When it comes to the electronic communications sector, the European Commission’s 2024 white paper1 and the respective Draghi and Letta reports of 2024,2 among other things, emphasised the importance of economic growth, the need for Europe to innovate, the importance of streamlining regulation and lowering entry and compliance barriers, and the importance that should be attached to the pursuit of the common market integration goal. Where all three reports remained short of ideas, however, was on the issue of secondary markets in the telecommunications sector. This is surprising, as changes in technology and business models have made the creation of such markets an achievable reality that can satisfy many of the policy aspirations set forth in the white paper and the Draghi and Letta reports – in particular, the creation of a single European telecommunications market.
The vertical integration legacy
Historically, telecommunications networks and services were vertically integrated within one firm. The decision to adopt this integrated structure was driven by a number of factors, including the fear of double marginalisation.3 In addition, concerns about investment coordination between the two wholesale and retail limbs of the integrated entity and the ensuing risks of investment hold-out,4 as well as residual uncertainty about the demarcation point between monopoly and competitive elements of the entity, meant that as the process of European liberalisation took place, logic supported incumbent operators continuing to be integrated. The result was that the existence of vertically integrated telecommunications operators across both fixed and mobile domains became normalised, unlike in other sectors such as energy where the boundaries of monopoly were clear and where separation was implemented at the point of liberalisation.
However, what this deferential approach towards vertical integration misunderstood was the importance of the differences between the economic characteristics of telecommunications networks, on the one hand, and telecommunications services on the other. While the economic characteristics of digital platforms and digital services are also very different, their integration is less pervasive; even where common ownership arises in these circumstances, those elements tend to operate independently from each other. In fixed telecommunications markets, the differences between network economics and services economics have been observed more clearly since the adoption of the EECC,5 which has encouraged the separation of networks and services under Article 80 and other provisions of that legislation that favour firms that seek to keep network construction distinct from service provision.6 In the mobile sector, commercial considerations have resulted in the gradual separation of mobile networks over the past ten years or so, although the form of separation that has been implemented is different. The widespread practice is for mobile operators to divest towers rather than an operator’s radio access networks (RANs), the fixed equivalent of which typically still rests with the fixed network owners.7
This inability to exploit scale at the network level is another reason why telecommunications network operators are considered in many circles as ‘dumb pipe’ utilities
While the different elements of telecommunications networks have often received different or distinct regulatory treatment that is supposed to reflect the economic realities of those network elements, public policy has in general addressed its interventions towards operators in their integrated forms. This approach manifests itself clearly in the context of the ongoing discussion regarding consolidation and the creation of a single European telecommunications market, where merger review occurs with respect to the integrated entities rather than to their constituent network and service elements. For example, as a general rule, scale is not particularly important in telecommunications network markets, with significant evidence being available to support this proposition.8 To suggest otherwise would be tantamount to arguing that an operator, such as the Netherlands’ KPN, is a sub-scale operator for fixed or mobile networks in a European context. Its financial returns, however, despite facing stiff competition from cable networks, dispel such an argument. In 30 years of liberalisation, there is also a live experiment that has taken place in which there has never been an instance of a large operator (with scale) buying another operator in a small member state that has resulted in the target firm’s performance in the market having been materially improved through the leveraging of scale economies. This inability to exploit scale at the network level is another reason why telecommunications network operators are considered in many circles as ‘dumb pipe’ utilities.9
On the other hand, scale is absolutely essential for telecommunications services and digital services markets. Telecommunications network operators have a poor history of service development. Their services have exhibited, and continue to exhibit, one of the lowest rates of R&D across all sectors of the European economy.10 In fact, clothing apparel as a sector spends more than telecommunications operators do on R&D. In this regard, a distinction needs to be drawn with telecommunications equipment manufacturers, which invest heavily in R&D. According to available data, telecommunications equipment manufacturers spend prolifically, amounting to approximately 20 per cent of revenues being spent on R&D compared to less than one per cent by network operators on average in Europe.11
Not only do telecommunications networks and services constitute very different markets, but telecommunications equipment also has all the characteristics of a distinctive market with very different patterns of competition, investment, and drivers of cost and demand. Too often, all of these areas are viewed through the same lens. In turn, telecommunications services (i.e., connectivity services), which are very distinct from digital services, are often aggregated together. This results in erroneous analyses, mis-specified problems and misplaced solutions.12
