22Apr/160

Digital Economy 2025: The future of telecom and Internet ecosystems

PENNINGS_Christoph_NB

Christoph Pennings
Director of Studies, IDATE DigiWorld

A market that could more than double by 2025 to reach €3,000 billion

 

IDATE DigiWorld has released the latest edition of its forward-looking report on the future of Internet and telecom markets. It delivers four development scenarios for the digital economy along with a quantitative forecast up to 2025.

When trying to picture the future of the industry for the purposes of this study, we identified a number of developments with the power to influence various dimensions of the digital economy. The starting point was to divide these trends into two categories: key trends and major uncertainties.

Key trends are developments that have clearly emerged and for which it is possible to assume, with reasonable certainty, how they will play out over the years ahead.

For instance, with respect to technologies, one element that is quite certain is that network technologies will deliver better performance ten years from now than they do today. Even though 4G is still being rolled out and the 5G standard is not yet fully defined, it seems clear that 5G will deliver higher bandwidth, lower latency and better efficiency in terms of energy and spectrum usage than previous standards.

Beyond this, looking at usages, the trend towards mobile will surely last. The adoption of smartphones, tablets, wearables and other connected devices (including cars) will continue to be on the rise and make mobile by far the dominant way to access the Internet.

Business models and regulatory trends are also to some extent predictable. The value chain will continue to evolve with digital products cutting traditional players out of the loop. Regulation is very likely to shift towards more ex-post control and more symmetric obligations between players at the same layer of the value chain, but across layers, as with OTTs and telcos.

The major uncertainties can be categorised in a similarly broad way.

For example, certain technological evolutions or changes in business models might push the industry to develop in one direction or another. The Internet of Things allows connecting any object to the Internet and may unleash enormous innovation potential. Yet, despite the maturity of its technologies, the business model remains largely unclear today.

Consolidation in the telecom sector will continue but the end game is not yet predictable. Will consolidation remain a national phenomenon or will the market be dominated by a few regional, perhaps even global, players and who could they be?

Will consumers continue to prefer paying for ‘free’ Internet services with personal data, or will they ultimately adopt more privacy-conscious paid offers?

In order to bring all these different elements together, four contrasting yet plausible scenarios for the "digital economy" industry in 2025 are developed in this study, identified as Mall, Open, Automated and Trust. They are projected against a two-by-two matrix whose axes are defined so as to capture a very heterogeneous "digital economy" industry, yet sufficiently focused to give discussion some meaningful guidance.

One axis is the intensity with which personal data are being used. The intensity of personal data usage is an indication of the range of services telcos and Internet players will provide.

The other dimension is the presence of enablers in the market. Enablers provide rather specialised solutions, which other companies can leverage to build their own businesses on.

Four development scenarios for the digital economy

Combining these different hypotheses allowed us to establish the four most plausible future scenarios:

“Mall” scenario: Digital economy players adopt a strong focus on retail and customer owner-ship, seeking to be the one-stop user shop for all things digital, including content and devices. There is full-blown competition between Internet players and the telcos, each of them aggregating and marketing a branded bouquet of digital products and services.

“Open” scenario: This digital economy ecosystem features seamless inter-operability and openness: open access, open innovation and open data. The Internet market is richly innovative and competitive. With token loyalty, users migrate to other innovative applications or services. Telcos focus on providing retail and whole-sale connectivity, with specialised services.

“Automated” scenario: Sales, service production and customer care become largely softwarised. Customer requests configure service patterns automatically. Sophisticated data analytics are used mainly for internal purposes. Players leverage open standards and generic solutions to implement low-cost production.

“Trust” scenario: This scenario comes to challenge the digital world as we know it, with rising insecurity and cyber-surveillance. Users rely on only a handful of players able to provide them with high levels of security and data protection, thanks in large part to technologies developed in-house. Business models based on targeted advertising and the public cloud both lose ground, while security solutions and paid services are on the rise.

 

Digital economy 2025: scenario matrix

schema_digital2025_v2

Source: IDATE, The Digital Economy in 2025, January 2016

A market set to double over the next decade

Departing from a global market worth close to €1,500 billion in 2015, each scenario sketches out a very different value generating potential between now and 2025. The most optimistic “Mall” scenario forecasts a market that will double in value, climbing to close to €3,000 billion – which translates into average annual growth of 7% – whereas under the most pessimistic “Automated” scenario the market still grows to €2,200 billion by 2025, or by an average 4.2% a year

The market’s forecast breakdown, between Internet services on the one side and telecom (access) services on the other, also varies substantially, ranging from 49% for telecoms under the “Open” scenario to 60% under the “Trust” scenario. Of course, compared to the more than 75% share in 2015, this corresponds to telecom services steadily losing market share to Internet services.

