Telcos vs OTT: Cloud Markets

Julien GaudemerJulien GAUDEMER

Consultant at IDATE

Opportunities for telcos: Personal Cloud, IaaS, PaaS and SaaS

The cloud computing market is currently growing at a significant rate, on both the consumer and business sides.

The Software-as-a-Service (SaaS) segment, which provides software services online through a Web interface, is the most important cloud segment. Infrastructure-as-a-Service (IaaS), which provides on-demand calculation and storage capacities online, is the second market segment after SaaS, but it should reach the SaaS level in 2016, with IaaS and SaaS each representing just short of one-half of the market. Platform-as-a-Service (PaaS), where on-demand servers are dedicated to application trials and rollouts, represents a marginal share of the overall cloud computing market, but is usually bundled with SaaS or IaaS, in order to attract developers and generate more revenue on SaaS or IaaS.

Globally speaking, it is the large OTT players that are leading on the cloud
computing markets, while telcos do have a role to play.

Dropbox, Apple and Google are the leading personal cloud providers, whereas Salesforce.com, Google and Microsoft lead on the SaaS market. Amazon is one of the most-used PaaS and IaaS providers. Telcos, in contrast, only entered the cloud computing market a few years ago and later
than the OTT players, and have remained marginal - but they do have several parts to play. In fact, they may especially have a competitive advantage at the local level, where they can benefit from a local commercial presence, contrary to many OTT players.
Moreover, most telcos have now rolled out data centres in a majority of countries, with major investments. Thanks to their network, they can claim to have an end-to-end approach to guarantee the continuity and Quality of Service. This aspect is not a key issue for most customers who may be more interested in the data protection ensured by a local provider. As such, telcos have the infrastructure required to provide IaaS products, or can be helped by third parties, whether companies that they have acquired, as with Verizon and Terremark, or a partnership with a IaaS pure player, as Telefónica has established with Joyent. Besides, telcos also provide communication-based SaaS that most OTT
players cannot at this scale, with elements such as unified fixed-mobile communication or video conferencing. On the personal cloud market segment, most telcos currently provide storage service bundled with mobile or fixed rate plans, as a way to limit churn and generate indirect revenues.

Positioning of some telcos on cloud services

Telco cloud services (IaaS, PaaS, SaaS, Personal) positioning (Absent, Minimalist, Opportunistic, Determined)

Source: IDATE

To consolidate their position on the cloud computing market, telcos should develop partnerships with a diversity of cloud players.

Such partnerships could position telcos as intermediaries for providing cloud services, in a variety of ways. Firstly, telcos can get help from white label providers in order to provide cloud services with a faster time-to market. Rackspace, for instance, provides a white label telco cloud that consists of a preconfigured cloud base for quick rollouts of various cloud services. Second, telcos can be involved in the cloud computing market as a 'cloud broker’. In the SaaS segment, telcos are not usually product leaders: providing a SaaS marketplace could enable telecom operators to become key players by aggregating various products from multiple providers. Such a concept is particularly interesting as telcos can target a large range of customers that OTT players cannot necessarily reach. A word of caution: marketplaces are not only provided by telcos. OTT players, despite pushing their own services, also provide marketplaces, in particular PaaS leaders such as Microsoft or Salesforce. Furthermore, a partnership with infrastructure providers may help telcos to provide a strong IaaS offering, much like Verizon and Terremark or Telefónica with Joyent. In the personal cloud segment,
partnerships with OTT pure players can also be considered: SFR bundles free extra Dropbox storage in some of its mobile rate plans, as does NTT DOCOMO with Evernote.

This is an excerpt of our insight Cloud Markets" being a part of our ongoing monitoring service Telco vs OTT watch


Focus on FTTx in the UK


Head of Research, Telecoms Business Unit, IDATE

Inventory of the British NGA market

The British NGA market is quite complex. On the one hand, two national players, BT and Virgin Media (now acquired by Liberty Global), have deployed their FTTN networks and already reach 20 million households who can access to at least 20-30 Mbps. On the other hand, several local players have decided to get involved in FTTH (more often called "FTTP" in the UK) as they consider that this is the infrastructure of the future and that they cannot wait for national players to get involved.

