5Jul/140

Mobile and online payment : NFC transactions estimated at 53,6 billion in 2018

Julien Gaudemer

Julien GAUDEMER, Consultant at IDATE

 

The volume of NFC transactions is estimated by IDATE at 4.6 billion EUR in 2014 to reach 53.8 billion in 2018

In its latest report, IDATE provides an overview of the mobile and online payment market. It provides the main figures for each market segment (in-store payment, carrier billing, remote online payment). The latest market trends are analyzed, as well as the position and evolution of the main players (especially Telcos and internet Players).

Mobile payment markets are still nascent for the most part, the technical aspects are mature and plenty of commercial offers exist. However, the majority of online and mobile payments are still made by debit or credit card while in-store payments are still made by cash, cheque or payment card.

• IDATE estimates that e-commerce is a 1,145 billion EUR market generating 34.8 billion transactions (according to CapGemini) in 2014. M-commerce has generated 115 billion EUR in revenues, through 29 billion transactions including about 13% of alternative payment systems (other than payment cards).

• Regarding in-store payment with NFC mobile solutions, IDATE estimates that 278 million NFC-enabled mobile phones will be used in 2014, and 28 million users are likely to use their NFC phone to make mobile payments. The volume of NFC transactions is estimated by IDATE at 4.6 billion EUR in 2014 to reach 53.8 billion in 2018. All these figures have to be compared with the few hundred trillion USD of global payment transactions per year. If the figures show differences between these markets, other stakes need to be taken into consideration to better understand the overall market payment ecosystem.

• Regarding carrier billing systems, this market is estimated by IDATE to reach 18 billion EUR in 2014, with about 30% of direct online carrier billing.

From the user point of view, the mobile wallet battle focuses on ease of application and added value compared to payment by debit card. Most mobile wallets currently available are no easier to use than a debit card, and do not have the critical mass to be used at a large scale.

Julien Gaudemer, Project leader of this report, says “The main added value is the other services included in the wallet: loyalty programmes and offers management.” However, some players try to reduce the overall payment process in-store: Apple initially developed iBeacon technology for in-door geolocation but it could be used to automatically pay for goods when leaving the store. Alternatively, PayPal has developed payment during ordering (e.g. for the Mc Donalds application) to avoid the in-store payment step.

Mobile wallet applications can now manage various payment cards, loyalty programmes and offer coupon storage to make them more attractive than traditional payment systems. These features allow service providers to get users’ purchasing habit data in order to provide targeted advertising and offers. In addition, players that are already involved in the advertising market (like Google) are able to increase advertising prices due to a better targeting technique

Internet giants and new mobile payment players are trying to change the traditional payment ecosystem to gain more revenue. The payment market itself does not bring as much in revenues globally, which is why they are especially trying to bypass all intermediaries between themselves and the user’s money. For instance, Paypal wants to avoid payment systems (like Mastercard and Visa), banks and telcos. Google uses its mobile operating system Android to provide an integrated payment system (using NFC) and a mobile wallet, avoiding telcos and other related intermediaries (like Trusted Service Management services). From the merchants’ perspective, payment service providers need to convince them to adopt their solution: transaction commissions and interchange fees are therefore the key stake as, if they are too high, merchants will not use them. Besides, the recent development of the virtual currency “BitCoin” has been seen as an innovation for some observers but as a threat for the financial sector by others. Many small players have developed new services around the new currency to convert it into traditional currencies or use it on a mobile device or in-store.

 

Worldwide forecasts of NFC-enabled-phone-installed-base-inMillion-500px

 

 

 

 

 

 

 

 

 

 

If you want to discover our study, this way, please.

Filed under: Mobile, Telecom No Comments
5Jul/140

SDN and NFV for telcos: disrupting network

tiana ramahandry
Tiana RAMAHANDRY, Consultant

Software-defined networking (SDN) market is estimated at €816 million in 2014 projected to reach nearly 7 billion by 2019

 

IDATE publishes a status report on Software-defined networking/Network functions virtualization standardisation efforts, which explores telco and equipment suppliers’ positioning on future network architecture concepts. This analyses the strategies and degree of involvement of the ecosystem’s various stakeholders. It also provides SDN/NFV market figures.

