InterRegional for Strategic Analysis


        
<p>For many years, the member states of the European Union relied upon stable energy supplies. There was little interest in having generators to supplement the energy supply for extended periods in the event of an outage.&nbsp; But with recent geopolitical changes in the region, as well as Europe’s position against the Russian intervention in Ukraine and the earlier opposition of some countries to the completion of the Nord Stream 2 Pipeline, Europe has come under Russian pressure due to its leverage over gas. Since the beginning of 2021, this has embroiled the continent in an ongoing energy crisis.</p>



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<p>With the shutoff of gas supplies along the principal supply route to Europe as a result of the conflict in Ukraine, the likelihood of an energy shortage has increased. Recently, with the approach of winter, this has provoked concerns about the telecommunications sector’s capacity to endure an electrical outage, resulting in damage to communications infrastructure and the disruption of portions of the cellular network across the European Union. These concerns have increased with the disclosure by a number of executives in the European telecommunications sector that multiple European countries lack backup systems sufficient to handle a widespread electrical outage. This could require companies to attempt various strategies to reduce the effects of an outage on telecommunications infrastructure, thereby averting the associated threats.</p>



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<p class="has-vivid-red-color has-text-color"><strong>An Intertwined Relationship</strong></p>



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<p>For more than a century, the European continent has used coal and other types of fossil fuels for electrical production in power plants. In the context of climate change and sustainability concerns, the importance of energy has only increased with time. Meanwhile, the energy demands of the telecommunications sector have increased due to the technological revolution and 5G networks (with the demands of their massive data traffic, to say nothing of the electricity required to set up necessary data infrastructure). This has increased the energy consumption of the sector by between 200% and 300%.</p>



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<p>Thus, any interference with the electrical supply, or an outage, could lead to serious damage to the telecommunications sector (and likewise to the technology sector, especially considering that more than half of global internet traffic runs through six Silicon Valley companies: Google, Facebook, Netflix, Apple, Amazon, and Microsoft).</p>



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<p class="has-vivid-red-color has-text-color"><strong>European Efforts</strong></p>



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<p>Although Europe has nearly half a million telecommunications towers, most equipped with backup batteries that last for half an hour and permit the usage of mobile phones, this would not be sufficient in the event of a lengthy electrical outage. Therefore, multiple European governments are negotiating with energy companies and distributors to prevent a cutoff of the electricity supply to mobile phones, or at least minimize the length of the outage likely to occur. The companies are seeking ways to guarantee the continued operation of telecommunications towers linked to the internet for the longest possible period. What follows is a glance at these European efforts:</p>



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<p><strong>1. Negotiations between European governments and telecommunications companies</strong>: Within the framework of current concerns about the aftereffects of a European telecommunications outage due to the gas crisis, European governments have turned to negotiations with telecommunications companies to find solutions to the crisis of a telecommunications outage that looms on the horizon. For its part, the French government is attempting to cooperate with the telecommunications companies present in France and the electrical supplier Enedis Corporation (an entity linked to the Electricité de France corporation, in which the government owns a majority share).</p>



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<p>Negotiations between the stakeholders were held throughout this summer. An agreement was reached to cut the electrical flow to certain regions in rotation in order to reduce consumption. Essential services would be exempted from an outage; Enedis would isolate parts of the network to supply priority clients (hospitals, major industrial installations, the army, the government). It would be left to regional authorities to add the infrastructure of &nbsp;telecommunications providers to the list of priority clients.</p>



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<p>For its part, the Swedish Post and Telecom Authority (PTS), alongside employees of the telecommunications and other government ministries, is also working to find solutions to the electricity crisis. Within the framework of developing solutions to the crisis, PTS is currently subsidizing the purchase of portable fueling stations and mobile base stations for cellular telephones to deal with an extended electrical outage. Similarly, the German company Deutsche Telekom expressed its intention to use mobile emergency power systems depending essentially on diesel in the event of an extended electrical outage.</p>



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<p><strong>2. Inviting companies to share in internet network costs</strong>: On September 26<sup>th</sup> of this year, the heads of the largest telecommunications companies in Europe (including BT, Vodaphone, and Deutsche Telekom) put out a call for&nbsp; major technology companies (such as Amazon and Netflix) to participate in carrying some of the heaviest costs of telecommunications infrastructure, starting from the premise that more than half of global internet traffic runs through six Silicon Valley companies (Google, Facebook, Netflix, Apple, Amazon, and Microsoft).</p>



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<p>Meanwhile, the European telecommunications companies collectively spend approximately 50 billion euros annually on construction and maintenance for full-fiber broadband and 5G networks. With the outbreak of the energy crisis and the rising costs of materials, the cost of fiber optic cables has doubled over the course of this year, adding to the financial burden borne solely by telecommunications companies.</p>



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<p><strong>3. Taking collective steps to address rising energy prices</strong>: This September, the energy ministers of the European Union reached a political agreement organizing an emergency intervention to address rising electricity prices, encompassing an array of collective measures, especially targeting a steep rise in gas prices. To lower the price of electricity for consumers, it was proposed to collect surplus profits accruing from electricity production and a solidarity contribution from the fossil fuel sector (from the sector’s excess profits). These funds would be used to reduce the impact of rising prices on consumers and provide greater security to electricity retailers.</p>



