Valérie CHAILLOU Head of Research, Telecoms Business Unit, IDATE
Accelerated growth in FTTH/B coverage from incumbents and enhancement in competition from new entrants, even in mature markets
In 2014, the dynamism of European markets (EU-35) was impressive: the number of subscribers reported the highest growth since end 2010 (nearly 55% increase). In terms of coverage, the increase reached 43%. This dynamism is led by countries such as Spain, where players have clearly played an important role and finally overpassed their initial objectives. There were nearly 14.6 million FTTH/B subscribers and more than 59 million homes passed in the EU-35 at end 2014.
In Spain, the incumbent Telefonica has decided to accelerate its rollouts aiming at covering 10 million households at end year, compared to less than 4 million at end 2013. This impressive growth and associated commercial strategy had a concrete impact on the Spanish market where, during the year, there were nearly 800,000 new FTTH subscribers.
Another noteworthy country is Romania where the leading players have decided to change their strategy and finally deploy FTTH/B when they were firstly focused on FTTx/LAN architecture in previous years. Therefore, the number of subscribers has considerably increased taking into account a total churn from end users. Those countries are followed by France, Turkey and the Netherlands (where, respectively, 25%, 24% and 39% of FTTH/B subscribers are new 2014 subscribers).
Elsewhere, Sweden still devotes to be highlighted: the latest trend in the country is to focus more and more on the single-dwelling units market which was not the first target of players involved in FTTH/B. The demand is steadily increasing since 2013 and, even if more complex and costly to deploy, FTTH to single-dwelling units is becoming a commodity. This is even truer for local fibre network players, involved in local scale rollouts, which have devoted half of their investments in targeting single-dwelling units in 2014. The Swedish incumbent was also very active in 2014, with more than 300,000 new Homes Passed yoy and an increase of around 31% in terms of FTTH/B Broadband subscribers. Then, the competitive landscape is also moving thanks to the involvement of smaller players that have strong ambition and get involved by acquiring local fibre networks previously owned by municipalities. Such trend should help Sweden keep a leading position on the European FTTH/B market.
On other markets, FTTH/B subscriptions also increased significantly. A part from Spain, the most performing country in 2014, we can mention the Netherlands where the number of FTTH/B subscribers has increased by 65%. France, Portugal, Turkey and Switzerland have also shown steady growth, in line with the trend we had already noted in 2013, with between 32 and 79% growth rate in the subscribers basis.
In terms of players involved in FTTH/B projects, alternative carriers are still leading the way, representing a 45% of the total homes passed in EU35 at end 2014 (67% considering EU39, which shows the important role of those players in Russia and Ukraine!). Among them, we can note this year the interesting role of recently entered players in countries considered as mature such as in Sweden and the Netherlands. Most of those players are backed with investment funds that help them strengthen their FTTH/B strategies.
The number of local authorities launching FTTH/B rollout projects on their territory has decreased a little bit in 2014 but they still represent only 9% of homes passed in EU35. Few new projects have been concretely launched by local authorities noted during 2014. There are some interesting rollouts in France, still in the context of the national program for superfast broadband, but most of them are still in the very beginning of the process. They represent some 600,000 homes passed end 2014.
Then, of course, incumbents are important players in all European countries. They represent 46% of HP in EU35 at end 2014, +3% compared to 2013. Several incumbents have considerably accelerated their rollouts in 2014. As in 2013, the most dynamic is Telefonica in Spain, but with a much more impressive growth: from 1.7 new Homes Passed in 2013, Telefonica reached more than 6 million new Homes Passed in 2014. Then come Orange in France (+897,000 HP), TeliaSonera in Sweden (+416,000 HP), KPN/Reggefiber in the Netherlands (+312,000 HP) and Turk Telekom in Turkey (+300,000 HP). It is also very interested to note the quite recent involvement of Bezeq in Israel, which decided to upgrade its infrastructure to FTTB: more than 1 million homes are now passed with FTTB but no services are available yet on the network. The operator is still focused on providing VDSL2 based services to end users for the moment, but it is betting on the need for higher speed rates in the near future and it is preparing itself to be able to provide required solutions very rapidly.
Number of FTTH/B subscribers per country in Europe (countries with more than 200 K subscribers)
Source: IDATE for FTTH Council Europe
Number of FTTH/B homes passed per country in Europe (countries with more than a million homes passed)
Source: IDATE for FTTH Council Europe
When enlarging the analysis to EU39, Russia and Ukraine are still very specific markets. Their respective demographic characteristics are so different from other countries that the comparison is not always very relevant. However, both markets are quite dynamic, with respectively +50 and +15% in terms of subscribers basis.
Regarding the technology deployed, Ethernet is still players’ first choice across the EU-39, and represented 66% of all FTTH/B rollouts at end 2014.
As concerns network architecture, most new deployments concerned FTTH which now represent 41% of homes passed at end 2014 (vs 34% one year ago). However, FTTB is still the favourite configuration as it allows them to avoid the issues that come with installing fibre on private property, and especially MDUs – i.e. having to negotiate with each property owner.
1 The term EU-35 refers to the EU-28 countries –Cyprus + Andorra, Iceland, Israel, Macedonia, Norway, Serbia, Switzerland and Turkey.
The EU-39 refers to the EU-35 + the four CIS Countries: Belarus, Kazakhstan, Ukraine and Russia.
