Europe 1

European Foundation for the Improvement of Living and Working Conditions
Trends and drivers of change in the

EU telecoms sector: Mapping report
Introduction
Major market trends
Drivers of change
Employment and work organisation
Skills and training
Conclusion
References
This report is available in electronic format only.
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Introduction
The 1990s witnessed a revolution in the structure of the telecoms sector, as in other infrastructure sectors, which were
previously regarded as ‘natural monopolies’. Until the late 1980s, telecommunications services were largely provided
by a single, usually state-owned firm. After this time, however, many governments began privatising state-owned firms,
including telecommunications operators, and opening markets up to greater competition. Moreover, the rapid evolution
of telecommunications technology and growing demands for telecommunications services made it possible for a
multiplicity of operators, as opposed to a single operator, to supply services to businesses and consumers. In turn, the
new market and regulatory environment had a substantial impact on the structure and organisation of the industry
(Boylaud and Nicoletti, 2000).
The introduction of major reforms over the past two decades enabled a more open and competitive telecommunications
market as well as the establishment of an independent regulator at European level. Within the European Union (EU), the
liberalisation process in each country was deeply influenced by this reform process launched at EU level, although it
must be said that the United Kingdom (UK) was most progressive in this area at an early stage. Of course, changes in
the telecoms sector have not just been limited to the institutional framework; services and products have also been
modernised. In particular, the development of mobile services in the early 1990s and, more recently, the expansion of
Internet services have dramatically transformed the sector from a monolithic industry, based on the copper line, to a
multi-faceted service industry. These changes have, in turn, influenced employment conditions, such as the required
qualifications and productivity levels, within the sector.
Major market trends
Growth trends
Telecommunications services (NACE Rev 1.1: 64.20) are no longer defined as telephone services only. Today, this sector
embraces many areas, including the distribution of data, sound, images and other information via cable, broadcasting,
relay or satellite. The management and maintenance of networks, as well as the provision of services using these
1
networks, are also included in this category, although the production of radio and television programmes are not.
The telecoms sector is characterised by a relatively small number of large firms, many of which were parts of former
state monopolies. However, this is not the only explanation for their large size. Telecommunications is ultimately an
infrastructure service which requires the investment of large amounts of capital, particularly for the establishment of new
networks. Thus, economies of scale are typically greater in such sectors, resulting in larger entities; similarly, newcomers
to the sector are generally concentrated into bigger groups.
In 2002, the growth rate of the European telecoms sector (at market price) decreased sharply. This followed several years
of significant growth, generated by the expansion of mobile telephony and large increases in fixed line traffic volumes,
which compensated for the decline of tariffs. However, the European market for telecommunications services is still
growing at a steady rate, compared with other industrialised economies and other sectors of the economy. In 2003, the
turnover growth rate (at market price) was estimated at 5.6% in the EU15, compared with 1.7% in the United States (US)
and 2.6% in Japan (IDATE, 2004a). Accounting for 51% of total turnover, mobile services have become the largest
segment of the telecommunications services sector in the EU15, significantly ahead of fixed voice services (35%),
Internet and data services (14%).
1
In the NACE Rev 1.1 statistical nomenclature, telecommunications services are classified in class 64.20. This class includes:
transmission of sound, images, data or other information via cables, broadcasting, relay or satellite; telephone, telegraph and telex
communication; maintenance of the network; transmission (transport) of radio and television programmes. This class excludes:
telephone-answering activities; production of radio and television programmes, even if in connection with broadcast (Source:
Eurostat).
© European Foundation for the Improvement of Living and Working Conditions, 2005 1
Trends and drivers of change in the EU telecoms sector: Mapping report
Figure 1: Turnover of telecommunications services in the EU, 2002–2004 (Annual growth rate)
6.0%
EU-15
EU15 5.6% 2002
2003
4.1%
2004(e)
17.0%
10 new EU
13.0%
Member States
11.5%
Source: IDATE, 2004a
At 13%, growth was much more robust in the 10 new Member States (NMS) that joined the EU in May 2004 (see Figure
1 above), though their share of the total turnover in the EU telecommunications services market was limited to 8%.
Overall, the five largest economies – Germany, the UK, France, Italy and Spain – generated 72% of the sector’s turnover
(see Figure 2 below).
Figure 2: Geographical breakdown of EU telecommunications services turnover, 2003
Total
Total value: 249
€249billion
billionEUR
10 new EU
Member
States
8% Germany
21%
Other EU
countries
20%
United
Kingdom
Spain 16%
9%
Italy France
13% 13%
Telecommunications operators
In the past decade, particularly since early 1998, a large number of telecommunications operators have entered the market
as service providers or network operators. In the context of the 20 largest telecommunications operators (also called telcos)
in the EU (in terms of turnover), incumbent operators remain at the forefront. A number of alternative telecommunications
providers have, however, evolved into larger companies. The most remarkable example of this is Vodafone, which has
focused its activities on mobile services and is now Europe’s second largest telco, in terms of revenue (Table 1).
2 © European Foundation for the Improvement of Living and Working Conditions, 2005
Table 1: Top 20 telecommunications service operators (telcos) in the EU in 2003
1 Turnover 2003 Turnover growth 2

Operator Country Main activities Staff
(million €) 2003–2002
Deutsche Telekom Germany Incumbent 55,838 4.0% 251,000
Vodafone UK Mobile 48,597 10.5% 60,109
France Télécom France Incumbent 46,121 -1.1% 221,657
Telecom Italia Italy Incumbent 30,850 1.5% 93,187
Telefónica Spain Incumbent 28,400 0.0% 148,288
BT UK Incumbent 26,817 -1.1% 103,100
KPN Netherlands Incumbent 12,907 1.0% 29,668
3
Vivendi Universal France Fixed, mobile, Internet 9,045 5.7% 21,181
TeliaSonera Sweden Incumbent 8,962 1.0% 26,188
mmO2 UK Mobile (Incumbent) 8,245 16.8% 12,905
TDC Denmark Incumbent 6,764 -1.7% 21,125
Portugal Telecom Portugal Incumbent 5,776 3.5% 24,872
Belgacom Belgium Incumbent 5,454 3.0% 17,541
Cable&Wireless UK Fixed line 5,316 -16.4% 14,554
OTE Greece Incumbent 4,914 14.0% 17,169
Wind Italy Fixed/mobile/internet 4,383 11.8% 8,700
Tele2 Sweden Fixed/mobile/internet 4,045 18.0% 3,274
Telekom Austria Austria Incumbent 3,970 1.6% 13,890
Auna Spain Fixed/mobile/internet/ca ble 3,858 19.0% 4,578
Bouygues Telecom France Mobile 3,283 11.5% 6,900
1
Note: All incumbent operators have activities in fixed telephony, mobile services and Internet services. mm02 was created out
of BT’s split and can be considered as the UK’s incumbent mobile operator.
2
Number of employees at year-end 2003, except Deutsche Telekom (DT) and Vodafone (average number of employees during
2003).
3
Turnover and staff include only telecommunications activities of Vivendi Universal group (SFR Cegetel and Maroc Télécom).
Source: Financial releases of operators, 2003
In the fixed voice market, retail competition has increased, particularly for international, long distance and local calls,
although incumbent operators are still generally ahead of competitors. The access market has, however, remained largely
controlled by incumbent operators.
Competition in the broadband market can be measured at both the service provider and infrastructural levels. In terms
of infrastructure, the rapid expansion of the broadband market since 2002 has mostly benefited DSL (Digital Subscriber
2 3
Line) markets, although cable modem remains a significant access technology in several EU15 countries. At the service
2
Digital Subscriber Line (DSL): A type of high-speed Internet connection that enables data to be 'packed' and sent over regular
telephone wires.
3
Cable modem: A special type of modem that connects to a local cable TV line, to provide a continuous connection to the Internet.
Like an analogue modem, a cable modem is used to send and receive data, but the difference is that transfer speeds are much faster.
provider level, incumbent operators have succeeded in becoming market leaders. Nevertheless, the development of
4
wholesale offers and progress in local loop unbundling have stimulated tariff reductions, as well as enhancing the
position of alternative operators. Tariffs for broadband services in European countries have declined significantly in the
past two years, although they are still more expensive, at comparable speed levels, in comparison to Korea and Japan.
In the mobile services market, incumbent operators have taken the lead, in terms of the number of subscribers, in most
of the EU15 countries. Following a period when the entry of a third or fourth network operator challenged the market
share of existing operators, relative positions have tended to stabilise. More recently, the entry of new service providers
that do not own their own network (Mobile Virtual Network Operator) has helped to promote competition at service level
in several EU countries, such as the UK and the Netherlands. Subsequent to the allocation of licences and the withdrawal
of some operators, there have been no new entrants in the mobile market, except for Hutchison Whampoa, which is
present in six European countries (Austria, Denmark, Ireland, Italy, Norway and the UK).
In 2003, the turnover of incumbent operators, which still represent a key part of the sector, grew at a moderate pace or,
in some cases, declined (except for OTE and Telekom Austria). This trend resulted from a decline in incumbents’ fixed
lines telephony business, which was only partially compensated by the expansion of mobile and Internet business. On
the other hand, alternative operators concentrating on mobile and Internet activities saw their turnover rapidly increase
in 2003.
Broadband and mobile services lead to growth in telecoms sector

