OTT global communication market will exceed 14.6 billion EUR by the end of 2016, and grow to 24.1 billion EUR by 2020
Director of "Digital Telco" Stream, IDATE DigiWorld contact
Representing a CAGR of 13.3%. The market is composed of three segments: VoIP (such as Skype), IP messaging (such as WhatsApp), and also a share of social networking advertising revenues.
In contrast to the telco communications market, however, the OTT communications market remains very small: since the telco communications market is estimated at 695 billion EUR for 2016, OTT accounts for only 2.1% of total value. Even by 2020, OTT will only account for 3.4%. During this time, the telco communications market is expected to see a CAGR of -0.6%.
Thus, IDATE believes that OTT communication services have not significantly adversely impacted the telcos; rather, it is a case of the telcos maintaining their market values, while OTTs are growing their market value by themselves. In fact, more influential factors, such as the economic climate, internal competition and regulations are affecting telco market values significantly more than OTTs.
For example, France was seeing intense internal competition before 2009, when Whatsapp appeared, making voice and SMS no longer a cash cow. In other countries such as Spain, SMS and mobile voice were already on the decline through the economic recession, and cheaper OTT alternatives simply accelerated the already declining telco revenues. Furthermore, Both VoIP and IP messaging are more of a paid model, and do not generate much market value, since close to 60% of OTT communication revenues come from social network advertising, which can be seen as additional value in communication.
The business OTT communication market, represented by Unified Communications (UC) and Cloud Communications - mainly Communications Platform as a Service (CPaaS) markets, is experencing a rapid growth. The CPaaS market, in particular, is estimated to take off at a CAGR of 166% for the 2015-2018 period, reaching 5.7 billion EUR in 2018. The UC market will grow steadily from 38 billion EUR in 2016 to 60 billion EUR in 2020, reperesenting a CAGR of 11.5%, driven mainly by the UCaaS model.
Still, there is a lot of interest in the VoIP and IP messaging markets, as the acquisitions and investments in this market continue in both consumer and business OTT markets. High-profile acquisitions include the acquisition of WhatsApp by Facebook, Skype by Microsoft, and Viber by Rakuten. This all forms a part of the platform strategy, whereby the aim is not to generate revenues directly from these services, but to see them as useful tools to increase user base and reach, which in turn can be used for monetisation through different means (e.g., advertising, paid games and commerce).
The likes of WeChat and LINE are successful in terms of revenue generation, followed by Facebook Messenger embracing the same platform strategy. Similarly, the acquistion of Tropo by Cisco and of Nexmo by Vonage highlights the platform ambitions of traditional UC players'. With the increasing importance of the CPaaS sector, the likes of Cisco are offering toolkits (APIs, SDKs) to clients, allowing them to develop their own communication functionalities. Meanwhile, leveraging the relationship with telcos, players such as Cisco and Microsoft can offer consolidated OTT and PSTN communication within one single brand.
IDATE DigiWorld sees five main telco strategies in response to the rise of OTT communication services: blocking, bundling, partnerships, telco-OTT and RCS. Blocking is now rare, as it can lead to churn and also arouses debates about net neutrality. Bundling unlimited and/or abundant voice and SMS is a highly useful strategy, lessening the price advantage of OTTs. Partnerships with OTTs can be a useful differentiation strategy, to be used as a driver for data plan subscriptions. Telco-OTT sees the telcos (e.g., Telefónica and Orange) offering their own OTT communication service, combining their own unique telco strengths, rather than being simple OTT copycats. More WebRTC capabilities are also increasingly being offered by telcos. Finally, RCS is a GSMA-led initiative designed to bring OTT-like capabilities to mobile devices. However, in the light of the struggle of the first RCS attempt with the "Joyn" brand, in 2016 telcos began to cooperate with Google to address interoperability and fragmentation issues of RCS across networks and Android devices. Many telcos have thus completely shifted to VoLTE deployment after years of staggering with their RCS initiatives: the "big four" (Deutsche Telekom, Telefónica, Vodafone, Orange), initially in support of "Joyn", are all moving to VoLTE deployment, and US telcos (T-Mobile, AT&T, Sprint and Verizon) have successively tested and launched VoLTE servicessince 2014.
