Europe Shifts on Priorities for Telecoms

http://www.nytimes.com/2014/11/03/technology/europe-shifts-on-priorities-for-telecoms.html

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LONDON — Poor cellphone and Internet service is a fact of life in many parts of Europe.

Less than a quarter of Europeans can connect to high-speed cellphone networks, compared with about 90 percent of Americans. And broadband connections are often painstakingly sluggish.

But the prices here for these services are among the lowest in the world. Europeans spend an average of $38 for a monthly cellphone contract, about half of what Americans pay on average, according to the Groupe Speciale Mobile Association, an industry group.

Now, though, the region’s top policy makers are set to change that, giving investment and costlier services higher priorities than affordability and antitrust worries.

The details of their plans are expected take shape now that a new European Commission, the executive arm of the European Union, began its five-year term on Saturday. An outline is already forming, accompanied by a frenzy of deal making.

The commission’s new digital chiefs recently expressed support for plans that would loosen the region’s strict rules on telecom mergers.

Several national politicians, including Chancellor Angela Merkel of Germany, are also willing to see bigger telecom operators — many of which are former state monopolies — pick off smaller, less-profitable rivals.

“We need to create a less fragmented market and incentivize private companies to make the necessary investments,” Andrus Ansip, Europe’s new vice president for the digital single market, told European lawmakers last month.

Those changes would be a major victory for the large telecommunications companies in Europe, which have long argued that the industry should be focused around larger players that can recoup investments when upgrading mobile and fixed-line networks.

European companies have announced $85 billion in deals so far this year, more than double the amount announced in all of 2012, according to the media and data company Thomson Reuters.

Some carriers have looked to buy rivals in some of the region’s biggest countries. That includes Telefónica, a Spanish carrier, which acquired its German competitor E-Plus for $10.7 billion. Others have added services to existing businesses, like Orange, the former French telecom monopoly, which has offered to buy the Spanish cable operator Jazztel for $4.3 billion to expand its high-speed broadband network.

And European telecom giants like Vodafone of Britain, which pocketed $130 billion this year in selling its 45 percent stake in Verizon Wireless, have unveiled multibillion-dollar investment plans to improve cellphone and broadband coverage.

“If you want to attract investors, you need to ensure returns on investments,” said Gervais  Pellissier, deputy chief executive at Orange. “Things have started to change in that direction.”

Consumer groups, though, have warned that greater consolidation will increase cellphone and broadband prices. As the carriers become larger and increasingly sign exclusive deals with the likes of Netflix and Spotify, the groups say, the carriers will also gain greater control over what content people can obtain on their mobile devices.

“Concentration in the telecom market gives space for business models that limit online freedom,” said Jérémie Zimmermann, co-founder of La Quadrature de Net, a consumer advocacy group based in Paris.

Consumer pressure has led to several laws aimed at making it easier to send text messages, make calls and surf the web across Europe. Local policy makers are phasing out the costly roaming charges that are common for people using their cellphones in other European countries. And lawmakers recently passed legislation that forbids companies from charging extra for improved access to their high-speed networks.

The steps have taken a toll on Europe’s carriers, which reported a collective 7 percent drop in revenue last year, to $208 billion, compared with a combined 3 percent increase for American companies.

“Europeans are just not prepared to pay for mobile services,” said Stéphane Téral, a telecom analyst at Infonetics Research in San Francisco. “In the U.S., people are willing to cut back on basic needs to keep their cellphone contracts. You don’t see that in Europe.”

Some Europeans, though, say they would pay more for better cellphone and Internet access.

Magnus Paterson, a 32-year-old Scotsman who works in London’s financial industry, wants more reliable cellphone reception during his 25-minute walk to work, when he passes some of the city’s top attractions, like St. Paul’s Cathedral.

“The signal on my phone drops for no apparent reason,” said Mr. Paterson, who pays roughly $50 a month for his cellphone contract and $20 for patchy broadband Internet in his two-bedroom apartment. “If I could find better reception, I would be happy to pay more. But I can’t.”

European carriers say a new round of mergers will soon yield faster connections, but at a price. Over the next four years, the number of contracts with ultrafast coverage in Europe is expected to rise about 1,000 percent as more consumers upgrade for better mobile reception, according to Cisco Systems. But G.S.M.A., the industry group, says the average monthly price for these high-speed contracts can reach $70.

“Industry players are willing to invest billions of euros,” Dominique Leroy, head of the Belgian telecom company Belgacom, said at a recent industry conference in Brussels. “But we can’t do it because we can’t monetize our investments.”

Experts say the lack of ultrafast Internet access in much of Europe has placed local companies at a disadvantage in the digital world compared with their rivals in North America and Asia.

“This is the last call,” said Wolfgang Bock, a senior partner in the telecom division at Boston Consulting Group who is based in Munich. “For Europe, it’s now or never.”

For people like Ilana Taublerone, though, there is a limit to how much better coverage is worth.

Ms. Taublerone, 28, runs a small food production business from her home in southwest London, about a 30-minute commute from the Houses of Parliament. But she regularly misses work calls and cannot read emails in her home or while traveling across the city. “I step out of my house and my phone doesn’t work,” Ms. Taublerone said. “And when I’m at home, I’m lucky if I get any service.”

Still, she says, the $40 she is charged each month for her cellphone service is the most she is willing to pay — no matter how improved the service might be.