Directeur de la Business unit Territoires Numériques, IDATE
La Métropole de Lyon renforce l’attractivité de son territoire en investissant dans la desserte généralisée en fibre optique des entreprises, des sites publics et para-publics.
La décision de la Métropole de Lyon illustre l’implication des collectivités territoriales sur l’accélération des déploiements fibre sur les territoires. En effet, au travers de ce projet portant sur la mise en œuvre d’un réseau d’initiative publique (RIP), c’est l’attractivité et la compétitivité du territoire métropolitain qui seront renforcées.
La Métropole de Lyon (Grand Lyon), en attribuant à la société Covage, lors de son Conseil communautaire du 21 septembre 2015, sa délégation de service public très haut débit, entend accélérer la couverture fibre de son territoire. L’IDATE, qui a été l’assistant à maîtrise d’ouvrage de la Métropole de Lyon pendant toute la durée de la procédure, a participé à ce projet ambitieux qui permettra de desservir en fibre optique près de 100 zones d’activités, plus de 400 immeubles d’entreprises, plus de 1100 sites publics et para-publics.
Sur la Métropole de Lyon, la dynamisation des offres à très haut débit à destination des professionnels, des entreprises et des acteurs publics est attendue pour permettre notamment des raccordements sur fibre optique plus aisés et rapides, pour des coûts réduits.
L’Observatoire des RIP réalisé par l’IDATE au premier trimestre 2015 pour le compte de la CDC et de la Fédération des Industriels des Réseaux d’Initiative Publique (FIRIP) a mis en évidence que la présence des RIP sur les territoires permettait en particulier :
• Un foisonnement de l’offre des opérateurs, avec pour plus de la moitié des RIP la présence de plus de 10 opérateurs proposant leurs services pour les entreprises, les acteurs publics et le grand public.
Présence des opérateurs sur les RIP
Source : Observatoire 2015 des RIP réalisé par l’IDATE pour la FIRIP et la CDC
• Des économies substantielles sur les coûts télécoms supportés par le grand public, les entreprises et les acteurs publics : dans le secteur professionnel, c’est ainsi près de 60 M€ au niveau national qui sont économisés par les entreprises et les acteurs publics clients des offres à très haut débit fournies par les opérateurs présents sur les RIP.
Gains annuels sur les coûts télécoms pour le grand public, les entreprises et les sites publics grâce à la présence des RIP
Source : Observatoire 2015 des RIP réalisé par l’IDATE pour la FIRIP et la CDC et données Avicca
L'IDATE, renforce une expertise déjà bien reconnue auprès des collectivités et des Pouvoirs publics locaux et nationaux
Les consultants de la business unit Territoires Numériques de l’IDATE interviennent sur l’ensemble des problématiques numériques en offrant une palette de prestations répondant aux attentes de ses clients, dans les domaines des réseaux à très haut débit, des observatoires et de l'évaluation, du développement économique, et des schémas directeurs d'aménagement numérique.
Dans le domaine de l'aménagement numérique des territoires, l'IDATE a notamment réalisé les SDTAN de la Région Alsace, des Conseils Généraux du Gers, de la Lozère, du Val-de-Marne, du Val-d'Oise, de l'Essonne, de la Loire, du Territoire de Belfort et du Syndicat mixte de l'Aire Urbaine Belfort-Montbéliard.
L'IDATE est également conseil dans la stratégie Très haut débit (THD) et assistant à maîtrise d'ouvrage de la Région Alsace, de Rennes Métropole, ou encore de l'Etablissement public Debitex qui porte un projet de 80 000 prises FTTH sur 27 communes de la Seine-Saint-Denis et du Val-d'Oise.
ICT industry players vs. the new disrupters
From 17 to 19 November 2015, the 37th annual DigiWorld Summit will bring together 140 top-tier speakers from around the world to Montpellier, to share their views with the more than 1,200 participants from over 25 countries. French Tech will also be in the spotlight during the 2nd annual DigiWorld Week and at the inaugural DigiWorld Awards.
