What is the impact of the EU elections on the telecom industry?

The 27 EU member states just concluded elections for members of the European Parliament. Strand Consult reviews the results and what they mean for the European telecom industry and their shareholders.

The European Parliament is comprised of 720 members digressively proportioned across the 27 member states. The European Council, comprised of the Heads of State of the 27 member states, selects the European Commission (EC). These EC positions must be approved by Parliament.

The next five-year cycle of the Parliament kicks off next month in Strasbourg.

Some media describe Europe’s turn to the right as problematic. However, the election is a reality check. Many voters feel that unsecure and that European Union policies are failing. Russia invaded Ukraine two years ago and there is still no end in sight. “Green” climate policies have created energy uncertainty, not security. Immigration is not a well-managed process. The economies of many EU nations are flat or in decline.

The election results show the European Parliament divided into 7 political groups. Despite a turn to the right, many of the existing parties retain a majority: the Socialists (S&D), the Conservatives (EPP) and the Liberals (Renew). Ursula von der Leyen is expected to remain a President of the European Commission.

Readers should take care when comparing and drawing conclusions about EU and US elections. The EU is not the United States of Europe no is the European Parliament the US Congress. The European Commission does not map to America’s executive branch. While we can compare the regions in theory, their setup and practice demonstrate major differences. The USA is a single nation with a supreme federal government established by the Constitution. The EU is a confederation of 27 independent member nations (each with its own democratic government and Constitution). The EU cannot collect taxes; only the member states can. Here’s a primer on the EU.

What the EU elections mean for Telecom 

Telecommunications is a lesser priority among the key challenges and crises facing the EU. The elections themselves have little impact on the industry, and it is expected that Parliament would sooner focus on protecting kids from Big Tech and AI.

What matters to the EU telecom industry is the European Commission (EC). The EC can provide leadership to make telecom policy. The two most important commissioners are Thierry Breton and Margrethe Vestager. They control whether the telecommunications industry has the optimal operating conditions. According to the EU own reports, there is a €200 billion gap to reach the Commission’s connectivity infrastructure goals.

Margrethe Vestager will not continue as EC Vice President for Competition. Despite her reputation as the top cop on Big Tech, she has blocked industries from telecoms to rails from needed consolidation. It is during the Vestager decade that the telecom investment gap has doubled from €100 billion to €200 billion. See Strand Consult’s research note.  

It’s uncertain whether Thierry Breton will continue. A former CEO of France’s Orange, he understands the needs of the telecom industry and has made significant policy on cybersecurity, the Digital Services Act, and other domains. However, he has not solved the structural challenges the telecom industry.

This failure is not the fault of Breton alone, but rather trade associations like ETNO and GSMA which have been unable to define and deliver a pro-growth agenda for investment, consolidation, spectrum, and policy modernization. Whatever the EU does on telecom (good or bad), these trade associations respond that they are happy and look forward to working with the EU. 

And yet, one telecom CEO after another sings a different song at the Mobile World Congress. Telefonica CEO and Chair of GSMA José María Álvarez-Pallete, Margherita Della Valle of Vodafone; Christel Heydemann of Orange, and Tim Hoettges of Deutsche Telekom say that operating conditions are bad in Europe.

The story of Europe falling behind in telecom is almost 20 years old and follows a pattern of one misguided regulation after another. But this path is not inevitable. Policymakers make choices based upon the information they receive. Meanwhile countries around the world have made different choices and have better results for investment and innovation. Strand Consult has documented these choices in its signature report Understanding 4-3 Mobile Mergers. See the case studies on South Korea, USA, Latin America, India, and countries in Asia.

Breton put the ball into position on fair share, but the EU trades failed to kick it into the goal. This could be chalked up to GSMA messaging being diluted by Big Tech sponsorship, but the shortcoming was in the ground game. The national level policymakers didn’t know much about the issue and rarely heard the counterarguments, as Strand Consult learned.

The selection of the new EC Commissioner for Competition will be critical, though it would seem that anyone would be an improvement over the no in-country consolidation nonsense. Breton can deliver but it would be wise to get him a Commission partner who understand the modern challenges of telecommunications and how technology drives competition. Breton’s future will probably depend on French legislative elections June 30 and July 7.

French elections: Grande importance

Among the responsibilities of the French President Macron is to nominate the French commissioner to the European Commission. The decision on whether Thierry Breton continues in Brussels is up to  Emmanuel Macron, though it is unclear how the French President will choose at this time.

The French election is a cause célèbre. The right wing Rassemblement National Party of  Marine Le Pen and her protégé earned an unexpected 31% of the French EU votes. The result prompted Macron to call an snap election. This is likely driven by the following political factors:

1. Emmanuel Macron ends his second term in just over two years. Polling says that Marine Le Pen has potential to become France’s next president.
2. By calling an election now, Marine Le Pen and her party, the National Rassemblement, will most likely win the election. In practical terms, Marine Le Pen and Jordan Bardella must show over the next two and a half years that they can deliver on the promises they and her party have made.
3. We believe that Macron expects it to be difficult for Marine Le Pen, Jordan Bardella and her party, the Rassemblement National, to deliver on their promises, and thus Macron hopes that he can derail the success that Marine Le Pen looks set to have in the upcoming presidential elections in April 2027.

Very simply, Emmanuel Macron has chosen to invite Marine Le Pen into the reality of realpolitik. Chosen to give her responsibility and an opportunity to fail for the next two and a half years. He probably hopes that the many challenges that France has are unlikely to be solved by Marine Le Pen and her party.

