"Crisis Response: Maximizing Telecom Operators' Contribution to Economic Recovery and Digital Transformation in BiH".
Panel 1: Telecommunications – Strategic Outlook
What are the global and regional trends affecting the development of the telecommunication industry?
-summary of presentations -
Recently, with the support of the Centre for International Private Enterprise (CIPE) from the USA, the Center for Policy and Governance organized a conference entitled "Crisis Response: Maximizing Telecom Operators' Contribution to Economic Recovery and Digital Transformation in BiH". At the first panel of this conference, we had the opportunity to hear presentations on global trends in this sector, challenges related to reducing security risks from malignant and unreliable suppliers in telecommunications infrastructure, and US priorities in this context, EU perspectives on digital transformation and sector development, trends and challenges faced by telecoms, operators, and governments in the region and BiH, and possible responses to these challenges. Below is a summary of all presentations from this panel. The presented information should contribute to a better understanding of the global environment and the challenges and opportunities in this context to support making timely strategic decisions in developing the telecommunications sector in Bosnia and Herzegovina.
The following panelists took part in the work of the first panel:
- Terry Halvorsen, General Manager for Client & Solutions Development, Federal and Public Sector, IBM US
- Paul Harrison, Acting Director, Division for International Communications and Information, U.S. Department of State
- Philippe Gerard, Adviser for Capacity Building and Cooperation with Third Countries, Directorate-General for Communications Networks, Content and Technology (DG CNECT), European Commission
- Sanja Ribar, Regional Senior Manager for Telecoms, Ernst & Young
Terry Halvorsen, General Manager for Client & Solutions Development, Federal and Public Sector, IBM US, former Chief Information Officer at the US department of Defense
Global trends in the telecommunication industry
Today, changes in the communication sector are driven by commercial technology, both in the US and internationally. However, even in the US, state-owned companies managed the sector in the past, and now the sector is managed in partnerships between the government and the commercial sector. There are three main reasons for that:
- Advances in technology in the commercial world are allowing for much greater capabilities in the sector.
- Improvements in commercial technology are enhancing the security capabilities.
- Prices in the commercial sector are generally lower because of the competitive environment.
The commercial sector is more agile in bringing new technologies to the market since governments must follow many important regulations that often slows down processes. That doesn't mean that the states don't have a role to play. This role is based on active participation and partnering with the private sector.
There are some critical areas that states are in the control off, such as spectrum. We're not making any more spectrum. It's incumbent on a state to figure out how they will partner to use that spectrum most effectively. States need to protect the spectrum for defense and security operations. States need to provide clear rules and regulations about how the commercial sector must support those operations when they are required. A state also must look at the general pricing and sales of the telecommunications equipment to make sure that citizens can benefit from the advances in the telecommunications industry. The competition in this industry brings the best possible prices to businesses and citizens.
One of the main trends in the sector is a movement toward newer networks and new technology like 5G. Implementation of 5G technology will economically pay off very quickly. The application of 5G in networks will attract the best technology innovators since they're looking for high speed, lower latency, and improved security. It also leads to more and faster research and development in different sectors. The tremendous economic gain from the advanced telecommunications infrastructure and other technological advances like artificial intelligence, hybrid clouds, and better mobile data. Automation reduces industrial costs significantly. Countries could grow more foods. With 5G and the sensors, you can control water, the temperature of the soil, measure how much water it needs very precisely, which can increase crop production by 20%.
From an economic standpoint, the 5G system is exceptionally attractive to governments. This is a case both in the US and EU. If there is no existing legacy structure, moving into a 5G system can be fast with relative low expenses, because you do not have to use the older systems. The government needs to make decisions when to sunset older systems. This could be a tough decision considering tradeoffs between maintaining quality service and how long to maintain the cost of old systems? Governments would aim to ensure that everybody has a better service state by moving to 5G technology but would like to avoid gaps in services as well
Before the pandemic, there was a trend that both businesses and governments were becoming mobile in providing and conducting their services. Pandemic forced us to become even more agile. The countries that were further along in improving their networks could adapt and be more effective in responding to the pandemic, in limiting negative economic consequences, and in generating new economic and business activities in a mobile environment.
Recently, In the United States, some businesses are going back to a partially safe physical environment. Also, almost every company now includes more mobility in their work, so the workforce does not have to be entirely in one location. That has benefits for the government, such as the reduction of infrastructure costs. It also reduces the commute times. On the other hand, it requires continued investment in telecommunications.
