Wednesday, September 11, 2013

Will "Connected Continent" Plan Spur Infrastructure Investment, or Not?

As always is the case, not all stakeholders will be happy with the new “Connected Continent” proposal. Some policy advocates will not be pleased with the approach to network neutrality (too lenient on the service providers).

Service providers might not like the provisions that will take revenue and profit out of international calling. Some national regulators might not prefer the shift of authority to a centralized approach.

And many will continue to wonder where and how the funds to invest in next generation infrastructure will be found.

The “Connected Continent” plan, created by Vice President for the European Commission Neelie Kroes, might actually depress European service provider investment in next generation infrastructure, according to Strand Consult.

The main problem, perhaps, is that the proposal continues to favor “competition” at the expense of “investment.”

The proposal “will create price wars between operators, which will deliver lower prices for consumers in the short term, but remove incentives for operators to invest long term,” argues John Strand, Strand Consult principal.

In the near term, service providers will spend scarce capital on acquiring other service providers, not investing in infrastructure, one might argue.

Strand argues that in a newly competitive market, service providers will be forced to spend more on marketing, diverting capital that might otherwise be invested in infrastructure.

Also, if price competition heats up, profit margins and revenues will fall further, reducing the ability to invest in infrastructure.

Contrarian investors might see an opportunity there, however. One reason AT&T might be interested in getting into the tough European mobile market now is precisely the inability of other competitors to invest heavily in fourth generation infrastructure.

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