EU telecom - future trends

EU Telecom landscape
Evolution, Current State and Future trends
By Rajal Sood
March 21

20 years of Telecom (R)evolution in Europe
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2
Telecom Access

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3
Telecom Access
# of fixed lines decreasing
# of broadband connections increasing
# of mobile phones increasing rapidly (remember this)

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4
Revenue Breakdown

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Revenue Breakdown
# Revenue follows the same pattern for broadband and fixed lines
# But mobile phones revenue is almost flat whereas the number of units
increased rapidly (Do you see the contradiction?)

In order to understand this contradiction, lets breakdown the revenues in terms of voice and data.
So, we will have 4 categories –
# Fixed voice (your landline phone),
# mobile voice,
# mobile internet (you use your mobile phone connection to access internet NOT WiFi)
# and fixed internet (that is your broadband connection)
For simplicity, lets take data from last 2 years.
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Solving the puzzle.

Zoom in to the current situation
Growth rate in %
(2012)
Growth rate in %
(2011)
Fixed Voice -7 -7,2
Fixed Internet access and
services
+2 +2,4
Mobile Voice -2,7 -4,4
Mobile data services +6,3 +6,3
Total telecom (carrier)
services
-1,1 -2,2
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Current State - Revenues of the EU telecoms sector
Source: EC services based on EITO 2012
Total growth rate takes into account business data services also

Zoom in to the current situation
Growth rate in %
(2012)
Growth rate in %
(2011)
Fixed Voice -7 -7,2
Fixed Internet access and
services
+2 +2,4
Mobile Voice -2,7 -4,4
Mobile data services +6,3 +6,3
Total telecom (carrier)
services
-1,1 -2,2
22 March, 2014
8
Current State - Revenues of the EU telecoms sector
Source: EC services based on EITO 2012
Total growth rate takes into account business data services also
# Revenue from mobile internet/data services is up
# But revenue from mobile voice is down
So, the mobile revenue loss from voice must be roughly equal to the
Revenue gain from data/internet revenue. This explains the previous contradiction
# But, the data poses another question. The net growth rate is negative. So what could be
the reasons for negative growth rate of EU telecom sector since the recession 2008-09?

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Reason # 1 for Negative Growth – Low 4G network coverage in EU
Why Negative Growth rate?
Fact 1: Although 4G connections represent only 0.9% of mobile connections they account for 14% of
mobile data traffic. This means people tend to use more data services, when they have 4G.
Conclusion - Since achieving full coverage of 4G networks offering higher speed access may still take
some years, rapid adoption of 4G services at higher prices is not expected. Why is this so? Well, the
spectrum over which 4G has to be provided is government resource. Unfortunately, EU administration
has been lagging nehind in opening this resource for commercial purposes.
Fact 2: The Accenture Mobile Web Watch survey indicated that 63 percent of the consumers using
slower connections (3G broadband or lower) for their mobile Internet connection are willing to pay
more for faster connectivity. While 28 percent will pay up to 10 percent more, 35 percent will pay an
increase of more than 10 percent.

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Reason # 2 – New Market Forces – Competition from non Telco players
Fact 1:The new OTT uses telecom infrastructure to provide their widely used services,
thereby increasing the value of being connected and driving demand by consumers for further and
better connectivity
Conclusion - Substitution of voice/SMS by IP-based voice/messaging services has prompted many
operators to develop new, more aggressive pricing structures.
Fact 2: The traditional voice service (+ SMS), which still contributes a quarter of overall
telecommunications revenues, is fading away very quickly, replaced by voice applications provided by
the above services. Remember that in 2012, 59% of the telecom revenue came from voice services.

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Reasons # Others for Negative Growth
Conclusion:
1. Limited prospects of Organic Growth
2. Macro-economic impact of financial and economic situation continues
3. Regulatory policies have impact on telecom growth
Fact 1: Most of the EU market is saturated. There are approximately 1.31 mobile phones per person in
EU.
Fact 2: There were reductions in mobile termination rates in 2012 (in nine EU countries average MTR
were slashed by more than 50%), mobile number portability has been imposed in many countries
and, in some countries, there is competitive pressure of MVNOs. Not to forget the slash in roaming
rates that happened across the Europe
Fact 3: Since, the recession of 2008-09, the telecom growth has never been positive. This is loosely
linked to low GDP growth recovery.