The pandemic proves that the telecommunications industry is essential to the future and growth of any country and almost any business. Also, it has proved that data are the most asset to the nations, more valuable than gold, platinum, or oil. Therefore, the government should secure data to make citizens and industries feel confident about the privacy and protect their electoral property.
Paul Harrison, Acting Director, Division for International Communications and Information, U.S. Department of State
Understanding and mitigating the risks of malign actors and untrusted vendors in telecommunications infrastructure
The United States advocates for a vibrant digital economy around the World that enables all citizens of all countries to benefit from the promise of technological advancements in wireless networks. Those transformative advancements, especially 5G, will affect every aspect of our lives. It will impact critical infrastructure, such as transportation, electrical distribution, telemedicine, education, finance. The stakes of securing these networks are very high. It is crucial to ensure that communications equipment and software in networks will not threaten national security, privacy, and human rights across countries.
Trust cannot exist where telecommunications vendors are subject to authoritarian governments such as the People's Republic of China, which lacks an independent judiciary and the rule of law to protect companies or consumers. We are concerned since the People's Republic of China uses its market size, dominance in international supply chains, and centralized control over economic activity to advance its political goals.
The United States is committed to working with allies to promote an open, interoperable, secure, and reliable Internet and ensure the development of new technologies in line with our shared democratic values. Governments, telecommunications operators, and network users need to prioritize security when building telecommunications networks. In addition, national measures must be crafted to entirely exclude untrusted suppliers from providing equipment and software regardless of their national origin.
Domestically, the United States is investing through legislation like the Chips Act, programs like the National Science Foundation's support for research and development, and actions like the recent American Supply Chains Executive Order to ensure that only trusted vendors are present in our networks. A recent paper from the Brandenburg Institute for Society and Security assessed the hidden cost of using untrusted vendors. The expenses seem cheaper upfront, but in the long run, they are quite excessive.
The United States is working with its allies to support a more competitive global marketplace for trusted communications equipment and services to increase vendor diversity and market competition to lower cost and improve security. This includes support for open, interoperable approaches like open rank, open radio access networks. We encourage countries to join us in our support for trusted vendor diversity and open networks. In 2019, the United States launched a 5G strategy to secure 5G technology, and we've continuing work in these areas under the Biden Administration. We work to develop cutting-edge innovations and ensure that our supply chains are resilient at the same time.
Technology is at the center of global competition today. Our approach is to cooperate with China where we can and to compete where we must. The People Republic of China's objective is to undercut our democratic vision of the World with stakeholders' led Internet and telecommunications sectors with the authoritarian concept of the top-down state-controlled sector. The United States security concerns are much broader than industrial, political espionage. Untrusted vendors like Huawei and ZTE provide the Chinese Communist Party the capability and opportunity to disrupt or weaponize critical applications and infrastructure and provide technological advances in China's military forces. The Chinese national intelligence law states that any organization or citizen shall help and cooperate in national intelligence work and guard the secrecy of any national intelligence work that they are aware of.
In May 2019, 30 countries worldwide agreed on Prague proposals – a cyber security framework, acknowledging that communication-based threats exist at technical and non-technical levels. The danger posed by disruptions dramatically increases. Therefore, a proper risk assessment is necessary, which needs to be broad enough to consider social and legal frameworks, accountability, respect for the rule of law, and past corporate behaviors. As a follow-up to Prague proposals, the United States has signed 14 5G Joint Declarations and Memorandums of Understanding - MoU, to build cooperation in the area with countries and other jurisdictions, including Kosovo, North Macedonia. Slovenia, Slovakia, and Albania. Bosnia and Herzegovina are encouraged to consider signing up 5G MOU as well.
The E.U.'s 5G Security Toolbox is a similar document that outlines best practices for ensuring 5G security. In parallel, Australia, Japan, and the United Kingdom have implemented regulations that are in line with the conclusions of the Prague conference.
The private sector is answering the public sector's call for secure communications infrastructure. Trusted providers like Ericsson and Nokia are developing new technical options. Mobile network operators like Vodafone, Deutsche Telekom, and Telefonica are opening to new market entrants and allowing the introduction of open ran to bring security and cost efficiencies to the marketplace.
The E.U. and the U.S. pledged to revitalize and raise the level of ambition in our transatlantic partnership, including launching a new Trade and Technology Council, which will include a working group on ICT security and competitiveness. The United States and Europe see the opportunity of technology as a force for good, supporting the flourishing of our citizens and people all over the World, and our legal contexts are different rights. The United States and Europe sometimes have different approaches to regulating the industry. Still, we need to make sure that these systems are complementary rather than creating barriers. Both systems share the same fundamental commitments to democracy, respect for the rule of law, and human rights.