The introduction of new services has been central to the expansion of the telecoms sector in the past 20 years. In the
second half of the 1990s, the diffusion of mobile telephony and Internet access, and more recently of services, has
underpinned the continuous increase in telecommunications usage. In recent years, the wave of new services has not
faded, as operators have tried to find new sources of revenue. Moreover, telcos have set as a priority the development of
5
new products based on evolving technologies, such as 3G (third generation) and IP (Internet protocol) networks. The
challenge now for operators is to provide products, which will satisfy large-scale demand and customers are willing to
pay for.
Expansion of mobile services and decline of fixed telephony

The largest growth in the telecoms sector has taken place in mobile and broadband communications, where expansion
has offset the decline of fixed-voice services. Recent years have seen a sharp increase in the number of mobile
subscribers, whereas the number of fixed lines has remained static or even declined in some countries. Within two years,
between the end of 1999 and 2001, the total number of mobile subscribers doubled to reach 308 million subscribers. Since
then, growth has continued, although at a slower pace. At the end of 2003, there were 369 million mobile subscribers in
the EU. This is the equivalent of 81.2 subscribers per 100 inhabitants, the highest density among world regions.
4
Local loop unbundling refers to a process that requires incumbent operators to open the last mile of their legacy networks to
competitors. There can be access to the full and exclusive use of the copper pair, connected to the customer and/or some form of
shared access to the local loop. Full unbundling refers to access to raw copper local loops (copper terminating at the local switch)
and sub-loops (copper terminating at the remote concentrator or equivalent facility). Shared access refers to the non-voice
frequencies of a local loop and/or access to space within a main distribution frame (MDF) where DSL access multiplexers
(DSLAMs) and similar types of equipment can be interconnected to the local loop.
5
3G: a short term for third-generation wireless, 3G refers to near-future developments in personal and business wireless technology,
especially mobile communications.
In contrast to the growth in mobile telephony, fixed line telephony, which generated 37% of telecommunications
turnover in 2003, is on a downward trend. A reduction in volumes and tariffs, in particular, has resulted in the overall
decline in revenue generated by fixed telephony. Increased competition in the market, through greater pre-selection of
the operator and local loop unbundling, has kept a pressure on prices. For several years, the overall number of fixed lines
in the EU has stagnated, and in 2003, it fell for the first time. This decline may reflect the growing popularity of
broadband, which offers two phone lines within its package. As a result, many customers can dispense with having to
purchase a second line for dial-up access to the Internet. User surveys also indicate that an increasing number of
households have one or more mobile phones, without owning any fixed lines (IPSOS, 2004). In the 10 NMS, the decline
in the number of fixed lines has been even sharper, despite the existing poor fixed tele-density (35.4% compared with
56.4% in the EU15): mobile telephony is providing an alternative to low quality fixed line infrastructure.
Mobile data services

In recent years, there has been a surge in the transfer of data through mobile services. The most remarkable development
in Europe has been the success of the short-message services (SMS) market, which generated 168 billion messages and
between 7% and 20% of mobile operators’ turnover in 2003. In the same year, the overall share of data in mobile services
revenue reached 16% in the EU15.
Although the SMS market still generates the largest share of mobile data revenues, multimedia mobile services are
quickly expanding, as new terminals are now available, and operators launch attractive and homogeneous portal offers
on their networks (such as i-mode, Vodafone!Live, OrangeWorld). Expanding services currently include multimedia
messaging services (MMS), which allow users to send photos, images and sound fragments, as well as text. In the
coming years, messaging services (email and instant messages), mobile payment services and music downloading are
also likely to expand (Figure 3).
Figure 3: Development of mass-market mobile services
Source: IDATE, 2004b
Internet services
Data transmission and Internet services represent another thriving sector of the telecommunications industry, and
Internet subscriber numbers have increased significantly since 2002. In the EU15, for example, there were 22.7 million
broadband subscribers at the end of 2003; this was up from 12.6 million subscribers in 2002 and 6.5 million subscribers
in 2001. The increase in the overall Internet subscriber base was lower, however, since a proportion of the new
broadband subscribers were former dial-up subscribers. Overall data and Internet service provision still represent a
relatively small, though growing, part of the telecoms sector, accounting for 15% of all turnover in 2003.
The spread of broadband access in Europe has encouraged the development of new Internet uses. In addition to email
and web surfing, high-speed connections enable a much wider range of services, such as instant messaging, telephony,
videophony, video on demand, music downloads, online games, heavy file transfers and content hosting.
The rise in broadband connections has also driven the dramatic growth in eCommerce over recent months, and has led
to the greater popularity of package deals that include video, games and telephony. At present, the following two types
of packages, in particular, gain in popularity:
Television services via DSL is a pay-TV application, aimed primarily at people living in large urban centres. Its
development is likely to be swift in areas where cable (outside the city broadcasting network) is poorly developed. The
technology boasts two key assets: namely, the ability to offer true video-on-demand (VOD) services and the capacity to
offer bundled services (coupling television and Internet access within a single service). However, the economic equation
6
of ADSL (Asymmetric Digital Subscriber Line) TV remains uncertain. Also, despite the progress that has been made
in digital compression, ADSL does not allow consumers to view different channels simultaneously on different sets, nor
does it enable high definition TV, which is now emerging as a mass-market product.
7
Telephony via DSL is also making headlines, as the development prospects for VoIP (voice over Internet protocol)
appear promising. The big challenge for alternative operators is the marketing of competitive telephony services over
a DSL infrastructure: even though the gap is narrowing, voice traffic still greatly exceeds data traffic, which means
that voice is still a key application for accelerating profitability of the DSL infrastructure. Ultimately, the provision
of voice services over DSL is expected to develop, as unbundling becomes increasingly commonplace. Furthermore,
as alternative operators enter the market, incumbent operators are also positioning themselves within the market; one
such example is France Télécom, which intended to launch an offer in Autumn 2004 in France.
Integration in the world economy

The EU countries’ share of world turnover in the telecoms sector is estimated to be 25% (IDATE, 2004a). In recent years,
however, this proportion has slightly declined, probably reflecting the expansion of large emergent telecommunications
markets, such as China and Brazil.
With the increase in international business relationships and falling prices for international phone calls and data transfers,
worldwide use of telecommunications services is growing. According to Telegeography (Primetrica, 2003), the number of
outgoing international calls – from the EU15 countries alone – rose from 21.5 billion calls in 1995 to 43.6 billion calls in
2002, which is the equivalent of a 100% increase within seven years. All outgoing calls from one country to another are
6
Asymmetric Digital Subscriber Line (ADSL): a technology that transmits digital information at a high bandwidth on existing phone
lines to homes and businesses.
7
Voice over internet protocol (VoIP): a technology for establishing telephone calls via the Internet. There are three methods: PC to
PC, PC to phone, phone to phone.
categorised as an export of telecommunications services from the point of view of the country where the call is made. The
rise in outgoing international calls shows a genuine integration of telecommunications services in the world economy.
The international development of telecommunications service operators also reflects this integration process. Following
the liberalisation of fixed line markets in the 1990s, most incumbent operators in the EU extended their activities to
foreign markets, by setting up subsidiaries in newly expanding mobile markets, or by taking part in privatised companies
(Table 2). Within Europe, a number of operators have taken a regional dimension and promoted a common mark
throughout countries (for example, Vodafone, T-Mobile’s Deutsche Telekom, Orange’s France Télécom, Tele2).
Table 2: Regional footprint of European telcos

