European economies are facing a fresh financial slump as a result of the COVID-19 (coronavirus) pandemic. But the silver lining for telecoms is that we are relying on connectivity like never before, with increased data consumption and a renewed focus on network reliability as working from home becomes normal and we see the beginnings of a demographic shift away from city centres. Telecoms is expected to play a key role in economic recovery, with leading industry bodies emphasising that the sector is ready to work with European Union (EU) institutions, national governments and the broader stakeholders’ community to lift the continent out of recession. TIM HATT and PETER BOYLAND look into this.

A great deal of operator investment in Europe over the past decade has been focused on fibre rollout, as increased demand for data puts pressure on legacy networks. Operator capex, however, continues to be stretched by the high cost of new technologies like 5G, while facing increasing competition from disruptors and new entrants all looking for a slice of the connectivity pie. Many governments have recognised the importance of fibre and regulation has a role to play. But operators also need to be open to rethinking their investment models and consider partnerships, consolidation or divestment to enable fibre rollout.

The role of regulation

Governments and regulators in Europe have largely recognised the importance of connectivity and made it a key part of management and recovery strategies. Many governments set ambitious broadband speed and coverage targets to incentivise operator rollout. The UK government earmarked £5 billion ($6.7 billion) to bring gigabit-capable broadband to underserved regions, while Spain is directing nearly €1 billion ($1.2 billion) of state and EU funding to connect areas with no current or planned coverage.

But coverage targets need a clear and beneficial regulatory environment in addition to financial support which recognises fibre is key to connectivity. Fixed fibre connectivity offers great network performance and resilience, but is costly and somewhat inflexible. Operators need to consider a number of options to connect their users, including fibre, hybrid options like fixed-wireless access, and mobile 4G and 5G networks. Governments need to acknowledge this and regularly implement and update economic incentive plans for the rollout of high-speed fibre networks.

Fibre at the core of connectivity

Continued growth in fixed and mobile connectivity relies on backhaul options that can keep up with data demand. Fibre backhaul is not just key to fixed technologies like FTTH, it’s the link that connects mobile base stations to the rest of the operator’s network and then onto the internet. It’s important because it has a direct impact on network performance and user experience, such as download speeds and latency. A superfast RAN link from the mobile base station to the user or vice-versa falls flat if the backhaul link can’t keep up.

Fibre backbone is becoming more important as 5G connections increase and networks mature. Operators are also looking to the enterprise sector as it becomes clear the consumer sector will not be able to fund expensive 5G rollouts on its own. Standalone networks promise consistently high speeds and ultra-low latency, but these rely on solid, uninterrupted connectivity on uncongested networks. And the whole range of 5G technologies currently being touted to improve connectivity and network performance, such as open RAN, network slicing, dynamic spectrum sharing and virtualisation, will not be possible without fibre backbone. And new funding models are now needed to facilitate fibre expansion.

Consolidation and divestment

There is no doubt operators need to invest in fibre, but this doesn’t necessarily mean costly network rollout. Europe, in particular, has recently seen a wave of fixed/mobile consolidation. Vodafone Group recognised its limited fibre assets could be a hindrance to network expansion, so embarked upon a number of acquisitions and partnerships in the cable sector with Liberty Global and its subsidiaries. The combination of BT and EE in the UK was largely driven by content, but EE’s 5G rollout will undoubtedly benefit from access to BT’s fibre. Meanwhile in Italy, disruptive new entrant Iliad signed a partnership deal with wholesale operator Open Fiber. Fixed operators are also recognising the strength of expanding their fibre network through consolidation, such as Euskaltel in Spain.

Another important trend is infrastructure divestment. Many European operators are spinning off their tower and fibre assets into separate businesses. Telefonica hived off its mast mobile masts into its Telxius subsidiary, while Deutsche Telekom and Vodafone have separated some of their tower assets and are seeking to sell part of them through a listing or private sale. These divestments improve financial efficiency as the operators can use those assets for their own operations while wholesaling them to others.

Staying agile to boost economic recovery

The need for fibre in connectivity is indisputable and the advent of 5G has made this even more paramount in a Covid-19 world. But disruption in the sector continues from new entrants seeking wholesale access to the mobile and fixed ISPs, low-cost players like Iliad, and outside influences like Google and Amazon.

Operators need to be highly adaptable and stay open to a wide range of fibre expansion opportunities. Governments, regulators and investors also have a role to play in enabling this flexibility, if operators are to be allowed to make the most of expansion opportunities to help drive the economic recovery.

• Hatt and Boyland are head of research, and lead analyst at GSMA Intelligence.
• Editor’s Note: The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.