Video On Demand: Europe’s main markets in the aftermath of Netflix world conquest


Florence Le Borgne
Head of the TV & Digital Content Practice, IDATE DigiWorld

Generally speaking, the arrival of Netflix in a new market results in increased programming costs for its competitors.


Using North America as an example, this trend is expected to continue and grow in the coming years, which will question the profitability of such investments.



Service typology

There are generally three types of pay video-on-demand (VOD) services:

TVOD (Transactional Video-On-Demand) services, which include:

EST (Electronic Sell-Through), also known as DTO or 'Download To Own', is like the traditional sale of physical videograms, but in digital form.

DTR (Download To Rent) is like the traditional rental of videograms, but in digital form.

SVOD (Subscription Video-On-Demand) services, which are based on the dominant pricing model used for linear pay-TV: subscriptions

It is common for the same service to offer several pricing models.

Business models and service positioning

The transactional video-on-demand model is based on revenue sharing between the service provider and the rights holders. Contracts between these two parties can be exclusive, but rarely so. The catalogues of transactional video-on-demand services are usually very large (from 10,000 to hundreds of thousands). Although most TVOD services are non-specialised, consumption is mainly focused on movies.

The business model of SVOD is similar to that of pay-TV. Content rights are purchased at fixed price, regardless of actual consumption. The rights may be exclusive for a given period of time and territory. SVOD catalogues have tended to be available for unlimited consumption so far, including many non-exclusive and older titles (over 5 years old). Although most SVOD offerings are non-specialised, fiction series tend to be promoted and consumed the most. Original and exclusive new content is increasingly used for differentiation. There are currently two contrasting marketing strategies used: strategies based on a volume/cost ratio; and differentiation strategies based on premium or special interest positioning.

Competitive environment

The VOD sector as a whole is witnessing strong growth in Europe, driven by a large increase in the number of services emerging in most countries. Between February 2012 and December 2015, the number of services available in the EU increased by a factor of 5.7 on average.

Although the market share in value terms is still dominated by DTR in Europe (56.5% of the total VOD market), this market segment has been the slowest growing segment over the last five years (+215% on average in EU countries between 2010 and 2015). Revenues from subscription services are experiencing stronger growth: a growth rate of 1,824% over the same period. They generated nearly one-third of VOD revenues in Europe in 2015, whereas they only accounted for 7.6% in 2010.

The true start of the SVOD market in a particular country is often whenever Netflix launches there. Note that Netflix is often the main beneficiary of the rapid growth in subscribers that its launch creates. The arrival of the North American giant does, however, trigger a response from the main players in FTA television and pay-TV. It is the combination of all these elements that contributes to better awareness of these services among the general public and facilitates their adoption.

Competitive environment

The growth and success of video-on-demand services can be very different depending on the market. There are various internal factors:

the propensity for local consumers to pay for access to content;

the price differential with local pay-TV offerings;

the prevalence of piracy of audiovisual and cinematic content;


Find out more about the various internal factors

Various issues specific to the structure of on-demand services and players' strategies also play a role:

the relevance of the marketing positioning of the services;

the existence of partnerships with distributors who already have a subscriber/equipment base;

the effectiveness of recommendation systems, which help increase consumption and provide a better user experience;


More information about these issues

Profitability conditions and the challenge facing Europe

The issue of achieving profitability with transactional services is not as critical as for subscription services. Because most transactional service costs are variable costs, proportional to consumption, these services are not expensive to create and only become so when the content is actually consumed.

Therefore, there are no real obstacles to creating new services and the costs of entry into the market are low. This explains the abundance of existing services and the great diversity of players in this segment.

The economy for SVOD services is more delicate: as well as technical and marketing costs, content acquisition costs can be regarded as fixed costs because the content is purchased at a fixed price, regardless of consumption. To that can be added costs related to development or acquisition of a recommendation tool. Subscription services therefore have significant costs even before they have started to recruit subscribers.

If the European industry cannot create some European champions of their own to compete with the US giants, many European players may disappear as the market rationalises.

Discover the perspectives,  key trends, and scenarios about the TV market for the next decade through our dedicated report and register to DigiWorld Future 2016 

DWF15 video report v3For the publication of the 16th edition of the DigiWorld Yearbook (pre-order now), IDATE is organizing a conference based on the detailed analysis of the current situations and some forecasts by IDATE experts on the major digital sectors, the discussion will deal with the great trends and challenges that will disrupt the digital markets by 2025.