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The 2014 digiworld summit "drawn from life" by Aurélie Bordenave, alias Léely. Discover all the strong moments. (texts are in french or in english)
Plenary: Business models, Rethinking the telcos business models in the 5G era
Keynote : Smart Glasses
Business models: Rethinking the telcos business models in the 5G era
Disruptive innovations: one step towards 5G
Smart City & Mobile living
Seminar "TV everywhere"
Seminar : "Business models: M2M & Internet of Things - Smarter objects, smarter processes"
Europe on the rebound ?
TV & facing Mobility
Le digiworld summit 2014 a réuni autour des questions de la mobilité près de 1 200 participants et 140 speakers du monde numérique. Les vidéos des moments forts de ces deux journées.
- L'interview de Laurent Solly, DG de Facebook France
- L'interview de Carlos Moreno, "La ville nous parle"
Published in COMMUNICATIONS & STRATEGIES No. 96
Interview with Jean-Louis MISSIKA, Deputy Mayor of Paris in charge of urban planning
Conducted by Yves Gassot, CEO, IDATE-DigiWorld Institute
C&S: The Smart City concept is often criticized for seeking new markets for digital technology rather than tackling the phenomena that make the management of our cities increasingly complex. What is your view?
Jean-Louis MISSIKA: I do not think it is a fair criticism. Digital technologies have undeniably created the conditions for important changes in our ways of living, inhabiting and consuming. They are now part of our everyday lives and, surely, their impact will increasingly spread throughout the multiple ways we, as humans, interact.
Beyond what they create as opportunities for individuals, digital technologies are fundamental for cities – and among them the city of Paris. Urban systems are confronted with major challenges on the economic, social and environmental fronts. Energy transition, and more generally the management of scarce resources, climate change and the biodiversity challenges drive us to analyze all the solutions available now and in the future to build a more sustainable city - the city of tomorrow. Digital technologies and, in particular, their potential in terms of coordination and rational use of scarce resources, are high on the policy agenda. This is not simply to create a market for them; this is about using all the possibilities offered by technology.
I definitely think it can be a win – win development for both the city and the companies if these firms are working with those involved in the challenges of the city like urban planners and system operators.
Additionally, we are witnessing a boom of young, innovative companies and startups, but also the citizens themselves – both from Paris and outside – who develop digital solutions for the city. This is clear evidence of what is at stake here: it is for local authorities to allow the digital revolution to spread in the society so that innovation does not only occur through large companies but also thanks to citizens' initiatives.
C&S: How would you rate the strategy of Paris, using a broad comparison between the very holistic, top-down approach of projects emerging in the context of new towns and in Asia, and the more bottom-up approach that seems to be primarily based on using multiple data repositories ('open data') associated with urban systems?
J.-L. M: We are definitely leaning towards the "bottom up" approach to building Paris as a smart city.
Collective intelligence is an effective way to source the best ideas. And it does work well in Paris in part because we provide people with the appropriate means to implement projects: workspaces, coaching, financing, public spaces to experiment… and data.
This is one of the pillars of a smart and sustainable city: a place where the technology is used for people, by people, to include them in the life of the city and in the process of public decisions.
Let me refer to a recent project. We have worked over the last 6 months since the election to reach a greater transparency and citizen involvement in the City operations, by creating a platform for the development, discussion and adoption of community projects. These are chosen by the Parisians and are financed through a participatory budget. 5% of the total investment program, which represents 426 million euros, has been flagged for programs chosen directly, through vote, by the Parisians.
Within the next months, Parisians will even be able to share the benefit of their expertise and creativity by suggesting investment ideas directly.
Another way to involve people is crowdsourcing. We have developed the "DansMaRue" mobile application which Parisians use to signal local problems and even identify spots for "urban greening" (buildings, walls, squares, abandoned urban places). It is this type of exchanges with Parisians we want to implement to make our City better.
This is a genuine urban revolution in the making: the role of local governments of world-cities is to understand, support and leverage the benefits of this revolution. European cities, I believe, have a major role to play in leading this transformation. Their governance is well geared towards citizen involvement and this should alleviate the risks of the "systemic city" or the "cybernetic city".
C&S: Do you have any models or at least references to guide your project for Paris?
J.-L. M: Many interesting models exist throughout the world and we are discussing extensively with many cities facing the same challenges.
That being said, from our discussions we retain one key conclusion: each of these cities has developed its own good practices with its own cultural frame. I think there is no single model of smart city and it would be ineffective to copy-and-paste alien models or ready-to-use solutions in a fast-changing environment.
We have our own model based on an iterative approach that uses successful experiments in Paris. We have been working for several years to make Paris a strong city in the digital sector and a breeding ground for innovation. I would say that over the last 10 years or so we have created the conditions for the emergence and development of a strong ecosystem. Thanks to all these efforts, Paris has experienced a lot in recent years and is now a world leader in innovation and most certainly the top European city.
There are well-known examples of successes such as Velib ', Autolib', Paris Wifi, among other experiments such as heating a residential building thanks to the energy produced by data centers, data vizualisations of the Paris transport system, smart street furniture, … Many of those locally-grown success stories are helping to build our own project of smart city and to deploy these experiments on a larger scale as standards for the city of tomorrow.
Paris is actually creating international benchmarks for smart city, though it is not as recognized as it should be. Through calls for innovative projects led by the Paris Region Lab at the initiative of the City, we facilitate the emergence of intelligent solutions on subjects as diverse as intelligent street furniture, energy efficiency or assistance home support for seniors. Paris provides entrepreneurs and businesses of all sizes with a single territory and open trials. It also runs a network – an open innovation club – that organizes meetings between the largest companies and startups. We are even deploying this initiative in other French cities, at their own request.
