Europe at Risk of 'Slow, Fragmented' 5G, Warns Vodafone Boss

BARCELONA -- MWC 2018 -- Bashing Europe's policymakers and regulators is a favorite activity of the region's telcos at Mobile World Congress, and Vodafone chief executive Vittorio Colao used a press conference at the annual show to air his concern that 3G- and 4G-like regulations could deal a blow to the region's 5G prospects.

Speaking to reporters on the sidelines of today's event, Colao said there is an opportunity with 5G to reduce environmental impacts and boost European rates productivity as long as policymakers do not try to overcharge for spectrum or impose unfair obligations on telcos.

"If policymakers think to develop 5G in the same way as 3G and 4G, it will be slow, fragmented and not exciting," he said. "Regulators must take a longer-term view of what the technology can do and not just sell spectrum to squeeze money out of telcos."

The remarks come in advance of spectrum auctions in the UK, France and Germany later this year and reflect some wider industry concern that high licensing fees could hinder the deployment of higher-speed 5G networks in European markets.

Telcos and equipment vendors including Germany's Deutsche Telekom AG (NYSE: DT) and China's Huawei, which sells equipment in the European market, have already urged authorities not to attach high base fees to the frequency licenses they sell to future 5G operators.

In one market, said Colao, Vodafone Group plc (NYSE: VOD) has an option for spectrum this year that will not be released until 2022. "That is capital going nowhere -- not investment but prepayment," he said. "Is this the right approach?"

The Italian boss of Vodafone, which operates across a range of European and international markets, also complained about the "populist" attitude to capitalism, and operators' ability to make a decent return on investment, in the European region.

He also criticized the press for "not doing a tremendous job" of explaining the issue in stories about the telecom sector.

"Return on capital is important because you finance investments out of capital created," he said. "It is true that there is still a bit of a populist attitude toward this topic and I'm not sure if we've communicated how important it is to have a higher return on capital."

According to Colao, Vodafone is currently investing about 15% of its revenues in capital expenditure, up from about 10% when he took over as CEO nearly a decade ago.

Despite that increase, the operator's return on capital has suffered, he complained. "That [higher investment] should correspond to a higher return and it isn't," he said. "We really need to cover the concept of reinvestment and that you need to make money to create more jobs and lower prices everywhere."

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Nevertheless, asked if he expected any change in the regulatory environment following years of operator grumbling, Colao struck an optimistic note about a leveling of the playing field between telcos and Internet companies.

"The wind has changed direction and now blows against the big online guys and people recognize that an excess of power has been put there," he said. "I don't think they are bad but we need even rules."

Colao's comments came after Börje Ekholm, the CEO of Swedish equipment maker Ericsson AB (Nasdaq: ERIC), issued a similar warning about European regulation and 5G at a press event earlier today. (See Ericsson CEO: Net Neutrality Threatens 5G.)

Ekholm is worried that strict regulations on net neutrality -- the principle that all Internet traffic be treated equally -- could hold up the rollout of 5G services.

With 5G, some operators would like to use a technique called network slicing to provide differentiated "virtual" networks over the same physical infrastructure. That could entail offering a higher level of service to some mission-critical applications.

The worry is that such moves may fall foul of European laws on net neutrality. During a recent conversation with Light Reading, Norway's Telenor said the regulatory situation on net neutrality and 5G network slicing has become no clearer in the last two years.

Colao told reporters that Vodafone is working with all four of the big network vendors on 5G -- Ericsson, Nokia Corp. (NYSE: NOK), Huawei and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) -- and has yet to make firm decisions about which companies will build out its future 5G networks.

— Iain Morris, News Editor, Light Reading

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