Operator 1
Major subsidiaries in Europe
(domestic market)
EU15 countries Other European countries
Deutsche Telekom Austria (T -Mobile, T -Online), France (T -Online), the Czech Republic (T -Mobile, PragoNet), Croatia
(Germany) Netherlands (T -Mobile), Portugal (Terravista), Spain (HT), Hungary (Mátav), Slovakia (Slovak
(Ya.com), UK (T -Mobile) Telekom),
Vodafone (UK) Ireland, Germany, Italy, Greece, the Netherlands, Albania, Hungary, Malta, Romania (all Vodafone)
Portugal, Spain, Sweden (all Vodafone)
France Télécom Belgium (Mobistar), the Netherlands (Orange), Spain Poland (TP Group), Romania (Orange), Slovakia
(France) (Uni2), Switzerland (Orange), UK (Orange) (Orange),
Telecom Italia (Italy) France (Telecom Italia), Germany (Hansenet)
Telefónica (Spain)
BT (UK) Germany (BT), Ireland (Esat), the Netherlands (BT),
Spain (BT)
KPN (the Netherlands) Belgium (BASE), Germany (E -Plus) Hungary (PanTel)
Vivendi Universal
(France)
TeliaSonera (Sweden) Denmark (Telia), Finland (TeliaSonera) Latvia (Lattelekom), Lithuania (Lietuvos
Telekomas)
mmO2 (UK) Germany (O2), Ireland (O2)
TDC (Denmark) Austria (One, ex -Connect Austria), Germany Poland (Polkomtel), Lithuania (Bite GSM)
(Talkline), Switzerland (TDC Switzerland)
Portugal Telecom
(Portugal)
Belgacom (Belgium)
Cable&Wireless (UK) Germany (C&W), France (C&W), Italy (C&W), Spain
(C&W), Monaco (Monaco Telecom)
OTE (Greece) Armenia (Armantel), Albania (AMC), Bulgaria
(Globul), Romania (RomTelecom)
Wind (Italy)
Tele2 (Sweden) Austria, Belg ium, Denmark, Finland, France, Germany, Czech Republic, Estonia, Latvia, Lithuania,
Italy, Luxemburg, the Netherlands, Norway, Portugal, Poland, Russia (all Tele2)
Spain, Switzerland, UK (all Tele2)
Telekom Austria Croatia (VIPnet GSM), Czech Republic (Czech
(Austria) Online), Liechtenstein (mobilkom), Slovenia
(Si.mobil)
Auna (Spain)
Bouygues Telecom
(France)
1
Note: Only telecommunications service providers in which telcos hold a majority holding are included here.
Source: Annual reports of operators
Telcos now derive a significant portion of their revenues from foreign subsidiaries. Following the buying spree of the
late 1990s, the 2001-2002 downturn led operators to restructure their assets and, in many cases, to redefine their
geographic strategy. While some operators, such as BT and Belgacom, have clearly refocused their activities on the home
market, the majority of incumbent operators have given a high priority to international development. Many of the
alternative operators, on the other hand, have focused their strategy on domestic markets. However, a few operators, such
as Vodafone in the UK and Tele2 in Sweden, have adopted a distinct international strategy (Figure 4).
Figure 4: Share of foreign subsidiaries in telcos’ revenues, 2003
Vodafone 86%
53%
72%
72%
Tele2 72%
72%
Cable&Wireless 55%
7%
TDC 39%
39%
39%
39%
Telefónica 38%
5%
France Télécom 35%

<6.0%
TeliaSonera 27%
24%
KPN 24%
24%
Deutsche Telekom 21%

0%
Telecom Italia 20%
OTE 19%
19%
19%
19%
Vivendi Universal 16%

0%
Telekom Austria 11%

11%
11%
7%
BT 6%
6%
International
Belgacom <2.0%
<2.0%
<2.0% Europe only
Portugal Telecom 0%
Auna 0%
0%
0%
Bouygues Telecom 0%
0%
0%
0%
Wind 0%
0%
0%
Note: The estimated share of revenues generated by foreign subsidiaries was based on operators’ financial releases. Data relating to
the overall international share of revenues of Portugal Telecom, and to the European-only international share of revenues of France
Télécom and Deutsche Telekom, are not available.
Source: IDATE, based on annual reports of operators
Drivers of change
Regulation – Europeanisation and the transition to open markets
Reform process in the EU

In less than two decades, the telecoms sector has changed from a nation-based industry, monopolised by PTOs (public
telecommunications operators), to a free-market system, operating on an international scale. In Europe, the European
Commission (EC) played a key role in promoting market liberalisation and dismantling state monopolies. Although
changes were slow in the early 1980s, and limited mostly to the US and the UK, by the late 1990s, competition had been
introduced nearly worldwide, except for basic services in some developing countries.
The reform process was largely driven by the institutional changes which took place in the North American industry in
the 1970s and early 1980s, and was disseminated worldwide through international organisations such as the OECD and
GATT, the General Agreement on Tariffs and Trade (Schneider, 2002). As sweeping technological changes gathered pace
in the 1980s, and regulatory reform took place in the US and the UK in the early 1980s, pressure increased in favour of
competition and in response to increased demand for telecommunications services, as well as the need for greater
modernisation of the telecommunications networks (Thatcher, 2002). In Europe, the EC played a key role in defining a
new free-market oriented policy for the sector and in creating a common regulatory framework in all EU countries.
While the EC did not partake greatly in the regulation of telecommunications until the mid-1980s, a comprehensive
regulatory regime covering most aspects of telecommunications was adopted at EU level by the mid-1990s.
8
In the 1987 Green Paper , the EC took a clear stance in favour of competition. Tensions within some Member States,
which were reluctant to release control over PTOs (public telecommunications operators), led to a decision by the
European Court of Justice that recognised the Commission’s power to promote Community directives in the field of
telecommunications (Schmidt, 1998). During the 1990s, EC regulation gradually opened up all segments to competition;
by 1998, basic voice telephony and operation of a fixed network was open to competition throughout the EU, and a host
of rules governing the conditions of supply had been established. However, national differences persisted, as is evident
in the varying pace at which countries began to promote competition, or in their different approaches to granting 3G
mobile licences in 2000 and 2001. From 1999 onwards, the Commission promoted the implementation of a new
regulatory framework, to ensure harmonisation of policies across Europe and of pro-competitive rules; this in turn led
to the adoption of a new set of directives in 2002 (Table 3).
8
European Commission, Towards a dynamic European economy, Green Paper on the development of the common market for
telecommunications services and equipment, COM(87) 290, June 1987.
Table 3: Major steps in establishing the European regulatory framework in the telecoms sector
Year Nature Content
1987 Green Paper In June, the European Commission adopted the Green Paper, which outlined the future
Community regulatory framework (opening up of the equipment market, liberalisation of
telecommunications services, separation of regul ating and operating activities, review of
interconnection conditions and standardisation)
1990 Services Directive Opening up of fixed line telecommunications services to competition within the
Community, excluding voice telephony
ONP Directive Definitio n of ONP (Open Network Provision) principles in a framework directive adopted
in June 1990
Green Paper on s atellites Published i n November, the Green Paper on s atellites put forward recommendations for
liberalising the space segment
1992 Review Voice telephony to be fully liberalised by 1 January 1998, at the latest, in all Member
States, except for Spain, Portugal, Greece, Ireland and Luxembourg, which were granted
postponement for varying periods
1994 Green Paper on m obiles Lays down recommendations f or liberalising the radio communications sector
1995 Green Paper on Proposed a progressive schedule for liberalising infrastructure (from 1995 for independent
infrastructure networks and for offering services already liberalised); the Council of Minister s of
Telecommunications to adopt the principle of a uniform date, 1 January 1998
1996 Mobiles Directive Abolition of all exclusive and special rights, granted to incumbent operators in the mobile
communications sector
‘Full Competition’ Liberalisation of voice telephony, including services and infrastructure, from 1 January
Directive 1998
1998 General opening up of On the 1 January, with the exception of five countries (Ireland, Portugal, Luxemburg,
markets to competition Spain and Greece), the EU Member States opened up their telecommunications services
markets to full competition. The United Kingdom and Sweden had already implemented
liberalisation for many years. The Netherlands had anticipated the deadline by six months.
Spain and Ireland finall y opened their markets at the end of 1998.
The EU ministers adopted two main technical measures on the eve of liberalisation:
- the principle of ‘call -by-call’ carrier selection for the allocation of a long -distance carrier
(with a two -year implementation period, in order to give operators the time to resolve any
eventual technical problems);
- number portability, which operators must start to introduce, at least in the major urban
centres, no later than 1 January 2000, and in other cases, by 2003 at the latest.
2002 New European regulatory A new regulatory framework ratifies the proposals submitted at the end of 1999, during a
framework public consultation. Comprising five directives and one decision, the new regulatory
package deals with four essential points:
- a compromise between the regulatory authorities and the Commission, which now has
the right to veto;
- a simplification of the legislation, whereby the majority of problems linked to electronic
communication are brought together within a framewo rk directive and specific directives
(authorisation, access, universal service);
- new rules for determining ‘relevant markets’ on the basis of regular market studies;
- a return to the question of frequency, which had been tackled in the 1999 Green Paper ,
and first steps towards coordinated management of spectral resources.
In 2002, the European Parliament and the Council adopted a new set of directives on telecommunications, to adapt rules
to the new market conditions (Box 1). This followed a decision that the European legislation, which consisted of more
than 20 directives adopted since 1990, needed to be simplified and brought into line with market developments and
technological changes. Special attention was given to harmonising the application of the rules, and to greater flexibility
in the regulation and adherence to the principles of competition law.
Box 1: EU Communications Regulatory Framework, 2002