C&S: What priority initiatives have been selected for the Smart City project in Paris?
J.-L. M: One billion euros will be invested by 2020 in order to make Paris the international benchmark in innovation related to land use, the participatory democracy, sustainable development, the digital economy and energy transition.
Our smart city approach is threefold: open city (open data), digital city (potential of digital technologies and their application to improve the quality of life of Parisians) and the inventive city (which is built by transversal networks and innovation).
Each of these pillars shall contribute to our 4 main targets.
One of the most important is the food supply because no city in the world is capable of ensuring its food self-sufficiency in the present state of our know-how and our food is responsible for almost 40% of our ecological footprint. We have recently launched a call for projects titled: "Innovative Urban Greening" which consists, among other objectives, in experimenting with the urban agriculture of the future.
Another challenge is the energy of the city. 90% of the energy of the Paris metropolis is provided by fossil fuel or nuclear energy. From a territorial point of view, it is an imported energy. In addition to the on-going effort on renewable energies (with a certain success for geothermal energy), the focus is increasingly on energy recovery. We must go ahead and draw from their hidden resources. These resources are at the core of the circular economy: a waste produced by someone is a resource for someone else.
An example in Paris is the Qarnot Computing start-up which has invented a radiator-computer: by dissipating all the energy consumed by data processors in the form of heat, the Q-rads make it possible to heat free of charge and ecologically any type of building (housing, professional premises, collective buildings) according to the needs of their users. A low rent housing building has been fitted out with these Q.rads radiators: the inhabitants do not have to pay for their heating anymore and their ecological footprint is zero.
The third challenge is urban mobility. This can no longer be dealt with through the option of car versus collective transport. New systems of mobility are emerging: they concern the technology of vehicles (electric cars, rubber-tired tram), but above all the technology of services (rental among individuals, sharing, car-pooling, multi modal applications, etc.), and they often open the way for the emergence of new chains of values and new players.
In Paris, the massive adoption of Autolib' and Velib' shows the power of attraction of sharing and self-service.
Last challenge is planning for the future of urban spaces and architecture. In order to take into account new ways of working, living or trading we need to be able to test multifunction buildings that combine housing, offices, community spaces, show-rooms and services to people. This mixed use on the scale of a building implies more flexible Local Urban Plans and an adaptation of safety rules. The new way of working implies home-office, mobile office, co working and remote working centers. The new way of living requires community spaces in the building, a greater use of roofs, community gardens, shared utility rooms, services to the person, sorting and recycling. New trading methods integrate ephemeral shops, shared showrooms and fablabs.
C&S: Paris as a city, and you in particular, have worked hard to ensure that digital is also an opportunity to redevelop business in Paris, which is threatened to become a purely residential city. What connection do you see between support for start-ups, incubators and nurseries, and a policy of the Smart City type?
J.-L. M: The City of Paris is an innovative city at the forefront of digital technology, as evidenced by the ranking of PricewaterhouseCoopers. The emergence of Silicon Sentier in the heart of Paris in recent years, or important events such as Futur en Seine and the Open World Forum illustrate the growing dynamism of our city in terms of digital innovation.
Notably, in our incubators, many innovations are related to digital technologies. They create value in all areas of the city and aim to serve people in a better way.
As an example, the Moov'in city competition launched in June 2013 by the City of Paris in partnership with the RATP, SNCF, JC Decaux and Autolib' aimed at bringing out new web-based and mobile services focused on mobility in Paris and the Ile de France region. One hundred ideas were generated through this process; seven of them were awarded a prize. Among them, the Paris Moov' solution is a route calculation application that integrates all public transport modes available in the Ile de France region and suggestions of activities once arrived at destination.
Some incubators and clusters that we support are directed specifically to the city and urban services (energy, transport, water, logistics, etc.).
This is for example the case of the Paris Innovation Massena incubator where we work with large corporations like SNCF or Renault. We help them and they accompany us to build our Smart City project.
In addition, the creation of incubators or Fab Lab continues with determination and ambition displayed, particularly with the MacDonald converted warehouse or the Halle Freyssinet, the future world's largest incubator (1000 start-up companies). New places at the forefront of innovation combining incubators, coworking spaces will continue to be created and its ecosystem of innovation will be internationalized. This is the only way for Paris to be in the top attractive and competitive cities in the world.
C&S: How do you pilot a 'Smart City' project? (Is it through a task force outside the main city services? Or through a cross-functional structure involving all the services?) How did you structure management of the Paris project?
J.-L. M: The smart city is a cross-cutting subject, which means we have no other way to do it than keeping good interaction among the administrative units.
All large cities are confronted with the issue of finding the appropriate scale of governance and new governance tools. The model of organization of local administrations is outdated. The large vertically-organised departments (urban planning, roadways, housing, architecture, green spaces) are facing the challenges of intelligent networks, project management, citizen participation that require a much more cross-cutting and horizontal coordination.
Paris has historically been organized in large vertical services to deal, for example with roads, architecture, urban planning and so on. For this reason, we have chosen to address the question of the Smart City within the City of Paris through a steering committee composed of elected officials and a cross-cutting taskforce driven at the General Secretariat - the body that oversees all directions.
This "smart city" mission is a project accelerator. Its aim is to raise awareness on this subject within and throughout the services but also to manage the relationship with our key partners of major urban infrastructure. It supports the deputy mayors on each of their missions and brings global thinking to structure a coherent overall strategy in the multiplicity of initiatives and concrete actions led by all the services.