For IDATE Chairman, François Barrault, the theme of “Digital-First” – which was chosen in concert with DigiWorld Institute members – “refers to the tremendous rise of digital technologies in the business world, and huge changes in consumer behaviours. This astonishing acceleration is upsetting the status quo and shaking up the traditional economy, paving the way for new business models ushered in by the digital economy”.
Supervising the programme is IDATE CEO, Yves Gassot, drawing on IDATE consultants’ knowledge and expertise. “Once again this year,” says Mr Gassot, “the participants coming to Montpellier will get an invaluable, detailed snapshot of all of the latest digital industry events, thanks to the plenary sessions and the many forums, and to a large and prestigious panel of speakers from Europe, the United States and China who will be on hand to debate the multifarious questions raised by the ongoing digital revolution”:
• What are the promises of this new age of knowledge? with Jimmy WALES, Founder, Wikipedia
• How is the Internet changing the travel industry? with Peter VERHOEVEN, Managing Director EMEA, Booking.com and Alex SCHLEIFER, Head of Design, Airbnb
• How are veteran toy companies reacting to the video game invasion? with Dan JUDKINS, Head of Global Design and Development, Hasbro Inc.
• How are the Internet giants adjusting to the changes at work? with Carlo d'ASARO BIONDO, President EMEA strategic relationships, Google
• In with the new for a telco going global, with Michel COMBES, COO, Altice
• Is everything about to change for telcos? with Santiago Fernández VALBUENA, Group CSO, Telefónica
• What services will be attached to smart devices? with Bruno BARLET, Executive VP France, LEGRAND, Vincent CHAMPAIN, Operations Director, General Electric and Xavier BOIDEVEZI, VP Development & Digital, SEB
• Just how far can telcos go in helping their customers’ digital transformation? with Thierry BONHOMME, Senior Executive Vice President, Orange Business Services
• Do we really need new dedicated networks for the Internet of Things? with Geoff MULLIGAN, Chairman, LoRa Alliance and Ludovic LE MOAN, CEO, Sigfox
• Will the next Netflix come from China? with WEN Rui, Director of national Business Development, Youku Tudou
• Will new gen mobile TV be the new killer app for video? with Richard LUCQUET, Director, Business Development Technology Partnerships & Licensing, Oncue (Verizon)
• What does the future hold for a top, integrated telecom equipment supplier? Vincent PENG, President Western Europe, Huawei
• Does regulation need to adapt to Internet rules? with Fatima BARROS, Chair 2015, BEREC, Sébastien SORIANO, Chairman, ARCEP and Bruno LASSERRE, Chairman, French competition authority
• Can we count on digital markets to deliver a new period of growth? with Georg GRAETZ, Associate-Labour Markets, London Economics School and Jean-Hervé LORENZI, President, Cercle des Économistes
• As well as: Accenture, BBC, Bouygues Telecom, Deutsche Telekom, Ericsson, France Télévisions, edX, IBM,
• JC Decaux, NEST, Nokia, Qualcom Life, SEB, SNCF, Studio Bagel, Wilseed Studio…
The DigiWorld Summit programme has grown in 2015, to give us a chance to explore the ins and outs of the tremendous and wide-reaching effervescence at work in digital industries today: “This is why we are hosting the second annual DigiWorld Week, which was designed as a collaborative space for partner events. We will also be hosting the first ever DigiWorld Awards, which were created to identify and reward French talent abroad, with special guest, Axelle Lemaire, French Minister of State for the Digital Sector,” explains IDATE’ deputy CEO, Jean-Dominique Séval.
