Director of Studies, IDATE DigiWorld
A market that could more than double by 2025 to reach €3,000 billion
IDATE DigiWorld has released the latest edition of its forward-looking report on the future of Internet and telecom markets. It delivers four development scenarios for the digital economy along with a quantitative forecast up to 2025.
When trying to picture the future of the industry for the purposes of this study, we identified a number of developments with the power to influence various dimensions of the digital economy. The starting point was to divide these trends into two categories: key trends and major uncertainties.
Key trends are developments that have clearly emerged and for which it is possible to assume, with reasonable certainty, how they will play out over the years ahead.
• For instance, with respect to technologies, one element that is quite certain is that network technologies will deliver better performance ten years from now than they do today. Even though 4G is still being rolled out and the 5G standard is not yet fully defined, it seems clear that 5G will deliver higher bandwidth, lower latency and better efficiency in terms of energy and spectrum usage than previous standards.
• Beyond this, looking at usages, the trend towards mobile will surely last. The adoption of smartphones, tablets, wearables and other connected devices (including cars) will continue to be on the rise and make mobile by far the dominant way to access the Internet.
• Business models and regulatory trends are also to some extent predictable. The value chain will continue to evolve with digital products cutting traditional players out of the loop. Regulation is very likely to shift towards more ex-post control and more symmetric obligations between players at the same layer of the value chain, but across layers, as with OTTs and telcos.
The major uncertainties can be categorised in a similarly broad way.
• For example, certain technological evolutions or changes in business models might push the industry to develop in one direction or another. The Internet of Things allows connecting any object to the Internet and may unleash enormous innovation potential. Yet, despite the maturity of its technologies, the business model remains largely unclear today.
• Consolidation in the telecom sector will continue but the end game is not yet predictable. Will consolidation remain a national phenomenon or will the market be dominated by a few regional, perhaps even global, players and who could they be?
• Will consumers continue to prefer paying for ‘free’ Internet services with personal data, or will they ultimately adopt more privacy-conscious paid offers?
In order to bring all these different elements together, four contrasting yet plausible scenarios for the "digital economy" industry in 2025 are developed in this study, identified as Mall, Open, Automated and Trust. They are projected against a two-by-two matrix whose axes are defined so as to capture a very heterogeneous "digital economy" industry, yet sufficiently focused to give discussion some meaningful guidance.
• One axis is the intensity with which personal data are being used. The intensity of personal data usage is an indication of the range of services telcos and Internet players will provide.
• The other dimension is the presence of enablers in the market. Enablers provide rather specialised solutions, which other companies can leverage to build their own businesses on.
Four development scenarios for the digital economy
Combining these different hypotheses allowed us to establish the four most plausible future scenarios:
• “Mall” scenario: Digital economy players adopt a strong focus on retail and customer owner-ship, seeking to be the one-stop user shop for all things digital, including content and devices.
• There is full-blown competition between Internet players and the telcos, each of them aggregating and marketing a branded bouquet of digital products and services.
• “Open” scenario: This digital economy ecosystem features seamless inter-operability and openness: open access, open innovation and open data. The Internet market is richly innovative and competitive. With token loyalty, users migrate to other innovative applications or services.
• Telcos focus on providing retail and whole-sale connectivity, with specialised services.
• “Automated” scenario: Sales, service production and customer care become largely softwarised. Customer requests configure service patterns automatically. Sophisticated data analytics are used mainly for internal purposes. Players leverage open standards and generic solutions to implement low-cost production.
• “Trust” scenario: Sales, service production and customer care become largely softwarised. Customer requests configure service patterns automatically. Sophisticated data analytics are used mainly for internal purposes. Players leverage open standards and generic solutions to implement low-cost production.
Digital economy 2025: scenario matrix
Source: IDATE, The Digital Economy in 2025, January 2016
A market set to double over the next decade
Departing from a global market worth close to €1,500 billion in 2015, each scenario sketches out a very different value generating potential between now and 2025. The most optimistic “Mall” scenario forecasts a market that will double in value, climbing to close to €3,000 billion – which translates into average annual growth of 7% – whereas under the most pessimistic “Automated” scenario the market still grows to €2,200 billion by 2025, or by an average 4.2% a year
The market’s forecast breakdown, between Internet services on the one side and telecom (access) services on the other, also varies substantially, ranging from 49% for telecoms under the “Open” scenario to 60% under the “Trust” scenario. Of course, compared to the more than 75% share in 2015, this corresponds to telecom services steadily losing market share to Internet services.