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Telco’s Connected Objects Strategies : how to compete with OTT players


Samuel Ropert
Director of Studies, IDATE DigiWorld

The connected object market today shows a real complementarity between the major players in terms of their current positionings, aligned with their core business.

In the longer term, however, IDATE DigiWorld anticipates that competition will grow in ferocity, around the platforms and services which are set to be the next source of revenues.


The automotive market

Around the connected car business, is key for Internet giants and telcos. Competition today is, in the main, on the platform side as both telcos and Internet giants are aiming to position themselves here today. Indeed, it is the platform that is the cornerstone of the next connected car strategy. Looking further ahead, the main competitors will most likely be OTT service providers, as they will offer services by exploiting the data generated by sensors in the vehicle – Uber-like companies are one example. Some industry incumbents are already engaged in the battle: earlier in 2016, GM invested half a billion USD in Lyft, the main competitor to Uber. The major involved players are AT&T and Verizon on the side of the telcos and Google (and Apple to a lesser extent) for Internet players.

The wellness market

This market is very recent. Telcos are absent from its value chain, with the exception of very limited volumes of cellular objects. They only focus on the distribution side, where the reselling business can grab them a sale commission on wearable objects, linked to smartphones. OTT Internet players are eying this promising consumer market for the opportunities it will offer in the near future to manipulate and monetise masses of personal data.

The healthcare market :

A specific market for a long time, its very promising market has been in the growing numbers of potential ‘clients’ as their age increases. The key objectives of healthcare applications are to optimise the treatment of disease and to save costs for national healthcare services. Even though solutions will be provided in partnership with experts, both telcos and Internet players will be push platforms and services.

The smart home market

It will be the arena for immense competition in the next few years. It is considered as a growth area for fixed telcos which are already facing competition from cablecos. On the side of the OTT Internet player, smart home applications are seen as a complementary way to follow their consumers/audience, even though they have different approaches. Competition – again, it will be heavy – will on the platform and services side as all players will be wanting to manage the data.

Today, the industrial Internet market is considered as an extension of the Industrial M2M business for telcos. The Internet giants are notable by their absence, even though some could provide cloud-based tool: Google, and Amazon with its specific IoT AWS offering, are prime examples. Analogous with traditional online services, the main threat for telcos is that they yet again become the pipe, and only the pipe. They have, however, anticipated the connectivity commodity trend by offering data platform solutions and related services. The ARPU from connectivity is very limited and the telcos expect only a small share of connected devices will be equipped with a SIM card. Before services, telcos have backed their core business, by setting their eyes on LPWA technologies (SIGFOX or LoRa) or collaborating on LPWA-like cellular ones such as the NB-IoT ahead. They are also backing the next 5G technologies, which aim to empower various verticals, including healthcare, manufacturing, smart cities and the automotive. It will be a tough battle, given that Internet giants are global by definition. Moreover, compared with traditional Web services, the main difference is that Internet giants manufacture their own objects, providing almost an end-to-end solution of product, platform and services on top. Faced with this kind of solution, traditional players in the industry will also suffer from the invasive nature of the OTT Internet players and their fierce competition.

Find out more information on "Telco's Connected Objects Strategies" in our dedicated market report

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Is this the beginning of the end of major M&A deals in Europe’s telecoms sector?


Yves Gassot
Directeur Général, IDATE DigiWorld


For several years now – and not without reason – an idea had taken hold in Europe’s ailing telecoms landscape that consolidation was a mandatory rite of passage for closing the chapter on endless price wars that were incompatible with the massive investments required in fixed and mobile superfast systems.

Hence the largely accepted view that, after the deals that took place in Austria, Ireland and especially Germany, national mobile market competition would be reduced from a four to a three-operator structure. In the wake of these earlier M&A deals, a similar project was announced in France, albeit one that was more complex and which fell through even before it got a chance to be examined by the country’s antitrust authority, while other major deals were quashed in the UK (sale of O2-Telefónica to CK Hutchison) and in Italy (joint-venture between Wind, owned by Vimpelcom, and Tre Italia, owned by CK Hutchison).

O2 turns down the CK Hutchison offer

It came as no surprise, after the series of negative signals from Britain’s Competition and Markets Authority (CMA) and its telecoms regulator, Ofcom, that the European Commission’s DG Competition ultimately nixed the sale of O2.