It is also important to remember that if the Rassemblement National wins the election, Macron has many opportunities to cause problems for the incoming government. In addition to that, Marine Le Pen has a lot of corpses in her cargo that results in the illegal use of EU funds for the operation of her part.

Right turn in Europe

There are many people who talk about the turn to the right in Europe, it is correct in some countries and less correct in others. In a large part of the EU, we see that over time, power swings from left to right. A few months ago, there were many who thought that Poland and Hungary were a problem, the new government in Poland has changed that view and most recently, after the EU election Viktor Orban promised, NATO Secretary General Jens Stoltenberg that he will stop blocking aid to Ukraine.

It is important to understand that the European Union is not a United States of Europe, but a collection of 27 countries working more or less together in a number of areas. Within the EU, politicians are elected in the individual countries, and this is also reflected in what they say and think.

Many people talk about the division that exists in the United States between Republicans and Democrats, and this despite the fact that a lot of urban partisan politics is being made in the United States. Europe and the EU do not differ much from the United States, but it is easier to understand and accept those differences because the EU consists of 27 independent nations.

We do not believe that the turn to the right that is being talked about in the EU will affect the telecom policy in the EU Parliament, the other way around, it can affect the policy that is focused on and pursued in the Council of Ministers. Again, it is important to distinguish between what are national tasks and what are EU tasks in the same way that in the United States you have to distinguish between federal and state legislation.

What the election means for China, Huawei and ZTE.

Strand Consult has covered the debate on Chinese equipment in critical infrastructure for many years. We do this to dispel myths and to ensure that our customers, the world’s telecommunications companies, can make informed decisions.

Some believe that the debate on the use of Chinese infrastructure started with Donald Trump. This is not the case. Indeed, it is not difficult to document that the policy pre-dates Trump by years. This was already described in a Strand Consult research note in 2018. 

The first country in the world to take action on 4G was Australia in 2012. The Social Democrat Prime Minister Julia Gillard banned Chinese equipment. Other countries have since followed Australia.

Many have asked us if the EU elections, the new EU parliament and the new Commission will change the EU’s China policy. The quick answer is no, it will not happen in the same way that Joe Biden did not change Trump’s policy in this area.

The background for EU’s security assessment

The starting point for EU’s security assessment was the 2019 EU-wide coordinated risk assessment including input from the European Commission, European Union Agency for Cybersecurity (ENISA), and the Body of European Regulators for Electronic Communication (BEREC).

Based upon a set of identified risks, and to safeguard security and resilience, the EU developed a foundational and globally unique approach to security of 5G networks with the EU 5G Toolbox. The EU deems 5G networks critical for their horizontal role underpinning the delivery of health, energy, manufacturing, media, and mobility.

EU 5G Toolbox was developed and agreed to with strategic (non-technical) and technical mitigating measures. In sum, the European Commission and the EU member states implement key measures in two areas; strategic (non-technical) and technical security measures, both of these assessments and mitigation measures must be satisfied to deem 5G equipment suppliers as secure and trusted.

EU European Union 5G Toolbox was originally developed by EU member states. In the 2nd Progress report of the EU 5G toolbox (June 2023) all 27 EU Member States pledged to fully implement the EU´s 5G Toolbox. As of June 2023, 24 Member States have adopted the toolbox or were in the process to do so, for example by preparing legislative measures which vest the local authority to perform security assessments. By June 2023, only 11 Member States had taken measures to implement high-risk vendor restrictions. As all EU countries support the 5G Toolbox, its implementation moves toward the de facto removal of Huawei and ZTE from European mobile networks.

What does the future look like?

If you want to look into the future, you should first describe the reality that the EU is part of and that both politicians and beurocrats have to deal with.

We believe that the EU will update the Scenario planning for new vulnerabilities, technological developments, and geopolitical developments. China today is not the same from the country which joined the World Trade Organization in 2001 or 2011. Indeed, there was a major shift in 2012 when General Secretary Xi Jinping came to power.

Xi considers Russia, North Korea, Iran and Venzuela his friends. His reign is marked by a notable decline in social democratic norms and freedoms, deliberate and systematic efforts to suppress human rights, and empirical declines in freedom of expression, religious freedom and freedom of the press.

The old EU Commission is clear about network security, And we do not believe that the new Commission will change its mind in this area. They said and will say that the Member States measures to restrict or exclude Huawei and ZTE are justified and compliant with the 5G Toolbox and that Huawei and ZTE represent materially higher risks than other 5G suppliers.

In practice, this means that the Commission and more and more compagnies will take measures to avoid exposure of its corporate communications to those suppliers. This is done by avoiding buying telecommunications services from telecommunications companies that use these providers in their network. In addition, the new EU Commission will ensure that this approach will reflect this assessment in all relevant EU funding programs and instruments.

Conclusion

We do not believe that the new composition of the European Parliament will change the speed and direction in which the European Union is moving in relation to the telecommunications industry.

There are two important questions that determine whether the future will be bright or dark for telecom investments, the telecom industry and ultimately the customers. It is who will replace Margrethe Vestager as Commissioner for Competition and whether Thierry Breton will remain in his role as Commissioner for the Internal Market.

We believe that France is very happy to sit on the Commissioner for the Internal Market, which is one of the most important roles in a European Union built on a foundation focused on trade.

One thing is certain, and that is that the future will be exciting. The EU is facing a number of very major challenges, and politicians need to prioritise where they want to spend their resources.  

At Strand Consult, we follow this closely, looking at it in a global perspective as we have done for the past 28 years.

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