COVID-19 has done more to accelerate digital adoption than 15 years of EU regulation. Mobile network technology is always ahead of consumers’ adoption of new services

People love to talk about new technology. A new G in the series always gets attention:  2G, 3G, 4G, 5G. However not all customers are instant adopters. Many still use 2G or 2G/3G phones. Even in a leading digital nation like Denmark, 400,000 or 7 percent of the population still go around with a 2G/3G phone with a chipset from 17 years ago. If this is the case for a leading digital nation, the percentage is likely higher in Germany, France, Spain and Italy.

Operators love to talk about the next generation of technology, but not all customers upgrade quickly. There are a variety of reasons for this including regulation which restricts how operators can price their products and services to incentivize customers to adopt new technologies as well as regulatory obligations which makes prices higher overall. This is explored in a new report by the European Telecommunications Network Operator association (ETNO) explaining why Europe is lagging in so many technological measures, including 5G rollout.

Network technology – The historical facts

The launch of 2G and 3G networks came before cool phones. Europe’s first GSM networks were based on 900 MHz and later 1,800 MHz. It took a few years before consumers got access to the dual band phones supporting both frequencies and even longer for the triband phones like the Motorola Timeport L7089. This phone supported 900/1800/1900 MHz and could be used across several regions of the world including Europe and the USA. There were few 3G phones when 3G networks launched in 2003. At that time Three UK/Hutchison offered their first customers the NEC e616 and later the Motorola A920. Feature phones from Nokia candybar phones and Motorola´s Razer were the hot products at that time.

With 4G, phones finally caught up to networks. Today new phones and networks are marketed together, and there are 5G phones ready today. This has resulted from many years of partnerships and collaboration between the makers of chips, network equipment, and devices. However, the network capacity still exceeds the capacity of many of the devices and services from third parties.

Services technology – The historical facts

Technological adoption is an important topic, but it still largely conforms to the classic curve described by Everett Rogers in the Diffusion of Innovation. Early adopters comprise 10-15 percent of a given population; the majority, about 75 percent, adopts more slowly; and the last 10 percent or laggards may never adopt at all, or only reluctantly. Naturally, the adoption of a given technology will vary by income, age, education, region, and the presence of substitutes. And adoption of earlier technology can make it easier to adopt the following generation. For example, the speed that a smartphone user adopts a tablet is probably faster than a non-internet user going to the internet for the first time, all things being equal. take up a tablet.

European operators used to have more freedom and flexibility to incentivize their customers to try new products and services. However in 2015, that came a to screeching halt as European regulators clamped down operators’ ability to price to meet customers’ needs. It’s not surprising that adoption on many new technologies has stagnated. In 2000, there were very few regulations on mobile technologies; this was a good thing; it provided the necessary permissionless innovation the sector needed. Recall that Europe had the world’s leading telecom operators, six makers of mobile phones, and a third of the world’s investment in communications networks. However today, there are some two dozen regulation across the sector, and the European mobile industry is moribund.  For all the talk by Brussels of making Europe the world’s ICT hub, there is no leading European internet platform, no maker of phone, and the region is two years behind on 5G. Moreover, American platforms have increased their market share in the region, not to mention the designs of the Chinese.

European mobile operators at one time played a critical role in adoption. Operators could drive adoption of new phones through subsidies and thus increase penetration of other European firms.  As the number of people who had a mobile phone exploded, it helped bring traffic prices down so that customers could use the operators’ services. For a very long period of time, mobile telecommunications was a growth industry with increasing penetration and revenue.

But regulators, in their seeming infinite wisdom and fidelity to pseudo-progressive causes, decided that mobile operators should only sell connectivity and that their networks should be dumb pipes. That was end of Europe’s ICT leadership. Today Europe’s mobile broadband industry can’t even crack 1 percent growth.

In the early days, mobile operators succeeded to sell voice, SMS, and premium SMS services. That revenue provided valuable capital to invest in the next generation of networks. Today, SMS has been replaced by services like WhatsApp and others. Online messaging has cannibalized SMS. Between September 2011 and April 2012, WhatsApp’s penetration of KPN’s “Hi brand” customers in the Netherlands increased from 5% to 85%. It caused KPN’s SMS revenue to decrease by €100 million over the same period.

A mobile operator like Three UK/Hutchison launched itself as the video company and they, like many other 3G operators, believed that they should make big money from people making video calls instead of conventional mobile calls. Mobile operators never succeeded to create a video calling market. That business was owned first by Skype and later, FaceTime, WhatsApp, Zoom and Teams and so on.

In the premium SMS market, mobile operators created an ecosystem with services like ringtones, logos and Java games for phones. While they may have been first movers, they did not succeed in subsequent waves. The premium SMS market was replaced by the app stores from Apple and Google.

In general, after the first wave and then subsequent regulation, mobile operators have not succeeded in service innovation. Just look at how stock prices have evolved on the different players. Mobile operators’ share of a customer’s “digital life” is in freefall as measured by the money spent on connectivity and services then it is in freefall. Consumers spend 3-4 times as much on third party digital services andon their phones than on the actual price of connectivity from mobile operators. You can just see what people use on Spotify, Netflix, Amazon Prime, Office 365 and the many games.

Today’s challenges

The fact remains that mobile network infrastructure evolves faster than consumers’ demand for it. Policymakers have pursued a laundry list of flawed regulatory policies designed to accelerate Europe’s digital economy and society, and they have not succeeded.  As the European Commission’s Digital Scoreboard shows, more than half of all EU nations are behind on key indicators for connectivity, human capital, use of internet services, integration of digital technology, and digital public services. Even the Nordic countries which many believe are leaders still fall short of policymakers’ expectations.  Policymakers have put their most energy into feel-good, look-good policies like net neutrality, roam like at home, and GDPR, but these have not translated into real world benefits like adoption of faster, more modern networks or more digital innovation.

This in a world in which politicians and regulators want to control prices as a measure of their success rather than see the increase in technological development.  See some of policymakers’ erroneous claims.  There is very little focus on how to promote digital development and to increase demand for new network technologies that are evolving faster than demand.

Conclusion

The experience of COVID-19 shows that the virus has had a greater impact on digital adoption than all the regulatory policies of the last 15 years combined. It’s thought-provoking, if not frightening, that a global pandemic has made nations, businesses and citizens realise that more digitization is needed than what we have today.

It is not a question of focusing on the next G in terms of 4G, 5G or 6G, but instead increasing the number of companies and people who adopt mobile internet technologies.  This also means policymakers should be honest about the policies which have failed and remove those that are getting in the way of social goals. It is remarkable that mobile operators have been able to deliver networks even with bad regulation. If Europe’s leaders are serious, they should remove the policies that are not working so that operators can do their part to achieve the connectivity goals. We should look at how operators can plan an active role to realize the digital economy and society and close the gap between network supply and demand.

Contact Strand Consult to see how you can take advantage of report and workshop Next gen telecom policy and regulation – Workshop for leaders in the telecommunications industry.