Policy Brief - Mobile Telecom in Europe: Urban Legend or Case Study in Market Fragmentation?
The mobile telecom sector is often taken as a case study of fragmentation of the single market leading to less investment and a loss of technological leadership. However, a closer examination of the data suggests that the fragmentation also implies more competition leading to lower prices for consumers in Europe.
-
FilePB22_Report Telecom_ Gros-Magliano.pdf (572.31 KB)
Executive Summary
The mobile telecom sector is often taken as a case study of fragmentation of the single market leading to less investment and a loss of technological leadership. However, a closer examination of the data suggests that the fragmentation also implies more competition leading to lower prices for consumers in Europe.
The starting point is the observation that in Europe there are in each country about 3-5 mobile telecom operators. With 27 member countries, this means close to 100 different operators in the EU. By contrast, the US market is dominated by only 3 operators. The average European operator thus serves only 5 million subscribers compared to over 100 million in the United States (and close to 500 million in China). This seems to justify the immediate conclusion that the European mobile telecom sector is inefficient.
One often cited indicator of this inefficiency is that per capita telecommunications investment in 2021 was at close to €100 in Europe much lower than in the €150 in the United States (Analysys Mason, 2022 – Reported by ETNO report and Letta report). The apparent corollary is that Europe is falling behind in this key sector. The report by former Italian Prime Minister Enrico Letta on the Single Market argues that low investment is why Europe lost the leadership in telecoms it had during the early 2000s in favour of the United States.
However, the conclusion that the splintered mobile telecom market stifles the development of the sector in the EU is much less clear-cut than appears at first sight.
A first reason to doubt this argument is that competition is much stronger in the EU market (or rather the 27 different national markets for mobile communications) than in the highly concentrated US market with its oligopolistic structure of 3 dominant suppliers.
In general, competition fosters innovation. In the early 2000s, Europe was ahead of the US in mobile telephony although the market was as splintered then as it is today. The European advance was due to innovative suppliers of the equipment, with competition forcing the operators to adopt early the emerging G-3 and G-4 technologies.
A second reason to doubt the prevailing narrative is that numerous studies (for instance, Mobile and Fixed Broadband Prices in Europe in 2021, July 2022, European Commission) have shown that the prices for mobile communications are much lower in Europe than in the US, and that according to OECD data, the volume of data used by EU consumers is higher than in the US. The combination of lower prices and higher consumption is exactly what one would expect from more competition.
A third reason to doubt the prevailing narrative is that the often-cited numbers on lower investment per subscriber are likely to be misleading. The higher US figure might be simply due to the fact that this statistic is in reality not based subscribers but on the number of (valid) SIM cards issued by the mobile telecom operators. According to operators’ policies, in the US the SIM cards expire much more quickly than in Europe. This could explain why one finds higher investment per subscriber or rather SIM card in the US.
Given these (and other) transatlantic differences in counting subscribers one should rather relate investment to revenues as an indicator whether mobile telecom operators invest enough to provide high quality service, and the result suggests a different story.
IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
