Gian Paolo Balboni, member of the panel that drafted the TLC 2025 scenario, deals with strategic consulting in the area of digital transformation of the industrial world. Until a few months ago, he worked in the Telecom Group, focusing on research and innovation, first in technological areas and then in the strategic field. From 2007 to 2016, as head of the Trend Analysis & Future Centre in the field of strategies, he oversaw analysis of trends related to the evolution of technology and services, in support of the strategic guidelines for business innovation.
In terms of the competitive scenario, the central theme of TLC 2025 is clearly that of the overall structure of the market. The 2025 research outlines two major trends in the European TLC market: on the one hand, intense consolidation, which will lead to having a maximum of four large continental-level operators (with Italian players destined to occupy very subordinate roles on this ground); on the other, a marked mixing of the boundaries between the “industry” of TLCs and contiguous industries (such as IT, media companies, utilities, etc.). Faced with these trends, an issue of particular interest is the attitude of public regulators, particularly at European level: in your opinion, will they accompany these processes over the next decade, or will they be likely to place mainly obstacles in the way?
“Regulators have a somewhat schizophrenic approach: on the one hand, they talk about the need to promote a European digital single market; on the other, they pronounce against mergers that decrease the number of operators (as happened recently in Scandinavia). Even the Wind-Tre operation passed only because someone came forward to act as the fourth operator. In my opinion, therefore, there is lack of a coherent vision at regulatory level. That said, it is no mystery that with the Junker Commission there has been an improvement in relations between telecommunications operators and the EU: a few major players, especially in Central Europe, are “happier”, saying that dialogue is much better, especially regarding the preservation of investment in infrastructure.
As far as regulation of inter-industry convergence is concerned, I believe that the regulatory process will remain relatively behind because those who have the competence will not be ready with respect to the rate at which change will take place. As usual, technological innovation will create new market conditions faster than the regulator can recognise, but this is normal, it is not a specifically European problem. Certainly, over the next decade, there will be some attempt to catch up. Moreover, understanding what is happening and what will happen in the coming years in terms of inter-industry transformations is objectively difficult, it is not a trivial matter.“
Upstream of regulatory choices, however, there is the definition of what the interest is in view of which rules are formulated; what the European interest is in this area. Is it legitimate to ask whether there is actually an overall interest of the Union or whether it is rather individual states seeing continental market issues from the point of view of their operators, their industries and then eventually influencing EU decisions.
“The European method for regulating individual industries is now sufficiently consolidated: the guidelines and objectives are formulated by the Union and then States apply them – causing more or less friction depending on local situations. However, frankly speaking, in my opinion Europe does not appear to have a strategic vision on the digital revolution: at least not a shared vision. This is, of course, generally speaking: on some specific issues there are some inter-industry integration initiatives – even big ones, like Industry 4.0 – but they are usually pushed, prodded by individual countries. In the case of the theme I have just mentioned, the country in question is Germany.“
On the agenda of European regulation of telecommunications, there is the question of competitive conditions between OTT and telecommunications, now heavily skewed in favour of the former. Among others, the relationship envisages that the situation will be substantially the same in 2025, because the EU will not be able to intervene effectively on this ground. However, the question will arise both in terms of the homogenisation of tax rules and on the ground of rules for the management of personal data, which sees European companies much more constrained than those operating from abroad and therefore less able to exploit the huge asset represented by the management of such data in a Big Data logic. The outlook, therefore, is not very inviting for telecommunications.
“At the level of taxation, the game is basically unbalanced, also as a result of the way in which this matter works at European Community level. There are guidelines for taxation, but there is no European tax policy. And this means that some countries take tax policy initiatives aimed at encouraging investments that they consider strategic (in this sense, the case of Ireland is one of the most obvious). The tax issue is objectively complicated, and not only for telecommunications.