Value growth for Internet and telecom services markets, by scenario, 2014-2025

Digital_Economy_2025_marche_Internet_IDATE_v2

Source: IDATE, The Digital Economy in 2025, January 2016

More information on The future of Telecom and Internet ecosystems in our report "Digital Economy 2025"

Discover the perspectives and key trends that will structure the digital economy for the next decade and participate to DigiWorld Future 2016 

DWF15 video report v3For the publication of the 16th edition of the DigiWorld Yearbook (pre-order now), IDATE is organizing a conference based on the detailed analysis of the current situations and some forecasts by IDATE experts on the major digital sectors, the discussion will deal with the great trends and challenges that will disrupt the digital markets by 2025.

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19Apr/160

How can policy makers create conditions encouraging investments in the deployment of very high speed connectivity networks?

Gassot-Yves

Yves Gassot
CEO, IDATE DigiWorld

I will be the moderator of an interactive discussion during the Digital Regulation forum 2016 about "the needs for Internet speed and quality beyond 2020" on Wednesday 20 April.

 

Here are several theoretical options to stimulate private investment in fibre network rollouts:

1) Regulatory holidays:

the investor can invest without the threat of having to open its network to the competition. The questions are: when will the holiday end? Is it set in advance or, on the contrary, unknown by the investor?

2) The threat of public or subsidised deployments:

To avoid having to use a third party’s infrastructure, the incumbent takes the initiative of deploying its own fibre network. The question is: is it not a welcome opportunity for the incumbent to let private investors concentrate their deployments in the large cities, and leave it up to the State or local authorities to cover the less profitable areas?

3) Charge higher wholesale prices to telcos using the copper local loop:

Making the transition from ADSL to fibre pricing will be easier. The question is: will this give the incumbent more income from its legacy infrastructure and dampen any incentive to invest in fibre?

4) A mandatory open fibre model that factors in the risks being taken by fibre investors:

The question is: how to define the right price?

5) A laissez faire attitude in light of the prospect of intermodal competition, i.e. between fibre and 5G. The dilemma:

Ultra-high speed mobile access will also need fibre for backhauling in a small cell architecture. Cable DOCSIS systems could provide strong enough competition to push the incumbent to deploy fibre, but only in those areas where there is a cable infrastructure…

6) Make better information available to consumers:

On the differences (speed, latency) between the technologies and the networks, to give telcos room to invest and to fix a premium on fibre access. Question: will it be enough to sustain the momentum?

In fact, the crux of the task before NRAs (National Regulator Authorities) is to strike the right balance and choose the right mix that takes into account the particular features of each national market.

 

More information about the programme

 

7Apr/160

Wearables: new connected devices

ROPERT_Samuel

Samuel Ropert
Director of studies, DigiWorld IDATE

In 2018, the wearables market in value should exceed 22.5 billion EUR. Again, the growth will differ from object to object mainly because of the different price per object.

 

Wearable objects refer to daily consumer objects like wristband, watches, glasses, headsets or activity trackers with embedded sensors and connected mainly indirectly to the internet though a device/hub (through short range technology mainly). Wearable products are used in different applications, even though fitness, wellness and lifestyle are obviously the major segments, in volume notably.  Some opportunities could be seen at the entreprise level which aims to integrate into their premises wearable solutions to improve process and productivity.

The wearable ecosystem is mainly dominated by object manufacturers which are very numerous. Some of them are pure players like Fitbit or Jawbone, others are traditional consumer electronics manufacturers (Sony, Samsung, etc).
Other manufacturers come from the sports world like specialized sport accessory players (Garmin, Suunto or Polar) or sportswear brands with Nike and Adidas chiefly.  On the connectivity side, very few M2M mobile carriers are involved in the wearables market, only AT&T has a real involvement in this segment.  Data-centric players are positioned on the platform business. Most of the pure players like Runtastic, Runkeeper benefit from the product makers allowing them to collect information from their different objects.
The platform is actually the enabler to build services on the top of devices. On the top of the wearable devices, new services should emerge thanks to data exploitation/exchange. In terms of market adoption, surveys show that it is still very limited for now. They illustrate that watches are the most excited wearable devices, but a majority of the consumers seems not to be so enthusiastic to buy one of them. On the market side, according to IDATE, in 2018, 123 million wearable devices should be sold representing a 70% CAGR from the 10 million sold in 2013. Nevertheless, this growth is not homogeneous for each category of wearables. The smart watches will lead the market with 80 million units by 2018 mainly because of the Apple Watch sales starting from 2015. In 2018, the wearables market in value should exceed 22.5 billion EUR. Again, the growth will differ from object to object mainly because of the different price per object.

Wearables_vertical_markets_Samuel_Ropert

Related DigiWorld Research Reports
Internet of Things
Wearables and its verticals
Data Monetization
World Consumer Electronics Markets

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7Apr/160

Internet of Things

ROPERT_Samuel

Samuel Ropert
Director of studies, IDATE DigiWorld

A fast-growing market with 42 billion connected objects in 2015 and the promise of +14% annual growth up to 2025

 

IDATE has published its analysis of and forecasts for the global Internet of Things (IoT) market. An opportunity to deliver a synthesis of the Institute’s many reports on the matter (smart cars, M2M, smart grids, smart cities, smart toys…) to examine a market which, although developing rapidly, still raises a host of questions: is it really taking off, and how fast? Which business models seem the most reliable? Which market players and countries are in the best position to benefit from this new stage in the Internet’s evolution?