SDN  and NFV  associated with cloud computing at the core of telcos’ and equipment suppliers’ strategies

SDN (software-defined networking) and NFV (network functions virtualisation) are seen as the main upcoming technological disruptions in networking architectures. They allow a network to be more programmable, open and scalable.

Entire ecosystem invested in standardisation

The telecoms and IT industry is involved in the standardisation initiatives taking place around SDN and in the work being done by ETSI on NFV.
Traditional equipment manufacturers, and especially the top suppliers of switches and routers – Cisco,
Juniper, Alcatel-Lucent, Huawei – are the players most actively involved in this area.
The top telecom carriers are more interested in NFV, and are involved both in standardisation efforts and in conducting proofs of concept.

Virtualisation in telco networks making progress, but more slowly than in datacentres

The first available SDN equipment was designed for datacentres, and was thus installed by companies operating in that field and cloud service providers. Pioneer SDN and NFV products for telco networks are now available as well. The carriers that are the frontrunners in this area – including AT&T, Deutsche Telekom, NTT and Telefónica – have all announced plans for a large-scale transition to a new networking architecture.

The global SDN and NFV market in 2014 is estimated at €816 million. 
Telcos still account for only a sliver of the market: 5% in 2014. But as more and more carriers make the transition, this share is forecast to grow to 19% by 2019 .

The SDN and NFV market (million EUR)

the-SDN-and-NFV-Market-IDATE-500px

 

 

 

 

 

 

 

 

Source: IDATE, SDN and NFV for telcos, June 2014

If you want to discover our study, go to our store.

Filed under: Telecom No Comments
23Jun/140

World Telecom Services : overview and projections

POUILLOT-Didier

Didier Pouillot
Head of the Telecom Strategy Business Unit

Mobile growth still strong with 6.6 billion subscribers worldwide at the end of 2013 and forecast to reach more than 8 billion by the end of 2018

 

IDATE, partner analyst at the LTE World Summit 2014 (23 to 25 June 2014 in Amsterdam) reveals the findings of its World telecom services watch.

After the trough of 2009 and hesitant growth in 2010, the global market has been growing at a moderate pace since 2011. Growth in 2013 stood at 2.4% “we have observed that, by and large, telecom services are recovering more slowly than the economy as a whole,” reports Didier Pouillot, head of IDATE’s Telecom Players & Markets Business Unit.

Now in a recovery phase, telecom markets in advanced countries are proving somewhat resilient, whereas in fast-developing markets the underlying momentum is coming from volume. This phenomenon is telling of a mature industry now driven more by demographics than economics. In Africa/the Middle East, for instance, the drop in regional GDP in 2009 (-6%) and its rebound in 2010 (+16%) had very little impact on telecom services growth rates which remained very high both years: +8% and +9%, respectively.

Revenue from telecom services

According to IDATE, global telecom services revenue will increase from €1,186 billion in 2013 to €1,341 billion in 2018, representing an average annual growth of 2.5%.
• Revenue from mobile services will grow by 17% between 2013 and 2018 (+3% a year on average), reaching €826 billion in 2018.
• Revenue generated data transmission and Internet access will enjoy more substantial growth (+24% between 2013 and 2018, i.e. an average +4% per annum), to reach €338 billion in 2018.
• Fixed telephony revenue will continue its sharp decline: -15% between 2013 and 2018, i.e. dropping by an average 3% a year, down to €177 billion in 2018.

More mobiles, more users

According to IDATE, the number of mobile customers worldwide should top the 8 billion mark by the end of 2018 (+21% in 5 years).
• The number of fixed Internet subscribers will grow more slowly (+18% between 2013 and 2018, +3% a year on average). The one billion mark is not expected to be reached before 2020.
• Traditional landlines continue to loose ground as VoIP and mobiles gain.