The proverbial ‘elephant-in-the-room’ problem facing the European electronic communications sector is, rather than the availability of networks, the lack of sufficient demand for those networks and services. In addressing the perceived ills and prospects for the European telecommunications sector, this is where the European Commission should be focusing its resources. Unfortunately, some of the main policy responses in the Commission’s white paper and the other recent analyses in the respective Draghi and Letta reports promote the goal of higher prices for consumers (whether directly through greater levels of consolidation or more indirectly through the imposition of IP-interconnect charges, the dilution of cost orientation norms in interconnection, etc.).13 This policy orientation is not only questionable in and of itself, but also risks aggravating the problem of low demand. Based on the evidence of the past 20 years, driving up telecommunications operators’ revenues is not likely to achieve anything other than higher dividend payments for shareholders. In the wake of the most recent evidence about the imminent return to overall financial health of the sector, this policy orientation is particularly ill-conceived.14
The need for a European telecommunications market
As noted above, telecommunications services require scale and they need to be deployed on day one of their launch to the broadest market possible. The ideal scenario would be the launch of services within a single European market with pan-European vertically integrated operators. However, that ideal scenario is not the reality that is faced by Europe. There is no ‘European’ market in existence today and there is little or no prospect of creating a series of pan-European operators (because network scale is not important and other commercial rationales such as the internalisation of roaming costs have gradually been regulated away). The result is a patchwork of integrated network operators across Europe. Yet, despite its fragmented nature, the economic reality of a patchwork of networks across Europe is not only not an existential issue (as some narratives have been insisting), but it is not even a critical one in light of the fact that scale is not the great differentiator for physical networks.
The critical scale issue that needs to be addressed is the range of impediments that exist when a firm wants to deliver pan-European services. Today, if a firm seeks to launch a pan-European product or service, there are two main options available to it, namely:
- Bring together a tender scheme that will be delivered by a series of network operators that can aggregate a coherent pan-European offering; or
- Approach an integrator, such as a Transatel or a Cubic Telecom, which buys inputs from various network operators so that it can aggregate a seamless pan-European service offering.
Option 1 is often used by large multinationals to cover their communications needs for their businesses, while Option 2 is often used by entities seeking to deliver a pan-European service to end users (e.g., the automotive industry).
Under Option 1, large telecommunications operators buy and sell connectivity among themselves to deliver an end service which is targeted at a limited business user market. Under Option 2, integrators deliver services built upon a combination of virtual mobile network operators (MVNOs,) providing national roaming and international roaming products, with a view to combining these two elements together to create a final service, thereby raising significant transaction costs of negotiating and integrating two different wholesale products. The reason why these two elements need to be combined, rather than either product being used to provide a seamless service of its own accord, is that national roaming constitutes a fraction of the cost of international roaming, even taking into account the efforts of the European Commission over the years to minimise these differences.15 The fundamental reason that there is a price difference between international and national roaming is that there is in essence a cartel-like structure that is responsible for the operation of international roaming, irrespective of whether or not the ‘cartel’ epithet satisfies the competition law implications of such a concept.16 Accordingly, despite the input costs being identical across both options, there is a very large difference in the price charged to business users and systems integrators for the two (identical) products.
In markets that are characterised by large volumes of traffic, bearing the high set-up and compliance costs of establishing an MVNO (fixed costs) means that the national roaming rate (variable rate) is much lower than the international roaming rate. Since the high fixed costs can be spread across a large volume of traffic, this delivers the lowest cost solution. However, this is still a very high-cost exercise and requires a process of complex integration. If the EU wants to make doing business easier so as to foster economic growth on the back of a pan-EU connectivity market, an obvious pathway to achieving such a goal would be to promote the availability of pan-EU connectivity products that can support the delivery of pan-EU digital services. A straightforward way of satisfying such a goal would be to foster the growth of secondary telecommunications markets. A secondary telecommunications market refers to the resale of telecommunications services or wholesale access in situations where one operator purchases capacity or services from another and resells them to end users or other businesses, as in roaming markets.
Today, secondary telecommunications markets in Europe are very limited in scope and those that exist are largely avoided by network operators because they could lose the pricing power that they currently enjoy under the cartel-like structure referred to above and described now.
