The Economics of Telecoms - 2015 ed.- press version

The Economics of Telecoms - 2015 ed.- press version
“The Economics of Telecoms” Report 2015 edition November 2015 Arthur D. Little 7, place d’Iéna 75116 Paris France T: + 33 1 55 74 29 00 www.adlittle.com
2 Key messages Proposals from the Fédération Française des Télécoms to strengthen telecom operators and digital in France and Europe 5 European and French digital demand is highly developed enabled by high quality networks 2 Telecom operators are the basis of the current and future digital supply3 5 key levers to develop a strong digital offer in France and in Europe4 Unlike other regions, Europe suffers from a significant digital imbalance1
3 Unlike other regions, Europe suffers from a significant digital imbalance Source: Digiworld Economic Journal 1 Includes social networks, search engines, cloud computing, mobiles applications, advertising, e-commerce and non-managed VoIP % = (regional consumption – global revenue of regional players) / regional consumption 2009 2010 2011 2012 2013 50% -50% -100% 100% 150% EU28 United States Asia Imbalance between supply and demand in the Internet services sector1 Asia-USA-Europe, 2009-2013 Regional supply > Regional demand Regional demand > Regional supply Supply | Demand
5 Appetite for telecom and digital services is especially strong in France – the French are « early adopters » Source: IHS, European Commission, desk research, Arthur D. Little analysis Internet wave Digital wave country worldwide for IPTV penetration European country for VoD penetration Market worldwide for Airbnb and 2nd in Europe for Uber 1st 1st 2nd Origin of champion players Appetite for innovative services in France ?+ Supply | Demand
6 The French have strong expectations regarding new digital services Source: Ipsos, Future Source Consulting, Opinion Way, Arthur D. Little analysis  e-Administration  Mobile payment of the French are ready to use their mobile phone as a payment method ˃ Among advantages highlighted by respondents, speed of payment is the first reason of the French consider that connected devices help prevent fires ˃ 71% expect that connected devices improve safety for children 89% 26% 74% Connected homes  Connected stores 61% of the French would be willing to access services of geolocalisation to get directions when shopping ˃ 59% are interested in virtual fitting rooms  Video on Demand 750,000 Netflix subscribers in France in less than a year ˃ Canalplay had 700,000 subscribers in France as of S1 2015, 4 years after launch of the French are ready to conduct their administrative procedures online ˃ 86% for 65+ year old people Supply | Demand
7 Very High Speed fixed broadband subscriptions grew strongly in France in 2014 – with a high level of quality Source: ARCEP, OECD, companies, Arthur D. Little analysis Connectivity and equipment in France – Fixed broadband 1 Bundle subscriptions with TV and Internet access 2 Speed >= 30 Mbps 3 Fixed broadband and other subscriptions +63% Q2 2015 3.8 Q2 2014 2.4 Very High Speed2 broadband subscriptions (Millions of subscriptions) Multiplay1 subscriptions (% fixed broadband subscriptions) +4% Q2 2013 65% 69% Q2 2014 68% Q2 2015Q2 2012 62% Average speed3 (Mbps) 27 Mbps +6 Mbps 21 Mbps USAFrance Required speed 4K video 1-5 Mbps 2-5 Mbps (SD or HD) 25 Mbps Supply | Demand
8 The French mobile market is very dynamic with a rapid development of data usage and equipment Source: WCIS, ARCEP, operators, Arthur D. Little analysis Average monthly data consumption Smartphone penetration (Millions of smartphones) Connectivity and equipment in France – Mobile 4G active cards (Millions of active cards) 39 33 22 +35% 201420132012 +186% Q2 2015 15.6 Q2 2014 5.5 X% 34% 51% 60% 8% 24% % of the population 1.5 Go 400% 4G3G 300 Mo Supply | Demand
9 €47€45 €30€26 €20€20 French telecom operators continue to offer the cheapest services vs. other large countries Source: operators, Arthur D. Little analysis 60 offerings compared USSPUKITAL In € / month incl. taxes €20 €43€30 €692014 › €39 €43 €20 €24€29 €54€45€28 Fixed (Triple Play)1 Mobile2 Offer benchmark – Main operators October 2015 €74 €47 €42 €30 €25 €202015 › 1 Triple play offers only; unlimited calls to fixed lines at least; unlimited high-speed Internet via xDSL or fibre; TV included, except for additional packages; operators with > 10% market share; 2 Unlimited calls when available (otherwise >500 minutes), unlimited SMS/MMS, 2 Go Internet at least; offers excluding device, free of engagement when available; operators with > 10% market share Supply | Demand
11 Europe is the only region which does not benefit from the growth of the digital ecosystem Source: Thomson Reuters, Arthur D. Little analysis South America Europe Oceania Asia North America 681 694 700 668 1 316 1 494 1 614 1 721 1 825 1 371 1 521 1 638 1 656 1 674 590 2014 +5% 4 179 66 24 2013 4 137 68 24 2012 4 045 67 26 2011 3 790 54 27 2010 3 446 56 21 Revenues of the digital ecosystem (telecoms + other players1) per region2,3 World, 2010-2014 $ billion CAGR 2010-2014 +4% -4% +5% +9% +3% 1 Includes Internet, content, software, devices and telco equipment 2 Top 30 per category by 2014 revenues 3 Nationality according to HQ location Supply | Demand
12 Telecom operators are the basis of the current and future digital supply but their revenues decreased in Europe, as opposed to those in other regions Source: Thomson Reuters, Arthur D. Little analysis 382 343 299 247 2014 590 2010 681 Europe Network operators Other Internet players1 410 541 961 2014 1 674 1 133 2010 1 371 Asia 354 500 962 2010 1 316 1 825 2014 1 325 North America CAGR 2010-2014 Network operators -3% +7% +9% Revenues of the digital ecosystem (telecoms + other players1) per sector2,3 World, 2010-2014 $ billion 1 Includes Internet, content, software, devices and telco equipment 2 Top 30 per category by 2014 revenues 3 Nationality according to HQ location Supply | Demand
13 The decrease in revenue in the telecom sector is starting to result in a decline of investments Source: ARCEP, Arthur D. Little analysis 108 83 129 70 80 90 100 110 120 130 140 2010 2011 2012 2013 2014 Revenues Operators investments (excluding frequency acquisition) Telecom operators investment and revenue evolution France, 2010-2014 Base 100 in 2010 Investment effort Operators investments (excluding frequency acquisition) / operators revenues Supply | Demand
