Head of Research, Telecoms Business Unit, IDATE
Telcos have ambitious Vectoring rollout plans, with some aiming to have between 25% and 30% of VDSL2 lines covered by 2017.
Vectoring and bonding are starting to be deployed in certain countries, even if the technical and regulatory constraints would seem to point to only small-scale rollouts. G.Fast is the next generation standard being examined today. The report we released provides readers with an update on the latest technological developments in VDSL2.
VDSL2 & Co: ever more promising technological developments
VDSL2 has begun to be implemented, and several telcos have based their ultra-fast broadband strategies squarely on copper infrastructure right up to the customer premises. If VDSL can deliver theoretical speeds of around 50 Mbps near the exchange or cabinet, Vectoring, which consists of reducing noise among the lines, makes it possible to double that speed to 100 Mbps. Bonding, meanwhile, consists of using several copper pairs, either to double speeds for users in the vicinity of the exchange, or double the distance at which a 50 Mbps connection is available. In both cases, however, performances are very quickly affected by the subscriber’s distance from the exchange or cabinet.
G.Fast, which is the future standard currently under examination, and due to be approved in
2014, offers a theoretical speed of 1 Gbps, but noise cancellation capabilities are even stronger.
Growth of VDSL subscribers worldwide between December 2010 and June 2013 (million)
Still only small-scale implementation of VDSL2 and its successors
In mid-2013, customers subscribing to a VDSL2 ultra-fast broadband service represented 19% of the world’s FTTH/B subscribers. The vast majority of deployments have been performed by AT&T in the United States, which is reporting 26 million VDSL2-ready households and more than 9 million subscribers. AT&T continues to bank on these solutions, and is now offering pair bonding to eligible customers.
Western Europe is the second biggest VDSL market, accounting for 35% of the world’s subscribers as of mid-2013.
Will this drive a shift in the ultra-fast broadband market?
VDSL2 and its successors have a clear set of advantages, starting with savings on rollouts. Telcos would not need to deploy optical fiber from end to end, and can use the existing last mile of their networks. They would also save on customer premises installations, which cost them a great deal of time and money.
The performances offered by these new solutions appear to be coming more and more in line with those delivered by FTTH (at least in its current iteration), but only under optimal conditions. So this is not a solution that can be made available to everyone. Plus, VDSL Vectoring does not enable physical sub-loop unbundling, in which case bitstream remains the only option for sharing access to the network – something that not all market players want, as is the case in France, for instance.
As a result, even if the development prospects for the VDSL market remain optimistic for the coming years, we do not expect it to cause a major upheaval in the ultra-fast broadband hierarchy, with FTTH/B continuing to be the architecture of choice.
Telecom: Heavyweight manoeuvring in France and in Europe
So Vivendi chose to enter into exclusive talks with cable company Numericable’s main shareholder for the sale of SFR, France’s second largest mobile operator and number three ISP. The deal which, straight away, would reduce Vivendi’s stake in the new operator to 32% and guarantee its future full withdrawal. This option was chosen over the one offered by Bouygues Telecom, France’s third largest mobile operator and fourth largest ISP, which would have resulted in the creation of the country’s largest mobile operator, with close to 50% of customers. Bouygues Telecom had even anticipated the French competition authority’s qualms about the merger by agreeing to sell off its network of 15,000 towers to France’s fourth MNO, Free, which serves 12% of the country’s mobile users.
It is possible that Vivendi was looking for the quickest exit from SFR. Both SFR and Bouygues Telecom have been members of the IDATE programme for a number of years, and we had no part in the negotiations. So we will keep ourselves from further comment.
But three general remarks are worth making:
• The “telecoms war” that has been going on in France for the past several weeks is not a game of Monopoly, or some form of industrial Meccano. At the very least, it is emblematic of a broader economic crisis in the sector. And, unfortunately, this situation – which includes a massive drop in revenue that is weighing heavily on margins, debt rates (debt to EBITDA ratio) and investing capacity – has hit all of Europe’s main markets.
According to IDATE, telecom services revenue in Europe’s five biggest markets has shrunk by 12% in five years. If France has been the focus of market analysts’ attention over the past few days, we have been waiting on the DG Competition decision over the sale of O2 to Hutchison Whampoa in Ireland, and especially over the deal that would allow Telefónica to take control of a merged O2 and E-Plus (KPN) in Germany, Europe’s largest market.
