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Wafer thin margins and an overcrowded market place are stunting operators ability to invest, according to Vodafone Group’s most senior representative
Regulatory bodies in Europe must act now to improve margins for operators, or risk being left behind in the race to develop and implement 5G, according to Vodafone Group’s CEO, Vittorio Colao.
Speaking to journalists at the Mobile World Congress this week, Colao said that regulators needed to get real about margins in the industry and stop focussing solely on driving down prices for consumers.
"Returns for the telecoms industry must be better. Regulators should take that into account. We should not be overcharged for spectrum and we should have long spectrum life. They need to take a long-term view of just what technology can do. It’s not just about selling spectrum to squeeze as much money out of telcos as possible. I’m a little bit critical of one or two regulatory elements," he said.
Colao said that attitudes around profitability needed to change at regulatory level, if the industry was to be able to invest the multi billions of dollars in Capex that 5G will require.
"There is still a little bit of a populistic attitude to this topic [of returns and investments]. The reality is that this is not some malign vision where money is just being paid out to shareholders. You need to make money in order to reinvest.
"I am not so sure that we have communicated well enough how important it is to have a higher return on capital, to facilitate higher levels of investment.
"Let’s face it, when I became CEO, Vodafone was investing 10 per cent of its revenues every year in capital investment. Now, we are investing more than 15 per cent. That should correspond to higher returns, but at the moment it isn’t and that is the problem."
Do we really need four operators in each market?
Colao said that the insistence by regulators on there being at least four network operators per market was squeezing profit margins to dangerously low levels.
"Policy makers have to decide what they want. Do they want four operators, five operators, even? Do they want an unlimited number of operators, even though they know that spectrum is limited? Or would they rather have a good level of competition but also have good incentives to invest?
Calao fielded a question from the audience about the emergence of a fourth telco in the Australian market and said that European operators needed to learn lessons from developments down under.
"Australia is a country of 26 million people. Do you really need four operators for 26 million people, when a country like China with 1.3 billion people has only three operators? I think the chances of this fourth Australian operator making any money are pretty close to zero. There needs to be a little bit better thinking about returns. We need to think about how citizens will benefit, because, of course, citizens benefit from low prices – but they also benefit from low latency, from high quality, from good digital solutions," he said.
Colao also reserved a portion of his ire for governments across Europe who were trying to cash in on 5G by charging telcos through the nose at 5G spectrum auctions.
"Let me pick on the Italian government for a moment – we have a spectrum auction in 2018 for spectrum that will be released in 2022. So, I am expected to pay money now but I cannot start using it [the spectrum] until 2022. That’s capital that is going nowhere. It’s not an investment, its merely a pre-payment. Is this the right approach?
"I understand that they need to balance the budget, but I feel that we in Europe need to recover the concept of investment. We need people to understand that in order for us to be able to invest, we need, somewhere, to make money. This creates more jobs and better services. It shouldn’t just be about low prices everywhere – we already have low prices [in Europe], especially compared to the US," he said.