C&S: On a more mundane level, the deployment of digital applications in the city is also organized on the basis of a telecommunications infrastructure (fiber access, 4G, WiFi, ...). Are you satisfied with the existing equipment and deployments underway at the initiative of private operators? How do you cooperate with them particularly in light of concerns over radio transmitters?
J.-L. M: While the City of Paris has no formal jurisdiction over this subject, we consider it is our role to ensure that all Parisians can access clear and transparent information on the deployment of base stations, and to take their concerns into account while ensuring the development of new technologies. This led us to sign a mobile telephony charter in 2003 with the telecom operators. His latest release in 2012 has set maximum exposure levels to radiofrequency fields and clear procedures for consultation with residents.
Jean-Louis MISSIKA is deputy mayor of Paris in charge of urbanism, architecture, projects of Greater Paris, economic development and attractiveness. From 2008 to 2014, he was deputy mayor of Paris in charge of innovation, research and universities. Prior to his local mandates, his professional career included various managerial positions in the public and private sectors.
At the 2014 DigiWorld Summit 2014, IDATE has unveiled it latest market report devoted to the Internet’s evolution over the next 10 years.
As the Web undergoes massive changes brought by ubiquitous mobility and verticalised consumption, IDATE has published a report that explores the future of the Internet, through an analysis of technological trends, user habits, business models and regulation. Using a scenario-based approach, it looks at the role each of the market players will play, and delivers qualified data for the global Internet services market up to 2025.
Vincent Bonneau, Head of IDATE’s Internet Business Unit, who oversaw this report, says that: “The Internet is a fundamental disruption for the ICT industry in general and even for other (non-ICT) industries, leading new and old players to operate with lower revenues and cost per unit. The effects of Internet have already been quite impressive, capturing 229 billion EUR in 2013 and destroying value in IT, content and telecom industries, but these are merely effects and have not yet had their full-scale impact.”
Internet-related disruptions originate from an open technical environment, leveraging many standards regarding core technologies, including those around networking technologies and leading to some form of network agnosticism. The parallel shift towards digitisation is becoming a progressive softwarisation, starting with information and data but now also reaching hardware and verticals. Business models are increasingly replicating the economics of software in being expensive to produce but cheap to reproduce; in particular, their replication of economies of scale and zero marginal cost is leading to bigger addressable markets. This ‘perfect’ picture is challenged, though, by the development of the Internet today with numerous (upper-layer) proprietary technologies, local regulations, commercial barriers and significant costs of non-software assets and marketing.
The major uncertainties around evolutions towards 2025 are concentrated around two main questions that can help to draw the lines between four very different scenarios.
• Availability and openness of data: Personal data is at the core of the business model of many service providers, but privacy and security are also major concerns for most users. Internet users and governments are facing a trade-off between (cheap) access to innovative services, requiring advanced technologies and adequate funding, and the control and sharing of the data in an overall environment of relatively limited trust.
• Ecosystems: At the same time, the development of major platforms, developing their own technologies, is challenging the open nature of the original Internet ecosystem. Local regulations and open standards could limit the influence of platforms, as well as business models more focused on hardware and physical product sales.
The most likely scenario to prevail is, broadly speaking, a continuation of today’s ‘Platform Wars’, where leading Internet and retail platforms concentrate ever more data. Leveraging their own infrastructure and a relaxed regulatory environment, they would provide the most innovative services around a mix of advertising and hardware and product sales and capture most of the 875 billion EUR market by 2025 (CAGR of 12% for 2013-2025).
The other scenarios are more extreme options. In an ‘Open Innovation’ scenario, there are no more dominant players due to an environment with plenty of interoperable solutions and stricter competition rules. Service providers combine their own technology in real time with third-party data to provide advanced innovative services, mostly based on targeted advertising, leading to a market of almost 1,077 billion EUR by 2025. In the ‘Low-cost Islands’ scenario, end users would discard services with limited privacy and focus more naturally on paid services bringing strong savings compared to traditional services without sharing personal data with third parties. Numerous services would co-exist thanks to advanced standardisation and would remain relatively unknown, not leading to higher trust level.
The low-cost centric approach would be reflected in an overall market of some 750 billion EUR in 2025. The ‘Pay per Trust’ scenario is a more radical scenario with only a few players providing enough trust thanks to advanced and expensive security mechanisms. Revenues would mostly come not from personal data, with users relying primarily on direct payment (for services, products and the like), for a grand total of some 678 billion EUR by 2025, the lowest total of all four scenarios for Internet services, but probably not for the ICT industry as a whole.
Source: IDATE, in The Future Internet in 2025, November 2014
Would you like to buy our study about Future Internet 2025 ? This way please.
Several of IDATE’s DigiWorld Institute members took a business trip to the United States on 18 and 19 September, to attend the 2014 edition of our Transatlantic Telecom Dialog in New York, an annual event that we co-host with our partner, CITI, which is headed by Professor Eli Noam of Columbia University.
This trip also provided an opportunity to prepare for the launch of a Collaborative Research Programme being conducted in tandem with our Members. This think tank will be held in Brussels and devoted to the topic, “Telecoms USA: role-model or counter-model?" Before attending the Dialog, we travelled to Washington D.C. to meet with several FCC representatives, as well as the Public Affairs and Regulation teams from AT&T, Alcatel-Lucent and Verizon.
Back home at IDATE, I wanted to share a few thoughts on three hot-button issues that are attracting a great deal attention in America’s telecommunications sector:
• Superfast broadband competition rules
• Spectrum auctions and mobile market competition
• Will the net neutrality soap opera ever end?