The spread of broadband

According to IDATE, the number of fixed broadband subscribers is expected to reach 858 million worldwide by 2018, for a penetration rate of 12% of the global population. The number of LTE customers is shooting up, and LTE-Advanced users are expected to increase swiftly in early adopter countries.
IDATE forecasts more than 1.3 billion LTE subscriptions worldwide by the end of 2017, generating a total €400 billion in revenue
Two major factors will work in broadband’s favour:
• The success of bundled offers (fixed telephony, VoIP, TV, mobile telephony) and the appetite for video applications.
• Telcos’ investments in migrating their infrastructures to mobile or fixed broadband.

Scalability of operators

• European operators are still in trouble, with a growth momentum that is running out of steam, despite strong investment needs
• North American telcos are benefiting from a solid growth rate at home, especially in the mobile market.
• If several major telcos from emerging countries continue to enjoy swift growth rates of close to or above 10% (Bharti Airtel, China Mobile, China Telecom, China Unicom), a number of them saw their growth flatten and tumble to virtually nil in 2013 (America Móvil, MTN, Oi, Vimpelcom). But margins remain high: EBITDA margins of between 30% and 40%, and even higher in some cases. Several of these operators are widely engaged in international expansion strategies.

World-telecom-services-markets-and players-june-2014-500px
 

 

 

 

 

 

 

 

 

If you want to discover the study "World Telecom Services - Markets & Players.

Filed under: LTE, Telecom No Comments
23Jun/140

[ITW] Wolgang KOPF, Senior Vice President for Group Public and Regulatory Affairs Deutsche Telekom AG

Published in COMMUNICATIONS & STRATEGIES No. 93, 1st Quarter 2014

 

Re-thinking the EU telecom regulation

wolfgang_Kopf

Interview with
Wolfgang KOPF
Senior Vice President
for Group Public and Regulatory Affairs
Deutsche Telekom AG
Conducted by Ulrich STUMPF WIK-Consult GmbH
C&S:  What is your vision of the single telecoms market in Europe in terms of market integration, services, players and competition?

Wolfgang KOPF: We need to understand two things: the ICT sector is of strategic importance for Europe's competitiveness and future well being, and the sector is subject to increasing global competition. To stay competitive, we have to exploit synergies and achieve scale in-country as well as cross-border. Competition authorities must refrain from imposing excessive remedies that undermine merger synergies and scale advantages, preserving an artificially fragmented market that hurts the global competitiveness of Europe's economy on the long term. In this context, policy makers should recognize realities of global competition. Instead of welcoming quasi-monopolistic competition coming from outside Europe it would be better to focus on the competitiveness of European ICT Industry. A more global approach to competition would benefit end-users with more investment and superior quality.
On the sector specific regulatory side, Europe suffers from a patchwork of 28 different regulatory environments compared to other economic regions of the world. A harmonized regulatory framework and cross-border competition will constitute major building blocks of a true Single Market. The current level of fragmentation cannot be good for an industry so much dependent on scale as ours. Further harmonization providing for a less complex and more predictable regulatory regime and its consistent application in all member states are necessary for a single telecoms market in Europe. This does not mean to offer the same service at an equal price across Europe as countries differ e.g. with regard to topology, population density, purchasing power etc. Therefore a single market approach has to cater for the still existing differences which include diverse product and pricing schemes for consumers across Europe.

C&S:  The Draft Connected Continent Regulation introduces a more Eurocentric model of regulation based on stronger Commission powers. Do you believe that ultimately a single market requires a single EU regulator?
W.K. : When looking at the regulatory oversight in Europe, one thing is absolutely clear: The current institutional three layer setting that involves national regulatory authorities, BEREC and the EU Commission in virtually all regulatory decisions is far too complex, leads to lengthy proceedings and uncertainty and is definitely not a sustainable model in such a fast moving sector. We would prefer a clear allocation of tasks and competences between the EU level and Member State level in order to provide for faster, more stream-lined proceedings and more predictable decisions.
This does not necessarily mean that we need to build up a new bureaucracy at a time when we are considering significantly reducing the level of asymmetric regulation. The more we reduce the amount of complex regulation, the easier harmonisation will be. In such a dynamic market less bureaucracy is usually more conducive for innovation and investment.