Although the Internet of Things is a powerful concept, it is not necessarily a market in and of itself. IoT encompasses a very disparate array of fields that need to be examined separately, to obtain an accurate understanding of their particular features, and their true growth potential.

IDATE forecasts that the global IoT market will grow from a base of 42 billion objects in 2015 to 155 billion in 2025, which translates into an average annual increase of 14%.
Unsurprisingly, the Internet of Objects (IoO) represents the bulk of the IoT market (80%), thanks to its widespread adoption by a number of sectors, and to the very low cost of tags.
The Connected information devices segment is the second largest in terms of volume, representing 13% of connected things, and set to grow by an average 13% a year up to 2025.
M2M (machine to machine) represents only 6% of connected things today.
And the smallest market in terms of volume is also the newest: Wearables & connected objects with 1% in 2015. But it is also the market that will grow the fastest over the next 10 years: by an average 30% per annum up to 2025.

World Internet of Things market, 2013-2025

schema_Internetofthings

Source: IDATE DigiWorld, “The Internet of Things”, October 2015

Compared to the size of the Internet of Objects and Connected information devices segments, the rest of the market is splintered between a host of vertical markets:
the utilities market is reporting rapid growth, stimulated by regulations and public policies;
the electronic equipment and automotive markets are also among the largest today, while the consumer electronics industry is incorporating connectivity into more and more traditional products, such as cameras.

The different sectors’ contribution to the global Internet of Things market, in 2015

schema_Internetofthings2

Source: IDATE DigiWorld, “The Internet of Things”, October 2015

Is the IoT market changing shape?
To provide a clearer strategic analysis of this disparate set, IDATE has chosen to break down the Internet of Things market into four key areas. A distinction can be drawn between consumer and business products, on the one hand, and between the different types of connectivity, on the other:
silo connectivity: a close loop of dedicated links between objects and servers, using direct connectivity or a hub, e.g. a smart meter or a payment terminal;
interconnected connectivity: different types of communication between the objects themselves, mainly through the same hub, e.g. appliances in the home such as a washing machine that signals the end of the cycle on the TV screen.

The report provides a detailed analysis of the resulting, four key IoT markets:
M2M, which covers production loops and closed loops based on applications;
Wearables and connected objects which, by definition, do not talk to each other;
Industrial Internet, which refers to the smart factory concept, with interactions between multiple applications that need to optimise their internal processes;
The smart home, a concept under which applications can communication with one another without having to go through the Internet.

The Internet of Things market

schema_internetofthings3

Source: IDATE DigiWorld, “The Internet of Things”, October 2015

Discover the perspectives,  key trends, and scenarios about the Internet market for the next decade through our dedicated report and register to DigiWorld Future 2016 

DWF15 video report v3For the publication of the 16th edition of the DigiWorld Yearbook (pre-order now), IDATE is organizing a conference based on the detailed analysis of the current situations and some forecasts by IDATE experts on the major digital sectors, the discussion will deal with the great trends and challenges that will disrupt the digital markets by 2025.

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30Mar/160

Orange-Bouygues…

Gassot-Yves

Yves Gassot
CEO, IDATE DigiWorld

 

...in search of a convergent outcome

 

Proceeding behind closed doors, negotiations between Orange and Bouygues are now at the point where each party – independent of any actual transaction – is anticipating the reasons for and possible pitfalls of such a complex and far from certain merger.

The four players in the French telecommunications market have a shared interest in a scenario that would see the disappearance of one of its operators, not least with a view toward ending the price wars that have ravaged the sector. The French market would join the three-operator configuration that currently exists in Germany and, in the months to come, will emerge in the United Kingdom and Italy as well. This is a singular deal, however, as it involves the top provider of fixed line, mobile and enterprise services. So it can only go through if the new Orange is prepared to jettison many of the assets that it would acquire in the process.

Let us try to imagine what could lie ahead for these players in a situation that would be rich study for any expert of game theory.

Competition authorities – and regulators to a lesser extent – are in a delicate position since, even though they did not instigate it, they cannot fail to see the appeal of a deal that would help the sector get back on its feet: a sector whose revenue has been shrinking since 2008 and on whose massive investments the country is relying to some degree to achieve its digital transition. But the deal must not be approved at the cost of undermining effective competition between operators. Unlike with other mergers and acquisitions we have seen in Europe – between third-ranked or and fourth- and second-ranked operators which, in order to gain approval, have had to agree to certain remedies (such as selling off frequencies and opening their networks to MVNOs) – authorities here will have to prop up and justify a largely revamped structure for France’s telecom services market, through the conditions they impose on the distribution of frequencies, infrastructure, subscribers, stores, staff, etc. One can foresee the risks associated with ‘managed competition’.

Bouygues faces the prospect of trading control of its business for cash and a substantial stake in the leading provider, on the basis of favourable valuation. It is essential that it obtain a premium price. The biggest danger for the company lies in not getting that price and, in so doing, of having employees and even customers lose some confidence in the operator’s future.

