launch on a Russian Soyuz rocket on 20 October.

They are part of an EC project, called Galileo, which is a space-based navigation system created to reduce Europe’s reliance on the American global position system (GPS) and Russia’s GLONASS system. However, Galileo will be interoperable with the two systems.

The EC said that Galileo will give Europe independence in satellite navigation, which is particularly important given that it is a sector that accounted for around seven per cent of the EU GDP in 2009.

The Commission also claims that the billions of dollars it has invested in the system to date will be recouped as independent studies have shown that Galileo will deliver around $122bn (€90bn) to the EU economy over the first 20 years of operations. This will come in the form of direct revenues for the space, receivers and applications industries, as well as in the form of indirect revenues for society, such as more effective transport systems and more effective rescue operations.

Galileo’s interoperability with the two other systems means that its accuracy will also open the door to a host of new applications, such as locating people lost at sea with three metres accuracy, and making flights and landings safer.

The launch of the satellites will lead to the provision of three new satellite navigation services in 2014, by when 16 more satellites will be launched: The Open Service, an open and free of user charge signal; The Public Regulated Service, a navigation service using encrypted signals set up for better management of critical transport and emergency services and a Search And Rescue Service, an international satellite-based search and rescue distress alert detection system.

“This launch is of historical importance. Europe is demonstrating that it has the capability to be at the forefront of technological innovation,” said Antonio Tajani, European Commission vice-president in charge of industry and entrepreneurship. “Thousands of SMEs and innovators across Europe will be able to spot business opportunities and to create and develop their products based on the future Galileo infrastructure. Citizens will benefits from its services. Galileo is value for money and I count on Members States’ cooperation to find a solution for its financing.”

The third and fourth operational satellites will launch in the first half of 2012 and 14 more will be launched by 2014. The full system will consist of 30 satellites, control centres located in Europe and a network of sensor stations and uplink stations installed around the globe.

By allowing consumers to negotiate a separate roaming contract to use mobile services while abroad in the EU from the one they have for mobile services at home – while keeping the same number – the EC has freed consumers to seek the best available deal in the market.

And by granting this freedom from their home network operators the EC will, if the proposals become law, create a whole new market for operators offering EU-only service packages, thereby injecting a whole new impetus of competition in the area of roaming. By effectively broadening the market for mobile services in Europe from one country to all 27 the EC has made Europe a much more attractive market for new types of companies to sell mobile services accessible when visiting any member state.

The steps announced today are the logical culmination of the EC’s long held goal of narrowing the gap between how much it costs to use mobile services at home and while travelling the European Union. As such, they should come as no surprise to the European mobile industry, which, despite some exceptions, have been unwilling to reduce EU roaming rates in line with the Commission’s expectations.

Impact:

The impact of these proposals, if they are put into effect, will be felt most by the large European mobile operators. This is because they generate more revenue from roaming than smaller operators as they have more contracts with large corporations to provide mobile services for employees travelling in the EU.

European operators have been reluctant to stimulate the market for consumer roaming in the EU largely to protect the rates they charge their corporate customers, which, unlike the consumer, are much less price sensitive as they have a much greater need to stay connected when they travel abroad.

With the new proposals to allow consumers to negotiate a separate contract from the one with their home operator European operators will be forced not just to offer roaming rates at or slightly below the new regulated retail prices, but to compete in the new market for EU roaming services that the EC wants to create. As such, European operators’ roaming revenues will come under increasing pressure.

Outlook:

It remains to be seen how much more the regular consumer will use his or her mobile when they travel in the EU. The mobile industry remains unclear about how price elastic mobile roaming services are and still doesn’t have a clear view on how much additional usage is created when lower prices are in place. This is because the vast majority of European operators have resisted lowering their roaming rates with significant reductions until 2009-2010, and which is the very reason for the heavy regulation from the EC.

The coming years will provide a much clearer view on how much increased usage the lower prices bring about. The burden is now on mobile operators to aggressively market competitively priced roaming services to try and sign up the highest number of mobile users who use their mobile the most while travelling in the EU.

European Commissioner for the Digital Agenda, Neelie Kroes, blasted roaming costs as an “outdated concept"

Following in the footsteps of her predecessor, Viviane Reding, European Commissioner for the Digital Agenda, Neelie Kroes, on Thursday blasted roaming costs as an “outdated concept”.