There are several different instruments that the U.S. engaged in around the World. For example, the Digital Cyber Security and Connectivity Partnership - DCCP is the program based on the whole government approach to help countries develop their framework for regulating spectrum allocation for the whole employment or deployment of a 5G network. Depending on country needs, DCCP provides funding to engage experts or undertake training. For example, suppose there is a planned 5G spectrum auction. In that case, we can provide experts to help structure the auction in a transparent manner to provide the most significant economic benefits, considering security risks.
Other options include EXIM Finance which requires certain American content, and Development Finance Corporation - DFC financing for overseas projects. Projects must be economically viable, but in telecommunications, we want to be as flexible as possible to promote not just 5G but ICT, transparent, and secure ICT development in general. Some other funding is underway to helps companies. For example, the U.S. Trade Development Authority is undertaking a test program on some open range in Nigeria.
Philippe Gerard, Adviser for Capacity Building and Cooperation with Third Countries, Directorate-General for Communications Networks, Content and Technology (DG CNECT), European Commission
An EU Approach to Digital transformation and Telecommunications
In March 2021, the European Commission presented a vision for Europe’s digital transformation by 2030 to empower businesses and people in a human-centered, sustainable, and more prosperous digital future. This vision has four key priority areas, and it sets exact targets to achieve:
- Digital skills - ICT Specialists: 20 million-plus gender convergence and basic digital skills to min 80% of population
- Secure and sustainable digital infrastructures - Gigabit for everyone, 5G everywhere; double EU share in global production of semiconductors; data - edge and cloud: 10,000 climate-neutral highly secure edge nodes; first computer with quantum acceleration
- Digital transformation of businesses - 75% of EU companies using Cloud/AI/Big grow scale-ups & finance to double EU Unicorns. More than 90% of SMEs reach at least a basic level of digital intensity.
- Digitalization of public services: key public services: 100% online; 100% of citizens having access to medical records, 80% citizens using digital ID
The European Commission has recently launched broad consultations about digital rights and principles, such as universal access to digital health services or that same rights that apply offline are also apply online.
A significant portion of this Digital Decade agenda is linked to funding. Several multicounty projects built upon Recovery and Resilience Facility, the Cohesion Funds, and other EU funding. These projects combine investments from the EU budget, Member States, and the private sector to address gaps in the EU's capacities and provide support for an interconnected, interoperable, and secure Digital Single Market.
In the current global setting, digital transformation is posing global challenges and risks. The EU wants to promote a positive agenda of our human-centered digital agenda within the international organizations and bilateral cooperation to ensure the security and resilience of its digital supply chains and deliver global solutions.
We will build international digital partnerships by combining the EU investment with external cooperation funds to achieve shared global objectives. The Trade and Technology Council is the newest tool to enhance transatlantic cooperation in the area.
There is significant progress made in the region since the launch of the Digital Agenda for the Western Balkans. The Regional Roaming Agreement just entered into force and became fully operational. The question is how much can be done to reduce roaming rates between The EU and Western Balkan countries. There is a process of involving Western Balkans national telecom regulatory authorities in The Body of European Regulators for Electronic Communications (BEREC).
The Commission believes that effective and practical progress can be made in telecom markets regulation. Also, there is an effort to involve Western Balkans authorities in the work of the European Broadband Competence Offices Network. This network is the heart of the broadband policies and the deployment of broadband in European countries. In addition, there are many other initiatives such as a Cold Week and the work on interoperability. All those initiatives are efficient, and active participation is very, very important. We hope this can also be the case for authorities in Bosnia, whenever this is not the case yet.
Naturally, there's also financial assistance for enhancing the Digital Agenda for the Western Balkans. The Economic and Investment Plan sets out a substantial investment package of mobilizing up to €9 billion of funding for the region. Also, the Instrument of the Pre-Accession Assistance includes a lot of funding for digitalization. Also, other initiatives like High power computing are accompanied by financial aid as well.
The EU toolbox for 5G security offers a set of comprehensive measures for an EU coordinated approach to secure 5G networks. We encourage Western Balkans countries to use this important guidance while making decisions in this area.
Finally, there is a lot of work in front of your authorities, and we are waiting to see a number of reforms in the areas of electronic communication and electronic media, electronic identity and trust services for electronic transactions, digital switchover, etc.