Value growth for Internet and telecom services markets, by scenario, 2014-2025
Source: IDATE, The Digital Economy in 2025, January 2016
More information on The future of Telecom and Internet ecosystems in our report "Digital Economy 2025"
Discover the perspectives and key trends that will structure the digital economy for the next decade and participate to DigiWorld Future 2016
For the publication of the 16th edition of the DigiWorld Yearbook (pre-order now), IDATE is organizing a conference based on the detailed analysis of the current situations and some forecasts by IDATE experts on the major digital sectors, the discussion will deal with the great trends and challenges that will disrupt the digital markets by 2025.
CEO, IDATE DigiWorld
...in search of a convergent outcome
Proceeding behind closed doors, negotiations between Orange and Bouygues are now at the point where each party – independent of any actual transaction – is anticipating the reasons for and possible pitfalls of such a complex and far from certain merger.
The four players in the French telecommunications market have a shared interest in a scenario that would see the disappearance of one of its operators, not least with a view toward ending the price wars that have ravaged the sector. The French market would join the three-operator configuration that currently exists in Germany and, in the months to come, will emerge in the United Kingdom and Italy as well. This is a singular deal, however, as it involves the top provider of fixed line, mobile and enterprise services. So it can only go through if the new Orange is prepared to jettison many of the assets that it would acquire in the process.
Let us try to imagine what could lie ahead for these players in a situation that would be rich study for any expert of game theory.
Competition authorities – and regulators to a lesser extent – are in a delicate position since, even though they did not instigate it, they cannot fail to see the appeal of a deal that would help the sector get back on its feet: a sector whose revenue has been shrinking since 2008 and on whose massive investments the country is relying to some degree to achieve its digital transition. But the deal must not be approved at the cost of undermining effective competition between operators. Unlike with other mergers and acquisitions we have seen in Europe – between third-ranked or and fourth- and second-ranked operators which, in order to gain approval, have had to agree to certain remedies (such as selling off frequencies and opening their networks to MVNOs) – authorities here will have to prop up and justify a largely revamped structure for France’s telecom services market, through the conditions they impose on the distribution of frequencies, infrastructure, subscribers, stores, staff, etc. One can foresee the risks associated with ‘managed competition’.
Bouygues faces the prospect of trading control of its business for cash and a substantial stake in the leading provider, on the basis of favourable valuation. It is essential that it obtain a premium price. The biggest danger for the company lies in not getting that price and, in so doing, of having employees and even customers lose some confidence in the operator’s future.
Orange cannot agree to shoulder all of the risks of such a deal without having an objective other than doing the heavy lifting of a consolidation that is in everybody’s interest, except the shareholders’. If the new group is required to divest itself of the majority of Bouygues Telecom assets, it will need to ensure that the buyers help shoulder the burden of that premium price granted to Bouygues. A certain degree of competition is therefore necessary for that to happen. The company also needs to anticipate what advantages it will lose in yielding assets to competitors, for example those presently helping Orange and Bouygues Telecom enjoy a lead in the 4G market. Lastly, the cash released at the end of the deal must enable Orange either to accelerate its investments in France and other markets to strengthen its positions (while bracing itself for the kickback from regulators!) or give it the means to lead the charge in consolidating the sector in Europe.
SFR and Iliad are certainly interested in building their businesses thanks to the acquisition of assets. Their teams and their bankers must nevertheless determine the maximum they can pay, with an eye on debt ratios, beyond which it would be more cost effective to put their money into marketing and sales to gain subscribers, or to step up their investments in equipment and frequencies to accelerate their superfast fixed and mobile network rollouts. In the process, they also need to avoid finding themselves in competition with one another or with third parties.
And let us not forget one final protagonist: the Government, not as an authority in charge of competition or the sector’s regulator, but in its role of major Orange shareholder: does it have objectives other than those of a careful investor? Is the goal to set up a core of controlling shareholders in order to allow the State to withdraw?
Read more about a convergent outcome between Orange and Boyugues in Les Echos (french link) of the 29 January 2016
Debate over the crucial role that trust will play in the digital economy’s future
The 38th annual DigiWorld Summit will run from 15 – 17 November 2016, and have as its central theme: The Internet of Trust. It will be an opportunity to engage in a meaningful international debate over digital trust issues – starting with security and privacy – which have become major sources of concern for all of the ecosystem’s stakeholders.
