Increased competition, a forced rethink of pricing models and the devastating impact of the economic crisis have weakened Europe’s once thriving telecoms sector
Europe’s telecommunications sector has been the stage for a growing number of merger and acquisition deals in recent months. Deals that are clearly posing a conundrum for regulators and anti-trust authorities, resulting in especially long investigations, and controversial “remedies” for those deals that have been given the green light.
Despite which, virtually all of the parties have by now reached the conclusion that consolidation is inexorable, if not desirable. The sector’s main players have never fully recovered from the aftermath of the Internet bubble and the debt levels that ensued. The increased competition ushered in by new entrants, pricing models that have been destabilised by the arrival of Internet companies offering rival (voice, messaging and video) products, the devastating impact that the economic crisis has had on the countries of southern Europe since 2008… together have weakened Europe’s once thriving telecoms sector. In concrete terms, this has meant a 12.5% drop in revenue for the top five European markets over the past five years, a dramatic decrease in EBITDA (earnings before interest, tax, depreciation and amortisation) and, quite naturally under these conditions, in lower per capita spending on new generation access networks (fibre, LTE) than in the United States.
So consolidation appears to be a natural response to the situation, a way to put an end to the price wars and stabilise margins. Infrastructure sharing schemes may precede or be part of this consolidation, but unlikely to take its place. If these schemes can provide an interesting means of reducing costs, they can also allow price wars to drag on. Unfortunately, most of these consolidation deals are taking place inside national markets.
Once the dust from these mergers has settled, European telcos’ margins improved, and the harmonisation of regulation progressed as Mr Junker has said he hopes it will, it is not hard to imagine that the next stage of market consolidation will be cross-border and beyond. We need to remember that one of the arguments put forth when opening the telecommunications sector up to competition was the ability to create a single European market, and to enable the emergence of a handful of pan-European carriers. The stakes here are high: even if the synergies to be had from a cross-border merger are less obvious, size alone will no doubt have an impact on operators’ efficiency and their ability to invest and innovate. We should also emphasise that the creation of a large handful of telcos operating in most EU markets – replacing today’s one hundred or so national telcos, but also competing against a number of operators that target a very particular clientele – will in no way reduce the choice available to consumers. So we should probably just accept the fact of having fewer national operators, and in turn enjoy more meaningful competition – in a vaster, European-scale marketplace – which extends beyond merely price points.
Indeed, the real challenge for operators is not to engage in a game of industrial Monopoly and to grow and grow just for the sake of it. Instead, they need to ready themselves as best they can to handle three difficult and dramatic changes. The first is one that must force telcos to continue to improve their productivity and agility, to be able to respond to a fast-changing environment. Even if price wars are currently a trap, it is nevertheless also true that the telecom sector is among those most able to pass digital-driven productivity gains onto consumers, and to generate the means to sustain needed investments. The second change is an accelerate rate of convergence between fixed and mobile infrastructures, spurred by the advent of superfast access. The mobile Internet of tomorrow will be fibre networks’ biggest client. The third game changer is a major one. Namely the increasing influence of software and data on the sector, which will require operators to control quality of service parameters and customer relations in real time.
If the effervescence of the digital ecosystem is today characterised above all by innovative over-the-top (OTT) start-ups, the telecoms sector should not be viewed as the last dinosaur standing, or something akin to CDs being made obsolete by streaming. Regardless of how the future plays out, money will still need to be spent on the networks and the access link in the Internet value chain, with a solid profit outlook in the offing. Something that Europe, which today has no major global Internet platform to its name, would be unwise to overlook.
Valérie CHAILLOU Head of Research, Telecoms Business Unit, IDATE
IDATE reveals global and European rankings
To mark the start of the 8th annual Assises du Très Haut Débit symposium, IDATE is releasing its ranking of countries that lead the way in ultra-fast fixed and mobile broadband subscriber numbers, in Europe and worldwide. An analysis and data culled directly from IDATE’s freshly updated FTTx and LTE global market watch, which examines hundreds of countries and operators.