With that view in mind, Kroes then proposed that the creation of a single market within the 27-member bloc would require the gap between roaming and domestic prices to approach zero.

“A true digital market is a market where effective competition ensures that citizens, customers and businesses do not experience substantially different services or costs when they pass a border,” Kroes said.

Informa Telecoms & Media believes Europe is an important market for roaming services, with the largest number of roaming users worldwide. This region needs to connect a significant number of different countries and cultures, which makes it a leader in terms of innovative business models, regulation and technology.

Informa found that Western Europe will remain the largest roaming market delivering approximately 41 per cent of roaming revenues by 2015, followed by Asia Pacific with approximately 18 per cent and North America with approximately 10 per cent.

EU commissioner Neelie Kroes made a commitment to ensure that every European citizen can access basic broadband by 2013, and fast and ultra-fast broadband by 2020

The European Commission (EC) this week proposed a five-year plan for the award and harmonisation of radio spectrum within the EU to boost the deployment and take up of fast and ultra-fast broadband.

Expanding on the Digital Agenda for Europe, EU commissioner Neelie Kroes made a commitment to ensure that every European citizen can access basic broadband by 2013, and fast and ultra-fast broadband by 2020.

While Europe has the highest average levels of broadband take up worldwide, only one per cent of Europeans have a high speed fibre internet connection directly to their homes, compared to 12 per cent of Japanese and 15 per cent of South Koreans.

The proposals include steps to promote efficient spectrum management, and in particular, to ensure that sufficient spectrum is made available for wireless broadband. The Commission proposes that EU countries should by 2012 complete the process of giving licenses to operators to use spectrum bands which have already been technically harmonised at EU level for the use of wireless broadband, (the 900/1800MHz bands, the 2.5GHz band and the 3.4 – 3.8GHz band). In addition, EU countries have been asked to open up the 800MHz band to wireless broadband by January 2013, while foreseeing possible derogations until 2015 in exceptional cases.

“These measures will help to ensure that Europeans get the first-class internet they expect and deserve, so that they can access the content and services they want,” said digital agenda commissioner Kroes.

Viviane Reding, European Commissioner for the Information Society and Media

Probably the most influential woman in the mobile industry, Commissioner Reding has not won a great deal of friends among mobile operators. Whether you see her as a slick, populist politician interfering in a market that is best left to set its own levels, or as a consumer champion who has broken the back of cosy operator pricing cartels, there is no denying her impact.

With a seemingly boundless enthusiasm for forcing operators to cut their prices, Reding’s willingness to regulate on retail as well as wholesale roaming charges is seen universally among carriers as a step too far. Individually and collectively— through the GSMA—most have complained that natural market forces would have brought prices down without her intervention.

That, of course, can never be proven. But it’s unlikely that prices would have fallen as far or as fast if operators had been left to their own devices. Reding shows no signs of slowing down and her stated target now is data roaming charges.

In November last year her telecoms reform package was approved by the European Parliament, bringing in a cap on contract lengths and 24 hour deadlines for number portability. “The EU telecoms reform will bring more competition on Europe’s telecoms markets, better and cheaper fixed, mobile and internet services and faster internet connections for all Europeans. Thanks to the strong support of the European Parliament today, Europe has put citizens in the centre stage in telecoms regulation,” said Reding.

Operators lose battle against roaming price caps

Four of Europe’s largest mobile operators – Vodafone, Telefónica O2, T-Mobile and Orange – lost their battle with European authorities on Tuesday, after the European Court of Justice ruled that roaming caps can stick.

The Roaming Regulation established maximum prices that can be charged by mobile operators for calls received and made by a user outside their home network, and is based on 2007 proposals seeking to reduce roaming charges by up to 70 per cent. But in 2009, the four carriers challenged the validity of the EC’s Roaming Regulation before the High Court of England and Wales. This court then asked the Court of Justice whether the EC’s regulation was in fact legal.

As it turns out, not only is the regulation legal, “it is proportionate essentially to the objective of protecting consumers against high charges and is justified on grounds of subsidiarity”.