• Market consolidation, which appears inevitable, could take several forms. Given anti-trust authorities’ reluctance to see fewer players competing in the marketplace, it may take the form of infrastructure sharing schemes. These deals have existed for mobile systems in certain countries for years now, and their numbers could grow considerably. Among other things, they allow telcos to reduce their CapEx and OpEx, but do not eliminate any rivals. So in a price war situation, they make a decrease in ARPU more tolerable, rather than stabilising or helping increase margins.
In Europe, then, consolidation tends to focus on putting an end to market configurations of four network operators (in favour of three MNOs plus MVNOs) that have emerged from public authorities’ award of some 20 additional licences since 3G-UMTS launched in Europe – even if a great many of these operators have since closed up shop. The negotiations between Vivendi/SFR and Numericable nevertheless illustrate a different kind of consolidation: fixed-mobile. The impetus behind this consolidation lies both in the potential of quadruple play bundles and the growing overlap of wireline and wireless systems, with the advent of small cells and ultra high-speed mobile.
Not long ago, we saw Europe’s top mobile operator, Vodafone, acquire Cable & Wireless and spend more than 7 billion EUR for Kabel Deutschland. This deal, along with Liberty’s recent takeover of Virgin Media and Ziggo, helped drive up the price of cable assets, which Altice and Numericable were able to capitalise on – as will no doubt Ono in Spain not far down the road. If there appears to be no lack of support from the banks for these mergers, the money may not be so free flowing for a third type of consolidation, namely cross-border deals inside the European Union. Synergies there are less overt, and national consolidation appears to be a mandatory prelude to financial markets supporting offensive strategies that result in the creation of truly pan-European operators. The danger is that, by delaying national consolidations, European consolidation could fall into the hands of outside players.
• And, finally, do we need to choose between operators’ financial health and consumer interests? It seems a bit of a caricature. There no doubt needs to be some assurance that rebuilding margins does not result in unreasonable price hikes and collusion. But this seems unlikely. First, because regulatory authorities in Europe are both well entrenched and experienced. Second, because technical progress in this industry is such that margins which enable cost-effective investments, and a steady rate of equipment renewal are the basic conditions of lower unit prices and improved quality.
Published in COMMUNICATIONS & STRATEGIES No. 93, 1st Quarter 2013
Re-thinking the EU telecom regulation
Summary of this issue: It is in a complex environment combining economic crisis, a growing gap between the performances of European operators and those of the US leaders, questions about Europe'sability to meet its objectives in NGA terms ("2020 Digital Agenda targets") and preliminary signs of the appetite of non-European operators to gain a foothold in the markets of the EU, that the Commission announced the publication of its proposal for a "Connected Continent" Regulation to the Parliament and the Council. This was accompanied by a few key reports, which are well represented in this issue of Communications & Strategies. The papers which have been selected provide a deep insight into the issues of European telecom policy addressed in the current "Connected Continent" proposal of the European Commission and that will be at the core of the forthcoming review of the regulatory framework. They are supplemented by two exciting interviews with key personnalities from Deutsche Telekon and the European Commission-DG Connect.
Interview with Roberto VIOLA
Deputy Director General
Conducted by Giovanni AMENDOLA,
Head of Relations with International Authorities,
& Yves GASSOT
CEO, IDATE-DigiWorld Institute
C&S: Could you explain why Mrs. Kroes' draft regulation aims at accelerating the creation of a single market for telecoms?
Europe desperately needs to tap into new sources of innovation and growth. Today ICT constitutes half of our productivity growth, and every economic sector today increasingly depends on good connectivity to be competitive: the solution lies in applying the single market philosophy also to the telecoms networks that underpin those connections.
The fact is, European telecom companies cannot afford to remain trapped in 28 national markets; and Europe cannot afford it either. Europeans are enjoying single market freedoms, and telecoms are an increasingly important part of that: as businesses want to use new services like cloud computing, connected cars and mobile health.
If we allow those barriers to remain, we starve the digital economy of the raw materials it needs: connectivity and scale. When supported, the digital ecosystem can grow and create jobs fast; 794,000 were created in the app economy alone in just five years, even with a wider economy in recession. And across the economy, digital tools stimulate business, through higher productivity, efficiency and revenue.
Europe needs to recapture its global lead in ICT – a lead we once had, but lost. The missing link in this digital ecosystem is a telecoms single market. The European single market with 500 million customers will be one of the largest and the wealthiest of the world.