The 2002 EU telecommunications regulatory package includes the following texts:
Five harmonisation directives published by the European Parliament and the Council according to Article 95:
Directive 2002/21/EC of the European Parliament and the Council of 7 March 2002 outlines a common regulatory
framework for electronic communications networks and services (Framework Directive); Directive 2002/19/EC of
the European Parliament and the Council of 7 March 2002 concerns access to, and interconnection of, electronic
communications networks and associated facilities (Access Directive); Directive 2002/20/EC of the European
Parliament and the Council of 7 March 2002 concerns the authorisation of electronic communications networks and
services (Authorisation Directive); Directive 2002/22/EC of the European Parliament and the Council of 7 March
2002 concerns universal services and users' rights, relating to electronic communications networks and services
(Universal Service Directive); Directive 2002/58/EC of the European Parliament and the Council of 12 July 2002
concerns the processing of personal data and the protection of privacy in the electronic communications sector
(Directive on privacy and electronic communications).
A directive published by the Commission, according to Article 86 on competition, which consolidates existing
liberalisation directives (Competition Directive): Commission Directive 2002/77/EC of 16 September 2002 concerns
competition in the markets for electronic communications networks and services.
A decision by the European Parliament and the Council on radio spectrum policy (Decision No. 676/2002/EC of
the European Parliament and the Council of 7 March 2002 on a regulatory framework for radio spectrum policy in
the European Community (Radio Spectrum Decision).
A regulation by the European Parliament and the Council on unbundled access to the local loop to complement the
harmonisation directives: Regulation (EC) No 2887/2000 of the European Parliament and the Council of 18
December 2000 on unbundled access to the local loop.
These texts were complemented by guidelines, published in July 2002 by the Commission, for defining the market and
assessing significant market power, and by a recommendation, published in February 2003, addressed to Member States
in relation to electronic communications markets where specific rules appear necessary. In July 2003, the Commission
also specified the procedures to be followed by National Regulatory Authorities (NRAs) in notifying their planned
decisions (timelines, consultation).
Coming into force on 24 April 2002, the new European directives were due to be transposed by each Member State
before 24 July 2003, i.e. a period of 15 months, during which the directives are not applicable. By the end of 2003,
eight countries had transposed the directives into national law (Austria, Denmark, Ireland, Italy, Spain, Sweden and the
UK). Since early 2004, directives have been integrated into national legislation in Germany, France, the Netherlands
and Portugal.
The new regulatory framework introduces new methods for regulating communications within the European Union:
Application of the principles of competition law: It is no longer the law that decides which markets are to be
regulated, or what obligations are to be imposed on operators with significant market power (SMP) in these markets.
According to the new framework, relevant markets are defined by the regulatory authorities, in accordance with a
procedure and guidelines drawn up by the European Commission. The definition of market power is no longer based
on the former criterion of 25% of the market, but on the notion of dominance contained in competition law.
Regulatory authorities have the right to impose obligations on SMP operators, on the basis of a list specified in the
directives (price control, transparency, accounting separation, non-discrimination, access to, and use of, specific
network facilities).
Simplification of market access rules: The framework directive introduces an overall authorisation system for all
operators as a general rule. The only exception to this rule is the granting of usage rights in the case of rare resources
(frequencies, numbers). Individually specified conditions are replaced by a set of rights and obligations, applying to
all operators. The directive enables national regulatory authorities, but without requiring them, to establish a
notification procedure, limited to simple registration with the authority. The new regulatory framework, therefore,
considerably eases the conditions for market entry.
Convergence: The framework directive applies to all electronic communication networks and services, regardless of the
technology employed. This arrangement, therefore, takes into account the convergence of communication networks, and
is designed to bring about harmonisation of the rules governing all electronic communications. The regulation of cable
networks capable of offering TV, telephone and Internet access services will be in harmony with the regulation
governing telecommunications networks. Cable networks will come under the authorisation system applying to all
communication networks, and it will no longer be possible to subject them to multiple authorisation systems.
Cooperation between National Regulatory Authorities (NRA) and the European Commission: The new regulatory
framework redefines relations between NRAs and the European authorities. It widens the sphere of activity of
national authorities, which now enjoy extensive room to manoeuvre, particularly when it comes to defining relevant
markets for regulation and imposing obligations on SMP operators, and in relation to increased powers for settling
disputes. This extension of the NRA's terms of reference is accompanied by a strengthening and institutionalisation
of their relations with the European Commission, aimed at ensuring harmonisation of the rules.
Privatisation
Nearly all of the European incumbent operators saw their capital opening up to accommodate a significant proportion of
private shareholdings. In the early 1980s, and even up to 1990, most networks were still being operated by
administrations that had several functions (especially regulation and operation), and that encompassed several sectors
(usually postal and telecommunications and, in some cases, financial services).
Some operators, such as BT (British Telecom), which was committed to this movement very early on, or operators that
were private companies from the outset (Telefónica, Telecom Italia), have today placed all, or almost all, of their capital
in the market. However, the State still holds shares in incumbent operators in several countries. In the 10 new EU
Member States (NMS), privatisation of the incumbent operator in the transition years resulted in the arrival of a foreign
investor – usually a West European incumbent. Shareholders in foreign investing telcos have not only provided
investment resources for the development and modernisation of networks in these countries, but also transferred their
management knowledge and experience of operating in a competitive environment.
Creation of national regulatory authorities