Then, the government is also involved through the BDUK programme (mainly for FTTx in rural areas) but only BT and Fujitsu can apply to tenders launched by local authorities and then indirectly benefit from public funds. However, at mid-2012, Fujitsu withdrew itself from two tenders (Cumbria and Wales), considering that it would be too difficult to attract RSPs to provide services over the infrastructure in those areas.

BDUK is also involved through the very recent launch of the "super-connected cities" project, aiming at ensuring the coverage of areas in large cities that would not be concerned by private investments.

Whatever the project, FTTH/B is not, and will not be, the main architecture deployed in the UK. This has been much more the case since BT announced its "FTTP on demand" pilots: the incumbent does not plan to roll out FTTP any more unless the demand is clear from end users.

199,000 FTTH/B homes passed and 17,000 FTTH/B subscribers at end-2012
• Very low take-up rate: 8.5%
• Several local players are involved in FTTH/B rollouts but they generally cover restricted territories; some interesting business models are emerging such as the B4RN and Fibre GarDen ones, involving people from the communities.
FTTN+VDSL from BT and FTTLA + DOCSIS 3.0 from Virgin Media are the leading architectures regarding superfast broadband in the UK:
20,000,000 FTTN2 homes passed,
3,341,000 FTTN subscribers.
• This will not change in the coming months if we consider the current strategy of BT
regarding FTTH roll outs ("FTTP on demand").

This analysis is an extract from our FTTx market insight which we propose within our ongoing monitoring of the worldwide FTTx market.


LTE World Summit – The 700 Mhz Band

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

IDATE reveals Latest
World LTE Market research


Sustained growth expected to hit 915 million LTE subscribers worldwide by the end of 2016, and the first billion will be exceeded during 2017.

IDATE, leading analysts and European Internet thinktank, today announced the main trends shaping the world’s mobile markets: networks, devices and services. At the LTE World Summit in Amsterdam (June, 24-26) IDATE provides its latest analyses and forecasts for the world LTE market, and insight into the 700 MHz issue.

World LTE Market forecasts

By the end of 2016, IDATE’s forecast predicts more than 915 million LTE subscriptions worldwide. Asia-Pacific is expected to represent a sizeable 41.6% of the total, North America 21.6%, Africa/Middle East 7.5%, Eastern Europe 4.9% and Western Europe 15.8%.

LTE is now mainstream with major deployments in every geographical area. The TD-LTE ecosystem is still waiting for a decision from China and can anticipate seeing the first LTE Advanced networks during the second half of this year. The 700 MHz band with the APT band plan has already been allocated in countries such as Australia and Japan with intense regulatory activity expected in Europe, Middle East, Africa and Latin America around this new frequency band.

LTE subscribers worldwide (in thousands): Ranking by country at 2016

World LTE forecasts

Source: IDATE, LTE Watch Service, March 2013

The 700 MHz band: A new harmonised frequency band for LTE?

With IDATE’s latest report addressing the 700MHz band issue, this question for future usage of our mobile services must be considered.

The growth of mobile broadband traffic is putting pressure on mobile networks and is driving the need for more spectrum in sub-1 GHz frequency bands for LTE and LTE-Advanced networks. Harmonisation across many geographical areas is crucial as it would enable significant economies of scale for LTE devices and would facilitate international roaming. The first Digital Dividend has already provided new spectrum for the mobile sector. Notably, the 700 MHz band in the USA and the 800 MHz band in Europe are today used for commercial LTE services.

Following the 2012 World Radiocommunication Conference (WRC-12), the 700 MHz now appears the most promising option for a harmonised frequency band across Asia-Pacific, Europe, Middle East, Africa and Latin America. IDATE anticipate further discussions at WRC- 15 and technical conditions have to be defined in Europe before then.

First and second Digital Dividends, worldwide

first and second digital dividend by geographical area

Asia-Pacific taking th lead in digital dividends

The Asia-Pacific region is taking the lead in this field and has already defined the ‘APT band plan’ which is likely to be adopted in Latin America, Africa, Middle East and Europe. This plan is not compatible with the US plan, which was defined before the 2008 auction and does not allow any compatibility or roaming for future LTE handsets. The 700 MHz band with the APT band plan could become a harmonised frequency band for LTE worldwide.