C&S:  Many responses to the Commission's single market proposals point out the lack of an impact assessment and underline that the proposals have little chance of achieving their stated targets. Do you share these criticisms?
W.K. : First of all, we share the Commission's analysis of the state of the telecoms sector in Europe and agree that framework conditions have to change to put the European digital economy back on track and support more investment in high-speed broadband networks. The objective of a policy reform for the sector was also confirmed by European heads of state and government at their Summit in October. The Single Market Regulation could become a key element to help the EU ICT sector to regain its former strength.
The announcement of the Single Market initiative by Commissioner Kroes in February 2013 raised high expectations in the sector as well as in the investors' community and discussions with the Commission were indeed promising. However, the proposals presented by the Commission in September struck a difficult balance between pro-investment elements and additional burdens for the European telecoms sector.
While we particularly welcome the Commission's proposals for a better coordination of spectrum management in the EU, we believe that proposals in the draft Regulation that further undermine the revenue base and investment capacity of the sector, such as on roaming and international calls, should be removed. A stronger emphasis should be put on fostering new investments in NGA infrastructures and establishing a level playing field for EU telecoms companies to enable them to better compete with global companies in the Internet value chain. On open internet regulation, a full harmonisation at EU-level could, if appropriate and future-proof, provide for legal certainty and support more investment and innovation in the sector. Here it is essential to provide for more commercial freedom for new business models. This would also be in the interest of other sectors of the economy as well as consumers who would benefit from a higher variety of service offerings.
Now the Regulation is in the hands of the European legislator and it remains to be seen whether the intended goal, i.e. to strengthen the European telecoms sector, can be achieved. Recent draft amendments seem to worsen the whole package further.

C&S:  By the time the single market regulation can be approved, it will likely be just one year away from the next review of the regulatory framework. 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?
W.K. : Time is of essence in this fast moving sector. The analysis clearly shows that Europe has been falling back in the last decade and that the framework conditions are part of the problem. In time of crisis it is not the best idea to postpone. If we see a chance to have some quick fixes we should grasp every opportunity to improve the situation for the European industry.
To postpone until the next telecoms package review would not mean just a year of delay as suggested by the question. We expect the Commission to presents proposals for a complete review of the telecoms regulatory framework not before mid 2015. Then we will have a full legislative process, possibly concluded by 2018 with implementation in 2020 by Member States when using the typical instrument of a Directive. I have sincere doubts on whether we can afford to wait another five years until we see a new framework to become effective.

C&S:  The telecoms operators deplore the lack of a level playing field given the far less formalised regulatory environment for OTT players. In what areas to you believe is the most urgent need for action and what is your view on the Draft Regulation with regard to these concerns?
W.K. : Since the time of adoption of the EU regulatory framework in 2002 the communications market has significantly changed. Today, the migration to all IP in electronic communications networks is increasingly diminishing the distinction between traditional telecommunications services and IP based communications services. Much text, voice or video communication is increasingly substituted by equivalent internet based services, e.g. software applications and social networks. Convergence is already a reality. From our industry point of view it is not acceptable that we have to play by different rules for comparable services. From a consumer protection point of view it is neither understandable why consumers need less protection when the like services are provided by an internet company or a handset manufacturer. To ensure consistent application, the rules established for traditional telecommunications services must also apply for equivalent and functionally substitutable IP-based communications services.
Furthermore, well established principles in the telecoms sector like transparency, interoperability, non-discrimination and the right of switching providers need to be transposed to all players in the broader internet market. Why are you not allowed to switch all your Apps when you switch from Android to IOS and vice versa? What is the difference to number portability? A level playing field and symmetric rules, applicable to all market players along the value chain, will help keeping markets open for competition and protect consumers irrespective of the underlying technology over which services are provided. This is a key requirement to provide for competitive framework conditions for the European ICT industry.
The Commission has recognised the need for action (see Communication COM(2013) 634/4) and intends to address the level playing field between telcos and OTT players in the next telecoms review.