To delve deeper into OTT communication services, check out our latest market report
Florence Le Borgne,
Head of the TV & Digital Content Practice, IDATE DigiWorld
The creation of a pan-European alliance in mid-January between three major commercial TV companies – ProSiebenSat.1, TF1 and Mediaset – around OTT video specialist, Studio71, is a strong indication of veteran players’ new strategies, built on international partnerships and digital diversification.
Traditional TV networks are having to contend with a whole new landscape: one where the competition, the screens and even the consumers have changed, and where longstanding business models are now being threatened. They have no choice but to evolve as well, to hold their own amidst this groundswell.
Every major media company has therefore developed – either voluntarily or in reaction to competition – an OTT strategy that typically includes distribution online, on mobile devices and on televisions via connected devices.
Approaches nevertheless vary from player to player.
• All now offer catch-up TV services, which may include the ability to simulcast linear programming.
• Few offer transactional VOD services, regardless of whether they offer just their own content or broader libraries.
• There are a good number of monthly subscription VOD plans available, but this encompasses a wide range of products:
o generalist SVOD services;
o thematic SVOD services ;
o OTT versions of premium channels;
o Or paid access to simulcasts of linear over-the-air networks (with catch-up offered for free).
• Lastly, a few players are developing an OTT strategy that is built not on their usual content, but rather on creating original content that will be distributed solely online.
It is into this last category that the deal announced on 12 January falls, whereby France’s TF1 and Italy’s Mediaset have acquired, respectively, a 6.1% and 5.5% stake in Studio 71 – a subsidiary of German media company, ProSiebenSat.1, created in 2013 – worth a total of around 53 million EUR. According to the Mediaset press release, this alliance is being formed “with the aim of creating Europe's most important operator in digital talent in close synergy with generalist television”.
Distributed on the leading video sharing platforms, the content supplied by Studio71 generates more than 6 billion views a month on YouTube alone, through more than 1,200 channels, and reports 405 million registered users worldwide. For TF1, this new deal is geared to allowing the French media company to become “a benchmark online video player in France across all platforms by developing content targeted at millennials”. This generation of viewers has become a prime target for the French conglomerate which already acquired a majority share of Minute Buzz in December 2016, and is heavily focused on building up its social media presence to reach younger viewers.
Faced with the threat that Netflix and Amazon represent on the international online video scene, this European partnership will enable the three commercial TV broadcasters to go after revenue outside their traditional field of operation, by combining the strength of local brands and Studio 71’s global audience. This deal should thus enable TF1 Publicité (advertising) to shore up its ability to reach new audiences, and to consolidate its position as “France’s No. 1 content marketplace”. Similarly, Mediaset – for which this deal is the first major move from its new digital division – views this alliance and an opportunity “to maximize the distribution of Mediaset TV contents on internet and to boost synergies between TV and web.”
Another noteworthy move comes from Scandinavia’s Modern Times Group which, on 25 January, announced that it was selling its share in Czech free-to-air broadcaster, Prima, in order to finance its investments in the group’s digital transformation, starting with increasing its stake in German online game developer, InnoGames, from 21% to 51%. According to MTG President and CEO, Jørgen Madsen Lindemann, “The investment is in line with MTG’s digital strategy to invest in relevant, complementary and scalable digital content and communities. It creates a third digital entertainment vertical for MTGx alongside its eSports and MPN businesses”.
If these areas of diversification are still far from rivalling these European heavyweights’ traditional businesses, the growing number of strategic actions targeting OTT video is a clear sign that veteran TV networks are looking beyond broadcasting. Their future is inextricably bound up with the shift to OTT and building a global footprint: to continue to exist locally, they need to think globally.