1. How to prevent cable from having a monopoly over the supply of superfast access in a number of locations a few years from now?
We can start by remembering that, in the early 2000s, the Republicans went a long way in defanging the Telecom Act, banking instead on intermodal competition between telcos and cablecos to sustain the construction of superfast access infrastructure. In doing so, they abandoned the idea of imposing unbundling obligations like the ones we have in Europe. As a result, the leading operators began making sizeable investments around 2005 in deploying fibre and hybrid access networks. At the same time, the cable companies that serve 90% of households upgraded their (DOCSIS 3) systems to deliver ever faster connections. But cable progressed quickly, whereas telcos soon shifted their focus to mobile network rollouts, particularly these past three years as the LTE battle has heated up. The footprint of the leading carriers’ upgraded networks has expanded very little since then. And cable’s share of the broadband access market, which today stands at 60%, continues to increase steadily. In a recent talk, the Chairman of the FCC presented and commented on this following graph that shows that 79% of households have access to a connection of 50 Mbits and up, but that only 17.6% of them are covered by more than one provider.
What trump cards does the FCC hold to “encourage” telcos to step up their superfast broadband rollouts?
• Google? Of course Google does not want to do business with a single ISP. As a result, in Kansas City and later several more cities, the company began to build 1 Gbit/s networks – under the notable condition that residents in the targeted neighbourhoods explicitly express their interest in having it. Nobody thinks that Google plans to deploy fibre across the country. But its initiative has roused the interest of municipalities, in addition to helping set 1 Gbit/s as the new threshold for high-speed access.
• What bout the municipalities? There had been a handful of initiatives from cities in the past, but several of them failed to reach their potential. Added to which a number of states considered that these city-led rollouts constituted unfair competition with the private sector, and virtually forbade them. The FCC’s new chairman now wants to review these bans.
• Quid pro quo negotiations to shut down the (TDM) POTS and transition to an all IP system. This is a sensitive and legitimate part of telcos’ development strategy, but one that the states are watching very closely, and not a little warily. The FCC authorised AT&T to test two TDM network shut downs, one in rural Alabama and the other in suburban Florida. As in Europe, where stakeholders are talking openly about phasing out legacy copper systems (and switching to fibre), the goal is to test the problems encountered by the lines that outfit lifts, security systems, etc.
• The conditions that anti-trust authorities might impose on several mega-mergers that are being examined: Comcast/Time Warner Cable, AT&T/DirecTV…
• The FCC can also underline the competition aspect of 4G and 4G+ (frequency aggregation, MIMO antennae, small cells). Encouraged too by the growing number of announcements in Google’s wake of 1 Gbit/s networks being made available here and there (but especially in areas coveted by Google) in recent months by AT&T, Century Link and Cox Cable. The previous FCC chairman, Julius Genachowski, had called for the deployment of one network per state delivering a minimum 1 Gbit/s by the end of 2015. But these recent deployments do not appear to foreshadow any great increase in wireline telcos’ Capex: a market analyst in fact suggested they could be dubbed FTPR (Fiber To The Press Release) rollouts…
To finish on this point, we will underline that the gap (1) in market growth between Europe and the US, which up until now had been mainly in the mobile sector, appears to be spreading into residential wireline as well. America’s two largest carriers, AT&T and Verizon, are on the verge of putting an end to 10 straight years of shrinking revenue. This is very directly the result of an increase in triple play customers in their upgraded markets (U-Verse and FiOS) and the $150+ ARPU they generate. Provided the video services that are central to this ARPU prove profitable, telcos could decide it is in their interest to step up their spending on wireline networks, and expand their superfast access footprint. This is indeed one of the central aims of the planned mergers between AT&T and DirecTV, like the one between Comcast and Time Warner Cable (2), namely to bolster their power with the studios when negotiating programming rights.
2. How to better monetise spectrum while removing it as a bargaining chip in M&A deals?
The AWS-3 auctions will be taking place on 13 November, and will be the biggest since the 700 MHz band auctions in 2008. On the block are 65 MHz in three frequency bands: 1695-1710MHz (unpaired uplink), 1755-1780Mhz and 2155MHz-2180MHz (these last two are to be paired to provide uplink/downlink operations). The FCC has set a total reserve price of $10.587 billion. This takes into account that the bulk of the first two frequency bands are currently occupied by federal government services, including the DoD, and that it will take several years to complete the handover, or coordinate licensed shared access (LSA) (3). AT&T, Verizon, T-Mobile and Dish Networks, along with local and rural operators, have all expressed their interest in taking part in these auctions. Not so Sprint which, unlike its competitors, has no AWS-3 adjacent frequencies, so will not be taking part.
But discussions in recent months have focused especially on strengthening the competition policies that the FCC could impose on the auctions, and on the spectrum trading market. These provisions currently make up the points of review in the regulator’s 'spectrum screen'. In an order issued in June, the FCC expanded this provisos by stressing the particular value of lower frequency bands, i.e. below 1 GHz, after having recalled that the country’s two largest carriers today control more than 70% of allocated spectrum. For the upcoming AWS-3 auctions, which do not concern these frequencies but rather bands that are currently shared by a host of players, no specific conditions have been defined to limit any given company’s access to them (4). For so-called incentive auctions in the 600 MHz band, however, which are slated for 2015, a reserve of a maximum 30 MHz will be set for each market on the block. The ultimate size of this reserve will nevertheless be contingent on meeting the reserve price set by the FCC for the market. National carriers (as opposed to local and regional ones) that control more than a third of below 1 GHz-band frequencies in this market will not be able to take part in the auctions for this reserved spectrum. The FCC has also set the proviso of precluding secondary market sales of this spectrum, to ensure that parties not eligible to take part in the incentive auctions, or sales that would enable an entity to control more than a third of below 1 GHz spectrum, cannot acquire licences to the reserve frequencies during that time. It should be mentioned that these provisos did not receive unanimous support within the FCC, and that the two Republic commissioners voted against them.