In the EU15 countries, national regulators were established in 1997 and in 1998, with the UK’s OFTEL (Office of
Telecommunications) as a pioneer (as far back as 1984). In the 10 NMS, the establishment of an independent regulator
was part of the adaptation process to EU rules in the years preceding accession. Increasingly, separation of the regulator
from the telecommunications operator, as well as independence from governments, was considered as essential to greater
neutrality of the regulator in relation to political or operational pressures. It is also worth noting that several countries in
Europe have since opted for a convergent broadcasting and telecommunications regulator (Table 4).
Table 4: Telecommunications regulatory authorities in the EU
Initial
Regulatory authority Remarks
start date
TKK uses the expertise of Rundfunk und Telekom
Regulierungs GmbH (RTR), established by the
KommAustria law (KOG) of 1 April 2001. RTR then
merged with Telekom Kontrol GmbH, set up in 1997, to
Austria Telekom-Kontrol Kommission (TKK) 1997
become the ‘convergent’ authority for
telecommunications and broadcasting. In the broadcasting
sector, the corresponding regulatory authority is Komm
Austria, set up in 2001.
Institut Belge des Services Postaux et
Belgium 1991
des Télécommunications (IBPT)
Office of the Commissioner for
January
Cyprus Telecommunications and Postal Being set up.
2002
Regulation
Denmark Telestyrelsen 1991
Estonian National Communications
Estonia 2000
Board (ENCB ou Sideamet)
Finnish Communications Regulatory The authority was created under the name
Finland 1988
Authority (FICORA) ‘Telecommunications Administration Centre’.
Autorité de Réglementation des
France 1997
Télécommunications (ART)
Regulierungsbehörde für
Germany 1998
Telekommunikation und Post (RegTP)
National Telecommunications and Post
Greece 1995
Commission (EETT)
Hungarian Telecommunications Renamed HIF in 1993, the agency became independent in
Hungary 1993
Authority (HIF) 1997.
ComReg took over from Office of the Director of
Telecommunications (ODTR) in December 2002.
Commission for Communications
Ireland 1997 ComReg is also in charge of regulating the television,
Regulation (ComReg)
radio and cable markets (as well as postal services since
2000).
Autorità per le Garanzie Nelle AGCOM is also in charge of regulating the broadcasting
Italy
Communicazioni (AGCOM) sector.
October ‘Super regulator’ for energy, rail transport,
Latvia Public Utilities Commission (PUC)
2001 telecommunications and postal services.
Communications Regulatory Authority
Lithuania May 2001 Also in charge of the postal sector.
(RRT)
ILR was established under the name ‘Institut
Institut Luxembourgeois de Régulation Luxembourgeois des Télécommunications’ in 2000. Since
Luxembourg 1997
(ILR) then, it has also been in charge of regulating the electricity
sector and postal services.
Malta Communications Authority January Replaced the Office of the Regulator of
Malta
(MCA) 2001 Telecommunications in 1997.
Onafhankelijke Post en
Netherlands 1998
Telecommunicatie Autoriteit (OPTA)
Table 4: Telecommunications regulatory authorities in the EU (cont.)
Initial
Regulatory authority Remarks
start date
Office of Telecommunications and January
Poland Field of action extended to postal services in 2002 .
Post Regulation (URTiP) 2001
National Communications Authority
Portugal 1981 ANACOM replaced former regulator ICP in 2002.
(ANACOM)
Telecommunications Office of
Slovakia 1993
Slovakia
Czech Czech Telecommunication Office Became independent of the government in 2000; tariff
1993
Republic (CTU) approval remains under Ministry control.
Telecommunications, Broadcasting and
Slovenia July 2001 Field of action extended to postal services in 2002 .
Post Agency (ATRP)
Comisión del Mercado de las
Spain 1997
Telecomunicaciones (CMT)
National Post and Telecom Agency
Sweden 1992 PTS replaced former regulator Telestyrelsen in 1994.
(PTS)
OFCOM took over from former telecom authority,
United
Office of Communications (OFCOM) 1984 OFTEL, in December 2003; it is also in charge of
Kingdom
regulating broadcasting services.
Impact of the 2001 crisis

For a number of years, telecommunications was one of the economy’s most buoyant sectors, with stock values of the
main players reaching record heights. The state of euphoria that arose in the Internet sector in the US in 1998 reached
Europe a year later, when start-ups saw their market prices increase dramatically in less than a year. However, the failure
of the WorldOnline flotation (with the share price settling at its introductory level) in March 2000 was a turning point in
this trend. Soon, uncertainty spread throughout the market and, by the end of 2000, most companies of the ‘new
economy’ sector had lost between 80% and 99% of their market value. This market downturn coincided with the
accumulation of huge debts by telecom operators, largely due to the fact that they had spent heavily on developing their
networks and on merger/acquisition operations.
Acquisition spree of the 1990s

Within a short time, in 2000, telecom operators made huge investments at a time when the stock market was at its peak;
this resulted in a sharp increase in their debt levels. Throughout the 1990s, European incumbent operators had pursued
a highly dynamic international expansion policy, at a rate that intensified towards the end of the decade. Initially directed
at countries outside of Europe, expansion subsequently turned inwards, as the markets were liberalised. By the end of
the 1990s, operators tried to outpace one another in a frantic search for acquisitions in the most coveted markets. For
example, Deutsche Telekom took over mobile operator One 2 One in the UK and Siris in France, before investing in the
mobile sector in the Netherlands. France Télécom started investing in Spain, Portugal, Italy and the Netherlands, and
went on to achieve the biggest takeover in its history with the acquisition of Orange. KPN, BT and Telecom Italia
followed the same path. Among the major European operators, only Telefónica did not follow this trend, instead focusing
its international expansion in Latin America. In the end, however, the Spanish group was unable to resist the temptations
of the European market, particularly when the time came for awarding UMTS (Universal Mobile Telecommunications
System) licences, and it eventually entered the bidding ring in Germany, Austria, and Italy.
3G licensing
In the western EU countries, 3G licences were awarded between March 1999 (in Finland) and Autumn 2002, when
France put up the two licences that had not been awarded during the first round in 2001 (Table 5). The timetable was set
by the EC (with 1 January 2002 as a deadline), but the methods (in particular, the choice between auctions and beauty
contests), as well as the number of licences and terms of reference, varied considerably across countries.
Table 5: 3G licensing in the EU
Number of Number of UMTS

Country Calendar Cost of licence (million €)
GSM licences licences
Austria 1 4 6 4Q00 €113–121 million
Belgium 3 3 1Q01 €150–152 million
Czech Republic 3 2 4Q01 €121–132 million
Cyprus 2
Denmark 4 4 3Q01 €127 million
Estonia 3 3 3Q03 €4.5 million
Finland 4 4 1Q99 No licence cost
France 3 2 1Q01 and 3Q02 €619 million (+ 1% of turnover/year)
2
Germany 4 6 3Q2000 €8,400 million
Greece 4 3 3Q01 €147–176 million
Launched in August
Hungary 3
2004
€156 million for B licence
Ireland 3 3 4 2&3Q02
€63 million for A licence
Italy 4 5 3Q00 €2,417 and 2,448 million
Latvia 2 2 1Q03 €5.8 million
Lithuania 3
0.2% tax on UMTS revenues with a
Luxembourg 2 Under process
minimum of €200,000
Malta 2
Netherlands 2 5 3Q00 €700 million
Poland 3 3 4Q00 €650 million (+spectrum fee)
Portugal 3 4 4Q00 €100 million
€36 million (+0.06% gross annual
Slovakia 2 2 2Q02
revenues and spectrum fees)
€97 million (+numbering and
Slovenia 3 1 1Q04
spectrum fees)
Spain 4 2 4 1Q00 €130 million
€11,800
Sweden 3 4 4Q00
(+ 0.15% of turnover/year)
United Kingdom 4 5 2Q00 Between €6,650 and 9,850 million
1
Note: Telefónica froze its investment in Autumn 2002 and sold its licence to Mobilkom Austria at the end of 2003.
2
Only four licensees are left on the UMTS market. Mobilcom handed back its UMTS licence at the beginning of 2004.
Telefónica has frozen its investment.
3
Class A licence has a minimum coverage of 80% of the population. Class B licence has a coverage requirement including
Ireland’s five largest cities (around 53% of population).
4
The owners of Xfera, one of the licence holders, froze their UMTS investment in Autumn 2002.
The over-estimation of the 3G market perspective, and an over-optimistic view of the timeframe required for resolving
technical problems, was an oversight that was, more or less, shared by all players; it resulted in enormous debts,
especially in relation to the UK and Germany auctions. The five most successful bidders in the UK paid between €6
billion and €10 billion for their licences, while each of the six winners in Germany had to pay more than €8 billion. In
total, European operators spent over €100 billion for UMTS licences, in addition to bearing the costs of deploying
networks and new services. The consequences of this were particularly severe where payment schedules required full
and immediate payment, as was the case in Germany. Once the market went into decline and telecom operators ran into
financial difficulties, regulatory authorities had to introduce a number of changes, including price reductions (as in
France), term extensions (as in Italy), and the introduction of staggered payments (as in Spain).
Priority to cut costs