The 700 MHz band corresponds to the first Digital Dividend in the USA and in Asia-Pacific, whereas it could become the second Digital Dividend in the EMEA region. At WRC-12, African and Middle Eastern countries requested that the 694-790 MHz spectrum be allocated for mobile broadband services.

Europe should not make the same mistake as it did with the 800 MHz band

Many observers insist that Europe should not make the same mistake as it did with the 800 MHz band - where the auctions took place without coordination leading to undesirable early starts in some countries with a limited range of compatible devices. The harmonisation process in Europe should be clear with precise technical parameters and a realistic roadmap taking into account the timetable of existing broadcasting services. 2020 seems to be a realistic target for the launch of LTE services in the 700 MHz band in Europe, but some countries, such as France and perhaps Germany, are already planning to organise auctions as soon as 2015 even though the spectrum will only be available at a later date.

Public safety networks want superior broadband services

Public safety networks, which want to support mobile broadband services, are also starting to use parts of the 700 MHz band in the USA and the UAE have already allocated spectrum for their use earlier this year. Discussions are under way in Europe to address this question.

Innovative auction format in USA

In the USA, the Federal Communications Commission (FCC) has suggested an innovative auction format, called ‘incentive auctions’. The objective is to change the use of UHF band (470-700 MHz) starting with the 600 MHz band and to enable new services on a licensed basis. The process would start with a reorganisation of the UHF band and a re-allocation for licensed mobile services, such as 3G and LTE.

Digiworld by IDATE Related Publications

Just published:


Digiworld Yearbook 2013 (May 2013)

Innovation searching for the digital gold mines

This latest DigiWorld Yearbook provides you, as always, with reference data and the analyses of IDATE experts of the most vital trends on the markets of telecoms, the Internet and digital media.

The 700 MHz frequency band (June 2013)

This insight focus on the adoption of the APAC plan for the 700 MHz plan. Will this frequency band become an harmonised one? Will Europe adopt this plan and benefit from the device ecosystem? Which timescale?


Soon published:


DigiWorld Economic Journal: C&S No.90, 2nd quarter 2013(June 2013)

The radio spectrum: A shift in paradigms?

Edited by J. Scott MARCUS, Gérard POGOREL & Frédéric PUJOL
Demand for the use of the radio spectrum is constantly and rapidly growing, not only as a means of carrying Internet traffic, but also for new or expanding use by the military, public protection and disaster relief, at the same time that more traditional applications such as aeronautical, maritime, and radio astronomy remain. Is spectrum policy entering a trackless wilderness, or can a new direction and a new set of paradigms be expected to emerge?

two exclusive interviews :

- Gilles BRÉGANT, CEO of ANFR (French national spectrum agency)

- Paul E. JACOBS, Qualcomm's Chairman & CEO Read the interview


Telcos: evolve or die


Didier Pouillot
Director of the Telecom Strategy Business Unit,
DigiWorld Yearbook project leader, IDATE

Digiworld Yearbook 2013


What is the future of telcos Business models ?

Increasingly stiff competition, particularly in Europe, and the growing role of the internet and OTT (over-the-top) services, has upset the telco industry. Revenue from calling minutes is tumbling, data traffic is exploding and NGN (LTE and fibre) rollouts require massive investments. This is the backdrop, then, against which telcos are having to consider the future of their business models.



Creating more value from access

They do have certain leverage to deal with this change, starting with creating more value from network access now that OTT services are increasing user consumption. NGN technologies allow telcos to increase speeds (‘best network’ strategy) and to introduce noticeable quality improvements, both of which can differentiate their offerings. The challenge now is to increase data revenue, smartphone and tablet use and to extricate themselves from the price wars raging in certain national markets. So we are starting to see new pricing strategies emerging, with per-minute charging being replaced by new ways of creating value from access and data: tiered pricing based on speed and access quality, data-sharing options between multiple devices and/or users, and bundles that include optimised access for a group of applications.
Other than necessary investment in infrastructure, implementing these innovative approaches also requires significant effort in upgrading software tools (OSS/BSS) in order to control traffic and usage in real time, and to provide the flexibility required for policy management and real-time charging.
Also worth underscoring is that operators see the migration of IT architectures to the cloud and the proliferation of connected objects (machine-to-machine, the internet of things) as major opportunities to earn back on some of their spending on access.