Is there a solution?
Overall EU telecom sector is doing bad, but there are few bright spots.
We must look at those bright spots, understand what they have been doing and emulate them to
succeed.
Looking at those bright spots, these are the future trends that may become substantive in coming
years.
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Look at the bright spots

Bright Spots – European Telecom Trends
Domestic revenue growth for some European
carriers was negative in 2012 and some
operators were able to experience some growth
in overall revenue thanks only to international
operations.
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Trend # 1 – Expansion in product portfolio and new geographies
Portugal Telecom, Telenor and Telefonica already source more than half of their revenues from non-
EU countries and Vodafone, DT, Telecom Italia, Tele2 and BT also obtain between 30 and 40% of
their revenues from non EU markets
Telefonica is a poster boy of diversified portfolio. It has spun out Telefonica Digital, with a
separate profit-and-loss account.
Focus areas include financial services, advertising, content distribution, security, the cloud, M2M
services and the generation of revenue from past acquisitions,
such as Tuenti, a Spanish-language social network.

An especially provocative finding of The Accenture Mobile Web Watch survey is that 31 percent of
consumers in mature markets, and 17 percent in emerging ones, say they have no service provider
preference; instead, their choice would be based on what company offers the most value.
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Trend # 2 – Increase ARPU with constant base – innovative pricing to continue
Some EU operators added quadruple play
products to their portfolio with the aim to
provide customers all telecom needed
package in a row and reduce churn ratio. By
contrast, broadband standalone services are
fading away, representing around 34 percent
of all offerings in 2013, down from 64 percent
six years ago.
Better understanding of the changing consumer behavior and strengthening customer care
services, customer profiling and customization of products using big data will gain more
momentum.

In 2012, France Telecom, gave revenue
forecasts for new enterprise products, but
not for consumer products. This
indicated significantly more confidence
about the enterprise segment.
When looked at mention of products in
top level strategic communications, there
are fewer consumer products than the
enterprise products. This also indicates a
shift in the strategy vis-à-vis enterprise
and consumer products.
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Trend # 3 – Focus on Enterprise rather than consumer products

Communications service providers have a number of attributes that give them a potential
marketplace advantage: an extensive customer base, distribution muscle and knowledge of
customer preferences through CRM and billing systems.
They may look to leverage their customer relationship to diversify into different areas.
Going beyond the telecom market, Magyar Telekom can be mentioned as an operator that has
widely diversified its portfolio selling electricity and gas to its fixed line subscribers; by end-
3Q12, 45% of its triple-play users had also bought its energy offerings.
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Trend # 4 – Leverage and provide 2-sided market place.

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.
In the first half of 2013, M&A deals worth around €60 billion were announced in Europe's
telecoms market, almost double the volume in the same period last year, and we will see
further growth in 2014
The decrease in European group’s share prices is opening the doors to foreign investment
which could inevitably reshape the sector.
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Trend # 5 – Consolidation of the Sector

So, in summary
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18
Reasons for negative growth of
EU telecom sector
Low 4G network coverage in EU
New Market Actors
Limited prospects of Organic
Growth
Weak financial and economic
situation continues
Regulatory policies
How to Counter them…Trends
Expansion in product portfolio and
new geographies
Increase ARPU with constant base
– innovative pricing to continue
Focus on Enterprise rather than
consumer products
Leverage and provide 2-sided
market place
Consolidation of the Sector

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© 2013 Infosys Lodestone. All rights reserved. Copyright in the whole and any part of this document belongs to Infosys Lodestone. This work may not be
used, sold, transferred, adapted, abridged, copied or reproduced in whole or in part, in any manner or form, or in any media, without the prior written consent of Infosys
Lodestone.
www.infosyslodestone.com
© 2013 Infosys Lodestone. All rights reserved. Copyright in the whole and any part of this document belongs to Infosys Lodestone. This work may not be used, sold,
transferred, adapted, abridged, copied or reproduced in whole or in part, in any manner or form, or in any media, without the prior written consent of Infosys Lodestone.
Thanks

References and Acknowledgement
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20
# Reference
1 http://www.accenture.com/us-en/outlook/Pages/outlook-online-2013-mobile-web-trends-opportunities-for-communications-service-
providers.aspx
2 http://ec.europa.eu/digital-agenda/sites/digital-agenda/files/DAE%20SCOREBOARD%202013%20-%201-
THE%20eCOMM%20SECTOR.pdf
3 http://blogs.forrester.com/thomas_husson/13-01-25-telecom_trends_life_for_european_carriers_will_not_get_any_easier_in_2013
4 http://www.tellabs.com/blog/index.cfm/2012/1/26/How-European-operators-are-getting-smarter
5 http://blog.idate.fr/futuretelecom2025/
6 http://www.developingtelecoms.com/business/opinion/5036-amdocs-michal-harris-2014-trends.html
7 https://www.gartner.com/doc/2345815/market-trends-strategies-europes-top
8 https://www.etno.eu/datas/publications/economic-reports/etno-economic-report-2012.pdf

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