> View the complete programme at:http://digiworldsummit.com
DigiWorld Week 14 – 22 November 2015
IDATE expands on the two days of the DigiWorld Summit, and plays host to an exciting event-filled week. Delving deeper into the issues and shaking up ideas through symposiums, workshops, hackathons, exhibitions, festivals, master classes, digital café… Exploring a host of topics, including the cloud, IoT, eHealth, FX, digital arts, smart agriculture, management, …
> Get the latest news at: www.digiworldweek.com
DigiWorld Awards 19 November 2015
In partnership with Business France and French Tech, IDATE will be hosting the first annual DigiWorld Awards, recognising French digital start-ups (Equipment and devices, Networks and telecoms, Internet services and application, M2M and IoT…), created abroad. Awards will be in four categories: Africa and the Middle East – The Americas – Asia – Europe. The winning start-ups will be added to the international innovation support programmes being run by Accenture, Capgemini, Ericsson and Orange.
> For more details: http://www.digiworldsummit.com/awards
Follow us on Twitter: @DigiWorldIDATE
Senior Consultant, IDATE
Internet is becoming not-so-free
Internet Giants are increasingly finding themselves under scrutiny for unfair competition and tax issues – what was once regarded as a free OTT ecosystem is now facing regulatory challenges. Internationally operating players working in various domains and geographical locations are complicating this regulatory challenge, with different cultures and market conditions requiring different approaches.
While this past decade has seen a completely new economy evolve based on the Internet and OTT players (remember, Google’s IPO was only just over 10 years ago), new challenges have also been created by this phenomenon, one of which is regulation. Until recently, new Internet services and business models were being actively encouraged, with the aim of helping to galvanize the economy; however, there is now simply too much revenue involved and more regulatory intervention is becoming inevitable.
Major OTTs diversifying into various service domains
Source : IDATE, The Future Internet in 2025, July 2015
The domains in which regulation on OTTs is currently gathering the most urgent attention are the fields of taxation and fair competition, the regulatory needs being brought about by the sharp rise of leading sharing economy players such as Airbnb (accommodation rental platform) and Uber (car sharing application), where users can offer a spare room (Airbnb) or a car ride (Uber) between end users as opposed to using standard (more expensive) channels such as hotels and taxis. Such players are not required to work under the same rules as those of their traditional counterparts; licenses are not needed, insurances are not taken care of and rigorous safety concerns are not necessarily required. Further, tax issues are often overlooked, with many sharing economy participants not even aware that there is tax involved; they simply do not have the mindset that they are participating in a revenue-generating business, but are simply “earning a few bucks” in a relatively hassle-free manner. This then leads to an unfair playing field, giving the OTTs an unfair advantage over their traditional counterparts.
The regulatory response to these players currently varies from one country to another, or even from state to state in the larger countries.
• Citing the unfair competition landscape, Uber has been banned outright in Spain, whereas in Italy the application is allowed and the noise coming from the Italian government appears to be supportive of Uber, considering modifications to their regulation to make it easier for them. These are exceptions to the rule, however, with most governments placing an intermediate ruling whereby Uber is allowed but only for licensed drivers.
• Tax collection remains a hot topic, especially for Airbnb where local transient occupancy taxes (“hotel taxes”) are compulsory for all listings yet collection remains difficult. While initially Airbnb stressed that they were not responsible for the collection of the taxes, their stance has softened recently and since the latter part of 2014 they have started to automatically collect and remit the hotel tax in some areas, such as San Francisco and Amsterdam. It is understood that they are continuing negotiations with various other cities also.
It should be noted that while it is these startups that are causing the OTT regulation debate of tomorrow, the large Internet giants and in particular Google are also under scrutiny for unfair competition and tax issues. However these issues have been under investigation for a number of years and are evolving, albeit slowly, with occasional developments from time to time. The same can be said for regulatory debates on the likes of net neutrality, data protection and intellectual property (copyright) issues.