Moving toward two-sided markets

Alongside this strategy, telco services can take two approaches:
• adding value to access and using a two-sided market approach, by enhancing wholesale services: telco CDN,
• API agreements (billing, geolocation and others)
• beyond access, by relying on certain assets that underpin their originality. For example, value can be created from the personal information available through their consumer relationship, either by optimising their own offerings (downstream side in the two-sided structure), or by selling analytics services to third parties (upstream side).

The challenge is therefore to find the right balance so as not to destroy the image—and the value that comes with it—of a ‘trusted third party’ that consumers have of them. There are also increasing opportunities with regard to services. Operators can harness the creativity found in start-up companies, as seen with Telefónica Digital) while managing the risks of destabilising agreements that would likely be signed with major OTT players. They can also enter into collaborative projects, with players from user sectors (particularly within vertical markets), or between themselves to define applications deemed strategic (NFC and payment) or related to traditional interpersonal communication (see joyn RCS services). In particular, this would involve challenging the proprietary solutions developed by device manufacturers.


Industry reorganisation in the medium or longer term

These changes to business models tailored to operators’ specific assets could be accompanied by a consolidation of the telecommunications landscape in the more or less long term, particularly in Europe which has been singularly hard hit by the economic crisis and by having an extremely fragmented market. It is possible that the new round of mergers in the US could make its way to this side of the Atlantic, or result in a series of infrastructure sharing and pooled investments.

Maintaining the status quo could, on the contrary, only speed up European telcos’ loss of power, impede the development of NGN and, ultimately, result in their being taken over by carriers from the US or one of the powerful emerging economies.

About the Digiworld Yearbook

digiworld yearbook 2013
197 pages that deliver the finest market insights from IDATE experts who track the changes at work in the globe’s telecom, Internet and media industries throughout the year.

the DigiWorld Yearbook is published in English and French and available in print and PDF format. An iPad edition, developed by Forecomm, is also available.

The 2012 edition can be downloaded for free
The 2013 edition is available for purchase. Print: €99.99, incl. VAT; PDF and iPad: €54.99, incl. VAT


  • You can have a look at the digiworld yearbook 2013, purchase it or even download the 2012 version for free at : www.digiworld.org/yearbook/

The state of the digital world in figures

Interview with Didier Pouillot, Digiworld Yearbook project manager

Interview published in weekly letter from ARCEP - 7 June 2013

Find the intervew Didier Pouillot by ARCEP on the occasion of the publication of the 13th of the DigiWorld Yearbook: our annual publication on the state of the digital world. (Interview available in french only)

Source: ARCEP's website

Didier Pouillot reviews the status and trends of DigiWorld markets: telecommunications, computer and television, an economy that accounts for 6% of global GDP, but whose performance is currently short of those of the general economy, particularly in Europe, on which Didier Pouillot explains the situation. This is also an opportunity to recall the issues in each market of the digital economy with many business models are changing mainly because of internet giants: Facebook, Amazon, Google, Microsoft and Apple, and more broadly OTT services.

Discover the slides from the London Yearbook presentation with Ronan Dune, CEO Telefónica :

Digiworld Yearbook 2013 Presentation in London, with Ronan Dunne, CEO Telefónica UK Limited. from DigiWorld by IDATE

About the Digiworld Yearbook

digiworld yearbook 2013
197 pages that deliver the finest market insights from IDATE experts who track the changes at work in the globe’s telecom, Internet and media industries throughout the year.

the DigiWorld Yearbook is published in English and French and available in print and PDF format. An iPad edition, developed by Forecomm, is also available.

The 2012 edition can be downloaded for free
The 2013 edition is available for purchase. Print: €99.99, incl. VAT; PDF and iPad: €54.99, incl. VAT


  • You can have a look at the digiworld yearbook 2013, purchase it or even download the 2012 version for free at : www.digiworld.org/yearbook/

Africa and Middle East LTE forecasts

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

70 million LTE subscribers for Africa and Middle East in 2016

As an official partner of LTE MENA 2013, IDATE delivers its latest insights about the LTE Market in Africa and Middle East.

