London, 23 October 2013 – Changes at work in the telecom and television sectors are explored in new key IDATEreports and at the upcoming DigiWorld Summit 2013 (19 to 21 November 2013). IDATE continues to publish its series of outlook reports devoted to the issues and challenges that the TV, telecom and internet industries will be tackling over the next 10 years. “Digital gold mines”, the theme of this year’s summit, will endeavour to shake off some of the gloom of today’s environment and discuss instead the likely sources of future prosperity in the digital economy.
Future Telecom: 2025
A European market that will not regain its 2010 levels… in 2020!
For several decades, the telecommunications sector has been in the throes of profound upheavals. What started with the overwhelming popularity of mobiles and later the internet, has led to today’s environment: the era of IP everywhere, cloud computing and big data. This created an environment with no shortage of challenges for telcos hoping to continue to grow.
Telecommunications companies face:
the demand for growth outlets to offset the inexorable decline of now mature sections of their business (voice calling in particular);
the requirement to invest in fixed (fibre) and mobile (4G LTE) new generation access (NGA) systems to handle the explosion in traffic; and
the need to find their place in increasingly open value chains and an ecosystem populated by fast-rising new and ultra dynamic players, including OTT providers, device suppliers, etc.
In Europe, these challenges are further exacerbated by the grim economic climate, which is testing the limits of the telecom sector’s traditional resilience. Very stiff competition only underscores how fragmented the European market is.
Consumers are spending more and more time on their phones and computers, using increasingly bandwidth-hungry applications (enhanced content, a lot of video, using multiple devices at once, etc.). But any extra money spent on digital pastimes is tending to be on hardware, as customers are leaning more and more towards low-cost plans for their connection needs.
According to Didier Pouillot, the head of IDATE Telecom Strategies Business Unit, in charge of this report, “…this explosion in consumption and the traffic it generates can also prove an opportunity for telcos, if they can find the right way to monetize it. For them, this is the biggest challenge that lies ahead.”
What is next?
IDATE has defined three different scenarios for the market’s future development, factoring in six key parameters from both the supply and demand side of the equation.
"Evolution", can be seen as the middle path, although not built solely on current and short-term revenue trends stretching out into the future. It is characterized by market growth (calculated here for the top five European markets, or EU-5) that has been shrinking since 2008, and expected to dip further still in 2013 (-4%). Growth will continue to decrease in the coming years, with a gradual upswing starting in 2016. This means that in 2015 the market will not have reached its 2009-2010 levels… in nominal value!
The three telecom Services market scenarios, 2008-2025 (EU-5, million EUR)
The other two scenarios describe more “extreme” situations, and help sketch out the perimeters of what the future might hold:
"Doldrums", with pressure still high across the board, the mobile market is experiencing the same cycle that fixed services have for the past 10 years – i.e. the drop in calling revenue not being offset by data revenue;
"Renaissance", there is a revival of the retail market (revenue being generated by the sale of access thanks to successful tiering policies), and the monetization of new business areas, services and/or platforms.
Worth noting in the “doldrums” scenario is that the market in 2025 will have shrunk by 24% compared to 2010, while under the "renaissance" scenario it will have grown by 28% – up by 40% compared to 2013, which translates into an average annual growth rate of close to 3%.
Growth of Telecoms service revenue - fixed and mobile (EU-5, million EUR)
Need for new operator models
If telcos can, and have begun working on monetizing access – e.g. via tiered pricing and device sharing – they can also engage in a two-sided strategy, and position themselves as preferred intermediaries between content and application providers (residential, business, M2M) and their customers. The most ambitious approaches to vertical integration are no doubt the purview of only the world’s largest telcos, those able to deploy their model internationally.
A number of factors are pushing telcos towards more or less integrated strategies. There is a possibility of more radical changes to:
the Netco (network company) model that has network management as the centrepiece of its strategy, aimed largely at a wholesale clientele through agreements with OTT providers and the top device suppliers;
and, to the Servco (service company) model that does away with the network to focus instead on marketing and selling service packages, going more or less head to head with OTT vendors.
Four Trends Influencing Europe’s Telecoms:
When looking at the generic components that make up the business models, there are four trends that will influence the way Europe’s telecom service industry is organized in the future:
the sharp drop in European operators’ income and their shrinking margins will result in a period of both direct mergers and large-scale infrastructure-sharing deals, first at the national level and subsequently to revived cross-border strategies;
the decrease in European group’s share prices is opening the doors to foreign investment which will inevitably reshape the sector;
the momentum of superfast mobile and microcells is spurring the convergence of fixed-mobile infrastructures (backhauling/backboning) and the rise of quadruple play bundles;
the developments in networking technologies, and particularly those that fall under the heading of SDN (Software Defined Network) and cloud architectures integration. It still too early to tell how they will affect telcos’ relationship with suppliers and OTT companies.
