New research from CEPR argues Europe’s telecom operators are earning returns close to their cost of capital, but does the analysis understate the true scale and nature of sector investment?
A new paper published by the Centre for Economic Policy Research (CEPR) has reignited debate over the financial health of Europe’s telecom sector, concluding that operators are broadly able to remunerate their cost of capital despite long-running complaints about weak returns and excessive regulation.
The analysis, published on CEPR’s VoxEU platform, examines the profitability of European telecom operators over an extended period and challenges the industry narrative that structurally low returns are undermining investment. According to the authors, average returns on capital employed for European telcos have, in aggregate, been close to or slightly above weighted average cost of capital (WACC), particularly in recent years.
The paper suggests that claims of chronic underperformance are overstated and that the sector’s financial outcomes compare more favourably with other capital-intensive industries than is often acknowledged.
The authors also argue that market fragmentation and regulatory pressure, while frequently cited by operators, do not fully explain return dynamics. They point to evidence that competitive intensity has delivered lower prices and higher consumer welfare without necessarily pushing the sector into systemic financial distress. From this perspective, calls for regulatory relief or consolidation on the basis of inadequate returns warrant closer scrutiny.
Beyond the headlines
However, the CEPR conclusions have been strongly challenged by industry representatives, including Wind Tre Director of External Affairs and Sustainability Roberto Basso, at. Basso argues that headline return metrics obscure the lived financial reality of operators facing sustained capital demands.
“The problem is not whether returns occasionally touch the cost of capital on paper,” Basso wrote, “but whether they do so consistently and predictably enough to justify long-term investment in high-risk infrastructure.” He added that telecom investment cycles are unusually long, while regulatory interventions can alter economic assumptions mid-stream, increasing uncertainty and reducing effective returns.
Basso also questioned whether the CEPR methodology adequately captures the full cost base of modern telecom networks. He noted that operators increasingly invest through structures that shift assets off traditional balance sheets, such as tower companies, fibre joint ventures and wholesale vehicles. While these investments remain economically essential to service delivery, they may not be fully reflected in operator-level capital and return calculations.
This point was echoed by several commenters responding to the original discussion around the paper. Industry observers noted that a growing share of telecom investment is “sunk” into passive infrastructure that is later monetised or spun out, meaning reported returns can appear healthier even as underlying network economics deteriorate. Others argued that returns measured at group level fail to reflect poor performance in core connectivity businesses, which are often cross-subsidised by non-core or legacy revenues.
Commenters also questioned whether comparing telecoms to other capital-intensive sectors is appropriate, given the unique combination of heavy upfront investment, regulated pricing and rapid technological obsolescence. Unlike utilities, they argued, telecom operators must continuously reinvest simply to maintain service parity, with limited pricing power to recover those costs.
Taken together, the responses suggest that while the CEPR paper offers a necessary challenge to some industry claims, it does not settle the debate. The disagreement centres less on individual data points than on how investment risk, regulatory uncertainty and structural change are accounted for in economic models.
As Europe pushes ahead with its connectivity, digital sovereignty and industrial policy goals, the question of whether current returns are sufficient to sustain long-term telecom investment remains unresolved. CEPR’s paper however reinforces the debate that headline profitability figures alone are unlikely to capture the full complexity of the sector’s financial reality.
