The European digital communications sector is at a crossroads. With 5G rollout lagging behind global leaders, fiber networks racing to meet ambitious targets, and AI poised to revolutionize connectivity, the continent faces a make-or-break decade. The State of Digital Communications 2025 report, published by Connect Europe, provides a comprehensive overview of the current landscape, highlighting both the progress made and the significant challenges that lie ahead.

This article delves into the key findings of the report, focusing on the state of 5G, fiber-to-the-home (FTTH) deployment, the rise of artificial intelligence (AI), and the broader economic and regulatory environment shaping the sector.

Europe’s Connectivity Ecosystem: A Key Driver of Growth

The digital communications market in Europe is a vital component of the continent’s economy, contributing approximately 4.7% to the GDP. In 2023, the market was valued at around €1 trillion, encompassing telecom services, network equipment, and content & applications. Telecom operators, who account for 60% of the total investment in the sector, have been at the forefront of driving innovation and infrastructure development. However, despite these investments, the sector faces significant challenges, including stagnant revenue growth, declining returns on capital, and a fragmented market structure that hinders scalability.

5G: Progress Amidst Global Lag

Europe has made notable strides in 5G deployment, with 87% of the population covered by 5G networks by the end of 2024. However, this progress still lags behind global peers such as South Korea (99%), the USA (98%), and Japan (97%). The adoption of 5G Standalone (SA), the most advanced form of 5G capable of supporting industrial applications, remains particularly weak in Europe, with only 40% population coverage compared to 91% in North America and 45% in Asia-Pacific.

The slow rollout of 5G SA networks is partly due to the high costs associated with spectrum auctions and infrastructure deployment. European operators have spent €29 billion on spectrum auctions for 5G bands, with an additional €1.5 billion expected in the future. Despite these investments, the return on investment (ROI) for 5G remains uncertain, particularly in the face of weak revenue growth and high capital expenditure (capex).

FTTH: Leading in Fiber Rollout but Falling Short of Targets

Europe has been a global leader in the rollout of fiber-to-the-home (FTTH) networks, with 70.5% of the population covered by FTTH in 2024, surpassing South Korea (67.4%) and the USA (54.8%). However, the continent still falls short of the EU’s ambitious Digital Decade target of 100% gigabit-capable network coverage by 2030. Analysys Mason estimates that an additional €109 billion in FTTH investment will be required to achieve 99% population coverage by 2030.

Median fixed downlink speeds, China, Europe, Japan, South Korea and the USA, September 2024

The FTTH rollout has been driven by a combination of private investment and public funding, with Connect Europe members accounting for 54% of total FTTH investment in 2023. However, the market remains fragmented, with overbuilding (multiple fiber networks covering the same area) leading to inefficiencies. The report highlights that by 2030, Europe will still have 45.4 million people without access to gigabit-capable networks, underscoring the need for targeted investment in underserved areas.

The Rise of AI and Its Impact on Networks

Artificial intelligence (AI) is poised to play a transformative role in the digital communications sector in Europe as well. The report identifies several AI-driven applications that could significantly increase data traffic over both fixed and mobile networks. These include AI-assisted content creation tools, AI-generated gaming environments, and AI personal assistants. In the enterprise sector, the collection and analysis of telemetry data from IoT systems are expected to drive future traffic growth.

The impact of AI on network traffic will be most pronounced in data centers, where AI-related data ingest and interconnect traffic are projected to grow at a compound annual growth rate (CAGR) of 50% or more. However, the integration of AI into network operations also presents challenges, particularly in terms of energy consumption and the need for advanced automation to manage increasingly complex networks.

Financial Challenges: Low Returns and High Debt

The financial health of the European telecom sector remains a cause for concern. In 2023, European telecom revenue declined by 4.4% in real terms, while mobile average revenue per user (ARPU) fell by 5.9%. Europe’s mobile ARPU of €14.8 is significantly lower than that of the USA (€41.7), South Korea (€26.0), and Japan (€22.6). This low revenue environment has put pressure on operators’ investment capacity, with total telecom investment in Europe declining by 2% in 2023, marking the first decrease in seven years.

The sector’s return on capital employed (ROCE) has also been declining, falling from 6.6% in 2017 to 5.9% in 2023, well below the cost of capital. This trend is exacerbated by the fragmented nature of the European market, which has 41 mobile operating groups with over 500,000 customers, compared to just 5 in the USA. The lack of scale and high levels of competition have made it difficult for operators to generate adequate returns on their investments.

Average spend per capita on mainstream telecoms, nominal and adjusted for
GDP/capita (PPP), China, Europe, Japan, South Korea and the USA, 2010, 2017 and 2024f

Sustainability and Security: Key Priorities for the Future

Sustainability has become a central focus for European telecom operators, with many setting ambitious targets to reduce their carbon emissions. Connect Europe members have made significant progress in reducing their Scope 1 and 2 emissions, which are now one-third of 2017 levels. The sector is also investing in renewable energy, with 84% of energy used by Connect Europe members coming from renewable sources in 2023.

However, Scope 3 emissions, which account for 80% of total emissions, remain a significant challenge. These emissions are primarily generated by the supply chain, and operators are increasingly adopting circular economy principles to address this issue. For example, Orange’s OSCAR program promotes the reuse of network equipment, while Deutsche Telekom has implemented advanced energy storage solutions to optimize energy use.

Security is another critical area of focus, particularly in light of recent geopolitical tensions and the increasing sophistication of cyber threats. The report highlights several initiatives aimed at enhancing the security and resilience of Europe’s telecom networks, including the protection of submarine cables, the development of quantum encryption, and the integration of AI into network security systems.

Mobile ARPU (excluding IoT SIMs), nominal and adjusted for GDP/capita (PPP),
and change in real terms (LCU), Europe, USA, Japan, South Korea and China, 2023

The Road Ahead: Opportunities for Growth and Innovation

Despite the challenges, the report identifies several opportunities for growth and innovation in the European telecom sector. The rollout of 5G SA networks, the expansion of FTTH coverage, and the integration of AI into network operations all present opportunities for operators to differentiate themselves and capture new revenue streams. Additionally, the development of Network-as-a-Service (NaaS) models, which allow enterprises to access network capabilities through open APIs, could open up new business opportunities for operators.

However, realizing these opportunities will require a fundamental shift in the regulatory environment. The report calls for a more harmonized approach to spectrum licensing, reduced ex-ante regulation, and greater support for cross-border investment. The recent Budapest Declaration, which emphasizes the need for a pro-growth industrial policy, provides a glimmer of hope for the sector. If implemented effectively, these reforms could enable European operators to scale up, innovate, and compete more effectively on the global stage.

Average spend per gigabyte of mobile data used and average mobile data
usage per capita, China, Europe, Japan, South Korea and the USA, 2023

Conclusion about Digital Communications in Europe

The State of Digital Communications 2025 report paints a mixed picture of the European telecom sector. While significant progress has been made in areas such as FTTH deployment and sustainability, the sector continues to face substantial challenges, including low revenue growth, high debt levels, and a fragmented market structure. The rollout of 5G SA networks and the integration of AI into network operations present exciting growth opportunities, but realizing these opportunities will require a more supportive regulatory environment and a renewed focus on innovation and investment. As Europe stands at a decisive moment in its digital transformation, the actions taken today will shape the continent’s connectivity landscape for decades to come.