What are the likely characteristics of a single telecoms market in Europe?
A genuine single market in telecommunications is a market that looks at the evolution of internet and data services where consumers and businesses can obtain the best services from any EU operator, where operators can competitively offer services outside their home Member State, and market them anywhere in the EU; and where there are no excessive charges for cross-border communications or for roaming. It is where telecoms companies can have the ambition to expand on a continental scale – and every European benefits from choice and seamless data service. The Connected Continent is the underpinning infrastructure of the future European digital economy.
Do you think that the benefits of national competitive markets can be combined with the benefits stemming from the emergence of pan-European operators?
Our vision is for a dynamic, competitive market where pan-European providers compete alongside regional or local players, more local and more tailored. Such a market will promote competition and increase choice for consumers: with fewer barriers and greater economies of scale, companies will only succeed by offering the best deals at the best prices.
Until now in Europe we have had national markets. The result is significant fragmentation and a lack of dynamism: in particular if you compare Europe with its global competitors. As a result we are losing out on growth and jobs. This is not acceptable any longer. Operators should be able to easily provide their services in any country where they see a market opportunity, without facing unnecessary restrictions – that is what a single market means.
The draft regulation introduces a much more Eurocentric model of regulation based on stronger Commission powers. In addition, the Commission has also stressed that a genuine single market will ultimately require a single EU regulator. Can you explain the new institutional model of regulation proposed by the Commission?
The Commission proposal does not establish new bureaucracy or regulatory bodies at EU level: it levers on the existing bodies and keeps institutional change to the minimum necessary to enable the single market. On Spectrum we would like to increase the role of the Radio Frequency Policy Group as an advisor to the Commission and we want to make sure that Member States enhance their cooperation when assigning and licensing spectrum for broadband applications.
Another important element of our proposal is the enhanced role set out for BEREC in ensuring consistency of regulation.
As we explained in the Communication that accompanied the presentation of the legislation, the enhanced cooperation model we have proposed does not preclude a future review of the regulatory framework, considering all options and selecting the most cost-effective one in light of the market scenario as it then stands. In such a future scenario, it is possible that in a completed genuine single telecoms market we would need tighter links among National Regulators by means of an EU regulatory body responsible both for spectrum and telecom markets in charge of interpreting and implementing a harmonised legal framework. But this is hypothetical; and not covered by the proposal now under discussion.
At the same time, a single telecoms market with lower barriers to entry and more effective competition should over time normally lead to less regulation - shifting responsibility from regulatory to competition authorities as is the case in other economic sectors. Some regulatory tasks will always remain linked to the national or local level. It would therefore be important to assess the possible tasks of an EU regulator, as and when this option might be considered in future.
To what extent could the provisions set out in the draft regulation of the Commission be postponed and taken up in the next Telecoms Package Review?
A fully fledged telecom review is a complex task and it could take years to be completed. Apart from some countries, we witness a very slow development of fast broadband and lack of investment in Europe. We cannot wait for the situation to worsen. As our Commissioner, Vice-President Kroes, has put it: with the economy where it is, with technology where it is, with the rest of the world marching on quickly, we need to act, now, urgently. As we have said on many occasions, this cannot be a piecemeal approach: only the package taken as a whole can bring us towards the single market we need.
In parallel with the work on the Regulation – but not instead of it – we should of course prepare the ground for the next Commission and a future review of the telecoms framework. Indeed in September 2013, we set out how we are preparing such a review, looking at issues like enhancing consistency, a single regulator, the level playing field, and audiovisual convergence. It's right to start preparing for that. Such a review will take time. And we cannot wait that long before acting.
How do you interpret the critical reactions from the BEREC, operators and even a number of governments?
When the proposal was presented there were initial mixed signals, which is quite normal considering the issues at stake. This proposal is designed to have a real impact, it is not a minimum common denominator to make every interest group happy. Some operators favour some aspects but combat hard against others: short termism leads to fighting the end of roaming, for example. But we continue to regard all aspects as integral to the objective, not separable from each other. Besides the telecom providers the reactions from all industrial and service sectors have been generally very positive showing how single market counts for the future of Europe. Also the reaction of the investor community was in general favorable.
The immune system of Regulators is programmed to guarantee stability and to be prudent about change. I remember back in 2007 when many National Regulators were initially opposed very vehemently to the idea of establishing BEREC. An initial critical reaction from National Regulators was to be expected. However in a number of points the opinions of the Commission and of BEREC are convergent.