Growing disparities in fixed ultra-fast broadband
At the end of 2013, ultra-fast broadband (UFB) access – i.e. with a throughput equal to or above 30 Mbps – represented 29% of all broadband connections worldwide. This marks real progress as the percentage stood at 22% just one year ago. FTTH/B is still the mostly widely deployed technology, accounting for 60% of UFB subscribers around the globe, followed by cablecos’ FTTx/D3.0 systems, which account for 29% of users, and VDSL for 11%. In terms of subscriber numbers, all UFB architectures combined, the United States is by far the global leader with 62.5 million subscribers at the end of 2013, compared to 42.4 million for China and 27 million for Japan. France is in eighth place with more than 2 million subscribers. Of course this ranking changes depending on the indicators that are taken into consideration, such UFB subscribers’ share of a country’s total broadband customer base. Here South Korea tops the ranks, ahead of the United States, Japan and China, with 66% – versus 64% for Japan, 60% for the United States and 22% for China. As to the technologies deployed, the US is the undisputed VDSL market leader with some 11 million subscribers, well ahead of the UK and its 2.1 million subscribers. The United States is also the world’s biggest FTTx/D3.0 market, with 42 million subscribers, again ahead of the UK which is home to 3.1 million subscribers, followed by Spain where competition between FTTH/B and FTTx/D3.0 is fierce.
Accelerate 4G rollouts
Head of the Telecom Strategy Business Unit
Mobile growth still strong with 6.6 billion subscribers worldwide at the end of 2013 and forecast to reach more than 8 billion by the end of 2018
IDATE, partner analyst at the LTE World Summit 2014 (23 to 25 June 2014 in Amsterdam) reveals the findings of its World telecom services watch.
After the trough of 2009 and hesitant growth in 2010, the global market has been growing at a moderate pace since 2011. Growth in 2013 stood at 2.4% “we have observed that, by and large, telecom services are recovering more slowly than the economy as a whole,” reports Didier Pouillot, head of IDATE’s Telecom Players & Markets Business Unit.
Now in a recovery phase, telecom markets in advanced countries are proving somewhat resilient, whereas in fast-developing markets the underlying momentum is coming from volume. This phenomenon is telling of a mature industry now driven more by demographics than economics. In Africa/the Middle East, for instance, the drop in regional GDP in 2009 (-6%) and its rebound in 2010 (+16%) had very little impact on telecom services growth rates which remained very high both years: +8% and +9%, respectively.
Revenue from telecom services
According to IDATE, global telecom services revenue will increase from €1,186 billion in 2013 to €1,341 billion in 2018, representing an average annual growth of 2.5%.
• Revenue from mobile services will grow by 17% between 2013 and 2018 (+3% a year on average), reaching €826 billion in 2018.
• Revenue generated data transmission and Internet access will enjoy more substantial growth (+24% between 2013 and 2018, i.e. an average +4% per annum), to reach €338 billion in 2018.
• Fixed telephony revenue will continue its sharp decline: -15% between 2013 and 2018, i.e. dropping by an average 3% a year, down to €177 billion in 2018.
More mobiles, more users
According to IDATE, the number of mobile customers worldwide should top the 8 billion mark by the end of 2018 (+21% in 5 years).
• The number of fixed Internet subscribers will grow more slowly (+18% between 2013 and 2018, +3% a year on average). The one billion mark is not expected to be reached before 2020.
• Traditional landlines continue to loose ground as VoIP and mobiles gain.
The spread of broadband
According to IDATE, the number of fixed broadband subscribers is expected to reach 858 million worldwide by 2018, for a penetration rate of 12% of the global population. The number of LTE customers is shooting up, and LTE-Advanced users are expected to increase swiftly in early adopter countries.
IDATE forecasts more than 1.3 billion LTE subscriptions worldwide by the end of 2017, generating a total €400 billion in revenue
Two major factors will work in broadband’s favour:
• The success of bundled offers (fixed telephony, VoIP, TV, mobile telephony) and the appetite for video applications.
• Telcos’ investments in migrating their infrastructures to mobile or fixed broadband.
Scalability of operators
• European operators are still in trouble, with a growth momentum that is running out of steam, despite strong investment needs
• North American telcos are benefiting from a solid growth rate at home, especially in the mobile market.