Orange cannot agree to shoulder all of the risks of such a deal without having an objective other than doing the heavy lifting of a consolidation that is in everybody’s interest, except the shareholders’. If the new group is required to divest itself of the majority of Bouygues Telecom assets, it will need to ensure that the buyers help shoulder the burden of that premium price granted to Bouygues. A certain degree of competition is therefore necessary for that to happen. The company also needs to anticipate what advantages it will lose in yielding assets to competitors, for example those presently helping Orange and Bouygues Telecom enjoy a lead in the 4G market. Lastly, the cash released at the end of the deal must enable Orange either to accelerate its investments in France and other markets to strengthen its positions (while bracing itself for the kickback from regulators!) or give it the means to lead the charge in consolidating the sector in Europe.

SFR and Iliad are certainly interested in building their businesses thanks to the acquisition of assets. Their teams and their bankers must nevertheless determine the maximum they can pay, with an eye on debt ratios, beyond which it would be more cost effective to put their money into marketing and sales to gain subscribers, or to step up their investments in equipment and frequencies to accelerate their superfast fixed and mobile network rollouts. In the process, they also need to avoid finding themselves in competition with one another or with third parties.

And let us not forget one final protagonist: the Government, not as an authority in charge of competition or the sector’s regulator, but in its role of major Orange shareholder: does it have objectives other than those of a careful investor? Is the goal to set up a core of controlling shareholders in order to allow the State to withdraw?

 

Read more about a convergent outcome between Orange and Boyugues in Les Echos (french link) of the 29 January 2016

 

 

 

22Mar/160

Sign up now for the DigiWorld Institute 2016 Collaborative Research Programme!

Gassot-Yves

Yves GASSOT
CEO, IDATE DigiWorld

 

 

 

As in previous years, IDATE DigiWorld has selected four topics for its 2016 Collaborative Research Programme, which will be taking place in Paris, London and Brussels. The aim of the Programme is to give our 50 Member Companies, which support the DigiWorld Institute’s activities throughout the year – and, if space allows, outside private and public sector players as well – an opportunity to engage in frank and meaningful think tanks.

The programme for each think tank includes three workshops hosted by a team of IDATE DigiWorld experts, with contributions from participants and outside experts. Once the workshops are over, the IDATE DigiWorld team will deliver a summary report to all those who participated.

The topics for the 2016 Collaborative Research Programme 2016 are as follows:

Digital single TV market vs. globalisation (Paris)

The European Commission’s Digital Single Market (DSM) project is devoted to fostering the emergence of a single market for digital services, and notably for TV services, by creating a framework for geo-blocking and supporting a European copyright system. How can we create a credible single TV market in Europe in the Netflix era?

The Digital Agenda and broadband targets: Benchmark of national programmes (Brussels)

The aim of this think tank is to obtain a detailed snapshot of superfast network rollouts by discussing the mix of technologies being employed in each market (FTTH/VDSL/vectoring & bonding/G-Fast/DOCSIS…) along with the targets and forecasts for 2020. The main focus, however, will be on exploring current private sector investments and future public sector spending to complete national coverage. How much will governments need to spend? What schemes are being used to manage these public investments? And how are they likely to impact the sector’s industrial organisation over the long term?

5G: outlook for vertical markets (Paris)

In addition to ushering in faster connections, 5G will also be synonymous with addressing potentially multifarious needs, born of the IoT’s development in the different sectors of activity. What can be said about the coexistence of the different LPWA solutions and expected future developments? What case studies can serve to illustrate the multiplicity of requirements that 5G will need to satisfy? What regulatory hurdles will need to be overcome (security, liability, net neutrality)? And what are issues and challenges ahead for telcos?

Verticals and the digital transformation: Revenue streams and beneficiaries (London)

This think tank will take stock of a decade of current and future disruptions (Cloud, Big data, 3D, robotics, IoT, mobility, social networks…) in infrastructure, the production of goods and services and customer relationships. It will draw on case studies to explore new business models (e.g. the servicisation of production), the shifting balance of power in the Internet ecosystem (horizontal platforms vs. new vertical players), regulatory issues and more.

The first workshops will be held in June, so get in touch with us soon to request a more detailed presentation* and, in the meantime, enjoy the Newsletter!

2016 Collaborative Research Programme

Sign up today for one or more of our Collaborative Research Programmes

2015 Programme

  • SVOD: The only way to go? (Paris)
  • Openness and platform strategies (Brussels)
  • Verticals and the digital transition (Paris)
  • Africa and the digital promise (Paris)

 

2016 Programme

  • Digital single TV market vs. globalisation (Paris)
  • The Digital Agenda and broadband targets (Brussels)
  • 5G: outlook for vertical markets (Paris)
  • Verticals and the digital transformation (London)

 

*For more information, please contact Sophie Monjo: s.monjo@idate.org – Tel:+33 (0)4 67 14 44 56

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21Mar/160

EU digital audiovisual market – Interview with Lorena BOIX ALONSO

DWEJ-101_Photo_BOIX ALONSO

Published in DigiWorld Economic Journal DWEJ No. 101

Interview with Lorena Boix Alonso, EC-DG Connect, Brussels

Conducted by Sally BROUGHTON MICOVA

 

DW Economic Journal:  You recently completed a comprehensive consultation on audiovisual media services with a view to possible revision of the EU's regulatory framework in this area. How much of a call for change is there from stakeholders?