Sanja Ribar, Senior Manager Regional Leader in EY for Business Transformation Telecommunication sector focus
BiH in the context of regional trends in telecommunication sector: the path ahead
Market overview - Household coverage with broadband internet in BiH:
- Broadband penetration in Bosnia and Herzegovina counts for 94.5% by active users and 21.8% by connections as of December 2020.
- The average speed of 43.4 Mbps
- The largest broadband subscribers are still in the Sarajevo Canton, with more than 30% penetration, followed by the Banja Luka region with 25%. Brcko District has a broadband penetration of 15%. No region in BiH has broadband penetration below 10%.
Within its Digital Decade agenda, the EU Commission included the following pillars: skills, infrastructure, digital transformation of businesses, digitalization of public sector. The three main strategic objectives for 2025 are:
- Access to 1 Gbps for all schools, transport hubs, and main providers of public services and digitally intensive enterprises,
- Access to download speeds of at least 100 Mbps to be upgraded to 1 Gbps for all European household, and
- Uninterrupted 5G wireless broadband coverage for all urban areas and major roads and railways.
Those are very ambitious targets, not only for Bosnia and Herzegovina but for some EU countries, which were unable to achieve previous targets. One of the main concerns is related to the average speed that is currently 43.4 Mbps in Bosnia. Compared to the target of is one Gbps.
There is a few challenges or areas to focus on in the future, as follows:
- cooperation of the telecom operators and the government and regulators,
- network planning and development
- telecoms engagement with industry verticals
- digital transformation of telecom companies.
- net profit pressure
- consumer protection and expectations
When it comes to the cooperation between governments and regulators, key regulatory topics and areas include licensing, network planning and deployment, spectrum planning and release, wholesale pricing and interconnect, digital divide and universal service, consumer protection, data privacy and protection, net neutrality, OTT regulations, accounting, and tax frameworks. In the previous five years, significant progress has been made globally in some of those areas.
In the case of Bosnia and Herzegovina and the region, we are doing the market analysis and currently implementing accounting separation and regulating prices. The wholesale interconnection and broadband access service is one emerging topic globally and in the Western Balkan region.
Another emerging topic is IFSR 16 impact on the prices. These new accounting standards are moving capital costs upfront, so the prices for interconnection will be higher in the first years and lower in the following years. This will impact the weighted cost of capital in the market in the long run. The question is what governments and regulators need to address those changes.
Several other regulatory topics in Bosnia and Herzegovina have a significant impact on the competition and the infrastructure. First is a national strategy. There are defined EU targets, but we miss the national strategy to define economic goals to be achieved in Bosnia and some other countries in the region. A growing number of countries already have the 5G road map or the national strategy on broadband.
The topic of network planning and deployment cannot be addressed by the operators only, but rather in a collaborative manner with all market players.
Operators worldwide contend with a new wave of capital expenses : 4G and 5G, fiber roll-out, and high spectrum costs. In this environment, the Return on Investments and net profitability are a source of anxiety for many operators.
Regional trends in dealing with this challenge include:
- Network sharing trend and wireless infrastructure sharing - Joint venture TowerCo, MNO-controlled TowerCo, Independent TowerCo
- Stranded asset modeling - Cooperation between operator vs. regulator plan to switch off the legacy network and financing options
- KPI roll out monitoring - Regulator KPI set for targeted economy network capacity and financing options
- Net profitability and modeling supporting business decision
- Defining area for cost optimization - Revenue increase, Cost optimization – network cost, network support cost, and overhead.
Government and operators can support operators to overcome these challenges and help them move their costs to the market side. For example, when it comes to KPI monitoring, we have cases governments are providing funds to operators to roll out the new fiber network. Setting very, very strict KPIs on the number of homes to be reached or the numbers of connected phones can put pressure on the net profitability of operators. Using the accounting separation data is a helpful tool to identify areas for cost optimization.
The other challenge is telecom engagement with the different industries. Industries are at varying stages of 5G and IoT investment, but all require more significant support from their service providers to realize the “next wave” of industry. Specific pain points cited by companies in the region are related to infrastructure accessibility and coverage in rural and suburban areas. COVID-19 is prompting a greater focus on digitalization across sectors, putting telecoms under more pressure to deliver industry-specific value propositions.
The digital transformation of telecoms itself poses the following main challenges to be addressed:
- Consumer view / Network quality and price simplicity
- Workforce planning / Inadequate skills and talent undermine analytics and AI
- Technology / Misalignment between technology and business strategy persists
- Innovation / Building Capex lighter operating models and financing
Our study on how consumers are changing shows that we are not far away from the global customers, which poses new expectations from the telecoms.