Europe is still debating over which approach to adopt
Such developments in the debates often come from the same countries, with the likes of the US, France, Germany, Spain and the Netherlands often ahead of the rest when proposing and/or enforcing OTT regulation. In addition to what has been mentioned above, net neutrality has continued to make headlines. While Europe is still debating over which approach to adopt, the United States has recently made a bold move by reclassifying broadband as a telecommunications service, thereby paving the way for strict net neutrality regulation. In Europe there are moves by the European Union as a whole, such as the proposed reform of the data protection directive, but some countries stand out more than others. The Netherlands, for example, were the pioneers of net neutrality deployment and the first country to introduce an “Airbnb law”, legalizing the business in exchange for tax payments. Germany has been strict on Uber, at one point banning the service as in Spain, although this motion has been overturned (for now), while both Germany and Spain have ruled that Google are required to pay for information published on Google News. France has strong legal frameworks on many OTT related domains, and is also at the forefront of debates concerning sharing economy players.
Find out more on Net Neutrality and key stakes for tax optimization, privacy, copyrights and other topical issues surrounding OTT regulation in our dedicated market report
Senior Consultant, DigiWorld IDATE
"The Cellular device (Tablets & laptops) installed base wil top 370 million devices worldwide in 2020, up from 54 million in 2013."
Connected cellular device is a device equipped with Internet access through cellular networks (2.5G, 3G and 4G). Connectivity is provided through an embedded module in the device (the SIM card could be removable or not). The main consumer devices addressed here are tablets and laptops. Some opportunities could be seen at the enterprise level especially to meet executive mobility requirements.
Unlike Wifi-only, the cellular module provides connectivity ‘on the go’. 3G and 4G connectivity provides an always-on feature which allows application notification reception. With Wifi-only devices, the device turns automatically into a sleeping mode. 4G could appear as a game changer as, unlike 3G performance, 4G offers more bandwidth and better latency which even excels Wifi performance. Nevertheless, unlike Wifi, the cellular connectivity is not free of charge. The end user needs to contract a specific data plan. The other drawback is that, even without a subscription, cellular products are more expensive than Wifi-only products because the bill of material is more expensive. Moreover, Wifi connectivity is increasingly widespread, with a Wifi module embedded in each new connected consumer electronic product worldwide, and is offered for free in hotels, restaurants and even bars. In some airports, the user can have free access for a short period and can buy units of time of Wifi connectivity.
The connected device value chain is mainly composed by two groups of players: the connected device manufacturers (Samsung, Apple, Nexus, HP, Lenovo and Dell) and the mobile carriers providing innovative models (subsidy-based and even on-demand connectivity models). Module makers are also very involved in this segment. They provide specific modules and chiefly promote the embedded SIM-based module.
33% of the tabelts are cellular, in advanced markets
In terms of market adoption, cellular products are clearly gaining traction and several market estimates show that around 33% of the tablets are cellular, in advanced markets. The adoption varies a good deal from country to country. Cellular laptops are mainly driven by the professional market as it is more affordable to use rather than using dedicated dongles. Nevertheless, according to industry sources, their adoption is very limited, especially on the consumer side. The main issue here is that the laptop market (cellular or not) has been in decline since the launch of the first iPad. Hence, cellular laptop offerings are still restricted to the business market and almost non-existent for consumer market. Nevertheless, the last year has seen the withdrawal of key laptop offerings, showing thus the real barriers for this market take-off.
How to simulate market adoption?
To stimulate market adoption, numerous business models are being offered to the end user, depending on the distribution/sale channel. Both OEM and connectivity players provide connectivity offerings. Indeed, even OEM players are offering connectivity services through pure paid services or even provide fixed month traffic amount for a specific time after device purchase, with a top-up option obviously available. In the domain of MNOs, beyond this wholesale model, they currently provide traditional retail connectivity and the popular subsidised model. Some carriers also integrate these devices in their mobile share plan. Innovative data plans should also become popular in a near future, such as the on-demand connectivity based on embedded SIM technology, ideal for short-time journeys, weekending or vacationing abroad, for instance.