To delve deeper into leading media companies’ OTT strategies, check out our latest market report
CEO, IDATE DigiWorld
2016 turned out to be a relatively mediocre year for the telecom services market in Western countries: an overall trend of stabilisation in Europe’s biggest markets, after suffering a steady decline in revenue since 2008, and an overall decrease in mobile revenue in the United States, breaking with the steady growth that AT&T and Verizon had managed to maintain up until 2015. As a result, operators in Europe are naturally sensitive to any strategic moves from the two American heavyweights, especially with respect to the content industry: what are AT&T and Verizon’s hoping for when investing in content?
• Avoid being bypassed by streaming video by moving higher up the value chain, right up to production. Because video has become the prime source of traffic on both fixed and mobile networks, operators can no longer content themselves with merely distributing other companies’ channels and programmes, especially if those companies decide to take the self-distribution route and comply with net neutrality rules. This strategy is akin to classic vertical integration.
• Behind this ultimately defensive strategy, there may also be a more aggressive aim at work: play the OTT card for all it’s worth by freeing themselves from their footprint (and the Capex required to continually expand the number of homes passed) and going after customers on every fixed/mobile Internet access network, i.e. not only customers that rely on their own pipes. Therein lies real diversification since physical connectivity becomes secondary.
• Beyond this, we have to keep AT&T and Verizon’s current situation in mind. Both are having to contend with a brutal decrease in growth which had been sustained almost singlehandedly by their mobile business for the past 10 years, while also playing second fiddle to cable in the residential fixed access market. With very few attractive prospects abroad – and up until now (under the Obama administration), antitrust bodies blocking M&A deals that would have allowed them to grow their share of the mobile market at home – while still very powerful, both operators have very good reasons for setting their sights on content as a way to maintain revenue and shareholder dividends. But here is where their paths diverge.
• Being deliberately simplistic, one Verizon executive recently explained that AT&T wanted to gain a share of today’s TV market, whereas Verizon was going after the future video market that will be fuelled by millennials… in other words, rather than acquiring very expensive assets that are likely to be rendered obsolete by new video habits, Verizon is opting to slowly build up its expertise in the data economy that will underpin video (notably growing programmatic advertising revenue). What is certain is that the amount that AT&T will spend to acquire DirecTV and (provided they get the nod from the Trump administration) Time Warner is infinitely larger than what Verizon laid out for AOL, the Huffington Post, OnCue, several other start-ups (including Vessel) and probably Yahoo! But it is still too early to say which path is the riskiest.
How does this tie in with net neutrality debates?
• The future Trump administration has done nothing to hide its radical opposition to net neutrality, up to and including reclassifying ISPs as common carriers under Title II of the Telecommunications Act. In theory, this is great new for telcos who remain hostile to the regulation put into place by the Obama administration: at the very least they can take it as given that, under the new administration, they will be able to maintain their zero rating policies on content, especially content delivered over wireless networks, such as those included in T-Mobile’s Binge On plan, Verizon’s Go90 and AT&T’s DirecTV Now products.
On these last two points, what could a repeal or relaxation of current net neutrality rules mean?
• We can posit that, if net neutrality is done away with altogether, operators are back in the driver’s seat when it comes to being bypassed by streaming services sold by channels and SVOD providers. Will this go so far as to quash any desire to invest in content themselves? Not necessarily, as exclusivity can still be a real drawing card, and useful for standing out from the competition. But the biggest operators that are able to amortise massive spending on rights acquisitions thanks to their tens of millions of subscribers, can also enter the content fray with the prospect of being less heavily challenged by broadcasters and OTT heavyweights.
• At the same time, however, doing away with net neutrality may also make playing the OTT card on third party operators’ networks more challenging…
• Finally, let us not forget the other possible effects of the new administration in Washington:
- If corporate tax rates are lowered (from 35% to 20%, or even 15%), AT&T and Verizon’s cash flow will be bolstered from 5 to more than 8 billion USD…
- Meanwhile the rigour of antitrust authorities that blocked the AT&T/Sprint and later Sprint/T-Mobile mergers is likely to become far more accommodating, and so open the way for new M&A deals;
- As a result, consolidation could turn the tide on AT&T and Verizon’s shrinking mobile businesses, and make the process of staking out a claim in the content industry a less pressing concern.