C&S:  An important part of ex ante regulation provided for by the current EU framework is triggered by Significant Market Power. To what extent can regulators take account of the competitive constraints imposed by OTT services in the current framework when defining markets and assessing market power?
W.K. : The asymmetric sector-specific price and access regulation of incumbent operators was established once to promote competition after the liberalisation of the telecoms markets in Europe. Today's telecoms markets are characterised by very strong and widespread infrastructure based competition in the fixed and mobile markets. Therefore, it is time to remember under which caveats the current regulation had started. It was subject to a near time sunset. Furthermore, the industry faces intense competition by global OTT players, such as Apple, Facebook, Google, and Microsoft. For example, the volume of daily OTT-messaging traffic is already twice the volume of SMS traffic and growing fast (estimation by Informa, May 2013). In 2012, $23.2 bn. of mobile network operators' SMS revenues have been lost due to the enormous popularity of OTT messaging services ($54.4 bn. in 2016, estimation by Ovum, Sept. 2012).
Since those players use different pricing schemes (consumers pay ‘only' with their data), traditional market analysis tools fail to completely capture the level of the competitive pressure on traditional telecoms services. Furthermore, regulatory and competition authorities continue to rely on partly obsolete market definitions. Competition policy needs to find a way to how the competitive pressure of OTT services can be measured and thus the markets defined according to market realities.

C&S:  Competition concerns have led antitrust regulators to approve mergers and infrastructure sharing agreements only under strict conditions (divest activities, hand back or sell off rights to use spectrum). Do you believe more consolidation is required in the European telecoms industry and do you see major flaws in the application of competition law?
W.K. : The European telecoms industry needs to operate on an efficient scale in order to meet the NGA investment challenge. High amounts of sunk fixed costs, long-term amortization periods and the need to continuously adopt new technologies and upgrade infrastructures make scale an inevitable and critical requirement for European telecoms to be able to provide competitive, state of the art networks.
A combination of in- and cross-country consolidation is required to exploit available economies of scale and density. For example, Boston Consulting Group (BCG) estimates that moving from 25 percent to 30 percent average market share per mobile network operator would yield a cumulative €30-45 bn. of additional free cash flow until 2020.   As a result of the pooling of existing customers and networks which occur in a merger and intensified utilization of networks, it can become economically viable to increase network coverage to certain rural areas that previously could not be served economically. In order to achieve the objective of a true Digital Single Market, it is necessary to eliminate inefficiencies and to establish operators that can sustain a pan-European footprint.
European policy makers and merger control should adequately take into account the advantages of consolidated operations, in particular acknowledge the value of superior network quality and changing consumption patterns in the light of technological convergence and abstain from artificially reversing market-driven developments. Competition is best safeguarded by competitors that operate on an efficient scale. Market entry that simply relies on preferential treatment by competition authorities is inherently inefficient and unsustainable. Spectrum reservation and exclusive wholesale access amounts to a subsidisation of entrants that distorts competition and investment incentives.
Competition authorities still mainly focus on short term price effects and underestimate dynamic efficiencies, long-term investments and quality implications. This leads to less favourable market outcomes. One striking example is the H3G/Orange merger in Austria: The EU Commission had concerns that the elimination of one out of four mobile network operators in Austria could have led to less competition and higher prices. Thus, the approval was tied to the implementation of structural remedies, such as the provision of wholesale access for MVNOs and a fourth entrant spectrum reservation. Nonetheless, no network operator entered the spectrum auction. The reason is the intensive price competition in Austria which questions the return on investment.
During the T-Mobile/Orange merger proceedings in the UK the Commission abstained from a new entrant remedy and thus chose a far more moderate approach. Mobile customers in the UK still benefited from post-merger price declines and a significant quality increase due to the widespread rollout of 4G networks.
These examples show that we need a comprehensive analysis of the price-quality ratio (so called quality adjusted prices) instead of an isolated focus on short term price effects. Competition policy must apply a new approach concerning dynamic efficiencies which are so important for investment intensive industries such as the telecom industry.