• If several major telcos from emerging countries continue to enjoy swift growth rates of close to or above 10% (Bharti Airtel, China Mobile, China Telecom, China Unicom), a number of them saw their growth flatten and tumble to virtually nil in 2013 (America Móvil, MTN, Oi, Vimpelcom). But margins remain high: EBITDA margins of between 30% and 40%, and even higher in some cases. Several of these operators are widely engaged in international expansion strategies.
Co-Head of Satellite Practice
For single aisle, short-haul planes, IDATE believes that in the short term – i.e. up to 2016 – the market will remain very marginal in terms of connected aircraft, as the shortness of the flights (90 minutes on average) will keep airlines from investing too heavily in the segment.
Towards hybrid inflight connectivity?
The high cost of equipping airplanes for in-flight connectivity is proving a major obstacle to the systems’ technical progress. Airlines are nevertheless exploring various avenues with their high-speed access providers.
Ku-band based solutions are thus likely to continue to play a substantial role, especially at sea (due to a lack of Ka-band coverage) and because of the advantages they offer for TV programme reception. The Ka-band is nonetheless expected to start to make real strides in 2015, thanks in particular to the launch of global systems like Inmarsat GX and, further down the road, the gradual rollout of the Ka-band alliance whose members include ViaSat, Eutelsat, NBN Co., Yahsat and Telesat.
As a result, for all transoceanic and transcontinental flights, LTE is not likely to prove a major threat to satellite which will continue to be the technology of choice for providing passengers with in-flight access.
For single aisle, short-haul planes, IDATE believes that in the short term – i.e. up to 2016 – the market will remain very marginal in terms of connected aircraft, as the shortness of the flights (90 minutes on average) will keep airlines from investing too heavily in the segment. It is more probable that an ATG/LTE type solution will be adopted to provide users with in-flight connectivity on this type of aircraft, provided upcoming regulatory decisions on spectrum allocations allow.
As for trips over landfield, LTE is to take the lead, aircrafts devoted to international trips are likely to be equipped with hybrid mobile/satellite systems in a near future. Gogo in the USA is currently the most innovative vendor in the area of hybrid devices. A few months back it announced that it would be rolling out its GTO (Ground to Orbit) solution in Q3 2014, using a hybrid antenna developed by an American equipment manufacturer called ThinKom. Gogo has been innovative in the sense that, even if the system still uses two antennae – one air to ground (ATG) and one to the sky (satellite), the operator has designed the most integrated dish possible, with a single box that hands over automatically between ATG and satellite signals. With the coming launch of dedicated global systems in the Ka-band, IDATE anticipates future hybridization strategies between both ATG and Ku/Ka satellite bands.
Telstra and AT&T launch LTE-based inflight-connectivity solutions
May 2014 has been an interesting month for the inflight connectivity market: Both AT&T and Telstra announced plans to launch LTE-based inflight connectivity solutions using an air-to-ground architecture. Historically based on satellite, the inflight-connectivity market is being increasingly challenged by terrestrial projects using ATG architectures. The first player to introduce such a solution on the market was Gogo in the USA several years ago. Thanks to pioneering this market, Gogo was able to grab a significant market share on the US market.
Besides the latest plans announced by AT&T and Telstra, other players have expressed their interest for this market: Qualcomm in the USA, ZTE and Huawei in China, Deutsche Telekom and Alcatel-Lucent in Europe.
All these projects also raise the question of spectrum allocation. In Europe, the hunt for a suitable spectrum is still in discussion with the European Commission. In the USA, the spectrum bands have been found but led to a struggle between Qualcomm and the satellite operators community. In Asia too, strong uncertainties remain as to what spectrum will be used for such services.
This article is an extract from the "On-board connectivity market report" published in May 2014 by IDATE. This report explores the leading on-board connectivity markets: aircraft, ships and trains, providing usage and market data, along with insights into the key issues and challenges at hand. It also examines how much of a threat LTE poses, and how satellite can prepare to take on this new rival.
Director of Wireless Business Unit
By the end of 2018, we forecast that overall LTE-Advanced subscriptions will represent 45% of LTE subscriptions worldwide, representing more than 927 million subscriptions.
IDATE’s latest report details what LTE-Advanced brings to Mobile Network Operators and how it will help overcome the challenges of providing higher throughputs to more users. After detailing operators’ deployment strategies, it presents the different features of LTE-Advanced and its roadmap before dealing with what 5G could look like. Operators’ strategies are evaluated as well as the benefits and challenges which the features of LTE-Advanced help to overcome.