As the number of reported cyber-attacks worldwide is growing by close to 40% a year, we expect that upcoming stages in digital technologies’ evolution will only amplify the phenomenon. And this to such an extent that any future scenario is possible: from a continuation of the current chaos to a breakdown in trust that would lead to the construction of a new digital economy, which will no doubt differ in many respects from the one we know today.=
• Are we reaching a tolerance threshold for online trust?
• How can veteran digital industry players (equipment suppliers, telcos, IT companies) capitalise on the current climate?
• Are verticals threatened by the situation or, on the contrary, on the winning side of trust and security issues?
• Do we need a new regulatory framework to govern, or reassure, market players and consumers?
The need for a profound reassessment of security and trust issues seems inevitable: massive increases in spending on security solutions, rise in protectionist behaviour (use of ad-blockers, battle against botnets, etc.), avoidance tactics (piracy and circumvention), clarification of the terms governing access to private data and the management of digital identities and online reputation… There is no shortage of issues and threats affecting the rate of adoption of digital technologies, but which could also prove to be opportunities for all market players.
> Use and misuse of trust
Will trust be a key parameter in tomorrow’s Internet?
• The privacy paradox: Usage is high, trust is low: Are we reaching a tolerance threshold for online trust?
• Digital trust at the heart of customer relations? How do Internet companies and verticals gain their customers’ trust?
• Can we trust digital world players? Can the Internet giants continue to be both the arbiters and targets of their users’ trust issues?
• Can the digital world trust us? Focus on piracy: Can businesses trust their customers?
> Trust technologies
A broad field of innovation for market leaders and start-ups
• Innovative security solutions: biometrics, etc.: What can we expect from the next wave of innovations in the arena of cyber security and data control?
• Blockchains and decentralized trust: Will today’s trusted third parties be cut out of the loop?
> Trust altering the digital value chain
Will trust be a game-changer?
• Trusted third parties & digital coaches: Will we see new trusted third parties emerge (banking, post, health…)
• Do we need more secure enablers? New growth enablers for telecom and IT industry leaders?
• What role for telcos? Monetise data or become trusted third parties?
> Business model crash test
Will the current and future business models for trust-sensitive advertising and IoT markets be suited to the new climate?
• Real time biding and programmatic ad buying: Can online advertising survive and adapt to the loss of trust?
• Big Data and the Internet of Things: Will successful trust management be key to the future of IoT and monetisation initiatives?
> Regulation of trust, and trust in regulation
How can regulation stimulate usage and innovation while also safeguarding against threats and transgressions in the digital economy?
• Trust and anti-trust: what about platforms? Can and must online platforms be regulated?
• Safe Harbor and Privacy Shield – the new deal: Can a balance be struck between conflicting European and US positions?
• Cybersecurity and terrorism: Are the future credibility of and trust in the digital economy bound up with the fight against global threats?
A unique international forum for debate and networking
> Thematic Forums
> DigiWorld Week
A full week of symposiums and partner events (13 – 21 November 2016)
> The DigiWorld Awards
Recognising the best digital start-ups created by French entrepreneurs abroad
Key facts & figures
Europe’s trailblazing conference on the digital economy
The DigiWorld Summit is an annual event organised and hosted by IDATE experts, with the support of DigiWorld Institute members. Every year it holds ultra high-level international debates on the core issues shaping the digital economy, with the finest speakers and industry insiders.
• Participants: 1,200 participants at the DigiWorld Summit and more than 5,000 at DigiWorld Week
• Speakers: 120 speakers from around the world; 400 at DigiWorld Week
• Partners and sponsors: over 100 partners and sponsors (businesses, public sector, media…)
• Social media: 15,000 tweets (trending topics) and 2,000 live followers
Speakers in 2015 included: Jimmy WALES, Founder, Wikipedia – Peter VERHOEVEN, Managing Director EMEA, Booking.com – Alex SCHLEIFER, Head of Design, Airbnb – Eric DENOYER, CEO, Numericable-SFR – Dan JUDKINS, Head of Global Design and Development, Hasbro Inc. – Carlo d’ASARO BIONDO, President EMEA strategic relationships, Google – WEN Rui, Director of national Business Development, Youku Tudou – Sebastien SORIANO, Chairman, ARCEP – Bruno LASSERRE, Chair, French Competition Authority… > for more, go to www.digiworldsummit.com
Senior Consultant, IDATE DigiWorld
After a very dynamic year of growth at +19%, the trend seems to be confirmed…
The 9 first months of 2015 confirmed the trend of the previous year: the increase is there and confirms that Europe has entered in the “Fibre age”! There were no noticeable events towards FTTH/B since January 2015 but the growth now seems to be structural. We counted more than 35.9 million FTTH/B subscribers and nearly 127 million FTTH/B Homes Passed in EU39 at September 2015. Those figures represent respective growths of 19% and 17% in 9 months.