The collapse of Internet stocks had a rapid impact on equipment suppliers and on telecoms operators. With the buoyant
markets, European companies had counted on increasing their equity capital and floating their mobile or Internet
subsidiaries on the stock market, to meet their payment commitments. However, as share prices began to fall
dramatically at the end of 2000 and throughout 2001 and 2002, it became increasingly difficult to pursue these options.
Soon, sources of equity finance started to dry up and, just like the start-ups, infrastructure suppliers, manufacturers and
telecommunications operators (telcos) began to witness a steep fall in their share prices and market capitalisation. Also,
operators began to feel the pressure of repayment deadlines, especially when credit ratings lowered and new loans
became prohibitive.
In order to restore market confidence and to generate cash, operators redesigned their growth strategies, often by putting
the focus back on their core business. All of the operators announced a series of measures, designed to restructure their
activities and to save operating costs, as well as reduce debt. In 2002, the telcos were strongly affected by the impairment
charges for the depreciation of assets. These changes were often accompanied by changes in management. Soon, the
focus shifted from expansion and growth of activities to profitability improvement and debt reduction. The actions taken
by operators included general cost reductions, particularly in investments and expenses, and rationalisation of activities
to reduce overhead or procurement costs. In relation to 3G, the crisis triggered a clear shift in logic, especially after the
development of network infrastructure sharing. The roll-out of networks was delayed, for example, and drastic measures
were adopted in some cases, such as Telefónica’s decision to freeze its UMTS investment outside of its domestic market.
Entry of new operators into the market

In the years following the liberalisation of telecommunications service markets, a number of new operators entered the
market; this, in turn, pushed tariffs down and challenged the monopoly position of incumbent operators. Consolidation
of the market also took place, and this was accelerated in the aftermath of the crisis that began in 2000. Although
incumbent operators have maintained a dominant position in the market, particularly in the local loop segment, they still
face increasing competition from alternative operators, as is evident in the continuous downward pressure on tariffs. This
has led operators to become more innovative in marketing their services. Many operators, for example, have introduced
flat rates for call charges, in an effort to increase customer loyalty.
Greater competition has been promoted by a number of regulatory measures:
Interconnection charges have been a core issue in relation to regulators’ attempts to enhance competitive conditions in
the market. Overall, prices have fallen by 44% over three years at local level, by 32% for simple transit and by 21%
for double transit. Call termination charges on mobile networks are also attracting increasing attention from regulators,
a number of which have intervened to have charges reduced, by obliging operators with significant market power
(SMP) to apply cost-oriented charges.
Carrier pre-selection has played a vital role in developing competition in Europe, while the progress made by
alternative operators in the area of direct access (including unbundling) has remained limited for a long time.
Poor technical and financial conditions of unbundling have led many Internet service providers (ISPs) to opt for the
wholesale offers of incumbent operators. In this respect, moves by regulators to ensure fair wholesale pricing practices
have been influential in the development of competition. Since early 2003, however, there has also been significant
progress in unbundling, following regulatory action, which has resulted in price falls in DSL services and played a key
role in the recent expansion of the broadband market.
In July 2003, mobile number portability became obligatory in all EU countries. Its impact on operators’ market shares
has remained limited, partly due to the technical problems of implementation; nevertheless, it could play a more
important role alongside simplification of the procedures by the authorities.
Technology and standardisation

New technologies have influenced telecommunications services considerably. One such technology is broadband
Internet access, loosely defined as allowing access rates significantly higher than ISDN (Integrated Digital Service
9
Network) or the analogue modem. Today, DSL as well as cable modems offer the potential for new bandwidth-intensive
services, such as streaming video and Internet TV. The rapid expansion of broadband access in households and
businesses in the EU has accelerated the narrowing of distinctions between market segments for traditional fixed
telephony and data services. Transition to IP-based networks in future years, currently being implemented by some
operators such as BT, will no doubt cause a shift within the industry towards convergent and integrated services.
Another group of new technologies relates to the telecommunication network itself and to its administration. Early
telecommunication networks were based on analogue technology and had several inflexible components installed, e.g.
for billing the ‘voice minutes’. In the 1990s, widespread digitalisation of networks by operators made additional services
possible (e.g. simple forwarding of phone calls, calling line identification), as well as allowing for increased flexibility
in billing. These ‘intelligent networks’ also became the foundation for much of the customer-focused eBusiness in the
telecommunications services industry.
Another major issue, which still persists, relates to cellular digital telephony. The acceptance of the Global System for
Mobile Communications (GSM), a standard used by all European telephone operators, and the designation of frequency
spectrums in all countries, has meant that an increasing number of companies now offer wireless phone services and that
the number of mobile phone users has increased considerably. Recently, however, this success story has lost some of its
former appeal. The fall in prices for mobile phone calls and an increase in the number of low-usage mobile phone users,
for example, have meant that the average revenue per user (ARPU) has fallen significantly. At the same time, costs for
running the phone network have remained constant, sometimes increasing, thus putting significant pressure on margins.
The migration of 2G (second generation) application platforms – Short Messaging System (SMS) and Wireless
Application Protocol (WAP) portals – to GPRS-based (General Packet Radio Services) platforms has taken hold, with
marked increases in 2003, owing to the availability of the Multimedia Messaging System (MMS) and kiosk-style portals,
geared at consumers. High hopes have also been placed on the success of the so-called third generation wireless
technology, UMTS.
9
Integrated Services Digital Network (ISDN): an international communications standard that enables ordinary phone lines to
transmit digital instead of analogue signals, allowing data to be transmitted at a much faster rate than with a traditional modem.
Employment and work organisation
Employment
In 2002, the number of people employed in the telecoms sector in the EU was estimated at 978,000. During the 1990s,
employment in the sector increased steadily, eventually peaking in 2001. Since then, there has been an overall decline
(Figure 5). Nevertheless, mobile telecommunications has experienced strong employment growth. In the early 1990s,
employment in mobile communications partly compensated for the decline in employment in fixed line activities. In the
late 1990s, when the mobile industry became a mass market, it contributed to a resurgence of employment growth in the
sector.
Following the dot.com collapse in 2000, the market downturn in 2002 led to a net reduction in the workforce, through
the merger of operators, as well as efforts by incumbent operators to downsize their workforce and increase operational
margins. Incumbent operators have remained, by far, the largest employers in the telecommunications industry
throughout Europe. Figure 6 illustrates these trends, in the case of Germany.
Figure 5: Employment in the EU telecoms sector, 1998–2002
1 200
Number of employees (x1000)
1 000
800
600
400
200
0
1998 1999 2000 2001 2002
Germany United Kingdom France

Italy Spain Other EU-15 countries
Source: ITU and national regulators; the number of employees in the telecoms sector was estimated for 2002 in Austria, Denmark,
Greece, Italy, Luxembourg, the Netherlands and Spain.
Figure 6: Employment trends in the German telecoms sector

300
250
Number of employees (x1000)
62 63 54
200 43 49 53
150
100
179 172 179 178 178 173
50
0
1998 1999 2000 2001 2002 2003
Deutsche Telekom (German activities only) Alternative operators
Source: RegTP, 2004
Table 6 provides data on employment trends at company level. The data represent employees of all areas, and figures
were consolidated at the accounting stage, thereby reflecting the changes in the companies’ assets.
Table 6: Number of employees in major European telecommunications operators, 1994–2003