Telefónica will therefore need to look for other ways to keep its debt-reduction plan on track. Meanwhile, CK Hutchison will find itself in a very tenuous position in the UK, as a small operator that lags well behind the competition. It seems unlikely that it can continue on as is, not least because the situation could attract other potential buyers. There are some from outside the UK which are bold and confident enough (Iliad’s name came up several months back) to believe in their ability to forge themselves a position despite British operators’ slim margins. It seems more likely, however, that in the short or medium term CK Hutchison will find a domestic buyer from amongst veteran wireline telcos such as Sky (No. 2 in the broadband market), Virgin Media (tied for second spot, owned by Liberty Global) or TalkTalk (No. 4), all of which have been shaken by the advent of the heavyweight created by the merger of the country’s largest mobile operator, EE, and its fixed market leader, BT.

When consolidation rhymes with fixed-mobile convergence  

In Europe, national markets’ reduction from four to three mobile operators over the past two to three years is no longer the sector’s only, or even its main, consolidation option. We need to picture the mobile network of the future as an essentially fixed network, with wireless connections in the last 100 metres to service microcells. With this in mind, if a relatively dense fixed infrastructure does not exist, mobile operators’ backhauling costs could go through the roof. We naturally think of Vodafone back when it was a mobile pure player, which kicked off the trend with the successive takeovers of Kabel Deutschland and Ono. But the synergies of a consolidation based on fixed-mobile convergence are not confined to anticipating integrated infrastructure. We also need to factor in the cross-selling synergies enjoyed by a convergent operator, along with those to be had in the use of customer files, amortising retail outlets and in brand management, and possibly investments in video platforms, not to mention the boost to customer loyalty levels amongst quadruple play subscribers. We saw this in France when Iliad entered the mobile market. Telenet’s takeover of mobile operator Base in Belgium, Numericable’s takeover of SFR, Ono’s sale to Vodafone in Spain, or the recent joint-venture between Vodafone and Dutch mobile operators Ziggo, are some examples of this consolidation that rhymes with fixed-mobile convergence.

We should also note that an additional advantage lies, apparently, in competition authorities’ relatively positive attitude towards these mergers, as they continue to draw a distinction between the relevant fixed market and the relevant mobile market – viewing their substitutability as still imperfect at best. But national fixed-mobile consolidation has its limits: in the era of superfast access (once we move outside the ADSL market), the main alternative to the fixed integrated operator is typically the cable operator (most national cable markets are highly concentrated) – even if we must not entirely overlook alternative fibre operators which are typically found only in the largest cities, or fixed DSL operators that are subject to regulation. So there are not that many possible combinations that will enable a market’s four or even three operators to become integrated fixed-mobile operators.

Attitudes towards the Wind – 3 deal could give an indication of the DG Competition’s pull-back

A refusal in Italy after the one in the UK, itself on the heels prohibiting the merger between Telia and Telenor subsidiaries in Denmark, is being seen as a worrying pull-back of the Commission’s policy, and perhaps the end of the sector’s consolidation wave in Europe.

We need to remain prudent, however. The particular details of each M&A deal can justifiably alter national trust authorities’ or the Commission’s views. Without making a prediction on their ultimate ruling which is due before August, it is worth noting several differences between the situation in Italy and the one in the UK:

The new O2 would have become the UK’s number one player, ahead of EE and well ahead of Vodafone. In Italy, however, Tre-Wind could continue to trail Telecom Italia by a little and be only slightly larger than Vodafone. An additional indicator is that Wind is significantly outdistanced by both Telecom Italia and Vodafone when it comes to 4G coverage in Italy.

The deal in the UK was complicated by pre-existing infrastructure sharing agreements between Three and EE on the one hand, and between O2 and Vodafone on the other.

British authorities were very clear about their opposition to the Three – O2 merger, whereas Italian authorities have remained discreet. The upcoming Brexit vote in the UK may have persuaded the Commission not to deviate from British authorities’ (CMA, Ofcom) positions.

And what about structural remedies?

We will add that, in certain cases, the DG Competition’s approval of a merger–acquisition deal is contingent on the parties agreeing to a structural remedy. By this we mean a remedy that requires they divest themselves of frequencies and, when applicable, of a portion of infrastructure such as cell towers, to enable the creation of a new operator and so maintain the “magic” number of four operators. We can also imagine (although this is not the first option) that the entity created by the newly merged Wind and Tre in Italy should have enough spectrum – and little opposition to their sharing their towers – to satisfy a structural remedy imposed by the Commission. We can also continue to speculate by imagining a fixed market player (and MVNO) such as FastWeb (there is no cable in Italy) interested in becoming an MNO, provided its owner, Swisscom, accepts the risks. This fictional analysis is only meant to underscore that, as in the UK, failed mobile market consolidation could open the way to fixed-mobile convergence deals.

