Slow progress toward fully integrated energy and telecoms sectors has left member countries
unequally vulnerable, write ANTONIO MANGANELLI AND ANDREAS SCHWAB.
German Chancellor Olaf Scholz said in October that Europe’s energy crisis can only be overcome
through “solidarity.” But as of late, this solidarity has been in short supply.
Member countries have lacked a unified response to soaring energy prices and runaway
inflation, which has been exacerbated by Russian President Vladimir Putin’s war on Ukraine.
And despite the Chancellor’s call for solidarity, a common strategy to address the energy crisis
remains a long way off.
In particular, Germany’s earlier decision to go it alone with a €200 billion(US$ gas price relief
fund has sparked alarm in Brussels and other European capitals. And Berlin’s protracted
opposition to the cap on gas prices that many European Union countries supported meant that
an eleven-hour summit in late October yielded only a blurry roadmap, rather than a decisive
agreement on how to lower energy prices causing economic pain across the bloc. Finally, after
long discussions, they were able to reach a political agreement on the price cap at the end of
last year, which will be applied from next week, starting February 15.
Both the energy crisis and the pandemic preceding it have exposed the weakness of
fragmentary management, which has hindered the development of the European single market
— one of the bloc’s greatest accomplishments. Indeed, they have illustrated how, even after 30
years, the single market has significant gaps that need to be plugged if the EU is to be crisis-
proof.
Since Russia’s annexation of Crimea in 2014, there have been several calls for greater
integration of European electricity markets, but both practical and political obstacles have left
Europe with disparate energy systems linked by insufficient interconnectors. Meanwhile many
member countries’ governments remain close to their state-owned energy companies and
consider energy policy a matter of national security.
However, Putin’s invasion has now shone a spotlight on the perils of such fragmentation, and
the EU urgently needs both short-term measures to tackle the energy emergency — such as a
financial instrument similar to the SURE plan that cushioned the pandemic’s socioeconomic
impact — as well as a Europe-wide buyers’ network for natural gas and a deeper integration of
the European energy market.
The EU began, in part, as an energy alliance. Yet, it has made meager progress toward an
energy union, which would generate many benefits — from increased energy independence to
lower prices. Thus, full harmonization of the energy sector should be a priority. And without a
coordinated effort at the supranational level, the risks are clear.
The European People’s Party group has, therefore, called for an integrated energy single
market, as without it, there’s distortion competition — with consumers and businesses in
wealthier member countries relatively shielded and those left behind made vulnerable. This
means they could be tempted to follow Hungary’s example and sign their own agreements with
Gazprom, thus rendering the EU’s sanctions policy completely ineffective.
The dangers of the energy crisis risk other side-effects as well, including growing household
energy poverty, the deindustrialization of entire sectors, and increasing asymmetry and
fragmentation across the markets in Europe.
All this could trigger geopolitical tensions — but it could destabilize Europe’s competitiveness
too. And the experience of other critical European sectors — most notably telecoms — has
amply shown how market fragmentation can damage economic competitiveness and resilience.
When it comes to telecoms, the EU has, rightly, made the deployment of next-generation
technologies a key priority, as achieving Brussels’ digitalization benchmarks could increase GDP
per capita by over 7 per cent across the EU. However, despite political will and public funding —
on average, member countries have allocated 26.4 per cent of their COVID-19 recovery funds
toward accelerating the digital transition — the EU is still lagging dangerously behind faster-
moving regions in Asia and North America.
The heart of the issue is the significant infrastructure investment required to achieve the EU’s
ambitious digital objectives for 2030, and to cope with exponentially increasing demand in
network traffic as well. Due to the significant pandemic-era surge in data traffic Internal Market
Commissioner Thierry Breton was already forced to ask Big Tech firms to reduce the quality of
their audio-visual services, so as to avoid the collapse of European networks.
It’s also quite clear by now that European telecom companies can’t afford the investment
needed to meet the digital transformation targets set by Brussels — which is why large public
EU and national funds have been devoted to support the deployment of high-capacity networks
in most member countries.
Next to public intervention, however, it’s also necessary for each market player in the digital
ecosystem play its role.
With this in mind, the Commission is soon opening a public consultation process, which will
assess whether and how all the different market players contribute to the telecoms and digital
infrastructure, in order to make coping with increasing user demand possible. This policy action
should aim to shape an ecosystem where all play a proportionate and fair part in overcoming
the infrastructure investment gap.
Furthermore, a point of particular concern is that European telecommunications companies are
more financially strained than their overseas counterparts.
The core of the problem here is the fragmentation of the Continent’s telecoms market. Indeed,
while the US has only a few operators covering the entire telecommunication market, the EU
has several dozen. For example, in the mobile sector, seven out of the nine largest European
markets have at least four network-based competitors at the national level.
This unsustainable level of fragmentation has put Europe at a considerable disadvantage and
has weakened EU companies’ ability to invest. At €96.3(US$102.61) per capita, Europe’s
telecom capital expenditure is clearly lower than what Asian giants (€115.4 in South Korea) and
US companies (€191.9) invest.
Moreover, this fragmentation has left EU telecom players unable to rival global digital tech
companies and impeded their investment due to very intense price competition. In this regard,
both competition policy — namely merger control — and ex-ante regulation should adapt to
the changed circumstances.
As a similar scenario now unfolds in the energy sector, slow progress toward a fully integrated
energy market has left member countries unequally vulnerable. And if we don’t seize the
opportunity to plug the gaps in the single market, this disparity will only increase, the process
of deindustrialization will accelerate and the EU will lag behind other major world economies.
Manganelli is a professor Antitrust & Regulation at the LUMSA University of Rome while
Schwab is a member of the European Parliament.
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