The Court pointed out that before the Commission proposed the regulation, it carried out an exhaustive study of alternatives and evaluated the economic impact of various types of regulation. “The average retail charge for a roaming call in the Community at the time the regulation was adopted was high (€ 1.15 per minute, which was more than five times higher than the actual cost of providing the wholesale service) and the relationship between costs and prices was not such as should have prevailed in fully competitive markets,” the Court said. “The tariff provided for in the regulation is significantly below that average charge and is set in relation to the ceilings for the corresponding wholesale charges, so that the retail charges reflect more accurately the costs incurred by providers.”

European mobile roaming caps are legal, says expert

Europe’s mobile operators saw their arguments against the implementation of roaming price caps subjugated on Thursday, after a key legal advisor to the European Court of Justice green lighted the proposals.

Four of Europe’s largest mobile phone operators – Vodafone, Telefónica O2, T-Mobile and Orange – had challenged the validity of the EC’s Roaming Regulation before the High Court of England and Wales. This court then asked the Court of Justice whether the EC’s regulation was in fact legal.

The Roaming Regulation established maximum prices that can be charged by mobile operators for calls received and made by a user outside their home network, and is based on 2007 proposals seeking to reduce roaming charges by up to 70 per cent.

In his assessment on behalf of the European Court, advocate general Miguel Poiares Maduro confirmed that the EC was entitled to adopt the Roaming Regulation.

“The differences in price between calls made within one’s own Member State and those made while roaming could reasonably be regarded as discouraging the use of cross-border services such as roaming,” he said.

“In these circumstances, imposing a price cap on roaming services can legitimately be said to be serving the establishment of the internal market by removing obstacles to cross-border economic activity.”

Maduro also confirmed that action at EC level was required, because national regulators have neither the power to regulate prices charged by foreign networks to networks from their Member State, nor the incentive to regulate wholesale prices charged within their territory to foreign networks. However, he contends that the issue of retail prices, charged by the home network to their roaming customer, is somewhat less clear, and suggests that once wholesale prices have been fixed, then retail prices could be regulated by national authorities.

However, Maduro considers that it was “expedient and appropriate for the Community to regulate retail prices” and notes that the EC intervened as a last resort.

The legal expert noted that some operators were making profits of above 200 per cent for calls made while roaming and of 300 per cent or 400 per cent for calls received, labelling this income as “excessive charges” and resulting in an acceptable and proportionate response from the EC.

Viviane Reding, European Commissioner for the Information Society and Media

Probably the most influential woman in the mobile industry, Commissioner Reding has not won a great deal of friends among mobile operators. Whether you see her as a slick, populist politician interfering in a market that is best left to set its own levels, or as a consumer champion who has broken the back of cosy operator pricing cartels, there is no denying her impact.

With a seemingly boundless enthusiasm for forcing operators to cut their prices, Reding’s willingness to regulate on retail as well as wholesale roaming charges is seen universally among carriers as a step too far. Individually and collectively—through the GSMA—most have complained that natural market forces would have brought prices down without her intervention. That, of course, can never be proven. But it’s unlikely that prices would have fallen as far or as fast if operators had been left to their own devices. Reding shows no signs of slowing down and her next target will be data access roaming charges.

Memorably at the Mobile World Congress in 2008, having been denied the opportunity to speak about what she wanted to during the GSMA press conference, Reding led the assembled journalists outside and gave an impromptu speech on some steps. She will not be ignored.

The principal headline grabber came from the carrier’s UK operation, which announced it is cutting out roaming charges ordinarily incurred in 35 countries for holiday-making UK residents. From June 1^st to August 31^st, the firm said, calls, text and picture messages will be charged at standard domestic rates for both pre- and post-pay users. Business account holders will also benefit, although nobody will get cheaper data access.

What Vodafone is actually doing is waiving the £0.75 charge it levies for any call made or received by roaming subscribers. Calls made to or from the UK, or within the host country are covered. Calls from one foreign country to another are not. In order to gain access to the promotion, customers have to sign up to the firm’s Passport international roaming plan, at no cost.

Hurrah for Vodafone, right? Up yours, European Commission, right? It depends, the Informer supposes, on whether your glass is half full or half empty. A cynic might argue that Vodafone’s only able to make such dramatic price reductions because, like most carriers, its roaming charges have been artificially inflated for years. And you can’t get overexcited about a gift that most definitely does not keep on giving, good, as it is, for only three months.

