Internet

Europe's Tech Lag and a Leg Up From Snowden


Obama speaking about U.S. surveillance in Washington on Jan. 17

Photograph by Jim Watson/AFP via Getty Images

Obama speaking about U.S. surveillance in Washington on Jan. 17

Deutsche Telekom’s new chief executive officer and the man behind Angry Birds seem to agree on one thing: The scandal over U.S. spying on allies could cost U.S. companies. At the opening session of Munich’s DLD Conference on Jan. 19, Rovio chief Peter Vesterbacka called it “the best marketing campaign for European companies ever,” forcing business leaders to think twice about storing sensitive data in the U.S. For Timotheus Höttges, who took over the top job at Deutsche Telekom (DTE:GR) a few weeks ago, the key is how the companies might rebuild trust.

The depth of feeling around the issue signals that President Obama’s promise to rein in the National Security Agency may not be sufficient to address allies’ concerns. As fellow panelist Paul-Bernhard Kallen, CEO of Hubert Burda Media, put it: “Everybody has been blaming China. What is now apparent is that it’s not the old friends who are the real friends.” Kallen, whose media company hosts the pre-Davos gathering, was joined onstage by Lutz Schüler of German cable operator Unitymedia Kabel.

Together, the four debated what it would take to accelerate competition in the fragmented and highly regulated European market. Telecom chief Höttges argued the first step is to ease up on rules, arguing that “we’re regulated on whatever we do.” Second, he wants an environment that allows him to charge sufficient revenues to make a profit. While U.S. and European data traffic have both jumped 900 percent over the past five years, he said, that’s enabled U.S. telecoms to increase annual revenues by roughly 35 percent while European carriers have experienced a drop in sales. The comparison with Asia is similar. “There seems to be a digital divide between Europe and the rest of the world,” said Höttges. With more than 200 carriers in Europe vs. four in such markets as the U.S. or China, that may not come as a surprise.

One of the biggest issues for the European leaders was preferential treatment of foreign players. Unitymedia’s Schüler complained that Germany gave Netflix (NFLX) access but struck down efforts to create a homegrown version through a partnership with ProSieben (PSM:GR) and RTL (RTL:BB). “The change which has to happen is deregulation,” he said. “There’s no digital brand coming out of Germany. … To the Googles (GOOG) of this world, Deutsche Telekom is a dwarf. We all need scale.”

Kallen agreed and spoke of the need for a level playing field. A website that operates out of Luxembourg, for example, can sell e-books into Germany at a negligible rate while a local producer has to charge a 19 percent sales tax. “My biggest concern is that the regulatory environment isn’t fair to all the competitors,” he said.

Rovio’s Vesterbacka, though, isn’t persuaded that policy is the problem. “I haven’t seen too many operators in Europe go out of business, even though we’ve had these challenges for years,” said the Angry Birds co-founder. While he’d love to see a single European market that eliminates the need to get approval in every country, he doesn’t see the will to change it. Meanwhile, he welcomes foreign players. “We made 51 games before Angry Birds. What really changed was the market. Apple (AAPL) happened. IPhone happened. Instead of having to go to Deutsche Telekom, to Vodaphone (VOD), I can go to Apple and I reach the world.”

Brady_190
Brady is a senior editor for Bloomberg Businessweek in New York.

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