So, here at the dawn of 2017, it really does seem like almost anything could happen…
Director of Media and Digital Contents Business Unit, IDATE DigiWorld
In developed countries, the audiovisual sector is experiencing a period of relative stagnation, which will probably be long-term and therefore lead to many challenges for players in the ecosystem. Although the Internet is the major cause of disruption, there are many factors at play.
IDATE DigiWorld drew up 4 scenarios in the last report “Future TV 2025” based on the market environment evolution and the new competitive situation analysis:
Landscape market evolution
• Fundamental regulatory choices: confirmation of Net neutrality, reconciliation of obligations for linear and non-linear services, reform of regional rights allocation.
• Heterogeneous global growth: emerging markets driving growth.
• IT playing an increasing role in video distribution: 'centralisation' with the cloud, the growth of streaming, the growing role played by captured consumer data.
• Increasingly significant personalised video consumption, on-demand and multi-screen ('TV as a service').
The new competitive situation
With an increasingly influential Internet sector, through pure players quickly establishing themselves in the market, accentuating the phenomenon of disintermediation of established players.
Content is more than ever king and ownership of it is crucial, hence increased competition with exclusive premium content is sending rights prices soaring, and new financial backers of original production are emerging.
Also, the market is experiencing a period of concentration (both horizontal and vertical), driven by restructuring of the telecom operators market and the race for control of content.
In this way, new forms of monetisation are appearing in an environment where pay-TV is experiencing downward pressure due to the polarisation between premium and low-cost, the role of service bundles, the development of programmatic advertising and freemium models.
The Trend scenario: a 2,4% expected global growth per year by 2025
The Trend scenario assumes that 2010-2016 trends will continue. In this scenario, the major determining factors are stable. On-demand consumption of audiovisual services continues to grow without destabilising the linear market. The regulatory status quo maintains a local approach to markets. Finally, we see a steady rise in influence of OTT players.
This scenario corresponds to slow growth of the global market, 2.4% per year on average:
• Growth driven primarily by emerging countries
• Stagnating Western European and North American markets
• An evolving market landscape
Four scenarios forecasted
Three others scenarios have been forecasted, each is in favor the stakeholder kind in particular:
“Convergence” scenario: In the Convergence scenario, TV-Internet-telecom bundled offerings predominate. They enable better prices to be offered and provide a complete range of linear TV and on-demand services, as well as music and games services. Multiscreen consumption, fixed and mobile, is pushed by one (or many) of the operators, providing permanent connectivity to the range of services.
“Disruption” scenario: Personalised video consumption predominates in the Disruption scenario, with more uniform consumer tastes on a global scale. The barriers to worldwide content distribution have collapsed, along with local content regulations. Global players controlling content rights have appeared. The leading Internet players (e-commerce, viral platforms and social networks) play a central role, offering a blend of premium and professional UGC content. The value of the market is under pressure within an oligopolistic OTT video sector on a global scale.
“Syndication” scenario: The Syndication scenario is the most cooperative and most favourable to the TV sector. Similar to how local television stations are affiliated with national 'networks' in the United States, television companies could become affiliated with large national and regional 'entertainment operators', relying on the common core of content they provide, and providing market expertise, relationships to national advertisers, local programming, and their brands and customers in exchange. This transformation takes place in both the broadcast and OTT sectors.
Discover the perspectives, key trends, and scenarios about the TV market through our dedicated report
CEO, IDATE DigiWorld
Provided Q4 results confirm the trend, this would be the first time since 2008 that the market is on an upwards swing.
According to the recent ETNO-IDATE report, the telecom services market in Europe (EU-28) is stabilising, and even enjoying a slight uptick in Europe as a whole. Whereas the North American market has been enjoying steady growth over the past decade and Europe has been on a downwards slide, the situation has flipped – with market growth on the other side of the pond hovering around 0%, combining a close to 1% decrease in the mobile market during the first three quarters and very slight growth in the fixed market thanks to cable companies.