Lorena BOIX ALONSO:  The Audiovisual Media Services Directive (AVMSD) was adopted in 2007 and replaced the Television Without Borders Directive of 1989.

Since 2007 – and let alone since the '80s –, the audiovisual media landscape has changed significantly, in particular due to the phenomenon of media convergence. In light of these changes, we are currently reviewing the Directive and assessing its regulatory fitness, with a view to presenting a new legislative proposal later this year.

The public consultation we organised last year is an important part of this exercise and informs our future actions.

Currently, the AVMSD regulates television broadcasts and on-demand services. It applies to programmes that are "TV-like" and for which providers have editorial responsibility. The preliminary trends of the consultation show some convergence of stakeholders' views on the need to revise the scope of application of the rules. However, respondents are not always clear as to how to do this, what new services should be involved and to what type of rules they should be subject. The main concern seems to be viewers' protection, including minors.

A crucial pillar of the Directive is the so-called country of origin principle. Thanks to this principle, service providers only need to abide by the rules of a Member State rather than of multiple countries - making things simpler for businesses, especially those wishing to develop cross-border. Quite unsurprisingly, most of the respondents to the consultation want to maintain the country of origin principle.

De facto, the country of origin principle has facilitated the growth and proliferation of those services. As of end 2013, 5,141 TV channels were established in the EU. Almost 2,000 of them targeted foreign markets. This share has increased from 28 % in 2009 - year of implementation of the Directive - to 38 % in 2013 (from 45% to 68 % for the UK). As far as VoD services are concerned, in 2015, on average in Member States, 31 % of the VoD services available were established in another EU country.

Another subject on which we observed a clear trend in the responses to the public consultation is the importance to ensure the independence of national audiovisual regulators.

We have however observed less clear trends regarding other areas covered by the Directive, for example on the way forward for the rules on protection of minors, commercial communications and promotion of EU works.

The independence of regulatory authorities has historically been a touchy subject for some member states, thus it was not really dealt with in the current Directive nor the one before it. However, things seem to be different this time around, particularly with the regulators themselves taking a stand on the issue. Why have things changed and what exactly is on the table?

The independence of audiovisual regulatory bodies is key for the implementation of legislation in an impartial manner (i.e., free from influence by political players or industry). When regulatory bodies lack independence, this has a direct impact on the effective transposition and application of EU legislation. This is why many EU regulatory frameworks in other domains (i.e. telecom, gas, electricity, postal services, personal data protection) require from Member States regulatory independence. In the field of media, regulatory independence is also important for the preservation of a free and pluralistic media system.

However, the Audiovisual Media Services Directive does not impose an explicit obligation on the Member States to create an independent regulatory body.

The currently-running review of the AVMSD is assessing whether the Directive should be reinforced explicitly by requiring Member States to ensure independence of audiovisual regulatory bodies. As I said, the preliminary results of the public consultation indicate that the majority of respondents would support this position.

The Commission has established the European Regulators Group for Audiovisual Media Services (ERGA), which is – among other tasks – looking precisely into the issue of independence. And yes – in particular following the newly approved amendments to the Polish media law – the Group has recently pointed to the importance of independence.

ERGA called "upon all Member States of the European Union to act to uphold the principle of independence of the media across all European Member States." The Group also called on the Commission "to continue to actively monitor developments and to take all necessary steps to support a free and independent media, including the taking of firm action against the weakening of the necessary institutional arrangements".

How does what your team is working on in relation to audiovisual media services interact with other elements of the Digital Single Market plans such as copyright reform and addressing online intermediaries?

The Digital Single Market (DSM) strategy for Europe calls for a modernisation of the AVMSD to reflect market, consumption, and technological changes. It requires the Commission to focus the scope of the AVMSD and on the nature of the rules applicable to all market players, in particular those for the promotion of European works, protection of minors, and advertising rules.

The overall vision of the DSM strategy is to create an internal market for digital content and services and ensure that Europe is a leader in the global digital economy. To meet this objective, the DSM puts forward a range of initiatives beyond the AVMSD review.

The AVMSD review is being coordinated with these other DSM initiatives such as the assessment of the role of online platforms and intermediaries as well as the evaluation of the telecoms framework. Besides, the Commission continues to work on the modernisation of the copyright framework as well as on the implementation of a set of support measures accompanying these legislative changes in order to facilitate cross border access to European content within the digital single market.

What can we do about "the Netflix problem"? Have any good ideas come to light in your consultations in relation to OTT audiovisual services?

We are well aware of the concerns, raised by some in the public consultation, related to the lack of a level playing field, resulting from the different level of requirements introduced by Member States. This relates particularly to the field of promotion of European works.