Are cross-border deals the ultimate outcome?

In any event, antitrust authorities’ refusal to greenlight mergers will not be able to freeze an unsustainable market structure over the long term. If national market concentration raises legitimate concerns over its impact on retail market prices, there is also a danger of seeing countries and consumers penalised by growing delays in fibre and 4G (and soon 5G) rollouts, once operators have exhausted the margins of their cost-cutting schemes.

So, if national market competition cannot be made more economically efficient by domestic mergers and acquisitions, there may be opportunities for cross-border deals for some. As with fixed-mobile convergence deals, the Commission tends to take a more kindly view of them since they have a less direct impact on the relevant market’s concentration level. Of course, potential synergies are less obvious (the same number of infrastructures are competing) and the inherent risks of the deal will depend on valuation. We can nevertheless believe that, for some operators with ambitious business models, e.g. in their acquisition of TV rights, the drive to achieve critical mass could become a key objective, and one that is vital to their future.

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DigiWorld Future 2016


Launching the 16th edition of the DigiWorld Yearbook with a vast and vital forward-looking debate


Over the past 15 years, the DigiWorld Yearbook has forged a reputation as the go-to reference work from Europe’s premier think tank, IDATE DigiWorld. Every year, it delivers an analysis of the latest developments in telecom, Internet and media markets, identifies the core trends around the world and provides a snapshot of the shape of things to come.

To mark the release of the 2016 Yearbook, IDATE DigiWorld is hosting a forward-looking debate on the key trends that will shape the digital economy over the next 10 years. Based on detailed analyses of the current state of affairs, along with development scenarios for 2025 established by our in-house experts, the CEOs and presidents of the sector’s leading companies are invited to comment and share their views on what the digital future holds.

Digital economy & Internet 2025: Will trust imperatives bolster or impede the new digital economy?

Telecom 2025: What role will telcos play in the economy’s digital transformation?

Television 2025: Are we at the dawn of a single, global TV and video market?

Chairman, François Barrault, and CEO, Yves Gassot, along with the IDATE DigiWorld teams will be on hand at the launch events being held in Brussels (25 May), in London (2 June) and in Paris (14 June).

DigiWorld Future London
2 June 2016, BT Centre

>With very special guests:
-    Luis Alvarez, CEO, BT Global Services
-    Rich Montgomery, Group VP and General Manager EMEA, Verizon Enterprise Solutions
-    Sven Heistermann, Director Telecoms, EMEA Strategic Relationships, Google
-    Accenture

DigiWorld Future Paris
A Futur en Seine partner event
14 June 2016, Salle Wagram, with very special guests:

-    Jacques Attali, President, Attali & Associés
-    Thierry Breton, President-CEO, Atos
-    Rodolphe Belmer, CEO, Eutelsat
-    Eric Chaniot, Chief Digital Officer, Michelin
-    Michel Combes, President-CEO, SFR
-    Laurent Curny, President France, Verizon
-    Olivier Huart, President-CEO, TDF
-    Isabelle Kocher, CEO, Engie
-    Gilles Pelisson, President-CEO, TF1
-    Marc Rouanne, Chief Innovation & Operating Officer, Nokia

DigiWorld Future Brussels
25 May 2016, Cercle de Lorraine

With very special guests:
-    John Porter, CEO, Telenet
-    Anthony Whelan, Director Electronic Communications Networks & Services, DG Connect

> To register or access the programme, go to: www.digiworldfuture.com


Connected TV: Accelerating OTT video development


Jacques Bajon
Director of Media & Digital Content Business Unit, IDATE DigiWorld

The development of connected TV is inextricably bound up with the widespread availability of high-speed Internet access, a shift to more and more individual viewing and the proliferation of smart devices in the home.


Together, these three elements are steadily revolutionising how viewers access their TV programmes, and providing them with an array of new functions and features. TV sets can be connected to the Internet in several ways. Using:
a smart or connected TV (direct connection, via Ethernet or Wi-Fi),
a connected set-top box,
a streaming box or stick,a connected game console,
or a smart Blu-ray player.