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Deutsche Telekom 225,435 213,000 201,000 196,943 185,740 175,160 227,015 257,058 255,969 251,000
Vodafone 4,364 4,728 6,051 9,640 nd 9,922 53,325 67,178 70,000 60,109
France Télécom 167,882 167,661 165,200 165,042 169,099 174,262 203,370 206,184 240,145 221,657
Telecom Italia 96,705 90,222 86,030 126,097 123,966 122,662 114,669 109,956 101,713 93,187
Telefónica 72,207 99,203 92,148 92,151 103,662 118,778 148,707 161,527 152,840 148,288
BT 137,500 130,700 127,500 124,700 124,700 124,700 137,000 108,600 104,700 103,100
KPN 92,787 90,251 139,969 34,257 36,076 38,550 45,151 49,121 38,118 29,668
Vivendi Universal 1 10,261 30,023 24,375 21,181
TeliaSonera 65,784 67,545 66,913 40,471 39,202 39,913 40,612 35,461 29,173 26,188
mmO2 - - - - - - 14,343 15,116 12,778 12,347
TDC 16,678 16,476 16,768 17,268 16,410 17,464 18,363 19,130 22,263 21,125
Portugal Telecom 19,830 19,106 19,374 21,524 21,339 18,490 18,539 20,887 23,109 24,872
Belgacom 26,885 26,869 26,193 25,385 23,268 22,017 22,736 22,296 19,003 17,541
Cable&Wireless 41,124 39,636 37,448 46,550 50,671 54,919 47,904 30,224 23,152 14,554
OTE 24,140 24,581 23,808 22,741 21,925 21,588 19,604 18,545 17,710 17,169
Wind 1,272 3,739 4,922 8,428 8,602 8,700
Tele2 n.a 567 771 871 n.a 1,364 1,747 2,172 3,115 3,274
Telekom Austria 54,894 54,144 58,326 57,586 19,425 19,347 18,560 16,586 14,951 13,890
Auna n.a n.a n.a n.a n.a n.a 6,722 7,587 7,127 4,578
Bouygues Telecom 549 1,458 2,870 4,232 5,131 6,700 6,562 6,210 6,900
1
Note: Telecommunications activities only
Source: Annual reports of operators
Productivity
The globalisation of communications services and development of various networks and services appear favourable in
the analysis of labour productivity indicators. For example, the number of access paths per employee highlights progress
in productivity in the telecommunications services sector. This is only a partial indicator, however, as there has been
considerable development of access technologies. Figure 7 outlines access paths for fixed lines and mobile subscribers,
but it does not reflect figures for broadband. The indicator shows a sharp increase in labour productivity, highlighting
the fact that the introduction of mobile telephony has made a major contribution to productivity gains.
Figure 7: Access paths per employee in the telecommunications services sector in the EU15, 1998-2003
600
500
Acces paths per employee
400
300
200
100
0
1998 1999 2000 2001 2002 2003
Fixed lines Mobile
Note: Fixed lines include PSTN (Public Switched Telephone Network) and ISDN (Integrated Services Digital Network) lines
Source: IDATE, based on releases of operators
Labour productivity indicators at company level confirm the overall progress in productivity in the past decade.
Comparisons of productivity performance should take into account the structural differences among telcos. Companies
have different business structures: for example, some mainly offer mobile services, while others do not; and some
companies do not operate their own network, while others do. The geographical structure of activities is also significant,
as companies operate within different regulatory frameworks and face different economic conditions. Figures 8 and 9
illustrate the overall progress in productivity achieved by incumbent and alternative telecommunications operators in
the EU15.
Figure 8: Revenue per employee of incumbent operators in the EU15, 1994–2003
KPN
TeliaSonera
Telecom Italia
TDC
Belgacom
OTE
Telekom Austria
BT
Portugal Telecom
Deutsche Telekom
France Télécom
Telefónica EUR
0 100 000 200 000 300 000 400 000 500 000
2003 2000 1997 1994
Source : IDATE, 2004a
Figure 9: Revenue per employee of selected alternative telecom operators in the EU15, 2000–2003
Tele2
Vodafone
Wind
Bouygues Telecom
Vivendi Universal
Cable&Wireless
EUR
0 200 000 400 000 600 000 800 000 1 000 1 200 1 400
000 000 000
2003 2000
Work organisation
The organisational complexity of telecommunications operators has increased significantly over the past few years.
Some operators, for example, have evolved from national voice carriers to multinational, multi-product companies,
growing organically or through acquisition, as was the case with Vodafone or Orange. In recent years, the major
European companies have engaged in organisational restructuring, to help streamline their activities and to increase
efficiency. Specifically, they have been active in consolidating IT platforms, staff and processes, in order to realise
economies of scale. The most common areas of consolidation are:
Network operations centres (NOCs)

The fragmentation and complexity of network management systems is one of the most common problems among
operators. Most incumbents, for example, have several layers of technology, each using the same core for transport but
requiring its own proprietary management applications and resources dedicated to its support. Recent acquisitions have
further added to this complexity. Not only does this make network operations expensive and inefficient, it also creates
challenges for service support, quantification and delivery of customer service, and fault resolution.
Billing platforms
Most European operators now run several different billing systems simultaneously. As legacy billing systems become
obsolete, operators are replacing them with a unified platform that addresses the complex business requirements of a
multi-product telco, and that offers advanced features such as IP billing.
Centralisation of activities (support infrastructure, product development, procurement)

Over the years, European incumbents have developed large support infrastructures, such as call centres, and maintenance
and logistics fleets. In the course of liberalisation, incumbents have started sharing this infrastructure and capability
across different business areas; an example of this is the use of the same call centre to serve both fixed line and mobile
customers.
Centralising geographically diverse functions is another area of activity for operators, especially among those whose
activity is highly internationalised, such as Vodafone or Orange. This is often the case in relation to activities such as
product development and procurement. In recent years, major European telcos have initiated procurement initiatives,
aimed at getting the best prices from suppliers and at reducing transaction costs.
Outsourcing
Outsourcing is emerging as a major driver of cost efficiency in the industry. Although telecom operators have been
relatively slow to pursue outsourcing deals, the benefits of outsourcing will inevitably stimulate increased activity in the
telco segment. While there are no clear rules or definitions for different types of deals, outsourcing includes the transfer
of processes, people, applications and infrastructure between the client and the provider. This can involve the transfer of
activities to developing countries, a practice known as ‘offshoring’. It should be noted that it is also possible for a
company to set up its own offshore operation – either wholly-owned, or as a joint venture with a local partner, with a
view to retaining ownership and control.
Offshoring is already a common practice in the financial services sector, particularly of ICT-related services, and in high-
10
tech manufacturing. The communications industry is quickly following suit. With the constant pressure to cut costs,
many communications operators are shifting IT and other routine business processes to developing countries, such as
10
See also European Monitoring Centre on Change (EMCC), European Foundation for the Improvement of Living and Working
Conditions, Outsourcing of ICT and related services in the EU, Luxembourg, Office for Official Publications of the European
Communities, 2004 available at: http://www.emcc.eurofound.eu.int/content/source/tn04048s.html.
India and China. Dramatically lower wage rates and increasing education levels in developing countries, in particular,
have made it more possible for companies to hire qualified off-shore workers and to save money. Business sectors that
are most affected by offshoring include:
information technology: application development, programming, testing, and network support;
contact functions: call centres, customer support, and sales;
operations: finance and accounting, data processing and administration, operations, and project management.
According to a recent survey, involving 42 global communications operators in the fixed, mobile and cable segments
(Deloitte, 2003), communications operators could employ at least 5% of the industry’s global workforce offshore. Large
and international companies are likely to lead the way in this respect, since they are big enough to overcome
management overheads and they tend to be more financially able to absorb the potential risks of offshoring. According
to survey responses for each country, offshoring is already an accepted practice for at least one operator in several
European countries, including Belgium, Denmark, the Netherlands, and Poland (and also outside Europe, in the US and
Australia). It is less of an accepted practice in France, Germany, Italy and Japan; this is due to a number of reasons,
ranging from labour policy issues (difficulties in laying off staff) to problems in managing offshoring.
Despite its progress, the practice ‘offshoring’ is still limited due to a number of factors, including public reluctance, and
concern over data security and political stability in some developing countries. Also, the increase in wages of qualified
workers in developing countries, due to increased demand, in addition to productivity gains at home through improved
efficiency, are also reducing the advantages of off-shoring.
Effect of organisational initiatives on employment

