By Doug Kelly and Asheesh Agarwal
Europe’s dreams of global 5G leadership have been sabotaged by its own rigid regulatory regime. Now, new reports indicate that Europe is targeting American tech companies for even more regulations to bridge gaps in its telecom infrastructure investment. For U.S. lawmakers drawn to European-style regulations, this self-inflicted wound should serve as a cautionary tale that a country can’t tax or regulate its way to innovation. Yet there’s still time for the U.S. to avoid Europe’s missteps, just as Europe has the opportunity to shift gears and embrace pro-growth policies that foster technological advancement.
For years, Europe’s competition policies have focused on market structure, rather than consumer welfare. Europe’s goal has been to preserve a large number of competitors in a market, which often has meant discouraging mergers and acquisitions even when such deals might increase investment and efficiency for consumers. As a result, Europe’s telecom market has become very fragmented, with more than 100 companies spread across the 27-country bloc, and even the smallest nations each hosting at least four providers.
Unfortunately for Europe, this fragmentation has undermined investment and innovation. These smaller companies lack the resources or incentives to invest in 5G or 6G networks on their own and also lack a regulatory framework that might allow them to pool resources. Many European telecom operators were reluctant to invest heavily in 5G, deterred by the financial burden and general hostility to mergers. The repercussions are stark. According to one report, only 10 out of 114 European networks were 5G standalone. In edge cloud services, Europe had merely four commercial offers in 2023, trailing behind the Asia-Pacific’s 17 and North America’s nine. According to studies, Europe would need $355 billion for full 5G deployment.
In stark contrast to Europe’s regulatory challenges, Asia and the U.S. have embraced more consolidated-but-competitive markets, enabling faster and more efficient 5G advancements through greater investment and innovation due to the scale and resources larger companies can bring.
To cover the investment shortfall, EU officials are (unsurprisingly) considering forcing large U.S. tech firms to pay more for Europe’s infrastructure. These added new regulations would be in addition to those imposed by recent EU laws such as the Digital Markets Act (DMA) and the Digital Services Act (DSA), which primarily targeted U.S. firms. So, while frequently under the regulatory microscope of European politicians, these American companies are now viewed as crucial to aiding the recovery of Europe’s regulatory-damaged digital infrastructure.
Europe’s experience, as contrasted with ours and parts of Asia, offers crucial lessons for both continents:
First, Europe’s predicament should serve as a caution to American lawmakers against the risks of regulatory overreach, especially the wholesale import of European-style regulations, which would stifle innovation, weaken our competitiveness, and jeopardize our national security, especially amidst China’s technological rise. To date, Congress, the states, and the courts have rejected radical changes to U.S. antitrust laws. That vigilance should continue.
Second, and contrary to some recent news reports, U.S. policymakers should support U.S. economic interests abroad. U.S. officials should protest loudly when foreign jurisdictions try to apply discriminatory or protectionist tax, trade, or competition policies against U.S. companies. U.S. companies employ American workers and are largely owned by American stockholders. Discriminatory policies limit the ability of U.S. companies to compete and, in some instances, can represent billions of dollars in wealth transfers from American shareholders and taxpayers to foreign regulators.
Third, European policymakers can learn from the experiences of the U.S. and parts of Asia. Instead of adding burdens on the U.S. tech leaders, EU policymakers could spur their own innovation by embracing light-touch regulatory practices, including flexible mergers policies (which are finally underway), investment incentives, and startup support. Such policies will spur sustainable long-term growth and innovation far more effectively than short-term, discriminatory taxes on U.S. companies.
It matters greatly which country builds the future. America’s competition policy both protects and benefits consumers while helping advance innovation and infrastructure gains. Now is the time to double-down on that approach, and not support policies that will surrender America’s innovation edge.