Annual telecom services revenue growth (ETNO, % )
In this rather sombre situation in Western markets, despite the remarkable success with 4G customers, monetising mobile access appears to be wavering between two main options.
- After an initial period where unmetered plans became the norm, using the argument of network congestion operators began selling plans that were tiered based on data caps. The common practice was to encourage customers who were using their smartphones and tablets more and more to upgrade to a larger allowance, while decreasing the price per Gb of data. But fierce competition makes it hard to escape a deflationary trend, particularly in markets where quality metrics do not appear to play a decisive role in differentiating operators.
- We thus saw operators turn to supplying content services, and applying zero rating, either through agreements with third party suppliers (Vodafone, T-Mobile) or with their own content (AT&T, Verizon). If the content is attractive enough, it can set an operator apart from the competition.
Some, however, see the zero rating trend as grounds for reviving the net neutrality debate. So what’s the problem? While it is clearly a good thing for consumers, the opponents of zero rating argue the following. If the service provider has paid the operator, we can expect to see a decline in diversity and innovation in the applications sector that benefits market heavyweights, which are able to finance their access to the market. If the service provider belongs to the operator (or is controlled by it), there can be discrimination if only that service benefits from zero rating. The problem is that there is a disagreement over whether these two suppositions are well founded, and require specific ex ante regulation, and especially whether they fall under the scope of net neutrality. The government of India forbade Facebook from offering a set of basic applications (including its social network) for free to the country’s mobile operators. Despite having been behind the Open Internet Order, which reclassifies ISPs as common carriers as defined by Title II of the Telecommunications Act, FCC Chairman Wheeler has been very circumspect about zero rating up to now, believing that the trend needs to be observed for a period of time before drawing any conclusions. Of course, the incoming Trump administration will shake up the FCC, and everyone expects the Open Internet Order to be challenged.
Director of Studies, "Telecom Strategies" Business Unit, IDATE DigiWorld
Customer experience draws primarily on customers’ network usage and their perceived quality, as well as their interaction with the telco’s different services (sales, support and administrative), whatever the communication channel.
Customer Experience Management, or CEM, is the term used for the programmes implemented to improve customer experience.
A complex but essential undertaking
In what is now a saturated market, it is essential that operators pay heed to customer experience if they are to retain the loyalty of their subscribers. Yet telcos have fallen behind their counterparts in other sectors, particularly OTT players.
A sophisticated CEM strategy relies on the consolidation of all customer information, not just subscription data and historical contact with the operator, but also network usage, geolocation and even comments posted on forums. Such a complex undertaking is far from being implemented by telcos, who sometimes struggle to reconcile their mixed and mobile databases. Verizon is a typical example of a company with organisational silos, whose fixed and mobile operations are two clearly separate entities.
Customer experience also implies a change in corporate culture, with each employee is required to serve the customer. This implies a sizable managerial undertaking and the involvement of senior management is therefore essential.
Customer experience incorporates increasingly cutting-edge technologies
The digitisation of communication channels is gathering momentum, including stores (interactive kiosks, click & collect services) and call centres (agents communicating with customers via chats or messaging).
In order to minimise their costs, operators are installing increasingly intelligent automated solutions. Websites host virtual agents based on artificial intelligence, while call centres use interactive voice servers with speech recognition technology. Telcos can also draw on the technological tools developed by the Internet giants: data analytics, predictive analytics, profiling, event processing and biometric authentication, as well as artificial intelligence, chatbots, machine learning and even blockchain.
Yet the human aspect remains an essential, differentiating factor
Websites offer chat options and social networks are developing in this area. User forums provide an ideal intermediate solution, offering the human aspect but less costly.
Faced with competition from low-cost operators, the big telcos are taking their stores more upmarket with a focus on customer experience, in an effort to enhance customer loyalty and expand the range of subscriber services, particularly connected objects.