The cellular device installed base will top 370 million devices worldwide in 2020
The cellular device installed base will top 370 million devices worldwide in 2020, up from 54 million in 2013.
• In 2020, tablets will be the most popular cellular device around the world, with 90% of the total market. In 2020, this market will be led by the USA, followed by China. Germany is expected to lead the EU5 market.
• In 2020, the personal devices segment should reach 270 million units, representing 72% of the market (a stable breakdown compared to 2015) but they will take 55% of the total world connectivity market, as professional devices generate more traffic and related ARPU is therefore much higher.
Find out more on Cellular Devices in our dedicated market report
Senior Consultant, IDATE DigiWorld
They have minimal impact on traditional telecom markets
In 2014, the OTT communication services market (the total of OTT revenues generated from VoIP, IP messaging and a share of social networking) will have surpassed 10 billion EUR. Growth is expected to continue and the global market value will reach 23.7 billion EUR by 2018, representing a CAGR of 21.6% from 2014 to 2018. Still, OTT counts for only a very small proportion of market value compared to that of the telcos.
What are the impacts of OTT communication providers on the telcos from a market value perspective? The figure below provides IDATE figures for both telco communication revenues and OTT communication revenues for the period 2012 to 2018. Telco communication revenues are composed of fixed telephony revenues, mobile voice revenues and mobile messaging revenues. OTT communication revenues are composed of VoIP, IP messaging and a part of social networking revenues (as already explained in detail in section 3).
Source: IDATE in OTT Communication Services, December 2014
The reality here is that compared to telco communication revenues, OTT communication revenues remain very marginal. As has already been seen, the OTT communication market value is set for growth with CAGR of 21.6% from 2014 to 2018. Still, looking at the big picture, even in 2018 OTT communication will only account for 3% of the total market.
Further, IDATE forecasts that the telco communication market will not decline over this period of time, although it will not particularly grow either, with a CAGR of 0.2%. As a result, the total communication services market (telco and OTT combined) is expected to see a CAGR of 0.6% from 2014 to 2018.
Judging from these figures, IDATE believes that the communication market is not a simple case of “OTTs taking away revenues from telcos”, which is the often-painted picture of the market. Rather, it is a case of the telcos maintaining their current market values, while OTTs are growing their market value by themselves.
Find out more about VoIP, IP Messaging, Social Networks and the main market players’ strategies in our dedicated market report
Director of Telecom Economics Business Unit,
The announcement of the merger between Wind and Tre in Italy and the resulting shift from 4 down to 3 mobile operators for the country, confirms the telecom consolidation trend in Europe.
It takes two forms:
On one hand, with the multiplication of fixed-mobile consolidation operations, like the recent acquisition of mobile operator Base in Belgium by the cable operator Telenet. Other examples include the Orange-Jazztel operations in Spain, BT-EE in the UK, Numericable-SFR in France, and Vodafone-Ono, also in Spain.
On the other hand, we are seeing a concentration in the mobile sector, from 4 down to 3 operators, including the top 5 countries of the European Union (see map). Germany has already switched, with the merger between E-Plus and O2, the respective subsidiaries of KPN and Telefónica in 2014 after a long investigation by the European antitrust authorities. In the UK, the planned merger between Three, the local subsidiary of the Hong Kong group Hutchison Whampoa (also parent company of Tre in Italy) and O2, will likewise reduce the number of operators in the mobile industry from 4 to 3. In Spain, the sale of yoigo, proposed two years ago by TeliaSonera, was abandoned due to the lack of a buyer under terms that the Swedish group deemed reasonable but the Spanish market is de facto concentrated within three operators, the fourth and last arrival having just over 6% of the market (in number of customers), and having further declined since late 2014. But let’s recall that in France, conversely, Free Mobile has managed to win about 15% of customers (but some 8% of revenues) of the French market in three years. In this concerted process, the French market seems to be the only one continuing to swim against the current!
Beyond the five major European markets, a significant number of other member states of the European Union also have around 3 mobile operators, and only two in the case of Cyprus.