LTE is gaining momentum: by 2016, there will be a total of 916 million LTE subscriptions worldwide. Our forecasts regarding Africa and Middle East are for 68 million LTE subscriptions at the end of 2016.

World LTE market : LTE deployments stepping up

• We expect that, by the end of 2013, a significant portion of LTE devices will support both FDD and TDD duplex modes. TD-LTE deployments in India, China and many other countries in the Asia-Pacific, Latin American, and Middle East regions and, to a lesser extent, Europe will fuel this growth.

• We anticipate that more than 80% of LTE devices will also support 3G and, in most cases, 2G in 2014.

• A limited number of LTE devices will support Mobile WiMAX in order to facilitate smooth transition for operators switching to TD-LTE.

Middle East & Africa : 70 million LTE suscribers by 2016

• The first LTE commercial services were launched in South Africa, Tanzania and Namibia in 2H 2012.

• Saudi Arabia: the three MNOs – Etisalat-Mobily, Zain Saudi Arabia and Saudi Telecom Company (STC) – launched LTE services in 2011. They were slowed down by the lack of compatible smartphones.

• Our forecasts are for 68 million LTE subscriptions at the end of 2016 in the countries of the Middle East and Africa for a revenue of 20 billion Euro.

Africa Middle East LTE Subscribers forecasts (thousand)

Africa & Middle East LTE subscriptions by 2016

Source: IDATE

Frédéric PUJOL
Head of Mobile & Spectrum Practice at IDATE

> More information about LTE MENA 2013 Event

> More information on Africa and Middle East LTE forecasts


World Telecom Services

Project Leader, Digiworld by IDATE

Global telecom services market to reach over €1,200 billion in 2015

“We have observed that, overall, telecom services are recovering more slowly than the economy as a whole,” reports Carole Manero, head of IDATE’s Telecom Players & Markets report.

Montpellier, 7 May 2013 - IDATE reveals the findings of its world telecom services watch. After a setback in 2009 and very slight growth in 2010, the global market has been inching back to a more solid recovery since 2011, growing by a modest 2.7% in 2012. This translates into telecom services revenue of €1,115 billion for the year.

Now in a recovery phase, telecom markets in advanced countries are proving somewhat resilient, whereas in fast developing markets the increase in volume is so steady that the ripple effect far outweighs any structural obstacles. 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.

World telecom services market - 2012

World telecom services market revenue by type and region

Source : Digiworld by IDATE

Majority mobile access

According to IDATE, the number of mobile customers worldwide should top the 8 billion mark in 2017 (+28.0% in 5 years).

• The number of Internet subscribers will grow more strongly (+37.3 % between 2012 and 2017, +6.5% per year on average), reaching 1 billion by the end of 2017.

• Traditional landlines continue to loose ground in the face of VoIP and mobile.

The spread of broadband

According to IDATE, the number of fixed broadband subscribers is expected to reach 957 million worldwide by 2017, for a penetration rate of 14% of the population. The number of 4G mobile subscribers should experience strong growth.

Two major factors will play in favour of the spread of broadband:

• The success of bundled offers (fixed telephony, VoIP, TV, mobile telephony) and the appetite for video applications.

• The investment of telecom operators in the migration of their infrastructures to mobile or fixed broadband.

Revenues from telecom services

According to IDATE, the global revenues from telecom services will grow from 1,115 billion in 2012 to 1,286 billion in 2017, representing an average annual growth of 2.9% in 5 years.

• Revenues from mobile services will grow by 18.7% between 2012 and 2017 (+3.5 % per year on average), reaching 779 billion EUR in 2017.

• Revenues associated with data transmission and Internet will grow more strongly (+32.8% between 2012 and 2017, i.e. +5.8% per year on average), to reach 329 billion EUR in 2017

• The turnover of fixed telephony will continue to decline significantly (-15.9% between 2012 and 2017, i.e. a decline of 3.4% per year on average), to be at 177 billion EUR in 2017.