Opportunities for innovation: social media, mobile and personalised services
Social networks also represent a new means of communication between operator and subscriber. They offer a wealth of information that can be used to match the best message and solution to each individual customer.
While telcos are clearly aware that mobile is an essential link between operator and subscriber, the applications rolled out so far are seeing only limited success. Mobile represents a considerable opportunity in terms of innovation for telcos, who can combine usage and geolocation data to offer solutions that are both personalised and contextual, and even to position themselves as trusted third parties.
The key challenge of CEM is to incorporate data from customers’ various interactions with the operator and their social networks. Operators can use analytics tools to offer personalised solutions to customers, anticipating and meeting their needs as they gradually wind down the traditional communication channels (which are more costly). In particular, the fine-tuning of contextual solutions based on usage (Vodafone targeting subscribers going skiing abroad, for example) is still a relatively untapped growth outlet.
This process could also be used for other ends: optimising network deployment by closely analysing network usage or evaluating customer experience data (incorporating geolocation data in particular), which could then be sold to third parties.
Delve deeper about Telecom Customer Experience Management with the following IDATE DigiWorld market report
Interview with: Ramon Fernandez,
Deputy CEO, Group Chief Financial and Strategy Officer, Orange
''Trust is a key asset in an ever more complex and digital world.''
Why are trust issues at the heart of conversations today?
Perhaps because it has become so rare! We are in a crisis of confidence, which is global and extends across the whole society, beyond the economy. Today, in Europe and in our industry, many people do not trust our ecosystem players with their personal data that they nevertheless share everyday. More and more services are fully dematerialized. A number of very large digital actors are not present in the physical world, have not set up physical shops and a growing share of customer relationships is performed by robots ... If data is the fuel of our digital world, trust is essential to succeed in the long term.
Is the « trusted third parties » notion – which is often extended to telecom operators, still meaningful?
More than ever in our digital world, we are operating in an increasingly open, fragmented and dynamic environment; it is more and more important to have reference points. With the rise of new digital players, trust is built through new and evolving markers, it becomes distributed: for example a sum of other users’ insights about an apartment on Airbnb or about a car on Drivy, or the blockchain algorithm... More than a "trusted third party" strictly speaking, customers are looking for a truly trusted partner. Orange wants to play that role.
What role does the Orange Mobile Banking project play in this positionning as « trusted partner »?
It is based on the "trust capital" we have built and earned over time with millions of customers around the world, that Orange can today be legitimate to manage its customers’ money. It is also its credibility in terms of innovation, which means that Orange is expected to offer a new and fully mobile banking experience. Finally, it is an opportunity to leverage our experience in Africa where we have 20 million Orange Money customers. So there is a real logic for Orange to launch its own financial services and we are doing it in partnership with Groupama.
Florence Le Borgne,
Head of the TV & Digital Content Practice, IDATE DigiWorld
If directive 2001/29/EC harmonise copyright across the European Union, this does not mean that rights owners enjoy a single system of copyright protection throughout the EU. Their coverage is in fact an assembly of national rights whose geographic scope continues to be confined to the Member State that grants them.
At a time when more and more consumers are watching videos on mobile devices, and expect to be able to do so anywhere, anytime, the territorial aspect of copyright creates problems when it comes to cross-border access and the portability of this content. According to the European Commission, the ability to access a video service in another Member State is guaranteed for less than 4% of all VoD content in the EU. Moreover, for copyright reasons, consumers are often unable to continue to access a VoD service they subscribe to at home when travelling in another European Union country.
The territoriality of copyright is, however, far from being the single obstacle to the development of cross-border services. At the top of the list of other hurdles is the national exclusivity imposed by rights owners to secure pre-financing for their content, along with:
• the costs and constraints bound up with the need to employ multilingual staff to provide customer service;
• different national regulations on private copies, consumer protection, the protection of minors, taxation,
distribution windows, etc.;
• subtitling and dubbing costs;
• the cost of localising marketing campaigns;
• the lack of technical standards for distributing content;
• low broadband availability and/or adoption levels in some countries;
• the lack of demand for cross-border services.