However many things have changed since the presentation of our proposal. Heads of States and Government in the European Council of October 2013 have welcomed the single market proposal. The Parliament is working very constructively and at full speed towards adopting its opinion on the proposal.
Although in some areas differences of point of view remain, we are now engaging in a constructive dialogue with BEREC which I am sure will bear fruits.
What would you say to telecoms operators who consider that there is too much discrepancy between the very strict sectoral regulatory framework to which they have to submit (ex ante and ex post) and the far less formalised OTT environment?
It is a recurring question but is probably not the right question. Telecom operators are infrastructure providers and "over-the-top" internet players ("OTTs") by definition are not. It's the same difference that you can observe between passenger services and transport industry. The telecom world is becoming data centric. The telecom infrastructures have to evolve towards this new paradigm. For telecoms operators, OTTs are an important driver of connectivity demand and consumption. In other words without OTT's there would not be a telecom industry future and vice versa. Recent trends have shown the increasing interrelation between telecoms operators and OTT's. This trend will be continuing in the future. It is also clear that when analysing competitive pressure all service providers have to be taken into account. What counts is the nature of the service not who is providing it. We also have to recall that there are different kinds of OTT services, not only those competing with transmission and communications services but also those which may fall under the audiovisual media services directive.
Now, it is clear that the close relationship between telecoms and OTT players poses opportunities and regulatory and competition issues that need to be examined carefully, also possibly in a future review of the telecoms framework. These challenges, however, are not confined to this framework, but include other issues that will need to be addressed at European and at the international level.
How do you account for the difference in growth of the telecommunications service market on each side of the Atlantic in the last five years?
Investment, investment and investment! The differential in investment for example in 4G networks is rather remarkable and probably explains it all. The size of the market is also an important element. Fragmentation into small national markets means European telecoms operators have little incentive to expand and reach the scale of some of their American counterparts. We want to enable European telecoms operators to find business opportunities across Member States, and reap the benefits of a market of 500 million consumers.
Do you believe that the Digital Agenda objectives for 2015 and 2020 can be achieved by most of the European countries? Do you also envisage a need to reset the objectives by introducing more ambitious targets?
Having clear targets since the DAE was launched in May 2010 has to enable progress in Europe to be measured. Many national and regional authorities have adopted their digital agenda with the same objectives. In the annual Digital Agenda Scoreboard, we make data openly available so everyone can assess and compare performance and progress country by country.
Basic broadband internet is now everywhere in the EU, but data shows that more effort is needed to achieve the 2020 DAE targets. Fast broadband now reaches over half the population – as 54% of EU citizens have broadband available at speeds greater than 30 Mbps. Internet access is increasingly going mobile - 48% of EU citizens can access the internet via a mobile network from their smartphone, portable computer or other mobile device. However, only 2% of homes have ultrafast broadband subscriptions (above 100 Mbps), far from the EU's 2020 target of 50%. This is very alarming. Before setting new targets we have to use every policy instrument to make sure that we can meet the existing ones. If there is a remedy above all for such an alarming situation then this is called the single market.
Roberto VIOLA holds a doctor degree in electronic engineering (Dr. Eng.) and a master in business administration (MBA). He is Deputy Director General at European Commission - DG CNECT, with responsibilities for Electronic Communications Networks and Services Directorate, Cooperation Directorate - International and Inter-institutional relations, Stakeholders cooperation, Coordination Directorate - Growth and Jobs, Innovations and Knowledge Base, Media and Data Directorate. Since 2005 to 2012 he has been the Secretary General in charge of managing AGCOM (Italian media and telecom regulator). He has been Chairman for 2012-2013 of the European Radio Spectrum Policy group (RSPG), he was Deputy Chairman for 2011 and Chairman for 2010. He was in the Board of BEREC (Body of European Telecom Regulators). He was Chairman for 2007 of the European Regulatory Group (ERG). He served in AGCOM (1999-2004), as Director of regulation department and technical Director being in charge of, inter alia, regulation in terrestrial, cable and satellite television, frequency planning, access and interconnection of communication services, cost accounting and tariff in telecommunication and broadcasting services. From 1985-1999 he served in various positions as a staff member of the European Space Agency (ESA) in particular, he has been head of telecommunication and broadcasting satellite services.