Equally complicated is the attempt to regulate the business of Big Data. The game over respect of personal data is very difficult: Europe can legislate, can start infringement procedure, but the times in which it acts are very slow, inconsistent with the times in which business evolves. Anyway, I find it hard to think that you can apply the existing rules to global economic players (such as Google or Facebook); such rules, however, are applied from the outset to national players (or in any case internal to the Union). So, the only way to make the game equal would be to remove the rules on telecommunications, but this will not happen for sure. The consequence of this impasse is that in the medium-long term services will be increasingly offered by OTT and telecommunications will make almost exclusively infrastructure. It will not be a quick process; I think we are talking about a process that will come to fruition between 2025 and 2030. But I think it is inevitable.“
As regards in particular Big Data, are you convinced that the constraints faced by telecommunications operators are so objective and insurmountable, or there is also a problem of delay, of lack of attention in comparison with OTT strategies?
“It’s a general problem, not only a European one. American telecommunications operators also have the same problem in relation to OTT operators. The difference is that they have a stronger and more organised lobby and thus manage to interact with the Government and the authorities of the United States in a different, more effective way. The fact is that when it was born the business was much more regulated, because in the past it belonged to the State, because it had to guarantee equal access to all customers, etc. On the other hand, however, there is a business which was born more recently and which is entirely free.
As for the greater initiative of telecommunications operators regarding the data they have, perhaps this is possible in some “vertical” way in which Big Data are less personal and more structural (territory, production of industrial goods, etc.). It seems to me more difficult to think of using Big Data where the data of people are at stake. I don’t believe that the set of constraints that exist today can be called into question. And, mind you, I’m not saying this is wrong: it’s good that personal data are protected. However, today this applies for one type of player and not for the other.“
Let’s move from regulatory issues to technological factors. In addition to the increasingly pervasive penetration of services, including communication services, of OTT operators, the evolution of technology and business models in the coming years will also tend to increasingly call into question the asset represented by the infrastructure owned by telecommunications operators: the spread of technological solutions of the short distance type; the growth of D2D technologies that allow direct communication between terminals without recourse to the operator’s network; the progressive virtualisation of network architectures and thus the growing supremacy of software. Given these trends, is the risk looming that strong investment in network expansion programmes will have a very poor return, on both the private and public side?
“If we reason with investment criteria and with the costs of current infrastructure, there is certainly the risk that investment will never become profitable. But we must also consider that, in the coming years, the costs for creating networks will be somewhat lower than in the past, using new solutions based on non-traditional technologies. The cost of installing fiber is that: there’s not much one can do about it (so much so that Google recently announced it would stop doing its Google Fiber services). But today with wireless, or with a combination of wireless and fiber, much can be done. In addition, network architectures can be greatly simplified, just as the costs of technological infrastructures can be cut significantly. In this way, the problem will end up with moving from suppliers of services to traditional telecommunication manufacturers, which will enter into a greater crisis than they are already in.
Besides, it will be the financial market itself that will push for investment to be oriented towards solutions that give more short-term returns, which do not require long-term fixed assets.. This much more so in a sector such as telecommunications where the waves of innovation are so fast that they can wrong-foot investments which have overly lengthy remuneration horizons, causing loss of value. The consequence of this type of financial trend is that investment in infrastructure ends up being done more for strategic than for economic reasons. But it is an investment that certainly cannot be made by the private citizen. It is as in the case of motorways which were constructed well before there were many cars ready to run on them, and thus an economically beneficial investment. But they were made by the State.“
If the traditional infrastructure, the cable network, will gradually lose importance due to the diffusion of new technologies, is the question of national control over the network itself – which arose especially when control of Telecom Italia was acquired by groups of other countries – being overcome?
“In part, it is an old question, but only in part, because the question of the possibility of access to the contents of communication remains, for security and judicial-type reasons, but also for strategic issues concerning the relations between States. If a State loses control of these aspects, it loses sovereignty.“
But if this infrastructure gradually loses importance because communications will also gradually pass through other channels, how does the issue evolve from the public point of view?
“The problem remains and will become increasingly complicated, because it becomes more difficult to maintain the capacity to control both from a technical point of view and from the point of view of political relations with service providers: this was seen recently when the CIA asked Apple to obtain the backdoor in order to be able to control certain telephone communications. But which interlocutors could the Italian State have, given that the manufacturers of devices are all in other countries? In any case, because communication will still have to go through some kind of network, maintaining national control of this network will remain a strategic issue.“
Stefano Palumbo