In 2015, almost three-quarters of the televisions being shipped are Smart TVs, even if their owners may not systematically take advantage of the Internet connection. At the same time, the market for streaming devices – whose main purpose is to play online videos – is progressing rapidly. Within this market that is still populated by a great many solutions and services, several trends are taking shape:
the way users access and employ connected TV services has become more simple, and shifted from Internet-centric to video-centric;
managing connectivity with users’ personal devices has become a key issue, with app systems playing an increasingly central role;
OTT services are moving to the TV and making real strides;

More information about main trends

Technological progress in a variety of areas is helping to bolster the market’s development, be it the growing ubiquity of broadband and superfast broadband access in the consumer market, major improvements in video optimisation and compression (HEVC), or the advent of innovative features such as casting which allows users to send video content from a personal device to the television. The main stakeholders in the connected TV ecosystem can be broken down into three categories, based on their original sector of activity: consumer electronics (CE) companies, TV market players and the Internet’s leaders.
CE industry players are working to improve their software interfaces, either through dedicated developments such as Samsung has done with Tizen, or by acquiring another company, as LG has done with WebOS. The aim is to capture the added-value in the marketplace, whether in the arena of services and/or by selling high-end devices.
Players from the TV universe are developing their OTT products, and working to bolster their position on the software side of the equation with more open and hybrid platforms. The connected TV could enable them to renew ties with consumers, and better monetise their plans. Broadcasters and pay-TV providers, especially in the United States, are therefore starting to roll out complete OTT plans which include a live component
Lastly, companies such as Google, Amazon, Facebook and Microsoft that dominate the Internet, are very knowledgeable about software, and changing consumer habits. So they are in the best position to deliver a top-notch user experience, whether in terms of smooth and intuitive interfaces, or providing recommendations based on user data. Their increasingly vertical positioning – covering everything from the content to the device – is also bolstering their potential to capture a growing portion of the video entertainment market.

In this way, many scenarios are emerging for Connected TV to 2025, and will determine which industries are likely to increase their control over this environment:


The size of the OTT video market will vary considerably under these scenarios, depending on how the environment evolves and so which industries prevail, and The popularity of the different devices will also evolve along the same lines.

Discover the perspectives,  key trends, and scenarios about the TV market for the next decade through our dedicated report and register to DigiWorld Future 2016 

DWF15 video report v3For the publication of the 16th edition of the DigiWorld Yearbook (pre-order now), IDATE is organizing a conference based on the detailed analysis of the current situations and some forecasts by IDATE experts on the major digital sectors, the discussion will deal with the great trends and challenges that will disrupt the digital markets by 2025.




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Will blockchains “Uberize” Airbnb?


Yves Gassot
CEO, IDATE DigiWorld

Previously, in the DigiWorld… Over the past 10 years we have witnessed the rise of the GAFA heavyweight platforms within a winner takes all ecosystem then, without apparently making a dent in these veteran titans, new intermediaries began to emerge, shaking up the status quo in several sectors and, in some instances, seen as the harbingers of a new sharing economy (cf. Jeremy Rifkin).

In recent months, it was the financial sector’s turn to be challenged, this time by the FinTech phenomenon that is ushering in aggregators, multiple mobile payment and banking configurations, crowd-funding and -lending platforms, as well as cryptocurrencies such as Bitcoin and, perhaps most significantly, its blockchain infrastructure.

So here we are, at the dawn of the blockchain revolution. Thanks to a distributed database technology, which validates transactions (each a link in the chain) through a large collective of Internet users, we have a virtually tamper-proof way of managing transaction logs, without a central server and without an administrator.

Combined with connected objects, such as a front door, and smart contracts (programmes for automatically executing contracts once certain conditions are met), the belief is that blockchain systems could “Uberize” sites such as Airbnb by removing the need for an intermediary between the two parties. But we’re not quite there yet.

Between libertarian dreams and the highly supervised trials being carried out by banks and other companies, it is still hard to get an accurate picture of how efficient blockchain technology is, technically speaking, and how credible the vision of a world in which trust third parties of last resort have disappeared. But it would also be unwise to think that nothing will come of the technology[1] – or of the multiple start-ups that have embraced it to devise applications for sectors as disparate as banking, retail, energy distribution and music.

Whether at the upcoming DigiWorld Summit in Montpellier, whose central theme will be “The Internet of Trust” (15 – 17 November 2016) or the dossier we are preparing for the forthcoming issue of DigiWorld Economic Journal, devoted to “Digital innovation and transformation in the financial sector,” you will have ample opportunity to explore the ins and outs of these fascinating developments with IDATE DigiWorld teams this year.