In total, of the 23 other countries, just half (12 in total) still have 4 or more operators. But for some (Denmark, Finland, Luxembourg, Sweden), the fourth operator has remained embryonic. Note also that while four countries still benefited from the launch of 4G to open the market for a new entrant (Bulgaria, the Netherlands, Romania and Slovakia), uncertainties remain on the sustainability of new licenses. Romania is also the only member state to host six operators. And finally, in Belgium, the allocation of a fourth 3G license to the Telenet-Voo consortium in 2011 was not finally acted upon: both protagonists relinquished their licenses in 2014! Finally, we should complete this inventory by highlighting the diversity of situations relating to MVNOs, in number and market share.
Nevertheless, with more than 100 licenses issued, the European market remains highly fragmented at Community level!
Number of mobile network operators (MNO) in the Member States of the European Union
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TV Head of IDATE’s Innovation Business Unit, IDATE
Key IoT and OTT markets are expected to represent close to 245 billion EUR in 2014 and could reach 440 billion EUR in 2018.
Telcos are being challenged on their traditional markets, with just 2.5% of CAGR for the upcoming years. Competitive pressure is coming from OTT players but also from within the telecom industry itself, with strong price pressure on connectivity products. At the same time, the development of OTT and, to a lesser extent, of IoT, itself often seen as a major threat for telcos, is increasingly perceived as an opportunity.
Within IoT and OTT markets, a few key markets are driving growth. The biggest markets are by far cloud and advertising (respectively 64 and 93 billion EUR in 2014), with more than 15% of CAGR in the next four years for both markets, thanks to RTB, SaaS and IaaS solutions. Video is the smallest digital market with 18 billion EUR but it is also the fastest growing, thanks to advertising-based formats and SVOD. Financial services are already well developed thanks to carrier billing and e-commerce, while NFC payments remain very marginal. Finally, hopes remain high around cellular M2M markets and the numerous associated markets (notably smart metering, connected health and smart cities), but the overall revenue growth remains moderate despite a huge expansion in volume.
In total, key IoT and OTT markets are expected to represent close to 245 billion EUR in 2014 and could reach 440 billion EUR in 2018, close to one third of telecom markets. Telcos can potentially benefit from a rich number of opportunities around these new markets. They can position themselves as service providers, competing head to head with OTT providers. There are countless other opportunities as technology enablers providing some of the building blocks.
Find out more on telco initiatives in digital services and the opportunities levered thereby
in our dedicated market report
The place to be in Europe, to understand upcoming disruptions and their impact on telecom, IT, Internet and media markets
From 17 to 19 November 2015, the 37th annual DigiWorld Summit will bring together 150 top-tier speakers to Montpellier to share their views with the more than 1,200 participants from over 30 countries. French Tech will also be in the spotlight during the 2nd annual DigiWorld Week and at the inaugural DigiWorld Awards.
Under the banner of “Digital First” IDATE will host debates on the core trends shaping telecom, IT, Internet and media markets, with the knowledge that digital technology is entering a new stage in its ubiquity, becoming the vehicle of a major overhaul in many sectors: energy, insurance, finance, health, automotive, travel and tourism… “But,” says IDATE CEO, Yves Gassot, “this digital verticalisation also represents a new challenge for IT, telecoms, Internet and media industry stakeholders. They may see new growth opportunities, but also challenges as innovation cycles are accelerating, as they consider the shifting outlines of their business and contend with new digital intermediaries.”
This new stage in the digital transformation is being spurred by ubiquitous wireline and wireless connectivity, the economies of scale of cloud computing, and the power of real time data processing algorithms. But it is being amplified by the rise of connected objects, and the promises of 3D printing, of artificial intelligence and the collaborative economy. A profound transformation of the economy that is already materialising in changes to production and distribution infrastructures, in the accelerated shift from product to service and the profusion of channels for interaction with end users.
