 | Issue: | Europe II 2011 |
| Article no.: | 2 | |
| Topic: | Keeping the pace… | |
| Author: | Luigi Gambardella | |
| Title: | Chairman | |
| Organisation: | European Telecommunications Operators’ | |
| PDF size: | 238KB |
About author
Luigi Gambardella is the Chairman of the Executive Board of ETNO, the European Telecommunications Network Operators association; he is also Vice President Relations with European Institutions and International Organizations. Mr Gambardella is also President of EUBrasil, the Association for the development of the relationship between Brazil and Europe, a Member of the Advisory and Support Group of BUSINESSEUROPE, a Member of the Board of the European American Business Council; a Member of the Board of the European Internet Foundation; a Member of the BIAC – Business and Industry Advisory Committee- at the OECD; a member of the Competitiveness Working Group of the European Round Table of Industrialists; President of Puntoit, the Italian association for the development of the digital economy and a member of Comitato Europa of CONFINDUSTRIA. Previously, Mr Gambardella,was in charge of relations with the National Regulatory Authority at theTelecom Italia Group; earlier he ran regulatory and Institutional affairs for Olivetti. Luigi Gambardella graduated in economics from Bocconi University in Milan.
Article abstract
Studies show a rapid increase in Internet traffic and a decline in the revenues of network operator who deliver this traffic. This disconnect gives telecoms operators little incentive – and few resources -to invest in additional capacity. Internet content providers have little incentive to use bandwidth efficiently and end-users’ flat rate data plans give them less reason to economise. An Internet business model that addresses this imbalance and creates an equilibrium in which risk and returns are fairly distributed is needed.
Full Article
The Internet has become more and more embedded in our everyday lives. It is radically changing the way we work, spend our leisure time, receive healthcare and education and interact with public authorities. The way in which citizens are using the Internet has also been evolving radically over the past few years. The use of so-called ‘over-the-top’ applications such as voice over Internet protocol (VoIP), social networking sites or video downloads has become increasingly popular over the years. The number of VoIP users, for instance, has increased in Europe by more than 600 per cent over the past five years. In Italy, the subscriber audience for the main social networking sites has increased by more than 2000 per cent between 2008 and 2009. These applications have, of course, played a role in stimulating people to take up broadband, but these bandwidth hungry services are also generating a considerable growth in traffic. Internet traffic delivered via fixed networks is growing at 35 per cent a year while via mobile networks at more than 100 per cent. These trends are accelerating with the deployment of new mobile devices which enable users to connect to these bandwidth hungry applications also while on the move. Traffic growth will further accelerate with the rapid development of new solutions such as cloud computing or machine to machine communication. Several recent studies have highlighted a structural disconnect between the rapid increase in Internet traffic – largely driven by video content – and stable or even declining revenues of network operators who deliver the traffic to the end-consumer. This situation is exacerbated by the fact that Internet content providers have limited economic incentives to use the available bandwidth in an efficient way. In addition, end-users often subscribe to ‘flat rate’ data tariffs and have limited control over the amount of traffic that they generate. This disconnect between delivered traffic volumes and operators’ revenues depresses the incentives for telecoms operators to invest in additional capacity. Without significant investment in new bandwidth capacity, however, the rapid traffic increase may lead to network congestion that will, in turn, have an impact on the entire Internet value chain, to the detriment of economic growth and service innovation. An evolution of current Internet commercial models will help to address the economic imbalance and send the right signals to encourage investment and increase the efficient usage of transport capacity. A reflection on a new and sustainable economic model for the Internet is essential if Europe is to achieve the ambitious goals of its Digital Agenda and provide universal broadband coverage of 30 Mbps by 2020 and 100 Mbps to 50 per cent of households. To meet these targets, an investment of up to € 300 billion will be required by industry, as estimated by the European Commission. Rapid growth in Internet traffic and the need for substantial investments in network capacity have placed the viability of the current economic model of the Internet at the heart of the policy debate. Neelie Kroes, Vice President of the European Commission for the Digital Agenda, recently identified “the sustainability of the current Internet ecosystems” and the need for alternative business models in the Internet as one of the priority issues for her CEO round table initiative on investment in broadband networks . ETNO believes that to create a sustainable economic model for the Internet, it is necessary to achieve a balance of the interests of all stakeholders – from content rights holders and online services providers, to providers of enabling technology and network connectivity, to manufacturers of end-devices to end users – while maintaining the openness and innovation capacity of the Internet. The ultimate goal is to increase overall efficiency and achieve a favourable outcome for all stakeholders concerned. This will involve finding an equilibrium in which risk and returns are fairly distributed, taking into account the value created for consumers. Players across the entire value chain must have incentives to invest in infrastructure and services and to innovate. This will lead to an overall increase in value for consumers and businesses as well as economic growth. Several possible business models are currently being considered that would better align investment incentives with technological and market developments to create additional value for consumers. , These could, for example, include offers for quality of service delivery for services with high quality requirements (e.g. video conferencing and cloud services).There is yet uncertainty about which models can be implemented in a reasonable timeframe and which ones will be successful. Most probably a variety of commercial arrangements will help to ensure the long-term sustainability of the Internet.The overall objective is to work out value propositions that are balanced across the value chain and at the same time attract more consumers and enable an ever more sophisticated usage.Working towards this new equilibrium will help achieving the broader policy objectives in the area of broadband and in particular the broadband targets of the ‘Digital Agenda for Europe’. The EU Regulatory Framework for e-communications services – in particular its open-Internet-related provisions – and the possibility to develop different business models are interlinked. It is important that regulators and policy makers do not preclude, or stifle the development of, market outcomes that improve incentives for investment in the underlying network infrastructure and encourage a more efficient use of network capacity. Flexibility should apply to pricing structures including value-based pricing, interconnection agreements, network management solutions and offers of different levels of quality on end-user and wholesale markets. Policy makers and regulators in Europe have so far adopted a cautious monitoring approach to markets, also in view of the strong competitive pressures on EU telecommunications markets. ETNO believes this approach to be the correct one. It is aligned with the European regulatory framework, which already foresees important non-discrimination safeguards. Imposing or prohibiting a specific solution would prevent the global Internet ecosystem from finding efficient solutions. To achieve a sustainable Internet model also requires a level playing field across the Internet value chain. This implies that all players offering online services to European citizens are subject to the same data protection or security requirements, regardless of their geographical location or their economic sector. This will contribute to strengthening users’ trust and confidence. As leading e-communications operators in Europe, ETNO member companies already account for more than two thirds of investment in new high-speed services and networks. They also directly contribute to the objectives of the Digital Agenda by bringing high-speed broadband to remote and rural areas, through public-private partnerships. With their innovation efforts in fields such as healthcare, education or energy, they develop solutions that contribute to solving today’s major societal challenges. Realising the vision of the Digital Agenda and enabling all Europeans to reap the benefits of high-speed broadband is one of the pillars of the EU 2020 Strategy for growth and jobs. This is essential for Europe to maintain its leading position on the global stage. All players of the value chain must contribute to meeting this challenge. ETNO members are committed to continue playing their part.
