Connect Europe has urged the European Union to reform its methodology for calculating the telecom sector’s cost of capital (WACC), warning that current regulatory levels are “disconnected from economic reality” and risk undermining investment in digital infrastructure.

In a new position paper, the association argues that regulatory WACC values set by national authorities are consistently below the levels observed in financial markets and used by investors, creating a structural gap that discourages long-term telecom investment.

According to the report, discrepancies between regulatory and market-based WACC estimates are evident across several EU countries, including France, Spain and Germany, where financial analysts’ estimates are several percentage points higher than regulatory figures.

Connect Europe criticised the European Commission’s 2019 WACC methodology for relying on five-year historical averages that fail to reflect recent shifts in interest rates, inflation and geopolitical risks.

The group warned that underestimating the cost of capital weakens operators’ ability to finance fibre and 5G deployment, reduces company valuations and threatens the EU’s broader digital ambitions.

The paper calls on the European Commission and Body of European Regulators for Electronic Communications (BEREC) to adopt a more market-oriented and forward-looking approach, including the use of financial analysts’ estimates to better align regulatory signals with actual financing conditions.