• What do vertical companies (media groups and TV networks, insurance, automotive, travel, retail, etc.) want from digital industry players (telcos, OTT, IT)?
• How should digital industry players position themselves with respect to the digital transformation in vertical markets?
• How can the Web’s top destination platforms cohabitate with the vertical markets’ new digital champions?
• This year’s Guest Country: China. Can China combine the power of its recently acquired positions in Internet and telecom markets with its manufacturing ambitions?
2015 DigiWorld Summit Programme
Analysis and debates between veteran industry players and disruptive start-ups, with insights from IDATE’s finest economists and analysts:
Digital Europe, Digital World
In-depth seminars with the industry’s top expertsConnected Things Forum
Smart City Forum
TV & Video Distribution Forum
Future Digital Economy Forum
DigiWorld Week (14 – 22 November 2015): IDATE expands on the two days of the DigiWorld Summit, and plays host to an exciting event-filled week. Delving deeper into the issues and shaking up ideas: symposiums, workshops, hackathons, exhibitions, festivals, master classes, …
DigiWorld Awards: in partnership with Business France and French Tech, IDATE will be hosting the first annual DigiWorld Awards, recognising French digital start-ups (Equipment and devices, Networks and telecoms, Internet services and application, M2M and IoT…), created abroad. Awards will be in four categories: Africa and the Middle East – The Americas – Asia – Europe
The DigiWorld Summit, is organised under the patronage of the French Ministry of the Economy, Industry and Digital Affairs, the Région Languedoc Roussillon and Montpellier Métropole, with the support of DigiWorld Institute member companies.
More informations about IDATE's expertise and events :
To many, the deal seemed like a foregone conclusion, and we had been looking forward mostly to the negotiations that would steer it to completion (see the attached press release). It is hard to know exactly what motivated the Bouygues Board’s decision.
We ourselves had underscored the tremendous complexity of such a deal that involved the acquisition of the number three operators’ customer base and the sale of its network and a portion of its frequency holdings to the country’s number four operator, Iliad/Free. This dual negotiation was nevertheless necessary, for both financial reasons and to get a jump on the Competition authority’s expected reservations about the merger. Here, we understand that Bouygues was very reluctant to endure the uncertainties of a long period of anti-trust investigation, with no guarantee of substantial compensation should the deal fail to win approval.
To this can be added the federal government’s very strong reservations, and the difficulties in negotiating credible guarantees for the future of the company’s teams and jobs.
Lastly, without underestimating the ability of the Bouygues Telecom team, its 4G network and its frequency holdings to achieve pre-Free EBITDA (25%) by 2017, we cannot discount the possibility of further merger and acquisition deals in the French telecom market.
More informations about IDATE's expertise and events :
CEO, IDATE DigiWorld
It is a surprise?
No, everyone was expecting it. First, because Altice/Numericable-SFR spokespeople had underscored the appeal of such a deal and, second, because in most European countries we are seeing national market structures going from four to three mobile operators. Such is the already the case in Germany and the UK, and very likely in Italy and Spain.
If we look at the situation outside the European Union, we see that in the United States there are four national operators for as many people as there are in Europe’s five biggest markets combined.
Would this means an increase in retail market prices?
Let’s not forget that, in France and in most other countries in Europe, the sector is in a state of deflation, and has been suffering a steady decline in revenue since 2008. Another outstanding feature of the French market is particularly low prices. While this is of course a positive thing for consumers, it can also be at the expense of investment (which decreased in France in 2014) and innovation: in a healthy competitive environment, price alone must not be the sole element of distinction between vendors.
Second, predicting what the landscape will look like after this merger occurs, Free will no doubt remain very aggressive on the pricing front for mobile products as it works to close the gap with its rivals: it would represent only just over 7% of the sector’s revenue, well behind Orange (43%) and the new SFR with just under 50%. In the fixed line market, the breakdown of market share would be less dramatic (23.5% –41.5% – 35% respectively) but competition should remain quite lively.