A part from Russia which represents the largest part of FTTH/B subscribers (42% of total number of subscribers), the other largest markets are Spain, France, Romania, (7% of the total number of subscribers each) then Turkey, Sweden and Ukraine. Of course, the demographic characteristics of those countries and the national maturity of the FTTH/B market will have an impact on this kind of ranking in the coming years.
Thanks to the tremendous increase in coverage during 2014, Spain is identified as the most dynamic market during the first 9 months of 2015, with 65% growth in the number of subscribers. France is also once again among the main markets in terms of new subscribers, with a growth reaching 31%, to compare to an average growth rate of 19%. Interesting to note that Luxembourg shows a growth rate of 27%, which is also very significant compared to the average one. However, we have to note that, even if the increase is high in a country, this does not always mean that the market is huge (cf in the UK where the growth rate reaches 60% in 9 months but the number of subscribers is still lower than 100,000).
In terms of coverage, the countries with the highest growths are different. The average growth rate is 17% and few leading markets show a higher growth: +26% in Russia, + 18% in Spain…but “only” +9% in France… The coverage increased much more in smaller countries such as Slovakia (+51%), Norway (+39%), Ireland (+46%) and Switzerland (+61%). We can also mention countries such as Poland (+59% growth in number of HP) and Luxembourg, showing a growth rate in coverage of 27%, 10 points higher than the average!
In terms of players involved in FTTH/B projects, alternative carriers are still leading the way, representing a 51% of the total homes passed in EU39 at September 2015. Their representativeness has decreased significantly compared to December 2011 where they covered 71% of the total number of Homes Passed in the region.
The number of local authorities launching FTTH/B rollout projects on their territory has also decreased during the period, even if there are more and more numerous to get involved. This really confirms that the involvement of those players is very important to ensure exhaustive coverage but that they will only deploy in very limited areas, corresponding to their territory. Their approach and strategy is of course different from private players’ strategy…
Then, of course, incumbents are important players in all European countries. They represent 45% of HP in EU39 at September 2015, compared to 21% at end 2011! During the previous years, we have noted the growing involvement of incumbents and now, in all countries, incumbents are involved in at least small FTTH/B projects. Of course, some are still focusing on other FTTx architectures but all consider that FTTH has to be part of their catalogue, in one way or another.
Regarding the technology and the architecture deployed, we have not noted any changes during the 9 first months of 2015: Ethernet is still players’ first choice across the EU39, representing 66% of all FTTH/B rollouts and most deployments concerned FTTH which represents 41% of homes passed at September 2015.
Number of FTTH/B subscribers per country in Europe (countries with more than 200 K subscribers)
Source: IDATE DigiWorld for FTTH Council Europe
Number of FTTH/B homes passed per country in Europe (countries with more than a million homes passed)
Source: IDATE DigiWorld for FTTH Council Europe
IDATE publishes a half-yearly updated FTTx observatory, gathering qualitative and quantitative data of 70 countries and +150 players – see details online
Directrice d'études, IDATE DigiWorld
What will the Internet look like in Africa and the Middle East?
The IDATE DigiWorld teams of experts have published the second edition of the special report exploring the ins and outs of the digital economy in Africa and the Middle East
By and large, Africa and the Middle East are experiencing the same market shifts that telecom services in the West have undergone over the past two decades, albeit in their own particular way: slowing growth rates due to a relative saturation of the mobile telephony market, which is the sector’s chief driving force, combined with often stiff competition that weighs on margins. And a body of users that still remains to be conquered who have more modest purchasing power than operators’ existing customers.
