By Alfredo Arpaia, Michael Knott, Carsten Rossbach, Nicolas Teisseyre, Alexis de Peretti and Tariq Ashraf

In a landmark report commissioned by the European Union, former European Central Bank President Mario Draghi asserts that Europe's telecom and technology sectors must undergo fundamental transformation to compete globally. Despite Europe's potential, the region lags behind the United States and China in key areas, risking further loss of influence. Achieving competitiveness will require immediate, strategic action across three critical areas: first, driving industry consolidation by easing antitrust restrictions to foster innovation and service excellence. Second, aligning regulatory and technical standards to establish a unified telecom market across the EU. Third, enhancing funding structures and integrating publicprivate computing resources to accelerate AI leadership and build robust digital infrastructure for sustained growth.

A concerning outlook for the European telecom sector

Europe's telecom sector is at a critical juncture, hindered by structural fragmentation and regulatory complexity that stifle its competitiveness on the global stage. A fragmented market landscape, combined with restrictive competition policies, has prevented the emergence of consolidated players capable of rivaling US and Chinese giants. This lack of scale has led to low profitability, diminished capital access, and underinvestment in essential infrastructure.

Uncoordinated spectrum licensing and divergent technical standards across EU member states further restrict growth, impeding scalability and reducing service quality. The absence of harmonized standards limits investment incentives and prevents telecom operators from achieving the critical mass necessary to compete internationally.

Moreover, heavy regulatory burdens obstruct the development of cross-border B2B services. Complex country-specific regulations, coupled with a lack of passporting for telecom services, prevent European players from scaling across borders, missing out on significant economies of scale and market reach.

Finally, Europe's reliance on foreign telecom vendors raises concerns over strategic autonomy and cybersecurity. Increased competition from Chinese providers, combined with limited support for European vendors, risks compromising the EU's strategic control over essential telecom infrastructure. Addressing these barriers with targeted action is essential to unlock Europe's full telecom potential.

Towards a competitive european AI and cloud industry

Despite Europe's strengths in high-performance computing, it lags in developing artificial intelligence and quantum technologies. Fragmented strategies, limited public-private cooperation, and insufficient private funding have hindered Europe's ability to scale in AI. In 2023, only 6% of global funding for AI startups went to European companies, compared to 61% for US companies. While the EU ranks as the second-largest public investor in quantum technologies worldwide, private investments remain significantly behind those in the US and China.

At the same time, Europe's cloud market is dominated by American hyperscalers, with Amazon Web Services, Microsoft Azure, and Google Cloud capturing 65% of the market. European providers hold minimal market share, often limited to basic IaaS services and heavily reliant on reselling PaaS solutions from US giants. This reliance has stifled the growth of competitive, homegrown cloud services in Europe.

Securing Europe's place in the Communications Satellite market

Despite strategic assets like Galileo and Copernicus, Europe's satellite communication industry is lagging behind. Reduced public funding and a lack of support for the space ecosystem have allowed the US and China to surge ahead, with operational constellations like Starlink and G60. Without a dedicated SATCOM constellation program, Europe risks missing out on a space economy set to grow from USD 630 billion in 2023 to USD 1.8 trillion by 2035. To regain its footing, Europe must renew its commitment to funding and supporting its space sector.

Conclusion

The European TMT industry has been at a structural disadvantage for decades, this situation is being tackled by Draghi report dedicated recommendations, which will have wide reaching consequences upon implementation:

Telecom

One of the main impact will be the acceleration of in-country consolidation being business driven rather than anti-trust driven. This will lead to stabilisation and increase of telecom retail prices per country due to lowering of competition, antitrust and focus on investment, innovation and service quality rather than priceNew investments funds will be entering fibre connectivity, including attractive geographies, unlocking new projects due to planned phase out of copper and deregulation of infrastructure investmentsTelecom operators EBITDA and valuation will improve thanks to increasing spectrum durationThere will be a facilitation of B2B services near-shoring via pan European B2B services companies serving EU markets from low-cost base countries (Central Europe, Southern Europe).

Cloud and AI

European cloud players will increase revenues due to EU preference in public sector tendersin the AI space there will an acceleration of new forms of public/private collaboration in the AI/HPC field with a "venturing" approach such as equity stake, revenues for public entities proposing computational capacities to AI start-ups/scale upsThis will be further backed with strong verticals free of regulation and competitive rules.

Satellite

Draghi report recommendations will lead to increased backing and investment in private SATCOM players and the overall ecosystem to enable EU sovereignty with a focus on the whole industry rather than only on established industrial players.