Would this mean a decrease in investment?
Theoretically, it is possible that we will see a decrease in telcos’ combined CAPEX. But this remains theoretical if we take into account the situation of a sector that is struggling to get back on its feet, and to invest at a rate that keeps pace with the ongoing increase in superfast fixed and mobile network traffic. Remember that telcos’ spending in France was down in 2014. Here again, it is interesting to compare with the situation in the United States: over the past two years, telcos’ combined per capita spending on mobile networks in the United States was roughly double what is was in Europe’s main markets.
The goal for public authorities and consumer associations examining the deal should include an expectation that it would accelerate the pace of superfast fibre and 4G+ network coverage nationwide.
What have we seen, in terms of prices and investment, in other European countries that have experienced a similar consolidation?
In Germany, it is still too early to draw any conclusions. In the UK, in a market once populated by five operators, the merger of T-Mobile UK and Orange UK in 2009 – which were the country’s third and fourth largest operators, respectively, at the time, with a close to 20% market share each – resulted in the creation of a new leader, EE, with a 37% market share at the outset, but which fell to 32% in 2014. Calling prices in particular decreased steadily: the average price of a mobile calling minute dropped by 17% between 2009 and 2012. The company’s spending decreased in 2010 but rose again in subsequent years: T-Mobile UK and Orange invested an average 9% of their network revenue in 2008, compared to close to 10% for EE in 2014 – although it is also true that the company’s combined revenue decreased by 22% during that time.
In Austria, Hutchison’s takeover of the local Orange subsidiary, which took the market from four operators to three, had the opposite effect: putting an end to ongoing price decreases, and even resulting in a significant increase in 2013 of around 20% on the previous year. Although it should be said that prices in Austria had been very low for a long time. The consolidated entity’s capital expenditures (as part of the 3 conglomerate) dipped slightly, but relative CAPEX rose from 16.5% of the company’s revenue in 2012 to close to 20% in 2014.
What can we expect from the players if the deal goes through?
Numericable-SFR should take in around €2 billion in cash from the sale of the Bouygues Telecom network to Iliad/Free. It should also be able to enjoy economies of scale in the revenue generated from Bouygues Telecom customers, thanks to the new entity’s improved OPEX and CAPEX ratios.
Bouygues is given an exit strategy under terms that are far better than what was on the table six months ago, even if the short-term outlook for free cash flow is not guaranteed.
Iliad can look forward to putting an end to its roaming agreements with Orange, and gaining a 4G network with one of the two best rates of national coverage, without having to have built it itself. The company is also likely to gain access to new frequencies, either directly under the terms of the deal or indirectly as the result of imposed “remedies”.
As to Orange, it will suffer from the lost roaming revenue from Free, earlier than planned, but could also benefit from more stable market prices.
How are antitrust authorities, and public policy-makers in general, likely to react?
The new SFR would become the mobile market leader, earning just under 50% of the sector’s revenue, ahead of Orange with 42% and Free with >7%. This market structure is not likely to curry favour with the competition authority. As concerns the deal itself, the competition authority should view the Bouygues Telecom-Iliad aspect as a guarantee of ongoing competition, as the smallest operator would enjoy a real gain in assets. Depending on the frequency-related options that are included in the terms of the deal, France’s anti-trust authorities could impose further spectrum sales and terms in support of MVNOs.
The biggest issue for public authorities is the destabilising impact on the rules for upcoming auctions being held by market regulator, ARCEP. The original rules had been designed to maximise bidding incentives for a four-player market. Now, they will need to consider how these rules will be affected by the likelihood of a three-player market, keeping in mind that, even if it does go through, the merger is not likely to close before the auctions are held later this year.
In the fixed access market, public authorities could see the deal as a way to strengthen guarantees from operators for superfast fibre network rollouts: chiefly Numericable-SFR and Orange, which are by far the heaviest investors in new gen systems.
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