Sub-Saharan Africa: the world’s fastest growing Internet access market
Forecast average annual growth rates
Under these circumstances, the transition to mobile data services, thanks to expanding 3G coverage and the deployment of 4G, marks a natural and promising progression. We expect to see the strongest increase in Internet access of anywhere in the world, particularly in sub-Saharan Africa, both because these countries lag so far behind and because of growing demand amongst the local population. The availability of smartphones that are affordable for a large percentage of the population, combined with initiatives such as Zero rating for basic service bundles, are helping things along. As a result, high-speed mobile density could climb from 20% in 2015 to 44% in 2019. However, it is not yet certain that this growing Internet market will allow the region’s telecom services industry to maintain the roughly 5% annual growth rate that it did from 2010 to 2014. We must also factor in demographics and steady economic growth – which, although still not strong enough, is nonetheless substantial compared to what we are experiencing in Europe – along with other elements that should enable Africa, on the whole, to avoid the long slump that telcos in Europe have suffered.
In addition to outfitting cities with Internet access infrastructure, attention needs to be paid to – and original solutions devised for – rural areas that must not be overlooked, so that the pace of the population explosion in cities can be reined in.
There is no shortage of proof that Africa and the Middle East are capable of real innovation in multiple digital economy sectors
Faced with these imperatives, the ability to finance massive investments in 3G and 4G cellular network rollouts, in national and regional backbones, and in the equipment needed for businesses (optical and satellite connections in business parks and districts, cloud solutions) require operations to be optimised so that margins can improve. Outsourcing and sharing tower infrastructures, consolidation in markets with too many players with a tiny market share, initial and ongoing training of personnel, and the search for synergies with electricity supply programmes are among the core paths to advancement that businesses and public policies will likely focus on. As in other markets, the importance of stable and balanced regulation that establishes a strong interplay of competition policies and support for investment and innovation cannot be underestimated.
Evolution of fixed and mobile usage and density
Lastly, telecommunications policies do not exist independently of the social, economic and regulatory issues surrounding usage and the development of innovative online services. We already have proof that Africa and the Middle East are capable of innovation in a number of digital market sectors. Mobile payment and money transfer solutions, in a region where banking structures are often lacking, are among the most oft cited examples, along with applications devoted to development, education, sustainable farming, managing utilities (water, electricity), health and tourism.
But we also need to add e-commerce and entertainment to the list, thanks to the first video game hubs in South Africa in particular, and those that have ties to well established film and TV production conglomerates. The countries are not all progressing at the same pace, and not all enjoy the same political stability, but our optimism forces us to see positive signs in the clusters emerging in certain markets, in the first incubators, the trading and collaboration networks being forged at the regional level, in some instances with the support of Internet heavyweights from the West now staking a claim.
Mobile density in Africa & the Middle East
Senior Consultant, IDATE DigiWorld
Within the latest edition of its half-yearly updated observatory for superfast-broadband access, IDATE – world leading FTTx intelligence provider – announces the impressive milestone of 300 million subscriptions at mid-June 2015, for world consolidated. Furthermore, superfast technologies(1) represented nearly 38% of broadband access subscriptions at mid-2015, 8 points more than one year before.
FTTH/B is still the leading superfast broadband solution, far ahead of FTTx/D3.0, followed by VDSL
• FTTH/B represented 61% of FTTx subscriptions at mid-2015. Growth of FTTH/B subscriptions will continue until 2019, but at a lower pace than during 2014, year of real success in China.
• FTTx/D3.0 represented at June 2015, 27% of FTTx subscriptions. After two years of significant growth, proportion of FTTx/D3.0 on Superfast Broadband is stable
• VDSL, for its part, lagged behind, representing 12% of subscriptions at mid-2015 compared to 13% in June 2014
The regional breakdown is very heterogeneous
• No huge changes in the geographical predominance of APAC on the FTTH/B market.
• FTTH/B is also the main deployed technology in MENA. It was the case also in LATAM, but now it is meeting stronger competition from VDSL technologies in the region (Brazilian market).
• FTTx/D3.0 is still dominant in North America and is generally growing more rapidly than other technologies.
• There is considerable space for VDSL in Europe where incumbents still wish to optimise their copper networks.
(1) For the definition of superfast platforms we consider three main architectures: FTTH/B, VDSL and FTTx/D3.0 deployed by cable operators
The growth rate of FTTH/B subscriptions should continue to increase at an annual average rate of 10% until 2019
• The growth in the total number of FTTH/B subscribers will gradually decrease from 37% in 2014 to 6% in 2019: this is linked to the progressive maturity of the markets.
• By 2019, the share of FTTH/B subscriptions will represent 32% of total broadband market worldwide (to be compared to 22% at end 2014).
• FTTH/B is now deployed in all major regions in the world, at different levels: FTTH/B represents a great opportunity for countries where broadband is not widespread (Latin America, Africa and some countries in Asia-Pacific).
