• McKinsey has just published a report on the state of Europe’s technology, media and telecom (TMT) industry
• It highlights how European companies failed to keep up as the TMT sectors in other regions grew
• But a turnaround is possible, it adds, if the sector embraces the “next wave of technological change and digital disruption” in areas such as AI, connectivity and more

It’s a common refrain that Europe has fallen behind regions such as China and the US in technology advancements from 5G through to generative artificial intelligence (GenAI) – although US President Donald Trump’s so-called tariff “strategy” and hostile attitude to Europe are prompting renewed enthusiasm for sovereign approaches to AI, cloud, data security and more besides.

A new report from McKinsey also offers a somewhat bleak picture of just how much Europe’s technology, media and telecom (TMT) companies have stagnated relative to their peers in Asia and North America over the past several years.

The report, entitled ‘Technology, media, and telecom in Europe: The new growth engine or another decade of missing out?’, highlights that while TMT’s global market capitalisation grew from around $7tn in 2000 to $34tn in 2024, Europe’s share of cumulative global TMT market capitalisation plunged from 30% to 7% over this period.

“This decline in share translates to an $8tn missed opportunity – value that would have been generated by 2024 if Europe had maintained its share of market cap,” the report remarks.

The good news for Europe is that its TMT sector has an opportunity to turn its fortunes around in the coming decade, according to McKinsey’s crystal ball gazers.  

The consultancy declares that the next wave of technological change and digital disruption could lead to a genuine European TMT turnaround, and has identified what it describes as “five critical battlegrounds” that could “unlock nearly $800bn in incremental value by 2030”. 

These battlegrounds lie in what McKinsey is calling “sector value pools”, namely content and commerce, AI and software, connectivity, data infrastructure and tech services.

The big caveat, of course, is that the path to unlocking this $800bn will be littered with obstacles, including market fragmentation, insufficient investment capital, and restrictive regulations. 

“Geopolitical complexities, such as tech sovereignty, data security and supply chain resilience, also loom large, particularly given the unpredictable landscape of tariffs and trade controls,” the report observes. However, it argues that “strategic shifts and targeted investments” in these areas could “ignite a TMT resurgence”.

Indeed, such challenges create opportunities. “Rising geopolitical pressures and the sudden expansion of tariffs and other trade controls have only added weight to the continent’s technological sovereignty, data security and supply chain resilience. While these new geopolitical realities will bring new challenges, there could be opportunities for homegrown players who can be agile in the fast-shifting market,” note the report’s authors. 

In particular, sovereign cloud “presents a pivotal opportunity for Europe’s TMT sector to stage a comeback partly by focusing on ensuring data sovereignty and leveraging AI for innovation,” notes the McKinsey team, adding that by 2027, the European public cloud services market is expected to reach around $300bn in value, growing at a CAGR of 20%. Now is the time for European companies to land a greater share of this market and ‘local’ players are looking increasingly appealing, as the report points out. “Sovereign cloud (or sovereign AI) solutions enable GDPR compliance and protect sensitive data from extraterritorial access, mitigating risks of service disruption due to forces outside regional players’ control. They also provide enhanced business continuity and control, which is crucial for sectors vulnerable to shutdowns, such as defence, healthcare and critical infrastructure,” states the McKinsey team.

No easy task 

But that’s all easier said than done. Ruben Schaubroeck, leader of McKinsey’s Technology, Media & Telecommunications practice in Europe, said chief executives in the TMT sector cite the more fragmented nature of the European market, limited access to investments and funding, and the difficulty in attracting and retaining talent as the top three challenges – see Telco hopes raised as EC kickstarts M&A consultation.

By addressing these three areas, “there’s an opportunity for Europe to re-establish itself as a real tech player and tech leader across the full TMT value chain,” said Schaubroeck.

And, of course, regulators and lawmakers have a role to play here. “The structural foundation for a European TMT turnaround could include frameworks and policies that incentivise innovation, increase access to investment capital, and enable companies to scale,” according to the McKinsey team. 

Schaubroeck added: “Europe can once again be a talent magnet, and make sure that we attract, but also keep, the best talent in Europe. By doing those three things, Europe can regain its competitive edge in TMT, also compared to America and Asia.” 

The good news is that business leaders are cautiously optimistic about their sector’s overall chances of recovery: According to a McKinsey survey, 85% say Europe could take a trend-setting role as a TMT pioneer over the next 10 years, with hopes particularly pinned on AI and next-generation software, data sovereignty, and compute and connectivity. 

On a less positive note, none of this is going to be easy. As noted by the report, regaining just some of its prior competitiveness is still a daunting task for Europe’s TMT sector, “with both structural and commercial hurdles to overcome and smart, strategic choices and shifts to make. But given the stakes, it’s a challenge that the sector cannot afford to shy away from.”

A note on telcos

The connectivity “value pool” naturally delves into issues that are specific to telcos, although Europe’s modern-day telecom operator is of course interested in, and investing in, all five areas. 

McKinsey splits this value pool into ServCos and NetCos, and notes that European ServCos “have had the tougher time of it lately, and the current outlook for their core business isn’t much brighter.” 

A key recommendation for ServCos is to “go beyond the core” offerings, by: investing in network APIs, open radio access networks (RANs), and edge computing to offer customised solutions; expanding or debuting ICT offerings to business-to-business customers; and rolling out adjacency products or services to consumers on their own or by working with other companies in an ecosystem. 

For NetCos, namely network and tower operators and wholesale providers, the expansion of their businesses both organically and through M&A is seen as critical.

Notably, McKinsey says investors have recognised the strong foundation and growth prospects of NetCos, so much so that it estimates 150 M&A deals for European tower and fibre companies will take place over the next two years. “Average deal valuations are expected to be around $2bn for towers and just over half a billion for fibre,” the research adds.

- Anne Morris, Contributing Editor, TelecomTV