A less ambitious plan, which aimed only to guarantee the portability of content across Europe, would seem more realistic. For service providers, this would mean negotiating a clearly defined exception with rights holders, and providing a clear framework for the territoriality of rights, to be able to allow their customers to view their programmes wherever they are in Europe.
DELVE DEEPER WITH THE FOLLOWING IDATE DIGIWORLD MARKET REPORTS
TV in the Digital Single Market: Impact of current regulatory changes on the audiovisual value chain, Dec. 2015
World TV & Video Services Markets: Terrestrial - Satellite - Cable - IPTV - DVD - Blu-ray - Video on demand, Dec. 2015
Video-On-Demand: Europe’s main markets in the aftermath of Netflix world conquest, May 2016
Video Solution Providers: Towards Software-Defined Video, Jul. 2016
CEO, IDATE DigiWorld
AT&T had only barely begun integrating DirecTV – the second largest pay-TV provider in the US, behind Comcast – when it announced its plans to acquire Time Warner for more than 85 billion USD (over 105 billion USD including debt).
This is no small chunk of change, as the company had to pay top price for a media conglomerate that is in fairly good shape and boasts a large stable of assets, including major Hollywood studios, the country’s top pay-TV channel, HBO, and several other cable properties such as CNN and TMC. The appeal of these assets has attracted a number of suitors since the spin-off of Time Warner Cable, including Apple.
A less welcoming environment
To assess the rationale for the deal, we should first give a bit of background.
• First, we should mention the very abrupt slowdown in the mobile services market in the United States. If AT&T (like Verizon) is a colossal enterprise, with more than 110 million mobile subscribers in the US, the market has become far more difficult following aggressive moves from T-Mobile and Sprint, and as consumer equipment matures. AT&T had sought to anticipate the change by merging with T-Mobile, but the FCC and antitrust authorities quashed the deal. As in Europe, intense competition is weighing on mobile operators’ margins, while the explosion in traffic is still hard to monetise and telcos will need to keep investing heavily in their networks to keep up. On the other side of the equation, the applications generating this explosion in traffic are largely the product of Internet behemoths such as Google, Amazon, Facebook and Netflix.
• Second, in those locations where it is a wireline telco, AT&T is having to contend with cable’s growing dominance (66%) of the Internet access market. For several quarters now, AT&T, Verizon and the country’s other telcos (Frontier, Century Link…) that offer connection speeds over 50 Mbps in only a small handful of locations, are losing customers to cable and its ability to deliver increasingly fast connections, thanks to DOCSIS 3.1 – giving it a steadily growing subscriber base and market share. Plus, the top cablecos appear resolved to enter the mobile market, with the belief that “mobile is the new cable!".
• Lastly, we need to remember the remarkable success of the deal that led the number one cableco, Comcast, to acquire another TV and movie industry giant, NBC Universal, back in 2013.
How will it maintain its cash-flow?
AT&T does not have that many options for maintaining its cash-flow and dividends.
• It is forbidden to engage in mobile market mergers. Of course, it can count on 5G to accelerate and widen its lead over T-Mobile and Sprint, as it managed to do (alongside Verizon) with LTE at the outset. But this lead would only last around 18 months.
• Acquiring cable companies could open up certain prospects – as the cable market’s consolidation is not yet complete – but will only be allowed in those areas where the carrier has no footprint.
• International investments are still on the menu, with the acquisition of two mobile operators in Mexico in recent years. And even if growth in more or less every telecom market is sluggish, AT&T did also have its eye on opportunities in Europe, and later in India… But, like Verizon, AT&T has been focused largely on its domestic market for more than a decade.
• It is true that the acquisition DirecTV is considered largely a success. It creates national cross-selling opportunities between mobile subscribers and satellite customers. DirecTV’s roughly 20 million subscribers bolster the company’s negotiating cloud in Hollywood, well above what it had with its 5 million U-Verse subscribers. With DirecTV, however, AT&T was still just a distributor and so sensitive to the slow but sure cord-cutting trend.