If an operator seeks to participate in an international roaming agreement, it must approach an established operator and agree upon a bilateral price.17 That means that a mobile network operator (MNO) from country A seeks capacity from an MNO in country B, while the MNO in country B seeks capacity from the MNO in country A in the reverse transaction; this results in both MNOs maintaining their respective national market shares (plus or minus a small increment) in roaming markets while at the same time the price of exchange is of little consequence.18 Because the deal is reciprocal and bilateral, operators have very limited choice. As BEREC’s roaming reports demonstrate, there are often different prices for balanced and unbalanced traffic that reflect this dynamic.19 In the latest reported period (Q3 2024), BEREC notes that the average price in Europe for a GB of data is €0.72 for balanced traffic and €0.42 for unbalanced traffic. Given that the vast majority of traffic is balanced, the overall price settles at around €0.68.20
By contrast, the same firm can go to any operator active in a national market and receive a price for a national roaming agreement. This means that there are in effect three or four operators, each of whom are competing for 100 per cent of the business of that firm on the basis of price, which is a critical element for all parties to the transaction. The result is a national roaming price that is usually a fraction of the price charged for international roaming. Operators do not have incentives to allow international roaming prices to become an integral consideration in their bilateral negotiations and therefore seek to avoid entering into one-way transactions. By making the primary transaction (MNO from country A seeking capacity from MNO in country B) dependent on an unrelated transaction (MNO from country B seeking capacity from MNO in country A), prices can be kept artificially high.
Similar dynamics have been observed in energy markets. When energy exchanges were introduced in Poland and in Japan, it was widely observed that no one was likely to join the exchange. Policymakers eventually mandated participation in the national exchanges of both countries and active markets emerged quickly. Another recent example is that of Brazil,21 where a secondary energy exchange for generation was established ten years ago but failed initially because there was no participation. As a result of the national regulator mandating participation at the start of 2025, a vibrant energy trading market has emerged in Brazil. Similar obligations have been used to enable market openings in energy markets across the EU. In Poland, for example, 30 per cent of electricity produced must be traded through the exchange, up from 15 per cent of the electricity generated in any year on a power exchange.22
What the telecommunications sector therefore needs for an EU telecommunications market to emerge is the availability of pan-European offerings for roaming capacity that can support IoT (the internet of things) and which allows other pan-European service markets to develop, including into other domains; for example, where connectivity becomes integrated fully into an existing product such as automated taxis rather than driven cars. This can be achieved quickly and without having to integrate 100-plus operators, as it simply requires some form of mandated participation on an online trading platform or exchange (e.g. a quota of 30 per cent of roaming capacity could be made available for trading through an online trading platform or exchange, as has already happened in various energy markets cited above).
Beyond the mobile sector, a scenario designed to achieve similar results was envisaged in the fixed line context in an idea that was floated in the Commission’s white paper in late 2024. There, the Commission foresaw the potential emergence of some form of EU level connectivity access product which would allow services to be delivered to end users. However, the utility of such an idea risks being limited to so-called ‘wholesale-only’ providers (and would need to be subject to standardised products and variable pricing, again exercised through an exchange).23 Moreover, only broad parameters ensuring interoperability would be mandated, according to the Commission, leaving pricing and other developments to the market.
The need for a capacity exchange for the mobile sector in Europe
The creation of a wholesale market for the trading of wireless capacity would not start from a blank canvas. There is already some capacity trading for two types of wireless capacity which are either bespoke or highly structured: (a) national roaming, where MVNOs buy wireless capacity within national markets which are negotiated on an individual basis and subject to specific technological solutions, terms and conditions in each agreement; and (b) international roaming, on the other hand, which is traded as a standardised product under pricing and volume terms that vary as between parties.
