The Commission has approved the State aid scheme to support the roll-out of 5G mobile networks in Spanish rural areas. With this scheme, 5G and its innovative use cases are coming closer to Spanish consumers, businesses, and the public sector.
However, State aid rules are only a piece of the EU’s legislative framework to promote investment, innovation, and competitiveness. It is important to rethink the regulatory and competition frameworks to ensure that EU markets are fit for the Digital Age.
An approach to the Spanish State aid measure
As part of the Commission’s policies to enhance an EU fit for the Digital Age, the Commission has approved the State aid scheme to support the roll-out of 5G mobile networks in Spanish rural areas.
In short, State aid rules prohibit Member States of the EU from granting public money to companies operating in the internal market unless it is justified by reasons of general economic interest.
In its approval decision, the Commission has confirmed that the State aid measure to support the roll out of 5G mobile networks in rural areas facilitates the economic development of Spain. Therefore, the measure is justified and compatible with the internal market for the following reasons:
- It addresses underserved rural areas of less than 10,000 inhabitants.
- It solves a market failure namely, the absence of current or planned 5G networks in target areas.
- It provides an incentive effect to operators as it facilitates the deployment of infrastructure whose costs are not balanced with the revenues forecasted by operators.
With this scheme, 5G and its innovative use cases, such as digital health, smart farming, digitalized industry, and cloud-based services are coming closer to Spanish consumers, businesses, and the public sector.
Geopolitics: despite digitalization policies, Europe is lagging behind 5G deployment compared to other regions
Telefónica is committed to the deployment of 5G in the regions where it is present. In Spain, Telefónica has already launched 5G standalone and it will try to make the most of the State aid scheme. First, infrastructure is essential to accelerate the digital and green transitions. 5G investments are critical to enable the services expected to transform productivity across all industries. Second, the intrinsic value of the measure lies in bridging the gap between rural and urban areas, helping to reduce regional inequalities.
However, even if digitalization and 5G are at the heart of every Commission policy, the reality is that 5G coverage in Europe lags far behind other regions. According to Ericsson Mobility Report 2023, the total coverage of 5G mid-bands in Europe is 15%. Meanwhile, 5G mid-bands’ coverage in North America reaches 80%, and China is in the lead with 90%.
The achievement of the digital transformation with 5G is one of the founding blocks of Europe’s industrial competitiveness. Whilst 5G deployment is a vital task for EU telecommunications’ companies, other EU industries are dealing with an increasingly fierce global competition. In this regard, Europe is facing a real timing challenge.
Are State aid measures sufficient to enhance digitalization and competitiveness?
State aid measures are necessary to address market failures in industries where the private initiative does not cover the needs of every business and consumer. In an investment-intensive industry such as telecommunications, State aid is essential to incentivise operators to bring connectivity across all the territories, even the most remote. The Spanish measure for State aid in rural areas will be an example of success in this regard.
If State aid is already addressing market failures, what other signals are missing to enhance competitiveness of EU markets and particularly, 5G?
For Telefónica the answer is simple: regulatory and competition frameworks are not fit for boosting Europe’s competitive potential. State aid rules are only a piece of the EU’s legislative framework that must support investment, innovation, and competitiveness.
The European Roundtable for Industry (ERT) and Telefónica have proposed additional means in which innovation and competitiveness can be unleashed:
- Rethink regulation: the EU must design a regulatory framework that is coherent with political goals. In telecoms, this includes rethinking whether competition has already substituted ex ante regulation as well as rethinking merger control policies to enhance a pro-investment framework.
- Realise the scale-up of investment intensive innovation: technology development should be de-risked. Greater confidence on private initiative will enable companies to meet the challenges ahead.
Thus, whereas State aid is a useful tool to address market failures -as demonstrated by the Spanish measure on rural 5G-, it is only a pillar among the foundations for achieving a wider EU challenge namely, the enhancement of competitiveness.