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How Belgian telcos can navigate the Digital Single Market challenges

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5 minute read 30 Sep 2024

Explore the potential strategies to tackle the EU’s Digital Single Market challenges.

In brief

  • Profitability pressures, limited 5G uptake, complicated market consolidation, and financial strain due to ambitious goals for broadband access challenge telcos.
  • The EU will need to continuously adapt its regulatory frameworks, including USOs, to ensure fair competition and alleviate the financial burden for telcos.
  • Telcos need to reform their business value frameworks not only to survive but to better support B2B customers and encourage the adoption of new technologies.

The establishment of the EU’s Digital Single Market (DSM) aims to adapt the EU’s single market to the digital age. This initiative seeks to contribute €415bn annually to the European economy, create jobs, and enhance digital connectivity across Europe. However, European telcos are experiencing pressure from the EU, despite already facing difficult challenges. This is no different for telcos in Belgium. How can Belgian telcos navigate the challenges posed by DSM? An overview of the challenges and future strategies.

Full report on the Belgian telecom industry

Read our full report for a more comprehensive analysis of the EU regulation and the telecom sector challenges concerning the EU’s Digital Single Market.

Download the report

What is DSM or Digital Single Market?

To understand the key challenges facing Belgian telcos, it is necessary to first understand what DSM is.

The Digital Single Market (DSM) is a set of initiatives designed by the EU to boost the digital economy across member states and build market competitiveness.

The DSM is built on three pillars:

  1. Improving Access to Digital Goods and Services: Streamlining e-commerce, enforcing consumer rules, and harmonizing copyright law.

  2. Creating Conditions for Digital Networks to Prosper: Reviewing EU telecom rules, coordinating spectrum, and promoting data protection.

  3. Maximizing Digital Economy Growth: Ensuring free data flow, advancing interoperability, and fostering digital skills.

How EY can Help

Examples of regulations that were introduced as part of the DSM strategy are the Digital Markets Act (DMA), the Digital Services Act (DSA), and the Directive 2018/1972 (EECC). Other initiatives that align with and support the goal of the DSM are the Digital Decade policy program and NextGenerationEU.

 

An example of a specific DSM ambition would be the elimination of roaming charges for mobile phones in the EU.

 

 

5 key challenges for Belgian telcos

We can identify five key challenges that telcos are facing.

 

1. High investments and low returns
Telcos have heavily invested in upgraded infrastructure to accommodate for future technologies like FTTP and 5G. Despite their investments, they find it hard to make a profit. Even increasing the Average Revenue Per User (ARPU) by raising prices is not sufficient. This is pushing telcos to rethink their business models.

2. Unresolved Fair Share Debate
Since 2021, telcos have actively been arguing for fairer contributions from digital platforms of big tech companies, who benefit from telecom networks without investing in infrastructure. They also argue that digital platforms face fewer regulatory burdens, despite heavily using the network infrastructure. This leads to an undemocratic distribution of profits.

3. Limited 5G uptake
The adoption of 5G technology remains low among both B2B and end consumers. They show unwillingness to pay more for 5G as they do not see the added value. One explanation is that businesses are still figuring out the right use cases for 5G. In general, businesses cannot keep up with all the technological advancements. Belgian’s high telecom prices are also a contributing factor.

The average revenue per user in the EU is lower compared to that in the US, which makes it difficult for telcos to attract private investments.

4. Complicated market consolidation
Demand uncertainties, high investments, and regulatory burdens drive market consolidation, affecting competition and innovation. Recent mergers highlight this trend. The EU wants to see fewer but stronger telecom companies. However, the efficiency and cost savings they are aiming for will not be as substantial as they hope because most operators use different core networks and because building new fiber-optic networks is a lengthy process.
 

5. Demanding broadband access and adoption
Economic factors such as inflation and government regulations influence broadband affordability and accessibility. Initiatives like the Electronic Communications Code Directive and the Universal Service Obligations aim to improve connectivity and broadband adoption, but they put a heavy financial burden on the telecom industry. Additionally, the average revenue per user in the EU is lower compared to that in the US, which makes it difficult for telcos to attract private investments.
 

Potential strategies

First and foremost, it is up to the EU government to continuously adjust their policies to facilitate market entry, encourage innovation, and guarantee fair competition. This should alleviate some of the financial strain for telcos.

Several regulatory reforms can be considered:

  • The Universal Service Obligations (USO) framework should undergo significant reforms to alleviate financial strain on the telecommunications sector and help them enhance and expand connectivity.

  • In light of the Fair Share Debate, the EU needs to further adapt their Digital Services Act and their Digital Markets Act to ensure that digital platforms like Facebook and Google contribute to network infrastructure costs and align data and consumer protection laws with those imposed on telecom operators.

  • The administrative processes for market consolidation in Europe are a hindering factor for telcos. They need to be streamlined to support mergers and acquisitions.

Collaboration with other ecosystem players and hyperscalers can help to address industry-wide challenges.

In turn, telcos do well to adapt to the challenges they face by:

Continuing investments in infrastructure and technology
Telcos should continue investing in sustainable and high-capacity infrastructure like FTTP and 5G. Despite the high CAPEX, these investments are crucial for long-term growth and maintaining competitiveness.
 

Encouraging adoption of new technologies
Seeing as companies cannot keep up with technological advancements like 5G, it is up to telcos to help them identify use cases and to overall improve consumer awareness of future technologies.
 

Focusing on improving service quality
A focus on improving service quality and customer experience is essential to increase Average Revenue Per User (ARPU). This could involve decoupling into new business models like NetCo, ServCo, TowerCo, and FiberCo to optimize operations and deliver superior services.
 

Collaborating with industry stakeholders
Collaboration with other ecosystem players and hyperscalers can help to address industry-wide challenges. Leveraging their technologies and platforms helps telcos with their own service delivery.
 

In conclusion, Belgium's telecom sector faces significant challenges within the EU's Digital Single Market. Addressing these through strategic investments, lobbying regulatory reforms, encouraging technology adoption, and collaboration with other ecosystem players will be crucial for fostering growth and ensuring competitive advantage.

Full report on the Belgian telecom industry

Read our full report for a more comprehensive analysis of the EU regulation and the telecom sector challenges concerning the EU’s Digital Single Market.

Download the report

Summary

Belgian telcos have to navigate complex challenges within the EU’s Digital Single Market. With high investment demands, limited 5G uptake, and ongoing regulatory debates, strategic adaptations are essential. Encouraging investment, enhancing adoption of technologies, and supporting fair market competition are critical steps towards a thriving digital economy.

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Related topics
Telecommunications
Government and Public Sector
Technology
Strategy and Transactions
TMT

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