Published in COMMUNICATIONS & STRATEGIES No. 93, 1st quarter 2014
- For more information about our activities: www.comstrat.org
COMMUNICATIONS & STRATEGIES
Head of the Telecom Strategy Business Unit
National consolidation in mobile,
and regional in the cable…
Waiting for cross-border mega-fusions.
and regional in the cable…
Waiting for cross-border mega-fusions.
In our latest report dedicated to « Telco consolidation in Europe », we present our analysis and our approach of the deterioration of Europe’s telecommunications services markets is urging operators to consider different means of consolidation, with a view to achieving economies of scale and/or increasing market share.
According to Didier Pouillot, Head of the Telecom Strategies Business Unit: « The latest intentions of mergers in European Telco, Hutchison-O2 in Ireland, 02-E Plus in Germany, and more recently in France concerning SFR, with the two candidates for merger, Numericable and Bouygues Telecom, they all reflect the urgent need for an industry experiencing significant financial difficulties to restructure. The attention around them proves that these projects represent a high risk for the market balance. »
The landscape reshapes under contradictory pressures. In our latest study about the Telco consolidation in Europe, based on a recent experience in the sector in the region and the stakes that the industry faces today, we outline the ways of this transformation, probably deep.
For several months now, the number of merger operations in European telecoms has multiplied. A wave of consolidation, which began to emerge a few years ago, seems to have gathered speed since the end of 2012.
Changes in revenues from telecoms services in Europe (Millions EUR)
Source: IDATE, World Telecom Markets, October 2013
The drivers that tend to accelerate the movement are:
• The deteriorating economy of operators with markets under pressure;
• A relatively fragmented industry;
• The hefty financing requirements for new generation networks;
• Fixed-mobile convergence;
• Several regulatory incentives, mainly promoting infrastructure sharing.
But at the same time, some hurdles are slowing it down:
• Also regulatory in nature, with a particular anti-trust focus;
• governments’ fears of losing a share of operator contributions (taxes and duties, incumbent operator dividends where applicable);
• the fear of destroying value for shareholders;
• Arrangements that may sometimes be technically problematic.
Recent trends in the European market show an increase in the number of network sharing agreements, a shift towards national consolidation for mobile and a regional consolidation for cable. Meanwhile, cross-border mega-mergers seem to be off the agenda.
We anticipate continued consolidation in Europe’s markets which will gradually spread, initially via ever stronger forms of integration at national level, and then extend across borders and eventually Europe-wide.
It will then be a question of whether the wave of international consolidation will take on the same magnitude as in the national markets and whether the two phenomena will develop in parallel or intertwine with one another over time. As far as the latter is concerned, national consolidation is likely to take priority for players in the market since they can reap the rewards more quickly and more easily than with cross-border operations. The successful integration of partners, networks and organizations warrants particular attention, limiting the number of operations an operator is able to manage at a given time. Consequently, we think operators will first seek to reap the rewards from national consolidation before taking more ambitious steps towards international or pan-European concentration.
What is the outlook for consolidation?
Source : IDATE
The result tends to vary depending on the type of operation:
• "loose" partnerships aimed at sharing support services have not generally encountered problems;
• Infrastructure sharing is often more problematic and becomes increasingly difficult as more components in the network are shared, from civil engineering to active equipment;
• Lastly, equity investments and merger operations face a more uncertain outcome, sometimes due the conditions imposed by the authorities but also because of the difficulty in anticipating how the markets will react, both on the supply and demand side.
• More information about Telco Consolidation in Europe 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.
Lead Analyst, IDATE
M2M is enjoying swift growth of roughly 30% in volume and over 10% in revenue, with the market to reach €40 billion in 2017
The 6th edition of IDATE’s M2M Market report, covering 2013-2017, reveals that a healthy growth rate has finally taken hold in this promising but, up until recently, underperforming market. This performance is being spurred by increased use within the main areas of application (automotive, consumer electronics and utilities) and is expected to accelerate even further over the next five years as M2M spreads to other sectors of activity.
The M2M market (Reported devoted to M2M applications, excluding satellite M2M) represented 175 million modules worldwide in 2013, generating €24.2 billion in revenue, which translates in to an annual growth rate of 31% in volume and 11% in revenue. The bulk of revenue was generated by software and IT developments which together accounted for two-thirds of total market value.