It is interesting to note that while the FCC is concerned about local and rural cellular operators’ future, which probably serve less than 5% of mobile users today but can cover a much higher percentage of the physical landmass, we are seeing more and more roaming agreements being signed between the four national operators and these smaller regional carriers. In the race to expand their footprint, the big national operators are in fact leasing their spectrum to small rural operators so they can provide LTE coverage. So there is at once an agreement on the terms and conditions for leasing spectrum and on roaming prices, which has enabled one million national ISP subscribers to enjoy coverage in rural areas, while the tens of thousands of users who subscribe with local operators have access to national operators’ infrastructure. We understand that the FCC does not currently regulate these agreements. Verizon and Sprint have apparently got a head start here, having signed 21 agreements for 2.3 million PoP, including 18 for LTE in the 700MHz and AWS-1 bands, and around 30 agreements for 4 million PoP in the 2.5MHz band, respectively.
We will wrap up this quick summary of the latest news from the US mobile market by listing some of the other topics that are attracting attention:
• cable companies’ ongoing investment in Wi-Fi hot/home spots, with roaming agreements between the two, and the prospect of entering the cellular market by positioning themselves as MVNO to complete their infrastructure;
• the debate triggered by Qualcomm on using LTE (vs. Wi-Fi) on open (i.e. licence-free) spectrum;
• confirmation of the onset of, if not a price war, increasingly lively competition in the mobile market since the Sprint/T-Mobile merger was cancelled. While we were there, Sprint rolled out an unlimited voice-SMS-data plan priced at $50 a month;
• the massive queues outside the Apple store in Manhattan, and the huge boost that VoLTE could give to iPhone 6 sales.
3. Will the net neutrality soap opera ever end?
Here again, we need to go back to the 2002 decision that classified cable modem access as an “information service” rather than a Title II service under the Telecom Act, which would make it subject to common carriage obligations – a designation that was then abolished for all access services in 2005, including telcos’ ADSL services. This decision snowballed, and the FCC’s successive bids to enforce net neutrality –Chairman Powell’s four Internet freedoms in 2004, the Internet Policy statement in 2005 and the Open Internet Order in 2010 – had to be defended in court, following law suits filed by Comcast and Verizon.
Today, and following the ruling handed down early this year by the Federal Court in Washington, there are no longer any regulatory provisions that prevent an ISP from being a gatekeeper.
It was under these circumstances that the FCC began a 120-day consultation on the future of net neutrality this past spring. It received more than 3 million responses. The ensuing debates in the blogosphere and at industry conferences are focusing on several issues.
A legal decision needs to be found that avoids disqualifying the FCC’s core principles. There are two options here: either agree to repeal the earlier decisions, and reclassify Internet access as a Title II service under the Telecom Act, or enforce Section 706 of the Telecom Act more extensively. Section 706 vests the FCC with the authority to encourage the deployment of broadband infrastructure, and eliminate the barriers to development and competition in this market.
In addition to these interpretations of the Telecom Act, approval for the Comcast-Time Warner Cable and AT&T-DirecTV mergers could carry case-by-case obligations aimed at preserving the Open Internet. It is worth remembering that the FCC used the Comcast-NBC merger as an just such an opportunity.
Alongside these somewhat technical questions, debates over the past few weeks have also focused on the following points:
• Should mobile access also be subject to net neutrality rules (which it has always managed to avoid)?
• After this summer’s polemics over the paid peering deals struck between Netflix and the top ISPs, should interconnection between content providers and ISPs be covered by net neutrality rules?
Also noteworthy is the debate that followed AT&T’s sponsored data API proposal, i.e. to have content/service providers sponsor the traffic delivered to consumers’ devices – an idea that was more less picked up by T-Mobile.
We will end by mentioning that all of these unresolved issues are fostering a certain curiosity in how things are being handled in Europe.
Perhaps because he was the head of the cable lobby, and later a CEO for mobile operators, which was pointed out repeatedly during his nomination hearings, in his many pronouncements the new FCC Chairman (5) has been keen to impress that he wants to strengthen competition policies. He has addressed all aspects of the debate relatively explicitly. While nonetheless taking the chance of dashing some of the hopes that he himself kindled, within a complicated political and institutional situation – and one where he is regularly reminded that the FCC has to answer to Congress.
1 There is also a gap in terms of market structure. Even though there are four national mobile operators in the United States, AT&T and Verizon are only very large regional residential carriers. The idea of fixed-mobile convergence, typified by merger and acquisition deals in Europe such as SFR/Numéricable and Vodafone/Deutsche Kabel-Ono, do not appear to be in the cards for the US market. Nor, as far as we can tell, are quadruple-play bundles.
2 It is not the only one. The deal would enable immediate synergies in managing bundles, including DBS for customers not covered by U-Verse. It also has an international diversification component, given DirecTV’s sizeable footprint in South American markets that AT&T is interested in.
3 Licensed Shared Access, or ASA (Authorized Shared Acess) in US. Worth noting is that debates continue ver what form ASA will take in the 3.6 GHz band.