Scalability of operators in emerging countries, even if the global top three remains unchanged since 2007

A single change in the ranking of European operators: Telefonica overtook Deutsche Telekom in 2011: now the leading European operator, the Spanish group ranks fourth in the world.

Chinese operators regularly win places in the world rankings

Vimpelcom gained fifteen places in 2011 : Owing to the acquisition of a large part of the shares of Orascom Telecom and Wind, VimpelCom moved from 34th place in 2010 to 19th in the world in 2011

Several operators from industrial countries "drop out": The Dutch KPN and Canadian ECB fell back by five places in two and a half years and drop out of the top 20

Classement des principaux opérateurs télécoms

Selon leur chiffre d'affaires au 1er semestre 2012 (milliards EUR)
World telecom operators ranking according to revenues end 2012

Source : Digiworld by IDATE

Five operators in the top twenty worldwide for over 50% of their turnover outside their domestic market:

• Among them, three European operators...

- Vodafone: global operator widely present in Europe, Asia and Africa

- Telefónica: with a widespread presence in Latin America and in some European countries (UK, Germany, Czech Republic, Slovakia)

- Deutsche Telekom: present in Central and Eastern Europe and in several Asian countries

•...and two operators from developing countries:

- America Móvil: present mainly in Latin America (plus participation in Europe acquired in 2012)

- Vimpelcom: already present in Central Asia, with a new presence in Africa and Europe (Italy) thanks to the deal with the Naguib Sawiris group

Chef de projet, IDATE

More information about World Telecom Services


DigiWorld Summit 2012

DigiWorld Summit
"Game Changers: Mobile, Cloud, Big Data"

Opening day of the 34th Summit: The future of the digital economy according to its leaders

This morning IDATE Chairman François Barrault opened the 34th edition of the DigiWorld Summit in Montpellier. The Summit has become one of the must-attend events each year for playmakers in the telecom, Internet, television and video game industries. It will bring together more than 1,200 participants and 130 speakers from over 20 countries around the world.

IDATE and the members of the DigiWorld Institute are putting the spotlight on “Game Changers: Cloud, Mobile, Big Data” for this year’s Summit. The objective of the event is to discuss the factors that will lead to the emergence of the next decade’s digital leaders.

Executives from device and cloud heavyweights as well as content providers and telecom operators will present their views on these subjects over the next two days.

John Chambers, CEO of Cisco, affirms that the pace of innovation today is the fastest it has been in the past 25 years.

Hans Vestberg, CEO of Ericsson, stresses the need to combine a strategy of vertical integration and openness to “capture the innovation of other players.” For Ben Verwaayen, CEO of Alcatel-Lucent, Europe should speed up LTE rollouts despite the economic uncertainties. Qualcomm Chairman Paul Jacobs, riding high on the success of the firm’s technology, which is used in many smartphones and tablets, predicts a “sixth sense, in that everything will be connected around us.

In addition to such distinguished speakers, the DigiWorld Summit is also recognized for its detailed preparation of the themes and the series of sessions based on IDATE analysis. During the opening session the Institute’s experts will each present an overall analysis of their focus sectors. They will highlight the dominant role of three game-changing factors applicable to all the links in the value chain:

  • Mobile’s irresistible momentum, with the battle of the OSs and then LTE, which is expected to be central to the new differentiation strategies to break out of the price wars.
  • The Cloud, which for IDATE is not limited to externalized enterprise computing (“cloud computing”) but includes application distribution architectures (including for audiovisual content), shaking up traditional roles.
  • Big Data, an asset that all players will be looking to capitalize on through real-time applications, aiming to enhance their services and offerings (devices, content, connectivity services, storage and application platforms, etc.).

Three important voices offer a counterpoint to IDATE’s analyses: Ben Verwaayen, the boss of Alcatel-Lucent, Léo Apotheker, former chief of SAP and HP, and Carsten Schloter, CEO of Swisscom. Overall the messages converge, with all three insisting on one point: Europe has a lot going for it. However, these pluses are particularly concentrated in the telecom industry, which is currently suffering multiple ills: the economic situation, its relative disintegration and the constraints of a world where traffic is exploding but applications tend to lean in favor of over-the-top (OTT) players.