C&S:  Which cross-border synergies do you expect for European network operators?
W.K. : Cross-border scale economies typically exist on a higher level of the value chain, namely services. The main driver to capture the full potential of cross-country synergies for telcos is to integrate IT applications and network management platforms across countries. Harmonized rules and procedures  could help to allow pan-European telecom operators to realize additional synergies. The BCG study estimates that the basis for potential cross-country synergies for European network operators theoretically adds up to about €95 bn. a year and a cumulative €840 bn. through 2020.   However, such synergies are expected to be reaped only over a period of 10 or more years, since the realization depends on lengthy replacement cycles of the existing network and IT infrastructure. In this context, we have to make sure not to mix-up harmonisation with additional, non-proportionate burdens for the industry.

C&S:  Do you expect that the reform of the EU regulatory environment brought about in 2013-14 will provide the stimulus required to achieve the roll-out objectives of the Digital Agenda?
W.K. : In July 2012 Commissioner Kroes announced to realign the European regulatory policy in order to enhance the broadband investment environment. The Recommendation on consistent non-discrimination obligations and costing methodologies, adopted in September 2013, was the first tangible result of the announced policy change. It provides for price stability of the unbundled local loop, and allows more flexibility for the pricing of NGA wholesale products where infrastructure competition and effective non-discrimination are present. The Recommendation is an important political signal that certainly helps promoting confidence in the regulatory policy in Europe. However, this was only a first step in the right direction and further steps are needed to promote a healthy European telecoms sector, able to ensure investments in future broadband networks. As I see no alternative to this route, I am confident that we will make further progress to re-establish the competitiveness of this strategically important sector.

Biography

Wolfgang KOPF (49) has been Senior Vice President for Group Public and Regulatory Affairs at Deutsche Telekom AG since November 2006. He is responsible for Regulatory Affairs, Competition and Media Policy, Spectrum Strategy and Public Affairs. Wolfgang Kopf joined Deutsche Telekom Group in 1995 where he held various senior positions since. He studied Arts and Law at the Universities of Mainz and Speyer, specializing in European and International Law. He also holds a Master of Laws (LL.M.) degree from the University of London. During his training as a lawyer, he worked for a leading international law firm and the European Commission. Wolfgang Kopf is a Board Member of GSMA. He is also a Member of the Foundation Board of the International Charlemagne Prize of Aachen and a Board Member of the Brussels based Economic Think Tank BRUEGEL. Furthermore, he is the co-editor of two German Law Journals.

Published in COMMUNICATIONS & STRATEGIES No. 93, 1st quarter 2014

Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org

27Mar/140

VDSL2 – G.Fast – FTTdp: Copper gets turbocharged

CHAILLOU_Valérie
 
 
Valérie CHAILLOU
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)

Growth of VDSL subscribers worldwide between December 2010 and June 2013 (million)

Source: IDATE

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.

26Mar/140

Edito by Yves Gassot

GASSOT Yves
 
 
Yves Gassot

CEO, IDATE
 

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.

19Mar/140

[ITW] Roberto VIOLA, Deputy Director General European Commission DG CNECT

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.

Roberto VIOLA<br />
Deputy Director General<br />
European Commission,<br />
DG CNECT
Exclusive:
Interview with Roberto VIOLA
Deputy Director General

European Commission,
DG CNECT

 

Conducted by Giovanni AMENDOLA,
Head of Relations with International Authorities,
Telecom Italia
& 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?

Roberto VIOLA:
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.

Biography

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

Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org

11Mar/140

Telco consolidation in Europe

POUILLOT-Didier

Didier Pouillot
Head of the Telecom Strategy Business Unit

National consolidation in mobile,
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)

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

24Feb/140

Global LTE forecasts

Frédéric Pujol, Head of the radio technologies & spectrum practice, IDATE

Frédéric PUJOL
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

Les plus importants marchés LTE

Source: IDATE

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)

Top 10 LTE operators (Q2 2013)

Source: IDATE

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