[1] We have the feeling that smart contracts, which are often lumped in with blockchains, have what it takes to emerge as a solution unto itself and really catch on.


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[1] On a ainsi le sentiment que  la notion de smart contract, souvent plus ou moins confondue avec  la blockchain, devrait pouvoir trouver son indépendance en même temps qu’un réel essor.


Smart toys: From the onslaught of gaming companies to the prospects for the toy industry


Laurent Michaud
Head of Consumer Electronics & Digital Entertainment Practice

By 2020, nearly 660 million smart toys could be sold, generating estimated revenues of 3.8 billion EUR, or 10.8% of the video game market.


The 'smart toys' or 'toys-to-life' phenomenon is generating a lot of interest because of its massive and rapid success. Smart toys are creating a new form of entertainment without really breaking with the function of toys or that of video games, and are at least as immersive as the two pastimes in their own right. Smart toys now constitute a new market segment, halfway between the video game and toy industries. Four industry players comprise the bulk of the market:

Activision Blizzard with its Skylanders series, which has sold nearly 300 million figurines worldwide (8 games published since 2011)
Disney Games with Disney Infinity, which brings to life its own characters and the universes of its subsidiaries: Pixar, Marvel, Star Wars
Nintendo, which offers 'amiibo' figurines of its most popular characters (more than 10.5 million figurines sold in six months)
At the end of 2015, LEGO gatecrashed the market with LEGO Dimensions and, after experimenting with smart toys with an earlier product called LEGO Fusion, its entrance was successful.

Other industry players, toy manufacturers and video game publishers, such as Hasbro and Mattel, are still at the trial phase or performing 'market tests'.

The main lessons learned from events in 2015 reflect the challenges faced and the successes achieved.
The 'user experience' is central to the smart toy phenomenon, combining tangible objects — which may or may not be connected — with digital entertainment applications. This has given rise to the term 'phygital' to describe the experience.
Business models based on the collection of figurines, dependent on video games to varying extents, continue to evolve and could incorporate Free-to-Play.
Development models are primarily based on a so-called 'first party' or 'second party' approach. These operating models still leave little room for new entrants.
There is a clear dichotomy between 'mainstream' smart toys, produced by industry giants for fixed and visible platforms on the big screen, and new entrants offering their solutions on mobile platforms, where the barriers to entry are not so high.
The success of LEGO shows that convergence between toy manufacturers and video game companies is effective and can lead to AAA toys built around AAA video games.

The success of the smart toys video game segment is based on familiar universes that already have an audience of fans. There are still many fantasy worlds as yet untapped and therefore represent promising avenues for growth.

More information about smart toys market in our dedicated report


DWF15 video report v3For the publication of the 16th edition of the DigiWorld Yearbook (pre-order now), IDATE is organizing a conference based on the detailed analysis of the current situations and some forecasts by IDATE experts on the major digital sectors, the discussion will deal with the great trends and challenges that will disrupt the digital markets by 2025.




Subscribe to our newsletter and keep up to date with events and latest news.



Digital Economy 2025: The future of telecom and Internet ecosystems


Christoph Pennings
Director of Studies, IDATE DigiWorld

A market that could more than double by 2025 to reach €3,000 billion


IDATE DigiWorld has released the latest edition of its forward-looking report on the future of Internet and telecom markets. It delivers four development scenarios for the digital economy along with a quantitative forecast up to 2025.

When trying to picture the future of the industry for the purposes of this study, we identified a number of developments with the power to influence various dimensions of the digital economy. The starting point was to divide these trends into two categories: key trends and major uncertainties.

Key trends are developments that have clearly emerged and for which it is possible to assume, with reasonable certainty, how they will play out over the years ahead.

For instance, with respect to technologies, one element that is quite certain is that network technologies will deliver better performance ten years from now than they do today. Even though 4G is still being rolled out and the 5G standard is not yet fully defined, it seems clear that 5G will deliver higher bandwidth, lower latency and better efficiency in terms of energy and spectrum usage than previous standards.

Beyond this, looking at usages, the trend towards mobile will surely last. The adoption of smartphones, tablets, wearables and other connected devices (including cars) will continue to be on the rise and make mobile by far the dominant way to access the Internet.

Business models and regulatory trends are also to some extent predictable. The value chain will continue to evolve with digital products cutting traditional players out of the loop. Regulation is very likely to shift towards more ex-post control and more symmetric obligations between players at the same layer of the value chain, but across layers, as with OTTs and telcos.

