Consolidation of the telecommunications market may lead to rising prices and hinder its development
Opublikowano: 21/01/2025
Reforming the telecommunications market will be one of the key challenges for the new European Commission. The goal is to strengthen European companies by facilitating the creation of large, pan-European operators, as outlined in EC documents and highlighted in reports by Draghi and Letta. The market value of European companies in this sector dropped by 41% between 2015 and 2023, while the market value of American telecoms grew by 20% and tech companies soared by 357% in the same period. Risks associated with the emergence of a few large operators—particularly in cases of consolidation within domestic markets—include potential price increases and reduced investments in peripheral areas. For telecommunications companies to strengthen their competitive position, they need to shift their business models and expand their scale of operations to go beyond narrowly defined telecom activities and engage in deeper collaboration, including with industry. These findings come from the report by the Polish Economic Institute, "The European Telecommunications Market: Challenges of the Transformation Era."
Declining value and R&D investments of European telecoms
The value of the European telecommunications market in 2023 was €277 billion, only 6.1% higher than in 2017. Approximately 64% of this value comes from consumer services, whose share is declining very slowly. Between 2015 and 2023, the capitalization of European telecom companies fell by 41% to $270 billion. In contrast, the combined market capitalization of U.S. telecom companies was €650 billion, having increased by 20% during the same period.
The telecommunications sector is also characterized by a low level of innovation, lagging behind sectors like IT. In 2022, all telecom companies worldwide (29 firms) spent around €18 billion on research and development (R&D). This is less than what the largest tech companies allocated to R&D: Google spent €37 billion, Meta €31 billion, Microsoft €25.4 billion, and Apple €24.6 billion in the same year. Among telecom companies, Japan’s NTT ranked highest, at 36th on the global list of the top 2,500 R&D spenders, with €5.7 billion. The highest-ranking European telecom, Telecom Italia, spent €955 million, ranking 231st.
“To enable the European telecommunications sector to return to a growth path, it is necessary to change its business model and expand its scope of activities. Opportunities lie in broader collaboration with industries in areas such as private 5G networks and the use of industrial data, as well as entering more deeply into the creation of IT services. Without these changes, telecoms will become another utility sector—stable, heavily regulated, but far from driving breakthrough technologies. At the same time, when comparing with other regions, it is important to note that EU companies provide services globally to a scale unmatched by telecom operators from any other country,” observes Ignacy Święcicki, head of the digital economy team at the PEI.
Risks Arising from Telecommunications Sector Consolidation
The Polish telecommunications market is characterized by high availability (mobile services), low prices, a high share of fiber-optic connections compared to the EU average, and significant market fragmentation (fixed-line services). Weaknesses include the declining market value and a low level of digitalization among businesses, leading to a lack of demand for modern digital services. From Poland’s perspective, consolidation in the telecommunications market could negatively impact investments in areas still lacking modern connectivity and lead to higher prices for consumers.
Empirical studies in recent years have not provided a definitive answer on how mergers in the telecommunications market affect price changes and service quality. However, a 2024 report summarizing 25 years of competition policy in the European Union by the EC’s Directorate for Competition concluded that increased market concentration leads to higher prices, with unclear effects on investments. Other studies indicate that mergers positively impact market parameters when they enhance market share symmetry by combining two weaker players to compete with leading ones or when operators with inferior network parameters merge to create a new competitive entity. In Poland, given the current market structure, a merger in the mobile market would likely create a dominant player, reducing price competition.
“The Polish telecommunications market currently offers highly accessible mobile services at low prices, with a high share of fiber-optic networks compared to the EU average. Potential consolidation in the mobile market, where the largest European telecom companies operate, could harm consumers by raising prices—currently below the European average—and reduce the willingness to invest in areas still lacking modern connectivity. Increasing the digitalization level of businesses is currently crucial for the Polish market, as it could open new revenue streams for telecoms. Another opportunity lies in leveraging industrial 5G networks—linking the transformation of Polish industry with modern telecommunications services. It is also worth noting that the EU’s digital decade goals for Poland—ensuring internet speeds of 1 Gbps for all households and 5G coverage across the entire country—seem excessive and risk exacerbating existing issues in the telecommunications sector,” warns Ignacy Święcicki.
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The Polish Economic Institute is a public economic think tank dating back to 1928. Its research primarily spans macroeconomics, energy and climate, foreign trade, economic foresight, the digital economy and behavioural economics. The Institute provides reports, analyses, and recommendations for key areas of the economy and social life in Poland, taking into account the international situation.
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Category: Digital Economy / Press releases / Report / Reports 2024