A deal that equals both vertical integration and diversification
So the acquisition of Time Warner would change all that. It would allow AT&T to move one or two notches up the programming value chain, positioned in both TV network operation and the production of premium TV series and films. The new AT&T would thus have a very impressive strike force on the content front, powerful enough to fuel its ambitious DirecTV Now TV streaming project.
This does not mean that AT&T is putting all its eggs in the vertical integration basket. It would be foolish to monetise its films, TV programming and channels only through its own fixed and mobile broadband services. So the deal can also be seen as a diversification move. AT&T has no doubt concluded that, more than ever before, content is indeed king.
We would be wrong take away from this merger the idea that is the pipes that govern broadcasting and content. The new understanding is more that, now that we can watch TV, live or in VOD, through a good quality streaming service, competition at the connectivity level will become more efficient, net neutrality rules will rein in the most direct attempts at discrimination… so it is not the pipes but rather the programmes that will be the decisive factors. Along with data on Internet users’ behaviour and habits.
Telcos do have several cards to play when it comes to the TV and video market. Cards that could allow them to stand out from other telcos, open up cross-selling opportunities, secure customer loyalty… When going head to head with the Internet titans, acquiring TV rights to sport and amortising investments in premium productions will nevertheless be possible only for the wealthiest telcos, with the most ambitious video strategies and tens of millions of subscribers. Like AT&T.
How will antitrust authorities react?
It remains to be seen how the Department of Justice (DoJ) and the FCC will react: they could oppose the deal or impose conditions. AT&T will argue the precedent of the Comcast-NBC merger, and the fact that no media or telecoms industry player would be eliminated or have its market share altered. Industry players and politicians that are against the merger will point to the dangers of having the country’s largest carrier get its hands on one of the largest media conglomerates. Others will see opportunities to strengthen provisions for increasing transparency on ISPs’ use of consumer data, and to expand net neutrality rules.
Check out the DigiWorld Summit programme
Senior Consultant, IDATE DigiWorld
A mini share of the global telecom and IT equipment market, but a maximum impact on the networks’ capabilities
72 telco SDN/NFV projects benchmarked
The latest IDATE report – “State of the SDN/NFV market” – spotlights the main pioneering players in terms of SDN/NFV implementation, and what they are doing today. The report provides a separate dataset with 72 detailed project fact sheets as of August 2016, as well as an analysis of major stakeholders – telcos and vendors – and their strategies to evolve and transform their networks to a software-based infrastructure.
“These projects are at different stages, ranging from trial to deployment, but a few (36%) have achieved a commercial launch. Whatever their level of development, most of these projects are taking place in developed countries: Europe, the US, Japan, South Korea and China,” says Tiana Ramahandry, the report’s project leader.
SDN/NFV projects per status
Source: IDATE DigiWorld, State of SDN/NFV and network investments, September 2016
Telcos’ adoption of SDN and NFV over the long term
IDATE DigiWorld analysts provide SDN/NFV market sizing data, with coming investment forecasts up to 2020. Even this market, which is expected to reach almost 19 billion EUR by 2020, remains very marginal compared to the telecom and IT equipment market, which itself is estimated at over 300 billion EUR, transformation potential in network management will be huge, as will telcos’ opportunities to adopt new services and innovative business models.
While a modest part of the global SDN and NFV market will be captured by telcos in 2020, NFV is being implemented more and more with the growing number of cloud and SDN solutions being introduced for new business services. Telcos’ large-scale deployments are expected to begin in 2016, and their CAGR over the next five years is projected to stand at 47%.
Indeed, the vast majority of the market will come from enterprises and cloud service providers that were the first to adopt SDN for use in datacentres, for both internal operations and connections with other datacentres.
Discover the perspectives, key trends, and scenarios about "SDN & NFV market" and contact Tiana Ramahandry for further information.
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