The take-up rate of FTTH/B worldwide will grow gradually from 32% at end-2015 to 34% by end-2019
Whilst regional disparities will persist, the ranking of leading regions will change:
• Eastern Europe will see its take-up rate grow from 30% to 41% from end-2015 to end-2019, much higher than in Western Europe, from 26% to 40% during the same period.
• In North America, the take-up rate will rise from 41% to 46% at end 2019.
• In Asia-Pacific, the take-up rate will grow thanks to the dynamism of China and new markets such as Indonesia, Kazakhstan and Vietnam.
• In Latin America, the adoption rate will be steady as FTTH/B is at is early stage and players will focus more on expanding coverage.
IDATE publishes a half-yearly updated FTTx observatory, gathering qualitative and quantitative data of 70 countries and +150 players – see details online
Project Manager, IDATE DigiWorld
What belongs together, grows together
Converging markets provide a bright future in terms of market growth. Take Enterprise Cloud Computing, for instance: we sized the market – IaaS, PaaS and SaaS revenues altogether – at EUR 80.2bn in 2015, in 2020 we forecast that this number will more than double: EUR 192.4bn with SaaS still as strongest revenue segment, but IaaS coming close behind.
Why convergence matters
• The convergence of telecom and IT B2B markets consists in the development of services by IT players on telecom markets, and by telecom players on IT markets. It comes mainly from the development of the Internet, of Internet access for consumers and businesses, and of services over IP. Because of this, some telecom and IT services can be provided transparently by networks. Technologies such as voice-over-IP or cloud computing have thus emerged in recent years relying on broadband access, and commoditised IT systems. Our latest study has a focus –for IT markets– on cloud computing, big data, security (including management solutions known as Bring Your Own Device (BYOD) and IT consulting. For telecom markets, we focused on unified communications (including collaborative tools) and M2M (on the service stack only). These markets are those where both IT players and telecom players are providing services. However, not all these players are positioned on converging markets. Furthermore, businesses have invested heavily in IT systems and services and can be expected to continue to invest as their business issues can be answered by telecom and IT services. Among business needs, analytics and big data seems to be the most important, along with reducing costs and overheads as the first strategic business priority.
How telecom and IT services meet current business needs
* NB: Security does not fit the selected business needs in this table, but it does answer a major need for better security, in a context of important cybersecurity threats.
Source: IDATE, Telecom & IT Convergence, November 2015
• IT players are keeping a majority of market share on all converging markets: this is estimated by IDATE as between 60 and 75% on telecom converging markets, and between 90 and 99% on IT converging markets, where the IT players’ market share remain very important. In volume, the most important converging market is that of IT consulting services, reaching more than 700 billion EUR in 2015, with 95% market share held by IT players. Even if the overall convergence is leading to telcos and IT players competing on specific markets, their targets remain different. This distinction explains the asymmetry of market share between telcos and IT players on these markets. Large IT players mainly address large accounts, providing highly customised solutions and usually no ‘off-the-shelf’ or ‘turn-key’ solutions. Their solutions are especially designed to meet the needs of large accounts, each of which has a different IT systems configuration. For instance, on the cloud computing market, IT players mainly provide private-cloud services as well as hybrid cloud as it involves customised private-cloud services. Smaller IT players, and especially the pure ones, can address both large accounts and small and medium-sized enterprises (SMEs) as they can provide turn-key solutions, which is type usually chosen by SMEs.
• Telecom players (mainly telcos) have a role to play on all converging markets, but with other customer targets than IT players. Telcos have earned a strong degree of trust from their customers, both large accounts as well as SMEs. This long-term relationship allows them to provide and to sell additional services, complementary to their traditional communication services. Telcos therefore provide bundled services that include communication services (mobile and fixed), cloud storage, office suite in Software-as-a-Service (SaaS) (cloud) and a basic security suite (firewall, anti-virus and VPN). These services are especially appreciated by SMEs as they are looking for low-cost turn-key solutions. Telcos do not develop all of these bundled services, usually just reselling some of them, such as cloud SaaS products or security products. These bundled offers are, however, almost the only ones on the market: telcos thus have here a strong competitive position for this kind of business. In terms of investments, telcos mainly provide these services over their own infrastructure (without investing strongly in new capex), or resell products. In terms of revenues, these additional products do generate a measurable amount – estimated at between 5 and 10% of overall telco revenues.