IDATE forecasts that global M2M market volume will grow by an average of close to 30% annually between now and 2017, which corresponds to 470 million modules, while market revenue will climb by 13% a year on average, to reach €40 billion.
Europe will be the biggest market in terms of revenue, ahead of North America, even if Asia-Pacific will continue to dominate in terms of volume. At the end of 2013, China rose to the number one spot in number of cellular M2M modules installed, overtaking the United States.
World M2M cellular market, 2013-2017
Million of modules Revenues (billion EUR)
Source: IDATE, December 2013
Over the next few years, the M2M market’s growth will be shaped by three key verticals: automotive, consumer electronics and utilities
While they will theoretically drive the market, certain barriers could nevertheless obstruct their growth. Several long-awaited applications in these key markets have been repeatedly delayed, such as Europe’s eCall regulation and large-scale rollouts by utilities. Added to which certain technical choices can have a tremendous impact on the market, a good example being smart meters connected to the cellular network through a concentrator that would allow large utility companies to further increase their already massive negotiating clout to drive down per-unit prices. But utilities will dominate the M2M market in 2017 in terms of module numbers, all technologies combined. The rise of M2M in consumer electronics will have a major impact on the market as a whole, especially on the number of active modules. Because it is a de facto mass market, consumer electronics will represent the largest number of modules, all technologies combined.
M2M players seeking business opportunity beyond their core expertise
The market offers M2M application providers with very attractive opportunities, despite the already relatively low and declining average revenue per user (ARPU). The projects have a long lifespan, very low churn rates and average contracts representing several thousand SIM cards. Connectivity alone is expected to represent €10 billion worldwide in 2017, and more than 3% of European telcos’ mobile data revenue. MVNOs are being pushed out of the market and so repositioning themselves as platform providers, while module providers will have to adapt to a market where unit prices are in free fall. Meanwhile, the top telcos are exploring new cloud and big data services that would allow them to find solid and sustainable new business opportunities.
This comprehensive M2M report will be followed up over the coming months with other reports with a specific end use or vertical focus. For example, just after Mobile World Congress, there will be a very topical report on connected cars.
Lead Analyst, IDATE
Opportunities for Telcos around VoD, SVOD and Telco CDN
IDATE delivers its analyses and conclusions on OTT Video in its recently published market report. Our experts spotlighted the different opportunities for telcos and examined the drivers and hurdles for video delivery over-the-top.
Synthesis of selected player strategies
Source: IDATE, market report "OTT Video", December 2013
Consumer OTT video already represented an impressive worldwide market of almost 7.4 billion EUR in 2012, with revenues well-balanced between advertising and paid videos (pay-per-view or subscriptions). Nevertheless, VoD still generates more revenue on managed services, captured mostly by telcos and cablecos, at around 60% of total VoD sales in 2012. On-demand paid services over managed services represents for VoD and SVoD together around 45% of these service sales on both managed and OTT services. Video is therefore also a key market for telcos, and not just a traffic issue with significant impacts on telcos networks.
Video is indeed clearly gaining traction. It now represents a large part of Internet traffic and requires even more investment with no direct revenues, at least for those telcos offering unlimited flat rate plans -- the extra consumption of bandwidth is obviously charged in metered plans. This video traffic is nonetheless indirectly paid by broadband access. With the explosion of traffic, however, it is becoming harder for telcos to cover costs. Thanks to the abundance of free content, online video is indeed a mainstream service on the Web, as is search or social networking. It is typically still focused on short YouTube-like formats but with a growing consumption of free premium programming, specifically TV series from both legal services (catch-up TV), and low-cost paid solutions, as with SVoD from Netflix. The general strategy of content providers for both ad-funded and paid services is to differentiate their offering from others. To achieve this goal, they are adopting both quantitative (larger catalogue) and qualitative approaches by acquiring exclusive content through, for example, sports and partnerships with studios.
The delivery strategy of the content providers really depends on the video traffic delivered and therefore on the size of their own architecture for the largest content providers (Google/YouTube and Netflix overall) and more and more third-party CDN solutions for intermediate players. Some players, premium and ad-based platforms and especially those trying to better monetise their content, are looking at multi-CDN approaches to increase QoS as well as to benefit from price competition. Others are waiting for the deployment of telco CDN for better QoS.