The major uncertainties can be categorised in a similarly broad way.

For example, certain technological evolutions or changes in business models might push the industry to develop in one direction or another. The Internet of Things allows connecting any object to the Internet and may unleash enormous innovation potential. Yet, despite the maturity of its technologies, the business model remains largely unclear today.

Consolidation in the telecom sector will continue but the end game is not yet predictable. Will consolidation remain a national phenomenon or will the market be dominated by a few regional, perhaps even global, players and who could they be?

Will consumers continue to prefer paying for ‘free’ Internet services with personal data, or will they ultimately adopt more privacy-conscious paid offers?

In order to bring all these different elements together, four contrasting yet plausible scenarios for the "digital economy" industry in 2025 are developed in this study, identified as Mall, Open, Automated and Trust. They are projected against a two-by-two matrix whose axes are defined so as to capture a very heterogeneous "digital economy" industry, yet sufficiently focused to give discussion some meaningful guidance.

One axis is the intensity with which personal data are being used. The intensity of personal data usage is an indication of the range of services telcos and Internet players will provide.

The other dimension is the presence of enablers in the market. Enablers provide rather specialised solutions, which other companies can leverage to build their own businesses on.

Four development scenarios for the digital economy

Combining these different hypotheses allowed us to establish the four most plausible future scenarios:

“Mall” scenario: Digital economy players adopt a strong focus on retail and customer owner-ship, seeking to be the one-stop user shop for all things digital, including content and devices. There is full-blown competition between Internet players and the telcos, each of them aggregating and marketing a branded bouquet of digital products and services.

“Open” scenario: This digital economy ecosystem features seamless inter-operability and openness: open access, open innovation and open data. The Internet market is richly innovative and competitive. With token loyalty, users migrate to other innovative applications or services. Telcos focus on providing retail and whole-sale connectivity, with specialised services.

“Automated” scenario: Sales, service production and customer care become largely softwarised. Customer requests configure service patterns automatically. Sophisticated data analytics are used mainly for internal purposes. Players leverage open standards and generic solutions to implement low-cost production.

“Trust” scenario: This scenario comes to challenge the digital world as we know it, with rising insecurity and cyber-surveillance. Users rely on only a handful of players able to provide them with high levels of security and data protection, thanks in large part to technologies developed in-house. Business models based on targeted advertising and the public cloud both lose ground, while security solutions and paid services are on the rise.


Digital economy 2025: scenario matrix


Source: IDATE, The Digital Economy in 2025, January 2016

A market set to double over the next decade

Departing from a global market worth close to €1,500 billion in 2015, each scenario sketches out a very different value generating potential between now and 2025. The most optimistic “Mall” scenario forecasts a market that will double in value, climbing to close to €3,000 billion – which translates into average annual growth of 7% – whereas under the most pessimistic “Automated” scenario the market still grows to €2,200 billion by 2025, or by an average 4.2% a year

The market’s forecast breakdown, between Internet services on the one side and telecom (access) services on the other, also varies substantially, ranging from 49% for telecoms under the “Open” scenario to 60% under the “Trust” scenario. Of course, compared to the more than 75% share in 2015, this corresponds to telecom services steadily losing market share to Internet services.

Value growth for Internet and telecom services markets, by scenario, 2014-2025


Source: IDATE, The Digital Economy in 2025, January 2016

More information on The future of Telecom and Internet ecosystems in our report "Digital Economy 2025"

Discover the perspectives and key trends that will structure the digital economy for the next decade and participate to DigiWorld Future 2016 

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How can policy makers create conditions encouraging investments in the deployment of very high speed connectivity networks?


Yves Gassot
CEO, IDATE DigiWorld

I will be the moderator of an interactive discussion during the Digital Regulation forum 2016 about "the needs for Internet speed and quality beyond 2020" on Wednesday 20 April.


Here are several theoretical options to stimulate private investment in fibre network rollouts:

1) Regulatory holidays:

the investor can invest without the threat of having to open its network to the competition. The questions are: when will the holiday end? Is it set in advance or, on the contrary, unknown by the investor?

2) The threat of public or subsidised deployments:

To avoid having to use a third party’s infrastructure, the incumbent takes the initiative of deploying its own fibre network. The question is: is it not a welcome opportunity for the incumbent to let private investors concentrate their deployments in the large cities, and leave it up to the State or local authorities to cover the less profitable areas?