Growth potential for telcos in the SaaS and IaaS markets
Source: IDATE, Telecom & IT Convergence, November 2015
Get more valuable insights about convergence enablers and business needs in our recently published market report
CEO, IDATE DigiWorld
And what if Jean-Marie Messier was ahead of his time? This is a question that many market observers are asking themselves after the deals that took place in 2015. To wit: the largest telco in the United States taking control of the second largest pay-TV provider, while Verizon entered the mobile video market, Vivendi became Telecom Italia’s majority shareholder, the head of Altice and SFR acquired media and football rights, following in the footsteps of BT which had spent over a billion euros in February to secure the exclusive rights to Premier league matches for three years…
Disintermediation of programme access?
Beyond economists’ theoretical and already ancient arguments over the limitations of vertical integration strategies, we need to recognise a new and deeply rooted trend that appears to be going in the opposite direction of a return to convergence. In this era of increasingly ubiquitous high-speed and superfast access, increasingly effective competition between access providers, and of scrupulous attention being paid to net neutrality, even though applications and Internet users are extremely polarised between a handful of platforms, there is no telling whether telcos’ and cablecos’ assets have been strengthened in a way that will allow them to become the main providers of TV products. The trend is more towards globalisation and disintermediation.
It is only a slight exaggeration to say that, with a server and a few technical service providers, anyone can monetise their media rights internationally. Hollywood may have dominated the industry, but the major studios still needed cable networks and largely national TV channels around the world to distribute their wares. Today, they see what Netflix, Amazon and YouTube are doing, and Facebook’s ambitions in the realm of video, and are diving headlong into testing and investing in direct distribution strategies. So it is media rights that matter most and, behind that, being big enough to acquire these rights or be able to self-produce, and amortise the cost thanks to tens of millions of consumers. Telcos’ boldest and most ambitious media strategies must therefore be consistent with their size, or with expectations of their sector’s international consolidation.
Investing in programmes: will it drive telco consolidation?
If this summary argument sketches out the, in many ways new, backdrop to the relationship between container and content, it of course does not mean that all of telcos’ or cablecos’ TV initiatives are bound to fail, even for the smaller ones. They have a legitimate role to play in building an ecosystem around triple and quadruple play bundles, as a way to strengthen customer loyalty. Here, technological developments make it less costly to create a pay-TV plan that combines access to TV channels, and well-crafted indexing and marketing of OTT services. But none of this makes fixed and mobile high-speed access providers the natural choice for main providers of TV programming, and the ones that rights owners will turn to (and pay a hefty fee). The largest telcos can invest heavily in acquiring rights and even exclusive rights, with the hope that these investments will pay off. In many instances, these will be marketing investments, with the aim of increasing their share of the high-speed access market, and now accelerating the pace of customers’ upgrading to superfast (fibre, 4G/5G) plans. We should mention in passing that this belief does not cancel out the belief that mergers between telcos and (even more scattered) TV networks, and partnerships between the two, can be part of an industry-wide strategy that prevents Europe from being the mere victim of a new era of TV industry globalisation. Adhering to this analysis would lead us to conclude that perhaps Jean-Marie Messier was right… albeit too soon.
From a more general standpoint, the challenge for telecom carriers still lies in making profitable investments in the new generation networks that our economies need. From this perspective, video in particular and, beyond that, the whole range of cloud applications and services, are all very positive factors. Not only because they offer opportunities to diversify – operators can of course invest in OTT services or seek to monetise their data – but also and especially because they increase the value of having access to these networks, and open up arenas of differentiation by creating competition that is not based solely on prices.
This opinion piece was published in Les Echos on 11 January 2016
CEO, IDATE DigiWorld
What topics are likely to make headlines in 2016?
Looking at recent trends, and after having sadly dismissed topics such as – in no particular order – the onset of virtual reality, G-Fast and Docsis 3.1, 5G standardisation, IoT, AI, the introduction of E-SIM, verticals’ digital transformation… four topics in particular come to mind:
This encompasses an explosion in data traffic on all devices, fuelled by video traffic, the proliferation of video products and new pricing formats from cellular operators – in the vein of Verizon’s Go90 and T-Mobile’s Binge On – associated enhancements to LTE platforms (LTE-A/B/U), Netflix’s global strategy as it marches towards the 100 million subscriber mark by the end of 2016, the race to 4K and HDR TV, debates in Europe over harmonising copyrights, geoblocking limitations…
The increase in a wide range of dangers in digital ecosystems has given birth to a market that is expected to grow twice as fast as the IT market as a whole. By the end of the year, Europe is due to have passed a new data protection directive. Will it provide a new foundation for renegotiating the Safe Harbour agreement and making progress with the Transatlantic Trade and Investment Partnership (TTIP)? Will the ad-blocking phenomenon be made obsolete by the expected virtues of programmatic advertising?