The major operators are also involved in the TV/video delivery on their own account but, increasingly, also for third parties. Video has been part of triple-play solutions from most telcos for about 10 years, first with linear TV (delivered through multicast) and then video-on-demand solutions. It is even the prime business for cablecos – they have also generally been considered as telcos since their triple-play developments. Non-linear service strategies depend on the ISP, ranging from total control of distribution with rights acquisition, billing, and packaging to pure pipe solution with costs savings and total externalisation. All the major operators, essentially the incumbent operators, have implemented telco CDN solutions.
Telcos still have real opportunities around paid content in leveraging managed services, i.e. a combination including the customer base, the network with QoS, the billing service and set-top boxes, which remains necessary for now for mass market access to the TV set. The retail option (i.e. reseller or packager) has clearly more potential, as the world market for on-demand video will be close to 6.2 billion EUR in 2017 on managed networks (mainly telcos/cablecos) or 44% of the total video market. The big challenge remains the capacity of telcos to develop further the SVoD market (which may grab some market shares from the VoD market) for which they are only capturing 25% of revenues. For telcos not ready to invest into managed services (network and CPE costs), telco CDN still represents an option, especially as it can be developed in combination with transparent caching, allowing a similar efficient result without deals with content providers but also without the revenues. The short-term opportunity is rather small, even though telco CDN can also be used for managed services. In the long-term, i.e. by 2020, with heavy traffic from mobile, the opportunities will be even greater (telco CDN could benefit from mobile to reach about 15% of the market by 2020, at more than
2 billion EUR).
Read more: Discover OTT Video Market insight contents
Consultant at IDATE
How big data can get new revenue
and reduce costs?
and reduce costs?
Telcos are now in a position to use their data assets to generate value. Through big data techniques, ‘data services’ can generate new revenue or can help telcos to enhance their internal processes and core businesses, as stated previously. Not all data services are efficient for telco businesses, each service having varying efficiency.
Potential benefits of big data applications for telcos in terms of new revenues and potential savings, based on telco revenues and costs in 2012
Source: IDATE, market report "Big Data for Telcos", publication date Dec. 2013
N.B.: APIs are not included in this table as they are not a real big data application but an enabler for customers.
Internal purpose services
Internal purpose services aim at improving internal operations as well as enhancing customer relationships and products. Most of them use internal data (customer anonymised data or network data) with processing done internally: personal data protection is therefore as important as it is for external purposes and there are no questions of business model or competition. These services are thus easier to roll out and implement than external purpose services (with operations outside the company).
Optimisation of network and real-time DPI
The main benefit of the optimisation of network platforms and real-time DPI is material and financial. Such a service can lead to rationalisation and optimisation of current network infrastructures in the short term, and a more efficient use of the equipment in the long term.
On the financial side, a small reduction in capex by just a few percentage points can be generated immediately thanks to optimisation. It will especially lead to a shift of capex in the long term as investments will be made later. However, a few percent of capex is actually significant for a telco as it can represent several million euros each year. The ROI for optimisation systems can be, however, be significant.
Improvement of products
Big data techniques to improve products are aimed at increasing customer satisfaction (indirectly reducing churn) and attracting new customers. The main consequence of such benefits can be increased turnover due to new customers or a reduced churn rate.
A small increase of ARPU can also be expected in the short term as new products can attract existing customers and generate additional sales. These new products can also provide a competitive advantage to the telco in the short term.
CRM and Sales
The main goal of data services related to CRM and sales improvement is to generate new sales, and especially up-selling and cross-selling. It can increase revenues moderately, in the long term.
In addition, these services can bring a better knowledge of customers and can therefore increase customer satisfaction to a decent degree, reducing churn indirectly and maintaining revenues in the long term. The subscriber acquisition costs (SAC) can also be reduced in the long term as these techniques improve the customer acquisition process.
In addition to previous data services helping to reduce churn, specific churn prevention techniques using data exist. Churn is, in any case, an important for telcos in a very competitive environment. Churn reduction leads to revenue stability and can avoid massive migration of customers in the case of new attractive plans from competitors.
These new tools can thus lead to a reduction of subscriber retention costs (SRC) in the long term, but with an increase in the short term to implement the churn prevention platform.
Fraud detection is an important stake for telcos as fraud represents an important cost. Systems to detect fraud are therefore crucial for telcos and are a profitable investment in the long term. Fraud detection can thus lead to sensible reduction of fraud cost and losses.
External purpose services
Services provided by telcos to third parties can generate new revenue from data sold to these parties, or through services based on internal data analysis.