The sessions on November 15 will be devoted to sketching a potential next-generation telco. Presenters include Terry Denson, Vice President of Global Strategy for Verizon, Stéphane Roussel, CEO of SFR, Jean-Ludovic Silicani, Chairman of ARCEP. The heads of Ericsson and Orange, Hans Vestberg and Stéphane Richard, will close the debate. Some big names in traditional content (the BBC) and new online platforms (like Netflix) will also be present. A conclusion will be given by players that hold promising futures in platforms with IBM, Amazon, BT and Cisco.

Also note that five executive seminars will be presented on November 14 and 15, on the following topics:

  • Impacts on privacy, with the input of Google and CNIL.
  • Key issues for next-generation networks: FTTx, LTE, etc.
  • Expectations surrounding the rise of smart cities.
  • Perspectives related to the concept of smart TV.
  • New business models for video gaming.

> Follow live the plenary sessions: Live streaming DWS12 !!!

> More information about our program and our speakers on the website DigiWorld Summit 2012


Strategies of telecom operators



Project manager, IDATE


How to retain margins

The Institut de l'Audiovisuel et des telecommunications (IDATE) has published recently the study "Strategies of telecom operators" which analyses the initiatives being taken by telecom operators to contain their margins, such as: keeping costs under control, choosing investments, winning over new customers, valuation of assets, etc.

"Market maturity, increased, multi-faceted competition, an unfavourable macro-economic climate and the existence of substantial regulation contribute to the erosion of most operators’ margins in advanced economies on a regular basis", says Carole Manero, Director of Studies and project manager of this study. She adds: "Faced with these challenges, telecommunication operators have reacted by employing three main tactics:

  • they continue to focus on reducing – or at least on managing – expenditure, while simultaneously reflecting on their economic models and their investment options;
  • they take action to win new customers and to improve the relationship they develop with them and with their prospective customers;
  • lastly, they seek to maximize their revenue through more comprehensive deals and by improving their asset valuation."

Operators increasingly under pressure

Of the ten operators being studied, those in advanced markets are under great pressure. However, those that had already re-engineered their balance sheets in 2002-2003 entered the 2009 crisis in better shape than players in other economic sectors.
They show levels of poor performance for which the reasons are well known: markets having reached maturity with above 100% mobile penetration, agressive behaviour on the part of competitors, economic growth at half mast and unfavourable regulatory decisions. Some of them appear to be stuck in a strategic rut. Margins that have been fuelled for ten years by the explosion in the market are slowly beginning to shrink. Capital expenditures (CAPEX) are monitored closely.
Operators in emerging markets showed overall levels of good performance at the end of 2011. Their main difficulties lie in managing their growth and, by extension, in managing their working capital requirements. However, with EBITDA margins shrinking for them too, these operators find themselves at a crossroads. They need to capitalize on the sustained growth of the last few years and successfully make the transition towards the structure of operators in more mature markets. At the present time, their major obstacles are the limitations of large-scale winning strategies and, in China, formidable policies for subsidizing devices.
However, it is essential for telecom operators to ensure that they have a sufficient financial cushion to be able to overcome structural difficulties and difficulties linked to the economic climate and to serve shareholders. This is a real challenge for telecom operators in a deflationary environment, at a time when major projects such as optical fibre and the purchase of 4G licences are coming to the fore, and when in some markets various taxes are skyrocketing and are simultaneously reducing margins of manœuvre for investing in networks of the future.

Net income affected by impairment losses

Some companies still have a high level of net income, again enabling them to pay large dividends to shareholders for this year. However, some of them are affected by substantial write-downs, reflecting a strategic deadlock or a complicated situation to which solutions need to be found. Deutsche Telekom reported that it had had to record impairments of EUR 3.3 billion in total on various assets at the end of 2011, in the United States where it has been experiencing difficulties for years and in southern Europe, "in particular Greece". KDDI’s net profit was down 6% in 2012 (tax year ending at the end of March 2012) compared to 2011 (tax year ending at the end of March 2011).