New players start investing in new content. This is already a trend in the US. US players active on the EU market, e.g. Netflix and Amazon, also start investing in European productions. European VoD players are also more and more financing European content, also often in the form of co-financing.

However, it is true that these players do not contribute to the financing of new European content to the same extent as traditional players (television and cinema) do.

All these aspects are considered in the context of the AVMSD review. In that view and even though all the options are open at this stage, during our assessment we are looking in particular into the best ways to ensure the promotion of European works in on-demand services.

How do you think we are going to be able to encourage European content production and distribution in the future?

The promotion of European works is a key value of the Directive. The current provisions of the Directive have contributed to the cultural diversity in Europe though the production and distribution of valuable European content. For instance, the 66th Berlinale film festival that took place in February was a very good example of the creative power and diversity of cinema, with a new attendance record. I believe we can celebrate the fruits of the work of the European audiovisual and film industry that we can all be very proud of.

However, it is undeniable that the market and viewing habits have changed since the last review of the Directive, in particular regarding the rapid developing of Video on Demand. Young people consume audiovisual content increasingly on-line. People want access to audiovisual content whenever and wherever they are, on the device of their choice. Technology has made this possible.

I believe this can be a great opportunity to increase the production and circulation of European films. The Commission is very much keeping this objective in mind in the revision of the AVMSD rules on promoting European works as well as in the context of the implementation of the Creative Europe MEDIA programme. In addition, the Commission is launching other coordinated initiatives to exploit all synergies available to increase attractiveness of European films. This require measures in various areas on which the Commission is working together with all interested parties including the audiovisual sector ( film producers, authors, distributors, sales agents, VOD services, broadcasters, etc.) as well as public authorities and film funds in the frame of the European Film Forum.

On December 2015, the Commission adopted the Copyright Communication "Towards a modern, more European copyright framework" which sets an agenda of non-legislative measures meant to accompany the legislative agenda in order to ensure a wider access to audiovisual content across borders. The rationale for these measures is that audiovisual works and films require investment in order to really benefit from the DSM and to be widely accessible. Audiovisual works and films need to be available in formats and catalogues ready for use and to be understood (issue of language versions).

Finally, the Commission is also deeply engaged into the Creative Europe Media programme, which this year celebrates its 25th anniversary. Through this programme the EU invests roughly €100 million per year in European films and audiovisual industries and supports projects which are aimed at enhancing the prominence of European films on VOD Platforms.

Lorena BOIX ALONSO is the Head of Unit for Converging Media and Content Unit, Directorate General for Communications Networks Content and Technology since July 2012. Formerly, she was Deputy Head of Cabinet of Vice President Neelie Kroes, European Commissioner for the Digital Agenda. During Ms Kroes' mandate as Commissioner for Competition, Lorena Boix Alonso commenced in October 2004 as a member of her Cabinet and became Deputy Head of Cabinet in May 2008. She holds a Master of Laws, with a focus on Antitrust Law and Intellectual Property, from the Harvard Law School. She graduated in Law from the University of Valencia (Spain) and then obtained a Licence Spéciale en Droit Européen from the Université Libre de Bruxelles. She joined the European Commission Directorate-General for Competition in 2003.  Prior to that, she has worked for Judge Rafael García Valdecasas, at the European Court of Justice, as well as Deputy Director and Legal Coordinator of the IPR-Helpdesk Project and in private practice in Brussels.

More information on DigiWorld Economic Journal No. 101 "Towards a single digital audiovisual market" on our website

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14Mar/160

Rethinking Handset Subsidies

Basile Carle

Basile Carle
Senior Consultant, IDATE DigiWorld

Handset value chain shake up – menace or salvation for operators?

 

Basile Carle, lead device expert at IDATE, raises the question he addressed in his latest study: “Smartphones as we know them today – beginning with the iPhone in 2007 – have clearly enabled operators to better monetize connectivity and therefore  helped to generate a return on their earlier investments in 3G network rollouts. Paradoxically they have also accelerated the transfer of a portion of telcos’ share of the value chain over to newcomers, namely handset suppliers and over-the-top (OTT) – or online – vendors. The time has come to revisit the handset subsidies question! Why should operators continue to finance a device – i.e. the smartphone – when other players capitalize more and more on that device: players who threaten to turn operators into mere providers of connectivity, dumb pipes which, although essential are in danger of becoming a commodity?”

From feature phone to Smartphone 2.0 – changes in the value chain

The advent of the smartphone 2.0 triggered a shift in the value chain and a change in business models that forced operators to rethink the way they finance mobile handsets, and this within an increasingly competitive marketplace.

The changing value chain of smartphone distribution

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Source: IDATE, Rethinking handset subsidies, December 2015

Operators’ strategies

As competition becomes increasingly fierce, operators have altered their approach to subsidies, largely in an attempt to streamline their sales and marketing investments, especially as it became clearly that, more and more, handset suppliers were emerging as their competitors.  This resulted in different strategies from operators, one consisting in rethinking subsidies themselves the other consisting in proposing alternatives financing solution in a SIM only and commitment free world.