With a sluggish market growth and difficult financial conditions in the aftermath of the downturn in 2000-2, operators
have been forced to take a series of drastic measures to cut costs. This has led market players to search for new solutions
to help improve efficiency. As a result of streamlining and other efficiency-focused initiatives, telcos have managed to
cut general and administrative costs. This has included the cutting of personnel costs, despite the need for additional staff
in new areas of activity (such as new outsourcing projects).
Skills and training
Improvements in the quality of networks have reduced the need for traditional skills, such as maintenance and repair. At
the same time, demand for computer and electronic engineering skills, and for marketing professionals, has increased.
The challenge in terms of skills training and workforce management differs significantly depending on the activity of
operators:
Incumbent operators have to manage a highly dense network, and they employ a large number of technicians in their
workforce, who were originally hired at a time when network maintenance was heavy. These functions have largely
been retained, due to the difficulties in cutting staff or in training employees in new tasks.
Newly established operators do not have the same history of employing a large number of technicians, and the
proportion of technicians in their workforce is much lower. This number is even smaller for service providers that do
not operate their own network.
Surveys carried out by the US Bureau of Labour Statistics (BLS) forecast the demand for labour according to different
occupations (OECD, 2003). In the decade 2000 to 2010, the BLS forecasts the following trends:
78% increase in employment of computer support specialists;
60% increase in employment of computer software engineers;
48% increase in employment of information systems managers;
31% increase in employment of marketing and sales managers;
23% increase in employment of customer service employees;
23% increase in employment of financial specialists;
40% decline in employment of telephone operators;
5% decline in the number of telecommunications equipment installers and repair personnel.
Conclusion
Over the past two decades, the telecommunications services sector in Europe has undergone a major transformation,
evolving from a mainly monopolistic sector to a competitive, productive and increasingly innovative sector. Moreover,
a number of former national public telecommunications operators have become part of major international operations.
These changes have had a strong impact on employment, for example, in terms of increased productivity and
restructuring of occupations, particularly with regard to incumbent operators.
The transformation of the telecommunications industry has not been restricted to EU countries, but has taken place on a
global scale. One unique feature of the EU telecommunications industry is the leading role that has been played by
regional institutions. The EU regulatory regime has reinforced and accelerated liberalisation and restructuring of the
industry, as well as strengthening the position of reformers in each country. Defining an EU regulatory framework has
also helped to provide a more stable environment for the sector on a European scale, although some national differences
still persist between countries.
It should be emphasised that the sector’s transformation has been even more remarkable in the 10 new Member States
(NMS). The liberalisation, modernisation and development of the sector in these countries has taken place within a short
timeframe and has resulted in outstanding progress in overall access density, in the range of available services, and in
the improvement of quality and lowering of prices. Differences in the sector between western and eastern EU countries
have also been reduced, although some still remain, particularly in the field of Internet access. In addition, the adoption
and implementation of the new EU regulatory framework represents a particular challenge for the 10 NMS, as
competition is less developed in these countries, at least in the fixed line sector.
Major challenges still lie ahead for the telecoms sector. Following several years of robust growth, mainly generated by
the expansion of mobile telephony, the market is now slowing down. New services, in particular, data mobile services
and internet services, have ignited new engines of growth. However, the high mobile density levels, evident in most
countries, and price pressures generated by increased competition, have created more difficult market conditions for
telecom operators. As a result, operators are becoming more innovative in terms of product range and marketing, while
still continuously focusing their efforts on increased efficiency. The ongoing transition to IP based networks is likely to
accelerate the pace of change, as it generates a new economic model for the industry.
References
Boylaud, O. and Nicoletti, G., ‘Regulation, market structure and performance in telecommunications’, Organisation for
Economic Cooperation and Development (OECD), Economics Department, Working Paper No. 237, Paris, 2000.
Deloitte, Making the off-shore call: The road map for communications operators, Deloitte Research Report, 2004.
EMCC, European Foundation for the Improvement of Living and Working Conditions, Outsourcing of ICT and related
services in the EU, Luxembourg, Office for Official Publications of the European Communities, 2004, available at:
http://www.emcc.eurofound.eu.int/content/source/tn04048s.html.
European Commission, Towards a dynamic European economy, Green Paper on the development of the common market
for telecommunications services and equipment, COM(87) 290, Brussels, June 1987.
IDATE, World Telecom Services Market, Montpellier, Institut de l’Audiovisuel et des Télécommunications en Europe
(IDATE), 2004a.
IDATE, Nouveaux services mobiles – La dynamique de la 3G, Montpellier, Institut de l’Audiovisuel et des
Télécommunications en Europe, 2004b.
IPSOS, Telecom Services Indicators 2004, Report produced for the European Commission, DG Information Society,
2004.
OECD, Communications Outlook, Paris, Organisation for Economic Cooperation and Development (OECD), 2003.
RegTP, Annual Report 2003, Bonn, Regulierungsbehörde für Telekommunikation und Post, 2004.
Schmidt, S., ‘Commission activism: subsuming telecommunications and electricity under European competition law’,
Journal of European Public Policy, Vol. 5, No. 1, 1998, pp. 169-84.
Schneider, V., ‘The institutional transformation of telecommunications between Europeanisation and globalisation’, in
Jacint, J. (ed), Governing telecommunications and the new information society in Europe, Chelthenham (UK), Edward
Elgar, 2002.
Primetrica, TeleGeography 2004, Global traffic statistics and commentary, Carlsbad (CA), Primetrica Inc., 2003.
Thatcher, M., ‘The relationship between national and European regulation of telecommunications’, in Jacint, J. (ed),
Governing telecommunications and the new information society in Europe, Chelthenham (UK), Edward Elgar, 2002.
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European Foundation for the Improvement of Living and Working Conditions

Trends and drivers of change in the

Major market trends

Employment and work organisation

Skills and training

This report is available in electronic format only.

Major market trends

Source: IDATE, 2004a

Figure 2: Geographical breakdown of EU telecommunications services turnover, 2003

Table 1: Top 20 telecommunications service operators (telcos) in the EU in 2003

1 Turnover 2003 Turnover growth 2

Broadband and mobile services lead to growth in telecoms sector

Expansion of mobile services and decline of fixed telephony

Mobile data services

Figure 3: Development of mass-market mobile services

Source: IDATE, 2004b

Integration in the world economy

Table 2: Regional footprint of European telcos

Figure 4: Share of foreign subsidiaries in telcos’ revenues, 2003

France Télécom 35%

Deutsche Telekom 21%

Telecom Italia 20%

Vivendi Universal 16%

Telekom Austria 11%

Regulation – Europeanisation and the transition to open markets

Reform process in the EU

Box 1: EU Communications Regulatory Framework, 2002

Creation of national regulatory authorities

Table 4: Telecommunications regulatory authorities in the EU

Table 4: Telecommunications regulatory authorities in the EU (cont.)

Impact of the 2001 crisis

Acquisition spree of the 1990s

Table 5: 3G licensing in the EU

Number of Number of UMTS

Priority to cut costs

Entry of new operators into the market

Greater competition has been promoted by a number of regulatory measures:

Technology and standardisation

Employment and work organisation

Figure 5: Employment in the EU telecoms sector, 1998–2002

Germany United Kingdom France

Figure 6: Employment trends in the German telecoms sector

Deutsche Telekom (German activities only) Alternative operators

Source: RegTP, 2004

Table 6: Number of employees in major European telecommunications operators, 1994–2003

Fixed lines Mobile

Figure 8: Revenue per employee of incumbent operators in the EU15, 1994–2003

2003 2000 1997 1994

Source : IDATE, 2004a

Source: IDATE, 2004a

Network operations centres (NOCs)

Centralisation of activities (support infrastructure, product development, procurement)

 information technology: application development, programming, testing, and network support;

 contact functions: call centres, customer support, and sales;

Effect of organisational initiatives on employment

Skills and training

 78% increase in employment of computer support specialists;

 60% increase in employment of computer software engineers;

 48% increase in employment of information systems managers;

 31% increase in employment of marketing and sales managers;

 23% increase in employment of customer service employees;

 23% increase in employment of financial specialists;

 40% decline in employment of telephone operators;

information technology: application development, programming, testing, and network support;

contact functions: call centres, customer support, and sales;

78% increase in employment of computer support specialists;

60% increase in employment of computer software engineers;

48% increase in employment of information systems managers;

31% increase in employment of marketing and sales managers;

23% increase in employment of customer service employees;

23% increase in employment of financial specialists;

40% decline in employment of telephone operators;

5% decline in the number of telecommunications equipment installers and repair personnel.