4 If there is no reserve spectrum in the AWS-3 auctions, certain provisions, such as dividing frequency bands into 2 X 5 MHz blocks, are aimed at satisfying the needs of smaller regional operators.
5 Tom Wheeler was nominated for Chairman of the FCC by President Obama, and confirmed by the Senate in November 2013.
Online advertising expected to account for 33% of all media advertising by 2018
IDATE has just released its report and database dedicated to the world online advertising market. This report provides an analysis of today’s key online advertising trends and technologies (including privacy issues, retargeting, VRM, new data measurement techniques, etc.) and includes an overview of the world leaders and their KPIs (Amazon, Apple, Facebook, Google, Microsoft, Twitter and Yahoo!). It takes a look at they key markets for monetizing online advertising, including search, display, mobile, RTB, social networking and video in 15 countries, including Brazil, China, France, Germany, Italy, Japan, India, Russia, Spain, South Africa, South Korea, Switzerland, Turkey, UK and the United States.
The global online advertising market will be worth more than 160 billion EUR by 2018, enjoying an 11.4% annual growth rate from 2010 to 2014. IDATE expects a steady increase in this market for the coming years: 9.7% annual growth up to 2018.
IDATE Consultant Soichi Nakajima, who managed the production of this report, points out that “we expect the breakdown of advertising formats to remain unchanged in the five coming years. Whilst the search market is already a stable market, largely dominated by Google across the globe, overall revenue for the display market is expected to increase slightly over time, with much more competition in terms of players fighting for market share.”
Global online advertising revenue (billion EUR) and its share (%) of total media advertising revenue, 2010-2018
Major trends in the advertising market include:
• Mobile advertising expected to account for 20% of online advertising by 2018 with an expected +50.1% annual growth rate from 2014 to 2018.
• Social advertising forecast to account for 14% of online advertising by 2018, with a +39.8% annual growth rate from 2014 to 2018.
• OTT video advertising expected to account for 9% of online advertising by 2018 with +21.8% annual growth rate from 2014 to 2018.
• Global RTB advertising market accounting for 30% of display advertising, thanks to an annual growth rate of 32.7% from 2014 to 2018.
Close-up on mobile advertising: mobile ad market an extension of the fixed
The tools and technologies of fixed online advertising can be re-used for mobile, which means that Google could easily carry its dominance of the fixed market over to mobile. On the other hand, in-app tools and technologies have to be created from scratch. In-app advertising, which is unique to mobile, makes up 20% of the current market. Plus a great many apps are games, promoting their paid services rather than displaying actual ads.
Current global market breakdown: search vs. display advertising on the fixed and mobile Internet, in 2014
- If you want to come to our seminar "TV Everywhere" during the Digiworld Summint 2014 wednesday november 18.
Yves Gassot Directeur Général, IDATE
‘‘Mobility reloaded” will be the central theme of the 36th annual DigiWorld Summit.
Following through on ‘‘Game Changers’’ (2012) and ‘‘Digital Gold Mines’’ (2013), this year’s theme will allow us to further our examination of current and future upheavals in the digital economy by exploring the issues from a specific angle: mobility and its impact on user behaviour and on the value chain for telecoms, TV, advertising, the Internet, gaming, smart cities, etc.
- What innovations can we expect from mobile Internet disruption?
- Are fixed and mobile superfast access interchangeable?
- What new players and business models will emerge from the Internet of Things and mobile advertising?
- Will mobile devices turn TV into a one-to-one business?
- How can Europe get back in the game?
IDATE Chairman François Barrault points out that, ‘If the cloud, big data and the Internet of things are clearly the major disruptions looming on the horizon, the momentum today lies in the mantra: mobility first!’
IDATE CEO, Yves Gassot, details the key points of this year’s programme: ‘What began with the swift commercial success of 4G is segueing into the spectacular technological leaps expected from LTE-advanced and, beyond that, the prospect of 5G, the widespread adoption of software-driven networking (SDN)… But questions also linger over the accelerated pace of the migration from the fixed to the mobile Internet, spurred by the massive popularity of smartphones and tablets, coupled with the surge of emerging economies. It goes without saying that a great many stakeholders are being affected by these massive changes in the landscape, which we have chosen to explore from three angles: How revenue is progressing for mobile operators and other players, from M2M to the Internet of things and beyond; How the massively mobile Internet will affect the advertising ecosystem; and how TV industry players are positioning themselves now that video accounts for an increasingly large share of mobile traffic’.
The 36th annual DigiWorld Summit will run from 18 to 20 November in Montpellier, France, and play host to a panel of international industry luminaries who will share their views with more than 1,300 participants from 30 countries. IDATE analysts will lend their expertise to the sessions that will be moderated by Digiworld Institute members.
DigiWorld Week: the DigiWorld Summit broadens its horizons
This year’s DigiWorld Summit will kick off DigiWorld Week: a new initiative from IDATE and its key partners to explore the many facets of the digital society’s core economic issues. A series of exciting events will be taking place from 16 to 21 November on either side of the core two-day Summit:
- The Connected Things Forum
- The Game Summit
- MIG (Montpellier In Game)
- Industry Oracles
- Economic Club on m-payment
> Find the latest programme updates at www.digiworldweek.com
More than 140 speakers on hand
This year, we are delighted to welcome speakers from the four corners of the globe, come to share their views on the future of mobility:
- Mikael BÄCK, Vice President Global Strategy & Portfolio Management of Ericsson will share some of the chief findings of the “Mobility report”.