When thinking again on subsidies themselves, a distinction needs to be made between subsidies whose purpose is to attract new subscribers, and those used to keep existing customers. Some operators subsidise new customers’ handsets as heavily as those of existing customers when their contract is up for renewal.

Other operators, however, are focused either on keeping old customers or on acquiring new ones. The decision will often vary depending on their market share. A leading operator will tend to be more concerned with keeping existing customers, whereas a challenger will probably take a more aggressive approach to attracting new customers than to keeping its existing ones.

If  some  operators  have decided to continue  to partially  subsidise their customers’ handsets in exchange for a contractual commitment, most have also introduced  SIM-only plans that separate the flat monthly fee from the cost of the handset, and so freeing customers of having to sign up for a minimum contract length. While  users  can  keep  their  old  handset,  it  nevertheless  remains  important  for  operators  that  new customers who sign up for these plans own a handset whose features enable them to take advantage of all of the functions supplied by the network, whether 4G, carrier aggregation, VoLTE, etc. … Hence the importance of proposing new financing solutions

Impacts of new handset subsidies’ plans

This new approaches in device subsidies has also had an impact on the devices themselves. Suppliers of high-end handsets initially suffered a drop in sales as customers were put off by the price of their products once subsidies were removed. But these companies have adapted to the new situation by introducing their own financing solutions.

By the same token, this shift has enabled the emergence of new players in the marketplace. Companies that present themselves as local – i.e. national brands that created localised versions of what are often Chinese products – have forged themselves a position in the low-end handset segment, and are working to build up the market for handsets sold in retail outlets rather than by operators’ themselves.

Meanwhile, operators have been gradually going back to developing their own brand of handset. Contrary to the first wave of phones that carried operators’ brands, the goal here is less to sell handsets that are more or less locked into the operator’s own services than to get a better handle on costs. These branded products enable operators to earn a slightly higher margin than they do selling OEM products. So their appeal applies as much to subsidised solutions as unsubsidised ones.

By the time 5G is deployed, the (distant) prospect of seeing handsets become active components in the network’s operation – e.g. for relaying signals to the edge of the cell or to a dead zone – could trigger another rethink of handset financing. As the devices become part of the network’s equipment, it could once again be in operators’ interest to help finance them.

 

Get more insights on changing handset value chain and impacts for operators and manufacturers, through our dedicated market report

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10Mar/160

A strong potential for FTTH/B development in LATAM…

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Valérie Chaillou
Director of Studies, Strategy Business Unit, IDATE

but facing important heterogeneity from one country to another in terms of demographics, economics and players’ involvement.

 

The FTTH/B market remains at an early stage in the LATAM region: at end 2015, there were 3.65 million subscribers and 20.1 million Homes Passed in the 16 countries analysed in the panorama. Most countries are still focusing on the expansion and availability of traditional Broadband throughout their whole territory. The region is also facing economic difficulties: the disparity is not only between countries, but also inside countries, which can explain why Superfast Broadband is not a priority yet.

One of the main characteristics of the region is its heterogeneity: the involvement of national authorities differs a lot from one country to another as they include or not the telecommunications infrastructures in their overall development strategy. On the regulatory side, there are no specific rules devoted to the enhancement of superfast Broadband in general and FTTH/B in particular.

At end 2015, the largest FTTH/B market in LATAM is Mexico, which now slightly overpasses Brazil with 1.29 million subs (vs 1.25 million subs in Brazil). Both countries represent more than 69% of the regional number of subscribers, which is representative of the demographics. Another country showed a very interesting growth, Colombia, which now counts more than 1.3 million Homes Passed and 150,000 subscribers.

On the largest markets, competition seems to have had a positive impact and really enhanced FTTH players to enlarge and/or accelerate their rollouts. This is for instance the case in Brazil, Argentina, Mexico, and Chile. The kind of players involved in FTTH can also be quite different when comparing the countries. In some cases (Argentina, Mexico, Chile, Uruguay…), the incumbents play a key role and are really active in this new market. But in most cases, the first rollouts have been initiated by small private players, focused on limited areas, at least in the short/medium term. As an example, the Mexican market grew significantly during 2015, with +46% subscribers: the competition between two leading players, Telmex on one side and TotalPlay on the other side, seems to positively drive the market. On its side, the Brazilian market grew a little bit less (+ 32% subs) and is also driven by the strong involvement of national players, but also of small players rolling out in very located areas.

Since 2013, we have seen the emergence of pan-regional players, in particular when coming to the Caribbean islands. Cable & Wireless Communications, through its brand name LIME, is a leading player in Barbados and Jamaica, where it is involved in FTTH rollouts. Another player was cable operator Columbus Communications, which operated under the brand name Flow in Barbados and Jamaica but also in Grenada ad Trinidad & Tobago. At beginning 2015, Cable & Wireless acquired Columbus Communications and decided to provide its Superfast Broadband services under the Flow brand in most markets. Even if Docsis 3.0 is the main infrastructure, the cableco also rolled out some FTTH networks in small areas.

