European Telecommunications Network Operators’ Association (ETNO)

The State Of Digital Communications in 2019

Digital is everything and everything is digital. As our societies and economies experience unprecedented tech-driven change, this Report provides you with the latest on one of the most important enablers of progress and growth: digital communications

Europeans enjoy a dynamic telecoms sector, which has delivered, over the years, on a series of key economic and societal enablers.

In terms of direct impact, we note that broadband coverage is high (almost 97%), speeds are higher than the global average (70.5 MB for fixed, 34.9 MB for mobile) and infrastructure competition is vibrant. In terms of indirect impact, ETNO members created a yearly €139.4bn value added (including salaries, interest, …) and paid over €42bn of taxes.

When looking at telecoms investment and spend, however, the European sector appears less healthy than global peers. CapEx per capita in Europe is €83.2, which is less than half than in Japan (€188.5) and lower than in the USA (€135.3). In addition, Europeans use less (and hence spend less on) telecom services, with the average European telecoms spend per capita at €30.1, as opposed to over €70 in the US, €52 in Japan and €57.4 in Australia. This ultimately means that the investment capacity of the industry is being put under pressure, with the CapEx/revenue ratio at 18%. Our ability to deliver faster and more roll-out for Europeans is hampered by these dynamics.

European users’ needs are being met by a fast evolution of the telecoms offer. In terms of technology, the total number of 4G connections keeps on rising steadily also in 2018, connections to faster-fixed technologies continue growing (fibre, cable, VDSL) and so does data usage for both mobile and fixed.

In terms of commercial offers, fixed-mobile convergence is strong, with a growing take-up of converged services, as consumers seek to reduce complexity and get a better value. Despite strong competitive pressure from OTT video offers, the operators’ video offer is expected to continue growing in the coming years and it has grown over €1bn for the first time in 2019 (Western Europe).

When looking at businesses, the IT services offer has significantly expanded over the past years, with a diverse portfolio that includes cloud, security, unified communications, enterprise services and others. Similarly, the growth of IoT is continuing with IoT revenues expected to reach €5.2bn by 2025.

Automotive, smart buildings and utilities are expected to be among the top contributors to this growth. 5G technology is happening, it will empower a wealth of consumer and business activities, and become a central infrastructure for growth and economic progress. The work to make fixed and mobile networks come together into 1 smart 5G network is well underway. Network virtualisation, edge computing and further mobile and fixed network investment will enable both superior retail broadband services and a new, central role in the industrial value chains.

Along with the further fixed investment, the spectrum is the lifeblood of 5G deployment. Unfortunately, the auctioning process is not always as timely. Only a few European countries have already concluded the relevant spectrum auctions: only 6 European countries for the 700MHz, only 4 for the mmWave and only 3 for all the 3.4, 3.5, 3.6 and 3.7GHz bands.

When looking at businesses, the IT services offer has significantly expanded over the past years, with a diverse portfolio that includes cloud, security, unified communications, enterprise services and others

The price tag for acquiring spectrum rights remains high, especially if we consider that the real network investment can only come after the spectrum has been awarded. Since 2000, European telcos have spent €110bn on 3G bands, €37.6bn on 4G bands and – while at the very beginning of the process – they have already spent €12.4bn in 5G bands. From this viewpoint, both the conditions attached to the licenses and the design of the auctions remain crucial to ensure that investment incentives are not hampered. Telecom operators are transforming into fully digital agents, with a realignment of the relationship between the infrastructures and the broader digital ecosystem.

This transformation builds on three main enablers: superior networks, network-enabled services beyond just commodity, and service-based collaboration with the digital ecosystem.

Ultimately, networks will become platforms and they will be characterized by a higher degree of openness, which will, in turn, enable an intense collaboration with verticals and with the broader ecosystem.

However, a challenging competitive environment awaits, and it has not been fully recognised by regulators and policymakers yet. Networks, in Europe, are highly regulated. At the same time, competition in the telecom sector now happens on 3 levels: on the top, with tech companies absorbing further value and potentially disintermediating some telecom functions. On the side, with alternative operators who rely on regulated access, but also on consolidation, which brings stronger competitors to the table. Below, with increasing investment in entities deploying pure fibre and adding to the infrastructure competition game.

Policymakers hold some of the key levers in the game: for example, market structure, spectrum auctions, licence conditions, barriers to deployment, proportionate fixed regulation, service regulation. A factual recognition of the competitive environment will help determine whether the outcome of the current market trends is a stronger or weaker sector. With 5G and the digital transformation of society in the making, this is going to be a key strategic challenge in defining Europe’s place on the global stage.