In Europe, we will wonder just how far the consolidation trend can go as we question the hoped-for synergies, the attitude of the anti-trust authorities, the potential impact on prices, on fixed-mobile convergence, on ultrafast fixed and mobile network rollouts, etc.
Meanwhile, in the United States, we don’t yet know whether:
• A price war will break out in the mobile market?
• Cable’s dominance of the superfast access market could be threatened?
• A fixed-mobile convergence trend will take hold as it has in Europe?
These represent as much opportunity for innovation as threats to the banks which are involved in their own digital transformation, along with hopes for the creation of a large-scale mobile banking ecosystems with a strong competition between banks, Internet platforms, and telcos, plus concepts that are creating a lot of buzz such as crypto-currency, and more precisely, blockchain technology.
Here’s wishing you a very happy 2016 with IDATE DigiWorld, and we look forward to seeing you at DigiWorld Future and the DigiWorldSummit !
> Read also an opinion from Yves Gassot published in Les Echos «Media-Telecoms: convergence redux? »
Head of Media & Digital Content Business Unit, IDATE DigiWorld
Without any surprise OTT Video represents the top traffic on both fixed and mobile networks – telcos have been investing in infrastructures without payback for traffic. In our recent study we highlight the positioning of several key players from the telecom industry and stress out the pros and cons from two-sided business models
Initially, incumbent telcos launched video services for raising customer levels and ARPU gains. They were indeed keen to capture a share of the TV market. They then added features to enhance their value proposition, facing the competition of incumbent TV players and the threat of the over-the-top (OTT) world. Time shifting, multiscreen viewing, live streaming and video on demand, both transaction-based (TVOD) and subscription-based (SVOD), have been progressively adopted by telcos.
Examples of telcos broadcast broadband TV
Source: IDATE, in Telco Video Strategies, December 2015
The market at present is a two-sided one where incumbent telcos are targeting both high- and low-income households.
As a first step, this concretises new investments in premium video content, including some initial steps in UHDTV. This again is a must for incumbent telcos, in order to:
• Cross-sell: launch attractive video offerings to promote the sale of multiplay (triple- or quad-play) subscriptions
• Upsell: use video as a driver to gain higher-income subscribers and to migrate broadband subscribers to FTTH
Secondly, the will to address lower-income households and the ‘new generation’ of cord-cutters and
cord-nevers is leading incumbent telcos to deepen their segmentation of video services, with
• Skinny-TV bundles, generally providing a basic of TV channels bundled with Internet access for an entry-level subscription price
• SVOD services (including third-party, thanks to platform openness) in order to provide the ‘best of’ breed of services and more individual subscription options
Moreover, the development of programmatic advertising, based on their consumer data, is in development and could be a driver for revenues.
The search for operational flexibility and efficiency has also be permanent for incumbent telcos, in different ways:
• In order to shorten their ‘Time to video market’, operators should leverage hybrid TV broadcast-broadband solutions through DTT and satellite, to enter new markets, first with OTT-only TV delivery
• Telco CDN is must-have for telcos, to better manage OTT video traffic on their network than a revenue generator
• Cloud, centralised, solutions should develop step by step in order to easily integrate the unification of consumer interfaces, to create ‘super head-end’ for the rationalisation of OTT services and perhaps to develop future-proof solutions for their video service within, or eventually outside, their network and programmatic advertising services, to launch cloud-PVR services…
• Trade-offs can also occur around video hardware at home, including STB-less, skinny STBs or TV dongles around such issues as the ‘operator as an app’ model, including a balance between Smart TV sets and stand-alone streaming boxes.
At the end of the day, facing the competition of Internet giants, the benchmark will be the best possible user experience, to be gained through attractions such as very high-speed networks, flexible and user-friendly service platforms, innovation in services and top-quality content.
Change in IPTV’s share of TV households worldwide, 2012-2016 (million TV households)
Source: IDATE, in Telco Video Strategies, December 2015
Find out more details regarding market framework and players positioning for Telco Video Strategies in our dedicated market report