LTE-Advanced is way richer than just carrier integration, but implementation and deployment will take more time
• While 2013 only saw early LTE-Advanced deployments in South Korea, 2014 should see more and more operators jumping on the bandwagon, motivated by the improvements which LTE-Advanced brings to both operators and users.
• Carrier aggregation is the main feature advertised and LTE-Advanced is often boiled down to, or mistaken for, carrier aggregation, although it is just one of the many features LTE Release 10 and later bring. LTE-Advanced improves spectrum efficiency: 1.4 to 1.6 times better than on LTE Release 8.
• In a spectrum-constrained environment for operators, carrier aggregation enables operators to bring more throughput and capacity by just reusing available spectrum. Services enabled by carrier aggregation are Cat 4 throughput, i.e. throughputs up to 150 Mbps in the downlink but no improvement for the moment in the uplink.
• Cat 4 throughput in itself is not specific to LTE-Advanced, since it can also be reached by just using 20 MHz of contiguous spectrum. In South Korea, the service is called ‘Wideband LTE’ and is not to be confused with carrier aggregation which only starts with LTE Release 10.
• In most advanced markets, 2014 will even see the beginning of services based on the aggregation of two sub-carriers of 20 MHz each and enabling Cat 6 throughput in the range of 300 Mbps in the downlink and still 50 Mbps in the uplink. Basebands and devices will be available shortly on the market. As early as 2015, carrier aggregation of 3×20 MHz sub-carriers will be achieved to provide throughputs of 450 Mbps.
• In the end, carrier aggregation will most probably be adopted quite rapidly by operators.
• Other important features of LTE-Advanced are designed to mitigate interference in small cell scenarios, increase performance at the cell edge, increase spectral efficiency through beamforming and higher-order MIMO. Those features have been trialled by some operators and should be deployed little by little, essentially as densification of the network via small cells is undertaken by operators.
Other features such as Relay function or Device-to-Device will be partially implemented in Release 12 but the real gist of these two functions will rather be found in Release 13, which is expected to be frozen by 3GPP (stage 3) in December 2015. Those functions are essentially meant to enable services for public safety forces that are looking to transition from specific TETRA and TETRAPOL networks to latest mobile broadband technology but with critical mission capabilities.
Head of the radio technologies and spectrum practice, Idate
In its latest report, part of the Spectrum service, IDATE details existing spectrum allocation for public safety services. It presents the requirements for broadband services and the corresponding spectrum needs of public safety users. The use of commercial LTE networks by public safety users is analyzed and the mobile broadband strategies for PPDR players are evaluated.
Public protection and disaster relief (PPDR) is the general designation given to a range of public safety services broken down into: Day-to-day operations (category ‘PP1’) or routine operations; large emergency and/or public events (category ‘PP2’) for larger events; and disaster relief (category ‘DR’) caused by either natural of human activity. PPDR is not a commercial service.
- Current non-broadband PPDR systems mainly use the 400 MHz and the 700-800 bands worldwide. Spectrum above 1 GHz supports also a variety of PPDR operations for temporary use only.
- Regarding spectrum requirements, PPDR users face the challenge of different interests within countries whether or not spectrum should be reserved for PPDR applications.
- Broadband-dedicated PPDR spectrum is expected to be allocated mostly in the 700 MHz with complementary frequencies below 1 GHz for specific countries (800 MHz) and above 1 GHz (1.4 to 5 GHz frequencies). At 700 MHz, coexistence is mainly with television broadcasting/digital TV and commercial broadband networks in Europe.
- According to PPDR user groups, a minimum of 2 x 10 MHz for broadband PPDR spectrum should be reserved, similar to what was allocated in the USA. Additional country specific spectrum needs to be calculated.
- The question of allocating broadband PPDR spectrum through auctions is also being debated.
PPDR services can be provided through dedicated PPDR systems or commercial cellular networks.
- The challenge is to enhance the LTE and LTE-Advanced standards to meet PPDR requirements. However, in the short term, extended LTE and LTE-Advanced capabilities and standards (Direct Mode, Proximity Services and Group Communications System Enablers, resilience and VoLTE) will not be in operation.