The irresistible conclusion is that there is clearly a wholesale market failure taking place in international roaming
The current system of trading for international roaming is arguably both inefficient in its structure and in the terms of its operation. International roaming agreements are principally negotiated at what can be best be described as bazaars that are organised twice a year by the GSMA24 (allowing only its members to participate). At those events, MNOs send their delegates to specific locations (e.g. Marrakesh) for several days to participate in the negotiations with the participating operators arriving with teams that engage in what amounts to commercial ‘speed-dating’ from table to table. Large routes are negotiated often, thinner routes are rarely updated (i.e. the proverbial ‘long tail’). Even a large team of negotiators will only get a limited number of deals negotiated under this framework. Certain deals are negotiated outside this structure, but the logistical nightmare of the ‘bazaar model’ is much worse in a bilateral context. Where wholesale prices are not kept up to date, they default to very high pricing. (This is limited in Europe by the statutorily-imposed pricing caps,25 even if those caps are significantly higher than negotiated rates according to BEREC’s latest report, i.e. €0.42 for unbalanced traffic per GB versus a cap of €1.55 per GB.)26 Wholesale roaming products are becoming more complex as the IoT expands; for instance, low volume IoT traffic often attracts two-part tariffing structures and other features that increase the number of price/product negotiation points significantly.
This can be considered to raise the first major concern about the roaming market, which is a problem of process that arises from the fact that, organised as that process may be, only a relatively small and finite number of transactions can take place between a limited number of parties. However, this processing problem is a relatively trivial one when compared to the second concern – pricing.
The price differences between capacity for national roaming and international roaming should in principle be very small. Indeed, the pricing ought to be virtually identical, even if there are some minor additional elements that can be added (most of which are optional and in the control of operators). Detailed cost studies conducted for the European Commission have in fact determined that there is ‘zero’ cost difference between national and international roaming.27 In practice, however, national roaming leads to much lower wholesale pricing than does international roaming. The irresistible conclusion is that there is clearly a wholesale market failure taking place in international roaming which, despite being lightly managed via regulation and price caps, is not being addressed comprehensively.
As argued above and elsewhere, the market failure alluded to has at its root cause the negotiation structure adopted by parties for roaming contracts, 28with this manifesting itself as a structural problem at the wholesale roaming level. Where multiple networks with fixed costs vie for marginal traffic, economic logic suggests that very low rates should evolve, all other things being equal. However, such low rates have not evolved for international roaming, even though in the similar context of national roaming very low rates have evolved. Several authors29 have identified traffic balancing, which forms a central element of contract negotiations, as the key to resolving the problem. Negotiations between the operators typically revolve around agreeing to balance or swap traffic to the greatest extent possible, and then to apply a marginal rate to the remaining traffic. This has two major impacts:
- Balancing traffic distorts the price signal and makes prices less important at the wholesale level, because if traffic is perfectly balanced, the price is irrelevant (net payments are zero) and if traffic is close to being balanced, the price agreed becomes less important; and
- It excludes smaller operators from competing in the wholesale market to a significant extent, because they have less traffic to balance off with larger operators. They also have less opportunity cost (i.e. less existing traffic) and more to gain (since they are more likely to win traffic in a straight price competition confrontation) by competing in the wholesale market, which means that their exclusion from the process has important implications.
The proposition that traffic balancing lies at the core of the problem faced by the roaming market was largely accepted by BEREC in an earlier review of the roaming market,30 but both BEREC and the European Commission seem to have forgotten why data is collected by them on both balanced and unbalanced traffic.
Review of the roaming market
The recent Commission review of the roaming regulation31 concludes that the current version of that legislation is operating well and is fit for purpose. The authors feel that this is too simplistic a view of the data and believe that the Commission’s assessment fails to address some of the main issues thrown up by that data. Those issues continue to undermine the development of a pan-European services market and the development of an EU telecommunications market. The reasons the authors disagree with the Commission’s most recent assessment are fourfold:
- The price caps identified are irrelevant for MNOs. The data cited in Figure 22 of the Commission’s report and in the original BEREC report32 (Figure 19) in fact confirms that the data price cap is never less than 200 per cent of the prevailing market price. Indeed, the current cap (set at €1.55 per GB) has not been relevant since the year 2020. The setting of price caps cannot keep up with the market.
- The report manages to ignore the elephant sitting in the middle of the room. Balanced data traffic in Europe is 72 cents per GB while unbalanced traffic is 42 cents. Given the vastly more frequent balancing of traffic that is taking place, the average rate becomes 68 cents. There is no questioning of the appropriateness of this phenomenon, why it arises, nor its economic consequences. The act of balancing renders prices less important and restricts competition in such a way that MNOs tend to win their share of national traffic, with the overall effect being to push up roaming prices and undermine the creation of a single European market.