EBITDA margins under pressure

All operators’ EBITDA margins are under strong pressure and are following a steadfastly downward trend. China Mobile’s, which is nevertheless comfortable, has been steadily declining since 2007. It dropped below the 50% threshold in 2010. América Móvil’s EBITDA margin is also following a downward trend. It was in the 35-40% bracket throughout the period 2006-2011.

A few ROCE ratios below 20%

The downward trend in Return On Capital Employed (ROCE) ratios of operators in advanced markets since 2008 is significant. At the end of 2011, Deutsche Telekom, Telefónica and Verizon reported ROCE ratios significantly below 20% and even below 10% in the case of Deutsche Telekom. Crossing this threshold is worrying insofar as financial liabilities should be in the region of half of ownership equity.
On the other hand, with a ROCE of over 5, China Mobile has very low long-term liabilities, five times lower than the EBIT. China Mobile can rely on this sound financial base to balance internal growth as well as possible, by developing the network and acquisitions.

Maintaining margins, a real challenge

With revenues being eroded or showing little increase and costs rising at a rapid pace (devices, acquisition and retention costs in particular) operators’ accounts should continue to show weakened EBITDA margins. Maintaining EBITDA margins at the present level requires rethinking cost structures, economic models and partnerships in the long term.

Project manager, IDATE

> More information about this study available on our website


DigiWorld Yearbook 2012 by IDATE (1/3)

Scorecard for the digital economy in 2011

IDATE has published the 12th edition of its DigiWorld Yearbook which provides readers with a concise portrait of the digital world. The Yearbook begins with a look back at the trends that shaped 2011, then goes on to explore the key issues in 2012 and takes a looks at the map of the digital universe.

The DigiWorld momentum: new internet markets vs. traditional communication service markets

Digital market momentum calling existing models into question: usage explodes while revenue inches slowly up

Generating €3,069 billion in revenue in 2011, DigiWorld – i.e. telecoms, IT and television – markets grew only slightly last year and by three points below the economy as a whole . But the rate of innovation has not flagged, thanks to which equipment and consumption levels continue to rise at a steady clip – this is especially true of smartphones and tablets – while new markets on the periphery of the DigiWorld’s core continue to grow and flourish.

The good news is that DigiWorld market growth in 2011 was roughly equal to what we saw in 2010, as the momentum of markets playing catch up the year before was sustained, despite fears that it would slow. So while some concerns were alleviated, the past year did confirm two things:

  • the growing performance gap between the sector and the economy as a whole and
  • the 1.5 to 2-point drop in growth rates compared to the mid-2000s.

In addition to the impact of the still grim economic climate, particularly in Europe, what we are seeing are no doubt long-term trends due to the structural changes occurring in every single ICT industry sector.

Geographical perspective

From a geographical perspective, North America is faring better than Europe, reporting 2.7% growth compared to a mere 1% on this side of the pond. But the most significant and growing gap is between advanced and emerging regions: although the former continue to generate the bulk of market revenue – accounting for 68% of global DigiWorld industry income in 2011 – they did lose close to two points compared to the year before. While still being powered by China, the momentum of emerging markets is also being sustained by a number of other Asian nations – starting with India of course, but also smaller countries like Vietnam and Malaysia – and by the counties of Africa and the Middle East as a whole. Equipment levels in all of these places are rising quickly and steadily.

Sector-specific perspective

Looking at the individual sectors, hardware markets as a whole made greater progress than services in 2011, with the notable exception of consumer electronics which are suffering from a drop in the price of flat screen TVs, and shrinking sales for other types of hardware such as MP3 players and GPS devices. Over in the services segment, the outstanding phenomenon is the decline of certain core DigiWorld businesses which are being shoved aside by especially dynamic new markets, including the various managed and OTT services over IP – from search and social networking to online advertising, by way of VoIP, IPTV, etc. – along with mobile applications, M2M, cloud computing… not to mention e-commerce of course.

Once again this year, an entire chapter has been devoted to the top ICT market players’ transition to IP and digital. Taken as a whole (including access, software and content), the Internet sector now accounts for 5% to 10% of the ICT services market in advanced economies and, more significant still, most of its core components continue to grow by more than 20% a year.

> Visit the DigiWorld Yearbook website : www.digiworld.org/yearbook2012/