- Dynamic use of shared broadband PPDR spectrum with predictable QoS is also a key potential capability considered through Temporary Licensed Access (LSA/ASA).
In conclusion, we have identified the following options for PPDR players wishing to get access to mobile broadband capabilities :
1. Build and run an own dedicated broadband PPDR network
2. Use a dedicated broadband PPDR network run by a private operator
3. Use a narrow band PPDR network + MVNO agreement for broadband services
4. Use a dedicated commercial mobile network or Use a standard commercial mobile network
5. Use a dedicated commercial mobile network which operates specific PPDR spectrum
Potential candidate bands for broadband PPDR spectrum by region
More information about "Public Safety Report" study.
LTE Lead analyst, IDATE
More than 1.3 billion LTE subscriptions worldwide by the end of 2017, generating a total €400 billion in revenue
According to our CEO, Yves Gassot: ‘the success of LTE is no doubt the most spectacular illustration of the inexorable rise of wireless. Plus the allocation of new frequency bands to mobile operators, the expected progress with LTE Advanced, the interleaving with managed Wi-Fi, and the perspectives of M2M/IoT are bound to further drive this momentum in the coming years’.
Alongside these technological strides, we are also seeing users, and the services and applications industry moving over en masse to the mobile internet. This is naturally having a considerable impact on the internet giants, and consumer electronics, component and PC suppliers -not to mention e-commerce vendors, and banking, gaming, TV and advertising companies…
The most important LTE Markets
Among the many effects on the telecoms sector, three of the most momentous are that:
• LTE and its developments are likely to provide the industry with the opportunity to make good on promises to consumers over the innovation potential of access, not only for smartphones and the latest social media service. It will mean managing services tiered by quality and speed in a way that is clear to consumers, and accepted by internet companies. The rollout of LTE is also a good time for operators to redefine their business models for the internet era.
• The price wars that have broken out in some markets, not least across Europe, reduce competition to the single parameter of price, which makes it difficult to sell different levels of quality. This is weighing on both margins and capex. The LTE era is likely to also be the era of market consolidation in the form of M&A and broad infrastructure sharing agreements – albeit under terms set by competition authorities and sector-specific regulation;
• This consolidation will not remain confined to the wireless sector, and is already encompassing mergers with cable companies and wireline telcos. Ultra high-speed mobile systems require small cells and have massive backhauling needs. In addition to the expected interleaving of fixed and mobile infrastructures, the wisdom of bundles that include wireline and wireless services is becoming clear. All of which points to an entire industry that will need to be overhauled in the coming years.
Top 10 LTE operators (Q2 2013)
Main LTE trends
• 119 million LTE subscriptions as of mid-2013 in the top 10 markets. Close to 130.5 million LTE subscriptions worldwide.
• Total LTE revenue in 2013 estimated at €57 billion.
• Rapid growth of LTE coverage in South Korea (100%) and the US.
• We forecast more than 1,313 million LTE subscriptions worldwide, by the end of 2017.
• Close to 450 mobile operators have committed to launching LTE.
• Close to 1,000 LTE devices as of mid-2013.
• Already 19 LTE frequency bands in use in Q2 2013.
• TD-LTE is still a emerging ecosystem with only 2 million subscriptions at the end of 2013.
• Video represents close to 60% of LTE traffic.
• LTE is also used for fixed services.
As of mid-2013 there were more than 130 million LTE subscriptions worldwide, compared to 69 million at the end of 2012. The 100 million mark was passed in June 2013, with the US, Japan and South Korea leading the pack.
• More than 54% of LTE subscriptions in mid-2013 were in the US, with Verizon Wireless supplying the majority of them. The operator had covered 96% of the US population at that time.
• 200 commercial LTE networks – both FDD and TDD as of mid-2013: only 20 TD-LTE networks and 180 LTE FDD networks.
• LTE-Advanced was launched in the second half of 2013 in South Korea.
• The top three LTE operators are Verizon Wireless, AT&T and NTT Docomo.
Download the complete report LTE 2014: Markets & Trends
Round-up for 2014
It’s hard, in the first editorial of the year, to avoid laying out the overriding themes that we expect to see play out over the next twelve months. But it is still too early for me to deliver a complete summary of the year gone by, which has become the much-anticipated task of our DigiWorld Yearbook.