In larger countries, we can of course mention Telefonica Group, which applies a strategy dedicated to each market where it is present. Then, America Movil is another important LATAM player through its brand Claro. America Movil is also deploying both FTTLA+Docsis 3.0 and FTTH networks, depending on the concerned country.

The involvement of such kind of pan-regional players could represent a great opportunity for the enhancement of FTTH/B in the region as, even if not obvious for the moment, they could decide to adopt a common strategy on the different market, one supporting another…

Generally speaking, the LATAM region has a strong potential for FTTH, because of its demography and the dynamism of its real estate market. But it also encounters difficulties due to the fact that the international interconnectivity is not always efficient. For instance, in Bolivia, the international interconnectivity is undersized, which has an impact on the real capacities that ISPs are able to provide to their customers.

However, we have seen very positive signs for FTTH since 2013: the growths in terms of both coverage (Homes Passed) and take up rate (subscribers) are impressive (respectively +46 and +57% in 2014, then +27% and +39% in 2015).The FTTH offering seems to have encountered a great success towards end users. Most players provide Triple Play services that include TV services. And several players have launched 1 Gbps solutions few months ago now.

Number of FTTH/B Homes Passed in LATAM countries

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Source: IDATE, on behalf of the FTTH Council LATAM Chapter

When comparing the LATAM region with other ore mature ones in the world, it is obvious that the potential is very high because the market is at its very early stage. But it is also noteworthy to mention that, in terms of penetration rates (number of subscribers on total numbers of households in a country), 9 LATAM countries have entered the global ranking as of September 2015, with rates from 1.76% (Brazil) to more than 47% (Uruguay, where the penetration rate is even higher than in the leading European countries in the ranking!).

IDATE publishes a half-yearly updated FTTx observatory, gathering qualitative and quantitative data of 70 countries and +150 players – see details online

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8Mar/160

TV revenues are stronger than ever: from €366.8bn in 2015 they will hit the €413.1bn mark in 2020

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Florence Le Borgne
Director of Studies, IDATE DigiWorld

since the deep dip in 2009 one sole direction: upwards!

 

 

Regarding the latest update of IDATE’s half-yearly TV & video services observatory, Alexandre Jolin, Senior Consultant at IDATE, claims: “TV revenues are stronger than ever: from €366.8bn in 2015 they will hit the €413.1bn mark in 2020: still six times higher revenues than generated by video services (both physical and online). Within TV revenues, ad spending will grow at a tremendous pace until 2020 – It will increase by 14.6% – and will be relatively close behind pay-TV revenues. This is particularly notable because the European TV ad spending revenues dropped hardly in 2008, followed by a sluggish growth until 2015. In order to put in relation: Online advertising (both fixed and mobile, video and non-video altogether) worldwide revenues are skyrocketing, nevertheless they will leave behind global TV ad spending at best up from 2019. With this in mind, traditional TV still seems to have a bright outlook for this decade, both for ad spending and other related revenues.”

Key TV facts and outlook

The global TV industry’s revenue will come to €366.8 billion in 2015 and €413.1 billion in 2020.

Pay-TV revenue will grow by 11.7% between 2015 and 2020, to reach €199.0 billion in 2020.

Ad revenue will increase more rapidly (+14.6% between 2015 and 2020), to reach €178.3 billion in 2020.

Public financing/licensing fees will continue to increase significantly (+8.3% in 5 years) to reach nearly €35.9 billion in 2020.

Breakdown of TV market revenue in 2015

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Source: IDATE, State of TV & Video Services worldwide, December 2015

Regarding TV access, the number of TV households worldwide will reach 1.742 billion in 2020 (+9.1% since 2015).

Cable will the remain the chief access channel (623.8 million households in 2020) but will gradually lose ground to satellite and IPTV which will account for 33.4% and 10.3% of TV households, respectively, at the end of 2020.

Despite the development of hybrid TV solutions, terrestrial TV should continue its decline on the first TV set and drop down to number three spot by 2020, with a 20.5% share of the global market.

The development of hybrid solutions that combine live programming on broadcast networks (terrestrial and DTH) and OTT video services over the open Web is a key variable in the future development of the various TV access modes, and may well shake up current trends.

Video revenues

Video hard copy sales and rental will total €10.8 billion in 2020

This means that the global market will decrease by 40.8% compared to 2015.

Blu-ray will be the most common format and help temper plummeting hard copy sales.

On demand video revenue will reach €54.3 billion in 2020, which is 119.6% more than in 2015.

OTT video will continue to be by far the biggest earner, generating 83.9% of total revenue.

VoD will still be the dominant model on managed networks. It will generate €5.8 billion in 2020 versus €2.9 billion for subscription video on demand (S-VoD).

Breakdown of on-demand market revenue in 2015

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Source: IDATE, State of TV & Video Services worldwide, December 2015

Learn more about our ongoing monitoring of TV & Video Services covering 39 countries, 10 regions and world consolidated.

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