- Jean-Michel FOURNIER, CEO & Co-Founder of BitGym, a San Francisco-based start-up and winner of the prestigious Auggie Award at AWE 2014, will talk about the “quantified self” phenomenon.
- Kayvan MIRZA, CEO & Co-Founder of Optinvent will unveil his approach to new generation smart glasses.
- Patrick PELATA, EVP & Chief Automotive Officer of Salesforce.com will speak with Thierry VIADIEU, New Mobility Program Director from Renault, about the future of connected cars.
- Christophe WILLEM, Senior VP of Strategy & Marketing at Thales Alenia Space, will tell us if drones, balloons and mini-satellites offer viable solutions for connecting huge swaths of the population to the Internet.
- Michel COMBES, CEO of Alcatel-Lucent will close the “Road to 5G” session, whose speakers include Selina LO, President & CEO of Ruckus Wireless, and Atsushi TAKESHITA, President & CEO of DOCOMO Communication Laboratories Europe.
- Pierre LOUETTE, Deputy CEO of Orange and Carlos LOPEZ-BLANCO, Global Head Public & Corporate Affairs for Telefonica, will discuss how telco business models will evolve in Europe, against the backdrop of market consolidation.
- Laurent SOLLY, Facebook’s Managing Director France, and Benny ARBEL, Founder & CEO of MyThings, a rising star in retargeting, will discuss the challenges that advertising faces as it makes the transition to mobile.
- Luc JULIA, VP & Innovation Fellow of Samsung and Co-authored Apple Siri's core patents, Erick TINICO, Director of Mobility at AT&T, one of the world’s most advanced telcos and Axel HANSMANN, Gemalto’s VP of M2M Strategy & Marketing, will share their analysis of new business models for M2M and the IoT.
- Fu SHENG, CEO of Cheetah Mobile, a growing mobile Internet powerhouse in China, with 340 million users.
- Abigail KHANNA, Head of Digital and Future Media Business Development at the BBC, Steve McCAFFERY, GM & SVP of sales for Europe Arris, Eric SCHERER, Director of Future Media, France Télévisions, and Valery GERFAUD, General Manager, M6 Web, will explore what the future holds for television, now that mobile devices are becoming users’ screen of choice.
- Guillaume de FONDAUMIERE, Co-CEO of Quantic Dream, Susan O’CONNOR, a writer whose script credits include the games BioShock 1 & 2, Far Cry 2, Tomb Raider and Star Wars 1313, along with Charles CECIL, co-founder of Revolution Software, creator of Broken Sword, are among our video game Oracles.
- Meng LI, Director of China Telecom’s Mobile Business Department Europe, will talk to us about the development outlook for mobile in its various forms in the world’s biggest market.
- Jean-Ludovic SILICANI will talk about his time as Chairman of France’s telecoms and postal regulator, ARCEP, and share his insights into key issues going forward.
- Vincent LE STRADIC, Managing Director of Lazard, will provide a financier’s perspective on the health of Europe’s digital economy. And…
- Axelle LEMAIRE, French Ministry of State for Digital Affairs will deliver the Summit’s closing remarks.
Consultant at IDATE
Average household spending on cultural goods worldwide decreased from €75.50 to €71.60 between 2010 and 2013
Electronic distribution allows households to spend less on any cultural products they buy or rent individually. The gap in price is especially significant in those industries where the cost of producing a hard copy heavily influences its retail price.
As a result, between 2010 and 2013, average household spending on cultural goods worldwide decreased from €75.50 to €71.60 a year. This figure nevertheless includes sizeable regional disparities:
• in North America, average annual spending on all types of content combined has actually increased, going from €327.30 per household in 2012 to €328.40 in 2013;
• households in Asia/Pacific and Latin America are also spending more, with average entertainment budgets rising, respectively, from €35.80 per household/year to €39.10 per household/year, and from €31.70 per household/year to €34.10 per household/year between 2010 and 2013;
• meanwhile Europe and Africa/the Middle East are reporting a sizeable decrease in average household spending on cultural products: -10.6% and -15.6%, respectively, over the past three years.
Deputy Managing Director
Director of TV & Digital Content Business Unit
At a time when Netflix is shaking up classic video distribution models, IDATE is delivering an analysis of ongoing disruptions in TV content distribution.
The television industry is having to contend with a major game changer, namely increasingly individualised viewing. This change is upending the industry’s longstanding mass media model, but also paving the way for new business models and a new period of growth.
Individual TV viewing also represents a dual opportunity: to transform the household market into individual markets, and to capitalise on the shift from mass advertising to more relevant targeted advertising.
This growing individualisation is part of the "cloudification" of the technical chain that makes it possible to better serve multi-network and multi-device behaviours, and of the process of adapting services to find the right interplay between linear and on-demand TV, to re-monetise catch-up TV, and to develop the SVoD and electronic sell-through (EST) markets.
IDATE has developed three scenarios to describe and quantify the potential impact of this tremendous change in video content markets:
• a growth scenario: "the new golden age" where the increasing individualisation of video consumption and Internet access leads to the creation of a market for individual subscriptions, and where video – both linear and on-demand – becomes a medium of choice for advertisers;
• a scenario of stagnation: “business as usual” wherein pay-TV plans remain largely monolithic, where on-demand products hold little appeal and TV’s ad revenue suffers from advertisers moving a portion of their spending over to the Web;
• a negative scenario of "commoditisation," characterised by an accelerated migration from a paid to a free model, and TV losing its relevance as an advertising medium.
The three TV/video market development scenarios applied to the US (billion €)
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