It’s also a fair bet that Vodafone’s seen some of the research kicking around that suggests Britons’ enthusiasm for overseas holidays has been severely dented. According to one report that appeared in UK broadsheet The Telegraph, as many as 60 per cent of Brits are sufficiently concerned by matters pecuniary, in particular the weakness of the pound Sterling, that they’re considering staying in this green and pleasant land for their holidays, rather than setting up shop – lobster pink and steaming drunk – in an Irish pub somewhere on the continent.

Interestingly, the Informer learned, there was Vodafone Group involvement in this announcement until the last minute. This suggests that it was intended originally as a company-wide initiative but that this was shelved in favour of devolving responsibility to the individual properties. Perhaps not all of them thought it was a good idea – especially the ones who are most likely to import the bellowing herds of Brits abroad.

Appealing to consumers was not enough for Vodafone, though, and it offered its hand also to the mobile application community, promising developers a dedicated channel to market for their products, and the use of key network assets like location and billing. So developers can charge for their applications through Vodafone’s billing system and the carrier can cut itself a slice of the revenues.

Vodafone said it will provide developers with customer-controlled access to network capabilities such as location awareness, enabling them to create more innovative mobile internet services and applications.

The Informer recently spoke to Simon Buckingham, CEO of content specialist Mobile Streams and US-based location firm Zoombak, who described the kind of move being made by Vodafone as essential in a mature industry on the way to commoditisation. “Operators can no longer rely on their old business models where voice, text and roaming were charged at a significant premium. Those business models are end of life now. Operators need to recognise that they have to embrace innovation. And the thing that they have that nobody else has, is control over access to location information. This is the time to make that information available; if they don’t do it now their relevance is going to diminish,” Buckingham said.

Vodafone will make its enhancements through the creation of a set of network Application Programming Interfaces (APIs) which will provide a link between the applications and the Vodafone network capabilities and will work across the entire Vodafone footprint thanks to a new layer of management technology based on Service Oriented Architecture.

The company will offer access to selected network enablers through the Joint Innovation Lab (JIL) initiative, which is due to release a website and a Software Developer Kit this summer.

And the final prong of Vodafone’s news trident this week sees it talking up the benefits of mobile advertising. The firm said that it has expanded its mobile advertising services to 18 of its markets on the back of strong revenue growth in the area. Vodafone said it has run more than 2,000 campaigns in the past year, and is witnessing a shift by some brands towards more sophisticated activities like branded content, sponsored alerts and opt-in push messaging.

Mobile advertising was also in the news this week because of some mixed messages surrounding ad-funded MVNO Blyk. The firm, which has been lauded in some quarters for its innovative business model and its audacity announced this week that it is to extend its offering through a partnership programme with other UK carriers. This combined with the fact that the firm recently downgraded the amount of airtime and text messages that it gives its users in return for pumping adverts into their lives to a simpler £15 month, led to suggestions that it was winding down its direct to consumer offering altogether.

Blyk denied this without actually fully denying it in that the statement it released did not state outright that it would not be discarding its consumer offering. Instead, the firm said, “the MVNO model acts as proof of concept” – which is a marked departure from previous statements.

The firm’s original plans called for replication of the MVNO model in multiple markets but, so far, expansion has been limited to the Netherlands. It looks likely that the MVNO model has proven unsustainable, perhaps because it was ahead of its time, perhaps because it lacked the reach that advertisers look for. The UK customer base remains in the low hundreds of thousands. Blyk itself has suggested in the past that advertisers are more drawn to its service for market research purposes than brand advertising campaigns. Whether or not Blyk will be able to draw other carriers into partnerships remains to be seen. Certainly Vodafone’s announcement this week tends to suggest it’s not looking for any help.

One of Vodafone’s former senior staffers, Rene Schuster, is to head up Telefonica’s German operation, it was announced this week, as the Spanish headquartered player unveiled some solid financials. Telefonica reported a 9.8 per cent increase in net profit for Q1, taking it to €1.69bn

Revenue fell 1. 4 per cent year on year to €13.7bn, largely as a result of currency fluctuations, with Latin America still driving the group’s growth as organic revenue in the region climbed 8.7 per cent, the carrier said. In Europe, organic revenue grew four per cent, driven by seven per cent growth at O2 in the UK and 3.6 per cent growth in Germany.