- It is self-evident that a single EU market cannot be created with over-priced roaming products. Today, entities patch together national roaming and international roaming to cobble together a European connectivity product. Yet, even though national roaming and international roaming are exactly the same product in substance (the cost modelling performed for the Commission by Axon concludes that there is zero cost difference between the two products), it is nevertheless the case that national roaming is much cheaper than international roaming. That scale of that cost differential is, however, unknown, as the data is not in the public domain and rarely becomes public. However, by way of example, the 3 Austria merger commitments33 dating back to 2012 had a GB of data worth less than a €1 (which is significantly less than the roaming data cap applied today, more than 13 years later).
- While the traffic balancing issue means that parties more or less win their share of the national market in international roaming, the continuation of the same bargaining structure for (bilateral) roaming negotiations means that only a limited number of deals can be completed. The report on roaming fails to consider the process problems identified above, which exclude more parties from directly negotiating roaming agreements. In effect, this limits the scope for entry, innovation and development of an EU services market.
What should be done
Building upon these analyses, two major issues need to be addressed in wholesale roaming markets. The first relates to the dismantling of the negotiation process itself: if many more contracts need to be concluded (e.g. if participation in the bargaining process was not merely restricted to MNOs and a limited number of MVNOs, but to a wider market), the continuation of the current negotiation model would not be possible to maintain in practice. The second issue relates to the high level of wholesale pricing that results from the structure of contract negotiations and which leads to integrators cobbling together work-around solutions.34
Currently, many MNOs have no incentive or interest to move away from the existing model of price-setting for international roaming. One way to address this is to mandate their participation on an electronic trading exchange for roaming capacity. This would allow access to capacity to any interested party, even if the supply of capacity rests with network operators, so that anyone with a business using connectivity or their agents could participate in the process and would not be constrained by logistical issues.
The analysis set out above also highlights the point that breaking the link between inbound and outbound traffic agreements is crucial for establishing a competitive wholesale roaming market by making price the central aspect of any transaction. In this way, all operators can compete on the wholesale market and, by taking advantage of lower wholesale prices, operators can compete more effectively at the retail level. Unfortunately, large operators with a significant geographic footprint, especially those that have a significant inbound balance of traffic, have a limited incentive to move away from the current system of pricing, which is designed to favour those with the largest pools of traffic (even if they might support a system that improves the ‘process’ problem outlined above).
There are already exchanges in existence today such as the Cicada Exchange,35an online trading platform where trading is both one-way and anonymous. To make the transition to exchange trading as seamless as possible, the exchange mirrors the current transaction ‘form’ as much as possible. One major condition for the success of such an exchange platform, however, is the level of industry participation. It is not obvious that larger corporate groups that currently enjoy a competitive advantage under the existing roaming structure would be willing to participate in any new trading mechanism that encourages greater participation and reveals a more competitive pricing structure, and which allows increasingly complex products to be traded.
For example, a reasonable precondition required by firms operating in another country for the sale of their roaming capacity online is that they be placed in a position to purchase capacity from operators in each and every corresponding EU country. This would avoid a situation where an operator buys roaming capacity at a low price in one country but refuses to sell capacity on its own domestic market. An obligation to sell on the home market when buying capacity on a foreign market might help to resolve this problem. To this end, it may be that each and every MNO in Europe should be required to purchase and sell a percentage of their capacity on such a trading platform, similar to the obligations listed earlier that have been used to enable market opening in energy markets.
Fixed telecommunications markets
Similar considerations to those arising in the mobile sector arise in the context of fixed network and fixed network access. In light of the policy change under the EECC to encourage competitive build-outs, there has been a marked increase in new entrant fibre network operators since 2018. While virtual access continues to be the most common form of access over fixed networks, it is generally delivered over competing fibre networks, which means that competition generally exists at all functional levels of the market. In addition to the entry of wholesale-only operators into the market, a number of cable operators have also recognised the benefits of entering wholesale broadband markets in competition with traditional telecommunications operators. 36
The advent of these wholesale-only operators, as well as other open-access fibre network entrants in fixed markets, has been an important aspect of the competitive fixed line market dynamic (with wholesale-only operators’ investment growing from virtually zero to 20 per cent of all network investment over a period of only six years). 37Overall, the emergence of wholesale-only operators has led to significant new capital entering fixed infrastructure markets and to a deepening of the network competitive dynamic.