14 Connected warehouse Advanced Collaboration at work Remote caring Secure Home Delivery Ambient presence for telemedicine Immersive Gaming Future advanced services will emerge and will require high performing telecom networks Source: Corning, Microsoft, Sprint, DHL, Arthur D. Little analysis Examples of future advanced services Supply | Demand
15 Overall, the generalization of digital raises three major challenges which require a crucial contribution from telecom operators Source: Arthur D. Little analysis Network security Connection speed and latency Service reliability Network capacity Driverless trucksImmersive GamingRemote surgery Telecom operators contribution (examples) Challenges of the « digital wave » Value creation Capacity and quality of networks Users trust New revenue from substitution and creation of value generated by digital Trust in digital services, reliability and security of the data transferred and stored Quality of the connection, in line with needs related to innovative services 1 2 3 Supply | Demand
17 The development of a strong digital supply by a region or a country is based on 5 key levers Source: OECD, Private Equity associations, World Bank, Compass, TechCrunch, Arthur D. Little analysis  Significant roll out of fibre in South Korea (68% of penetration)  Role of telecom operators in the development of the Internet of Things Examples of best practices (benchmarks)  Venture Capital 3.5x more developed in the USA than in Europe with a stronger emphasis on digital companies  Startup pool (valued at $294 B) and innovation of the Silicon Valley – inspire telecom operators in the creation of innovative services  Performance of Israeli startups (« Start-up Nation ») e.g. in cybersecurity  Rapid and simple administration in South Korea (5th most competitive country to do business vs. 31st for France) Levers  Strong attractiveness of computer science studies in the United Kingdom and training programs in cybersecurity  Ability to generate ICT specialists in Sweden (5.3% of total employment1) Attractiveness Infrastructures Financing and tax Ecosystem Training 1 2 3 4 5 1France: 2.8% Supply | Demand
18 France can strengthen its share of ICT in the economy by learning from best practices of leading countries Source: OECD, Arthur D. Little analysis Share of the ICT sector in total value added OECD, 2013 4%4%5% 6%6% 7%7% 11% OECD average: 5.5% +7pts South Korea Japan Sweden USA United Kingdom Germany France Spain % of the ICT value added in total value added Supply | Demand
19 To date, policies do not stimulate players of the three waves enough whereas a simultaneous action could help balancing the digital supply Source: Arthur D. Little analysis Missed opportunity Past lack of focused industrial policies leading to an underdeveloped digital supply in France and in Europe Multiplication of taxes Accumulation of specific telecom taxes and continued increase of those taxes (e.g.: « telecom tax ») Internet players Telecom players Digital players Willingness to act Multiplication of fiscal initiatives and programs favoring the emergence of innovative startups Actions that strengthen / weaken the digital supply Develop software and internet offers! Support the networks of the future! Seize the digital opportunity! Current policies (asymmetric stimulation) Public policies (symmetric stimulation) Supply | Demand
20 Reducing the imbalance on each wave will lead to a creation of value for the entire economy Source: Arthur D. Little analysis 1 10 year horizon 2 excluding a risk of value capture by non European players FRANCE SCOPE Value creation potential: +€25 B Stimulate the telecom sector / Internet, and rebalance supply and demand Value creation potential: +€150 to 200 B1,2 Seize the opportunity of the 3rd digital wave Digital waveInternet wave Supply | Demand
22 For a Digital Act!  Align telecom-related policies with the investment and regulatory cycles  Allow a differentiated quality of service for new innovative services  Reduce the tax pressure to favor investments of telecom operators in infrastructures and in future services and remove counter productive taxes such as IFER and taxes on investment  Implement accelerated amortization measures for the Very High Speed fixed and mobile broadband  Favor the use and monetization of data extracted by telecom operators  Promote interoperability and opening of standards and services (including API) as well as portability of data  Elaborate a plan aiming at developing telecom, Internet players and every player of the digital wave  Ensure the consistency of digital public policies across the different sectors  Promote and create a label for a European curriculum of digital professions (e.g.: data science, cybersecurity) Infrastructures Financing and tax Attractiveness Ecosystem Training 1 2 3 4 5 Source: Fédération Française des Télécoms Infrastructures of the future Tax incentives Digital Act Opening e-Erasmus
23 In essence, telecom operators have a central role to play in the promotion and the generalization of digital to the entire economy Source: CrunchBase, Cisco, AT&T, Ipsos / Fédération Française des Télécoms, Arthur D. Little analysis 1 Roadside assistance application Financing Distribution Service ProtectionInfrastructure Investments in innovative companies through Corporate Venture Acceleration of the generalization of innovative digital services through partnerships Development of infrastructures capable to meet the requirements of innovative services Development and launch of new digital services Management of personal data of Internet users 7m€ Amount raised by Urgent.ly1 in part from Verizon Increase in the number of subscribers after partnership with telecom operators Expected increase in the volume of data between 2014 and 2019 +40% of cars connected by AT&T in the USA 3mx3,2 Less than 5% of the French do not trust telecom operators for data protection vs. 67% for « Internet giants »
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