The company’s total number of subscribers hit 261 million at the end of the quarter, consisting of 198 million wireless subscribers, following 2.4 million net adds in the first three months of 2009. Again, Latin America was the main growth driver.

European telecoms analyst and sector strategist at Daiwa Securities, Michael Kovacocy, said of the results that, “In what may turn out to be one of the toughest quarters of the credit crunch, Telefonica has shown impressive stability through its unparalleled operational diversification. Latin America continues to drive growth forward and has truly become the company’s crown jewel.”

Speaking of Latin America – speaking of crown jewels, come to that – a new phone has been taken to market in Venezuela and it’s causing quite a stir, because it’s named after the male reproductive organ. ‘Verga’ apparently is Venezuelan slang word for what we in this country might call a tadger (the only word the Informer could think of in this instance that might successfully penetrate the spam filters, so to speak) and the phone, dubbed with Vergatorio, is championed by none other than charismatic president Hugo Chavez.

Built by a recently nationalised Venezuelan manufactory called Vetelca, using parts flown in from China, presumably with the help of ZTE, which has a 15 per cent stake in the operation, the phone will retail for just $15. This is believed to be just 25 per cent of the build cost as the phone is being taken to market with a fat state subsidy.

Chavez plugged the Verga, which is a high spec unit for the price, featuring a WAP browser, an mp3 player and a camera on his daily television show, claiming that: “Whoever doesn’t have a Vergatario is nothing.” Lord knows what Dr Freud would have made of that statement. Anyway, it goes without saying (almost) that Chavez expects his new toy to offer stiff competition (Grow up! Ed.).

Onto more sober news and stats revealed this week by Informa Telecoms & Media tell us that global non-voice revenues in mobile hit $188.7bn in 2008, a 24 per cent increase year on year.

While the majority of non-voice revenues are still SMS-based, the balance is shifting. At the end of 2008, $75.1bn, or 40 per cent of overall data revenue stream came from non-SMS services, bolstered by the deployment of technologies such as HSPA and the growing demand for data-optimised devices such the Apple iPhone.

Informa principal analyst, Nick Jotischky, said the advance of mobile broadband has been a key feature of this growth, with Informa putting the total number of subscriptions at 178.2 million at the end of 2008. This represents extraordinary growth given that Verizon, the largest operator in terms of mobile broadband subscriber numbers (24.245 million), only registered its first such subscribers at the end of 2004.

Regionally there is a considerable disparity in the significance of non-voice revenues, with just five per cent of African revenues for 2008 generated by non-voice services, compared with more than 20 per cent for North America.

Sticking in the US, nationwide carrier AT&T announced this week that it is to buy wireless assets from Verizon – including licences, network assets and 1.5 million subscribers – for $2.35bn in cash. The assets, in 79 service areas of the US across 18 states, are principally rural. Verizon is required to offload the properties as part of the regulatory approval of its purchase of Alltel, which was given earlier this year.

AT&T said it expects the deal to close in the fourth quarter of this year and that it will need to spend around $400m converting the newly acquired networks from CDMA-family to GSM-family technology. This process should take no more than a year, the firm said.

The $2.35bn purchase cost will be slightly offset by another deal announced by AT&T that will see it sell certain wireless assets of Centennial Communications Corp. to Verizon for $240 million. This transaction is contingent on completion of AT&T’s acquisition of Centennial, which is still pending.

US carriers would be unlikely candidates to invest in an Iranian mobile licence, but the same cannot be said for MEA specialist Zain. Reports this week put the firm in the running for the third Iranian licence after a consortium comprising Etisalat and Iran’s Tamin Telecom were stripped of the licence after failing to meet obligations.

While details are still sketchy as to exactly what those obligations were, the upshot was that a Zain-led consortium, which came second in the original mobile licence bid, is now in talks with Iran’s Communications Regulatory Authority to thrash out the terms and conditions that would need to be met in order for it to fill the gap left by Etisalat.

And that, as Hugo Chavez might say, is about the size of it.

Take care

The Informer