3) Charge higher wholesale prices to telcos using the copper local loop:

Making the transition from ADSL to fibre pricing will be easier. The question is: will this give the incumbent more income from its legacy infrastructure and dampen any incentive to invest in fibre?

4) A mandatory open fibre model that factors in the risks being taken by fibre investors:

The question is: how to define the right price?

5) A laissez faire attitude in light of the prospect of intermodal competition, i.e. between fibre and 5G. The dilemma:

Ultra-high speed mobile access will also need fibre for backhauling in a small cell architecture. Cable DOCSIS systems could provide strong enough competition to push the incumbent to deploy fibre, but only in those areas where there is a cable infrastructure…

6) Make better information available to consumers:

On the differences (speed, latency) between the technologies and the networks, to give telcos room to invest and to fix a premium on fibre access. Question: will it be enough to sustain the momentum?

In fact, the crux of the task before NRAs (National Regulator Authorities) is to strike the right balance and choose the right mix that takes into account the particular features of each national market.


More information about the programme





Yves Gassot
CEO, IDATE DigiWorld


...in search of a convergent outcome


Proceeding behind closed doors, negotiations between Orange and Bouygues are now at the point where each party – independent of any actual transaction – is anticipating the reasons for and possible pitfalls of such a complex and far from certain merger.

The four players in the French telecommunications market have a shared interest in a scenario that would see the disappearance of one of its operators, not least with a view toward ending the price wars that have ravaged the sector. The French market would join the three-operator configuration that currently exists in Germany and, in the months to come, will emerge in the United Kingdom and Italy as well. This is a singular deal, however, as it involves the top provider of fixed line, mobile and enterprise services. So it can only go through if the new Orange is prepared to jettison many of the assets that it would acquire in the process.

Let us try to imagine what could lie ahead for these players in a situation that would be rich study for any expert of game theory.

Competition authorities – and regulators to a lesser extent – are in a delicate position since, even though they did not instigate it, they cannot fail to see the appeal of a deal that would help the sector get back on its feet: a sector whose revenue has been shrinking since 2008 and on whose massive investments the country is relying to some degree to achieve its digital transition. But the deal must not be approved at the cost of undermining effective competition between operators. Unlike with other mergers and acquisitions we have seen in Europe – between third-ranked or and fourth- and second-ranked operators which, in order to gain approval, have had to agree to certain remedies (such as selling off frequencies and opening their networks to MVNOs) – authorities here will have to prop up and justify a largely revamped structure for France’s telecom services market, through the conditions they impose on the distribution of frequencies, infrastructure, subscribers, stores, staff, etc. One can foresee the risks associated with ‘managed competition’.

Bouygues faces the prospect of trading control of its business for cash and a substantial stake in the leading provider, on the basis of favourable valuation. It is essential that it obtain a premium price. The biggest danger for the company lies in not getting that price and, in so doing, of having employees and even customers lose some confidence in the operator’s future.

Orange cannot agree to shoulder all of the risks of such a deal without having an objective other than doing the heavy lifting of a consolidation that is in everybody’s interest, except the shareholders’. If the new group is required to divest itself of the majority of Bouygues Telecom assets, it will need to ensure that the buyers help shoulder the burden of that premium price granted to Bouygues. A certain degree of competition is therefore necessary for that to happen. The company also needs to anticipate what advantages it will lose in yielding assets to competitors, for example those presently helping Orange and Bouygues Telecom enjoy a lead in the 4G market. Lastly, the cash released at the end of the deal must enable Orange either to accelerate its investments in France and other markets to strengthen its positions (while bracing itself for the kickback from regulators!) or give it the means to lead the charge in consolidating the sector in Europe.

SFR and Iliad are certainly interested in building their businesses thanks to the acquisition of assets. Their teams and their bankers must nevertheless determine the maximum they can pay, with an eye on debt ratios, beyond which it would be more cost effective to put their money into marketing and sales to gain subscribers, or to step up their investments in equipment and frequencies to accelerate their superfast fixed and mobile network rollouts. In the process, they also need to avoid finding themselves in competition with one another or with third parties.

And let us not forget one final protagonist: the Government, not as an authority in charge of competition or the sector’s regulator, but in its role of major Orange shareholder: does it have objectives other than those of a careful investor? Is the goal to set up a core of controlling shareholders in order to allow the State to withdraw?


Read more about a convergent outcome between Orange and Boyugues in Les Echos (french link) of the 29 January 2016