Although mobile markets have also been moving towards greater network/services separation for a number of years, the fixed market phenomenon has quite unique characteristics. While many mobile entities have sold some or even all of their tower assets, those deals have often been accompanied by a commitment to rent space/capacity on the divested infrastructure. This is a commercial strategy which is more akin to the traditional ‘sale and leaseback’ model that has a long history in telecommunications markets. Under such a strategy, a financial instrument releases short-term value to the firm while ongoing operational costs can be expensed and rendered tax-deductible. 38However, today’s fixed wholesale-only entities are almost universally de novo firms which have tapped into capital markets that recognise their networks as being long-term infrastructure assets. This recognition allows lower associated risk profiles to be reflected in favourable cost of capital rates that can be combined with favourable regulatory treatment under the EECC. Some fixed incumbent operators have sought to emulate these entities in markets where the entrant has a strong position, as has occurred in the Italian market (where the local incumbent TIM announced that it has completed its structural separation). 39
The net result is that European telecommunications markets are becoming increasingly competitive. Traditional fixed incumbent operators are not always in a position to determine pricing, which has weakened their financial position relative to the rest of the market.40 However, this simply reflects the state of the market more generally rather than something which should be of fundamental concern. While it may be the case that traditional fixed incumbents are still carrying certain costs and inefficiencies imposed on them prior to the process of liberalisation in Europe, it is just as clear that the broader telecommunications market is not as concerned by the level of returns garnered by those traditional incumbents. Competitors have encountered little difficulty in raising capital for investment (nor indeed is there a suggestion that fixed incumbent operators are not capable of raising such funds). Indeed, capital investments in European telecommunications networks are rising.
However, given the market entry of large-scale alternative fibre operators, wholesale competition has become more intense and the retail market is following suit by becoming increasingly contested. The upshot is that many fixed incumbent operators, already long exempt from retail regulation, are now increasingly being released from wholesale regulatory obligations, with the wave of support growing ever louder for the removal of wholesale regulation while preferring to rely on certain symmetric regulation (and not without some justification). The latest summary of significant market power (SMP)41 designations across the EU illustrates that, even for the local access markets where there had been an SMP designation in every one of these national markets ten years ago, there is now a majority of member states which have either fully or partially competitive access markets.42
Despite this improving market situation, there has been a failure of pan-European connectivity services to emerge and of retail services that would be hosted on those connectivity products. The failure of a fixed European telecommunications market to emerge is due to markedly different factors than those found in the mobile market. There already exists a series of standards and agreements (via roaming) in the mobile sector that can be used to establish a European mobile market. What is missing is an appropriate (and dynamic) pricing mechanism. In fixed markets, a similar set of standards and agreements do not exist and would have to be established. The European Commission and BEREC are ideally placed to put these elements in place. If a basic set of standardised access products are specified at EU level, for example, a market exchange platform (such as that presented by Cicada Exchange) could be adapted to manage the agreements and the terms of those agreements.
Conclusions
The lack of scale economies in telecommunications networks means that an EU telecommunications ‘market’ will be built on the basis of telecommunications services and not on networks. The likelihood of an integrated European telecommunications market emerging through acquisition is exceedingly unlikely; indeed, current market dynamics are moving in the opposite direction.
Existing European mobile networks already have agreements and technical solutions in place to deliver a pan-European services market. The reason that this has not materialised is because of a deep-seated market failure in relation to mobile roaming which has been contained, but not eliminated, by regulation. A simple solution to address the underlying market failure and to create a European services market is to mandate participation in capacity exchange trading which is one-way and anonymous (as conducted on every energy market exchange).
Fixed connectivity is also becoming more competitive through the advent of new network operators, which are primarily wholesale-focused and whose existence has been fostered under the regulatory framework introduced in 2018 under the EECC. The ready availability of virtual access products in most European markets also suggests that a fixed European services market could in theory be created, as foreseen in the Commission’s white paper of 2024. However, it is not currently supported by the level of standardisation necessary, nor by the types of agreements and technical solutions that currently exist in the mobile sector and would require direct intervention that is best coordinated at EU level.
and then