Why Europe can’t afford to fall further behind on digitalization and 5G

In an era marked by advanced digital technologies, like AI, quantum computing and augmented reality, the potential for transformative change is unmatched. These changes will impact jobs, competitiveness and climate action, in every corner of the globe.

The global winners in the digital era will be the regions, countries and companies that make the necessary investments in digital infrastructure and create an environment that fosters innovation and entrepreneurship, thereby bringing in jobs and investment.

This is a critical moment for Europe. Recent reports by Enrico Letta and Mario Draghi have given insight into the growing gap between Europe and other regions, but also direction for how to address them, with investments in advanced 5G connectivity being a vital component.

With a new European Commission in office with competitiveness and investment high on the agenda, Europe might now have the opportunity of a decade. And, it is an opportunity it must seize. Without a strong digital foundation, Europe risks falling further behind, while other regions move forward and make the most of the new digital age.

In the last decade, the US and China led the digitalization of the consumer on the back of the early launches of nationwide mobile data networks — 4G. In Europe, a slower 4G roll-out led to missed opportunities and lost economic gains.

The growing divide between Europe and the US is particularly tangible. The stock market indices in Europe and the US followed each other up to 2009, but since then, the US market has significantly outpaced Europe. Looking at the emergence of digital businesses, in 2023, out of 69 digital businesses valued at $10 billion or more, just five are European. On average, US corporations are also outperforming European corporations in terms of growth and profitability, which can largely be attributed to tech.

Today, we see the US and China similarly driving the deployment of high-performing 5G. We also see rapid progress in many other regions of the world, such as India and parts of the Middle East.

In Europe, the average investment in digital infrastructure is less than half of the investment made by the US. This is partially due to scale. For a mobile operator, scale matters and EU policy has favoured market fragmentation over scale. The average number of subscribers per operator in Europe is around 5 million — compared to 107 million in the US and 467 million in China. There are over 100 operators in Europe, most of them lacking the scale to drive sufficient investment and to generate a return on capital employed greater than the cost of capital.

Globally, we are starting to see the emergence of advanced 5G applications. Examples include self-driving vehicles in mines, automated and wireless production lines and everyday enterprise applications, such as replacing legacy IT infrastructure by connecting computers through 5G networks.

Furthermore, digitalization is key to tackling the greatest challenge of our time – climate change. A study commissioned by Ericsson found that connectivity could help reduce Europe’s carbon emissions by 15% by 2030. Making 5G available across key European industries could add an additional 5% in cuts.

However, most of the transformative use cases for 5G and beyond are still future-bound. They will be developed by entrepreneurs and innovators who must have access to advanced network capabilities so they can drive innovation and keep Europe competitive.

Those advanced capabilities require significant investments in real and secure 5G connectivity – so called 5G standalone deployed on mid-band. Much of what we see in Europe today is 5G deployed on low frequency bands and without 5G standalone functionality. Simplified, today European consumers who have 5G smartphones sometimes see a 5G symbol, but the user experience and data speed are often equivalent to a 4G experience.

I believe in the European project and I am convinced that fast and bold political action is now necessary to allow market forces to drive innovation and sustainable growth in Europe. The EU and governments across Europe should prioritize these areas:

By allowing mergers contingent on commitments for the rapid deployment of 5G standalone with mid-band, we can foster a more robust and competitive digital landscape. This approach has already been employed in countries like Australia, India, the US and most recently in the UK.

Spectrum licensing takes place at the national level, with a wide variation in timetables and conditions. Across Europe, many countries have chosen to favour high auction revenues over network quality and deployment, which hampers investments in the roll-out of 5G. By trading off spectrum fees for deployment commitments, European countries can ensure the expansion of high-quality 5G networks.

Significant EU funding is available through mechanisms like Next Generation EU and its Recovery and Resilience Facility, which have been successfully used for 5G buildout, for instance, in Spain. This support should be technology-neutral and directed towards the most suitable options for enhancing connectivity.

As industries and critical public services are digitalized, 5G cybersecurity and end-user trust in 5G networks are key for European resilience. The key EU institutions, as well as Mario Draghi, have all determined that the way to mitigate security risks is for the member states to fully implement the EU 5G toolbox. Today, the EU toolbox is not being implemented in a consistent way, which creates uncertainty in the telecoms market and undermines the trust in the networks of Europe.

The choices we make today will determine Europe's future path – one of prosperity or slow demise. With the right actions and a robust industrial strategy for the European connectivity ecosystem, Europe can still catch up and position itself for leadership in the digital era. The solutions are on the table; now is the time to act.