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<p>In this context, the ministers discussed the supplemental benefits that would accrue from lightening the burden of rising prices. They highlighted the unity and solidarity of their collective efforts to guarantee energy supplies, diversify energy sources, reduce dramatic price fluctuations, and lower the price paid by regional clients, all while continuing the energy transition.</p>



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<p><strong>4. Pressuring Russia by imposing sanctions</strong>: The European Commission proposed a list of materials and companies that would be included in a package of additional long-term sanctions against Russia. This would increase the stress on the Russian economy in response to the outbreak of war in Ukraine and pressure from Russia’s stranglehold over the gas supply.</p>



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<p>Included is a comprehensive list of products, seemingly poised to stifle Russia’s manufacturing capability. The list restricts all parts used in any type of vehicle (including automobiles, motorcycles, trains, airplanes, and spacecraft) such as motors, testing equipment, and semiconductors. It covers all iron, steel, and metal products (such as pipes and wires) in addition to biodiesel fuel, lead, coal, and petroleum products – in short, all materials used in manufacturing processes.&nbsp;</p>



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<p class="has-vivid-red-color has-text-color"><strong>Additional Challenges</strong></p>



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<p>At present—and more than ever before—Europe is in pressing need of a strong and sustainable telecommunications sector, especially in light of the major challenges that it faces. These are not restricted to a shortage of energy and the risk of an electrical outage, but also the following significant challenges:</p>



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<p><strong>1. The dilemma of betting on the sector in pursuit of digital goals</strong>: The telecommunications industry is one of Europe’s strategic sectors and a key asset.&nbsp; Network and non-network communications are considered Europe’s leading technology business. The added value of the sector’s companies reaches approximately 141.5 billion euros annually. At present, the sector is concentrating on the essential infrastructure of the digital transformation and the green transition, and accelerating the incorporation of technologies like 5G, advanced and cloud computing, Artificial Intelligence, the Internet of Things, and cybersecurity. Of course, all of this calls for more energy, and there is currently a severe shortage. The sector’s ability to achieve Europe’s digital goals and green transition during the present decade—amidst instability in supplies of energy and electricity—has become the main challenge.</p>



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<p><strong>2. The problem of European telecommunications’ market structure</strong>: The European telecommunications sector is suffering a market-structure crisis. The source of the crisis may be found in the fact that the sector is essentially divided between member states and lacks governing policies. On top of this, the European regulatory approach artificially promotes competition by increasing the number of players on the field and offering preferential asymmetric treatment that advantages new arrivals. With time, the telecommunications market has become overwhelmingly fragmented in Europe because of a refusal to consolidate the market internally or impose as conditions for mergers strict measures maintaining prices and restricting the number of participating players.</p>



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<p><strong>3. Reducing the investment ability of the European telecommunications market</strong>: The market-structure crisis of European telecommunications limits the ability of the network and non-network communications sectors—strategic resources for the European Union—to compete and to invest. This has begun to jeopardize the sector’s ability to meet the European Union’s digital and green goals on time. Investors blame the fact that European operators lack a market scale comparable to that of their counterparts in the United States for the sector’s frustratingly low returns and the expected contraction of its revenues.</p>



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<p><strong>4. Redirecting investments in the European telecommunications sector to other markets</strong>: The value of the European telecommunications sector has been steadily declining due to falling revenues and investment returns, in contrast to other regions such as the United States. Recently, the telecommunications market has seen dramatic changes, demonstrated by the redirection of investments to other markets. For example, in November of last year, Telecom Italia received a buyout offer from the giant American private equity company KKR &amp; Co., which sought to renew the struggling Italian telephone company that lost approximately half its market value over the last five years. Such agreements greatly threaten and damage the investment capabilities of the sector. Decisive action is required to address the significant dangers posed by such decapitalization and the forfeiture of competitiveness, strategic autonomy, and digital sovereignty.</p>



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<p><strong>In sum, in the context of threats currently besetting the European telecommunications and technology sectors—especially the danger of an electrical outage caused by a power shortage—Europe needs to take different tracks. Simply reacting to or accepting the crisis is not sufficient. Rationing electricity or cutting it off for intermittent stretches may contribute to increasing energy supplies; however, this solution remains impractical. The matter requires, firstly, modifying the framework for competition in the telecommunications sector and improving the climate for investment so that the sector can better serve consumers. Sustainable competition would promote investment in advanced and quality infrastructure and increase returns by encouraging investment in the sector. This would strengthen the sector’s ability to endure the setbacks and losses that pose an existential threat.</strong></p>



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<p><strong>And not this alone.</strong><strong> </strong><strong>&nbsp;Enhancements to the energy efficiency of the network must be pursued through an increased use of alternative energy sources that meet or exceed carbon reduction targets. This must expand as 5G networks reach dominance. Significantly, this would helpfully reduce dependence on the primary power grid—and, by lightening the load on the grid, contribute to lowering power consumption. </strong><strong></strong></p>

      

Is the Telecommunications Sector Collapsing as a Result of the Energy Crisis in Europe?