Contrary to internal purpose services, external services have to be analysed in their competitive environment and in their specific market. Each service has multiple ‘external’ constraints, more or less important, depending on the market and the environment.
The market for ‘insight’ services is relatively new, having started at the end of 2012. It is thus small and telcos can have a strong position as they own geolocation data from their mobile subscribers. If only a few telcos currently provide such services, others could join the market in the years ahead. Large OTT players would also be able to provide insights with their own data, but their data seems to be less accurate.
Improvements from new techniques such as real-time analysis (currently available) can bring value to insights but a lot of technical and privacy issues remain. Partnerships with other telcos seem to be not essential as a telco can, for instance, define the number of individuals on an area extrapolating the number of subscribers in this area. However, a partnership with other such players as pure players from the survey market could bring value to such services.
However, the growth potential of this market remains limited as potential customers seem to be limited as well. Such services are not well known at this time, and telcos should communicate more about their benefits, to attract more customers.
The audience measurement market is not a new one, as some players have been active in the TV audience measurement segment for a long time, followed by Internet website audiences and, to a lesser extent, in mobile application audiences. Telcos have introduced this market to measure mobile audience (for both applications and Websites), as they have a closer presence of mobile devices.
On the mobile segment, OTT players cannot really compete with telcos. The major OTT players on this market are Nielsen and comScore. Thus, to invest in other market segments, and especially those related to the Web, telcos should make partnerships with such players as they both have value to add in a common service.
In the end, the potential growth of this market is significant as the mobile measurement market segment should grow over time, with growing mobile uses.
Raw data sales
This market is still small as few initiatives exist at present. It is mainly composed of partnerships between telcos and other players interested in telco data and especially on very location-specific data.
Such a service is therefore based a discussion between the customer and the telco to define the kind of raw data to provide, and how to exchange it. The process is not automated. An automated system would consist in providing APIs sending the same data for all customers, or insight services with the same result of analysis for all customers.
In terms of competition, telcos are not the only players to provide such data as OTTs can provide it too. However, both face privacy issues as consumers are increasingly afraid of sharing their personal data with third parties.
The advertising market is very large and generates important revenue. Its growth is also very important as advertising is the core of many business models. Competition is very high.
In this environment, telcos can push specific strengths allowing them to get a competitive advantage, namely the data they can use to provide efficient targeted advertising.
However, the share of telcos on the mobile advertising market remains low – IDATE estimates this share at about 8% of the mobile ad market. Partnerships with other telcos or other players would be interesting in order to obtain a larger share of the cake and to reach another target.
The recommendations market is still small and mainly held by such OTT players as Facebook and Google. Their advantage is in providing service through their environment: a social network or even an operating system gathering data on customer habits.
Telcos also have strengths in providing recommendations: location data as well as other declarative data can be used here. This may, though, not be enough to compete with OTT players with their multiple diffusion channels for their recommendations. Recommendations would be thus of limited value for telcos.
The API market is quite specific as it does not generate substantial revenue and is heavily segmented. In addition, APIs cannot be really considered as big data applications. They are mentioned here as an important tool for telcos to share internal data.
The only API currently generating revenue is carrier billing as telcos get a share of the transaction amount. This market is thus very small in value, yet significant in the volume of data exchanged.
In terms of competition, APIs provide specific data that depend on each provider. Carrier-billing APIs are proper to telcos. User profiles are usually provided by social networks, but can be also be provided by telcos, as with Orange. In this specific market segment, telcos compete directly with some large OTT players, but only in terms of the kind of data and not in terms of potential revenue.
Alliances of telcos can bring practical benefits in order to reach a larger share of population worldwide, and in order for developers to develop API connections with only a few players (and not with each telco).
Conclusions on big data services for telcos
Of these big data services, some help to reduce costs whereas others can generate new revenues directly or indirectly. They do not, though, provide the same ‘potential’ benefits in that the final benefits may differ between implementations. The figure below provides an overview of the potential benefits of each service or application in terms of new revenues and savings. These figures are estimations of the potential impact for the global retail telecom market, for a full year. It gives an overview of the benefits of each kind of application.
More information on Big data for Telcos
IDATE delivers its analyses and conclusions on Big Data in its recently published market report "Big Data for Telcos". Our experts spotlighted the different opportunities for telcos and examined the drivers and hurdles of a massive use of Big Data.