You will also need to wait until the next Executive Note to find out the central topic selected for this year’s DigiWorld Summit (but you can already mark your calendars for November 18, 19 and 20).
What I can share with you, however, is our belief in the profound relevance of certain issues, by summarising three topics that we have chosen to explore in this year’s Collaborative Research Programme (CRP 2014). These are think tanks open to existing IDATE member companies and those wanting to join, who will work for close to a year with a dedicated team of our analysts on the following subjects:
Telecoms USA: model or counter-model?
Following thorough on the two projects carried out in Brussels in 2012 and 2013 on telcos’ new business models, and the new European policy options being considered, we will work to deepen our understanding of the specific points that explain the different directions being taken on either side of the Atlantic.
The internet of things: will everything be connected?
We are going to analyse the true potential of the internet of things, by taking account of the developments that need to occur in the technical environment, difficulties in generating income from both consumer objects and industry applications and, finally, governance and personal data ownership issues, with tie-ins to our 2013 think tank on personal data
What will tomorrow’s TV and video networks look like?
Here we are building on the 2013 Video as a Service think tank by exploring issues surrounding the future of television and video distribution networks, and by analysing long-term scenarios for the delivery of TV and video products, taking particular account of the cooperation and convergence between networks, i.e. hybridisation involving both fixed and cellular networks
Other topics may be added to the CRP. For instance, we are contemplating an ambitious project that aims to define what could be a comprehensive, metropolitan area-scale digital investment strategy, going beyond marketing clichés and segmented vertical approaches.
I can also tell you that the next issue of Communications & Strategies (DigiWorld Economic journal) will be published in March, and is shaping up to be a promising one. It will be devoted to scoring Europe’s telecommunications sector, and examining potentially clashing policies.
And, finally, a reminder that the best way to delve into the subjects that are consuming our teams is though the reports that we publish every month as part of our annual Market Research programme.
Senior consultant, LTE
How much potential for LTE-only?
With LTE nationwide coverage a near-reality in some advanced markets such as South Korea, the USA and Japan, the question arises of the relevance of launching LTE-only devices. Indeed, LTE-only devices come with benefits for both operators and consumers, especially in terms of cost, energy consumption and space saved inside the device and available for additional components or larger capacity batteries.
• For the operators, LTE-only devices may even become strategic since it will help them to transition their users more easily to their latest network while releasing new resources to cope with the data traffic explosion. Today, voice is no longer of any importance, but data is. With carrier aggregation, each chunk of spectrum available is valuable. Fewer 2G/3G users means more capacity for mobile broadband networks.
• Few operators have already launched LTE-only devices. Verizon is one of the first to have done so with a digital camera and more recently a tablet. Other operators such as LG U+ in South Korea have also done so with ultrabooks and hybrid laptop/tablets devices.
• Our forecasts for LTE devices indicate that close to one billion will be shipped in 2017.
M2M modules, shipment trends (In millions)
• However, some applications are more suitable than others for those kinds of devices. The first LTE-only handsets, for instance, should arrive on the market in 2014-2015 but they will require VoLTE to be supported on the network to have any meaning. Still, as long as LTE is not widely available worldwide with LTE roaming in place (which may take time), using its device abroad may be tricky.
• In the data-centric segment of devices however, the potential is bigger but the question of the competition with other wireless technologies remains. Fixed LTE broadband in remote areas is an application of choice for LTE where fixed broadband technologies are not available. However, many objects or appliances will rather be connected with shorter range technologies than rely on cellular connectivity. Indeed, why connect your fridge to an LTE network with an associated plan when you already have a broadband connection in your household? Likewise, devices such as smartwatches or e-health devices with sensors embedded for measuring self-use will rather be connected to smartphones with some Bluetooth Smart (Bluetooth Low Energy) than directly to a cellular network.
• Even more specifically in the M2M segment, LTE is currently not adapted to traditional low energy / narrowband / cost-conscious applications such as security, metering, fleet management. For these applications, work is being carried out to bring some machine type communication (MTC) in the Release 12 of LTE but compliant devices are not expected in the immediate future. This work will lead to the emergence of some kind of narrowband / low energy LTE.
The market report entitled “The LTE only market” is published as part of IDATE’s LTE World market series