Didier Pouillot, director of telecom strategy at IDATE, discusses the latest trends from the think tank’s 2013 yearbook - "The Challenges of the Digital World".
Eurocomms.com: What was the most significant event in the European telecoms space in the last 12 months?
Didier Pouillot: There have been several significant events over the last 12 months but we can certainly highlight America Movil taking interest in KPN. It demonstrates on the one hand that European operators are now vulnerable: KPN was not in position to turn down the South American giant's offer, despite management considering it hostile.
On the other hand, it illustrates that overseas operators seem to be interested again by operations in Europe. We should remember in particular that US operators had taken positions in the UK and in some other European countries in the early 90s, before concentrating their efforts on their domestic market. Now, consolidation has occurred at home and operators have regained cash for external growth.
What further consolidation, if any, do you expect to see over the next 12 months?
Mergers are becoming more difficult in Europe due to anti-trust rules – the attempted merger between Telefonica's O2 and KPN's E-Plus last year in Germany, is a good example – but also due to market conditions. TeliaSonera couldn’t find a buyer for Yoigo in Spain, for example, while KPN was unable to sell BASE in Belgium.
But there does still seem to be room for certain kinds of operation, notably in the area of fixed-mobile convergence. Good examples here include Vodafone's attempt to purchase Kabel Deutschland in Germany, and Liberty Global’s recent acquisition of Virgin Media in the UK.
Transnational operations could also avoid an anti-trust veto. Another trend we may well see grow is operators engaging in different forms of cooperation, such as infrastructure sharing and joint-run units, which would help them lower operational costs and capital investments.
You are predicting that revenue from telecoms services in Europe will drop again this year, but that by 2016 it will have increased enough to offset the losses of the previous three years. What is the reason for this optimism?
We predict that the European telecom service markets could increase by one percent a year, on average, over the next three years, which is quite tempered optimism. We do think in particular that mobile services – which have played a significant role in Europe's revenue decline over the recent years (-1.4 pecent per year between 2008 and 2012 in the EU-27) – should gradually increase.
Today, we are seeing a 7-8 percent gap of in the rate of growth for mobile operators’ revenue between the US and Europe. US operators succeeded in monetising mobile data while, by and large, European markets have been drawn into the spiral of low cost. The progressive implementation of 4G networks and the introduction of tiered pricing should help increase data revenue, compensating for voice revenue’s steady decline.
The situation will continue to differ depending on the country, depending also to a large extent on the economic climate. In southern countries especially, telecom market growth is very much bound up with economic recovery.
You are also predicting that the telecoms equipment market in Europe will continue its steady growth. Which vendors do you think will be the winners and losers in this sector moving forward?
The telecoms equipment market is made up of network equipment and devices. The latter is clearly driving the segment, thanks to the success of smartphones – not just in Europe but worldwide. The result is that the champions in this category are now among the equipment market’s global leaders, with Apple and Samsung topping the ranks.
When it comes to network equipment, operators’ and businesses’ investments will focus mainly on broadband access network deployments, both fixed (FTTx, including VDSL) and cellular (LTE). The champions here are Ericsson, NSN and Huawei in the mobile segment, Alcatel Lucent in the fixed segment, along with vendors dedicated to data/IP solutions such as Cisco or Ciena.
We should also mention software vendors (OSS/BSS solutions). Recent times have been hard for most as competition has intensified, and some of the former market leaders have already disappeared (Nortel, Motorola…), but it is still anyone’s game.
You say that 2013 will be a pivotal year and telcos need to embrace innovation. A simple Darwinian case of “evolve or die”. What’s the most important thing that telcos in Europe need to do to evolve?
Operators have made considerable efforts in recent years to rationalise their cost structure, and they should continue to focus on that. But they also have to deal with radical changes to their business model. They do have several assets they can leverage here, starting with capitalising more on the supply of network access, especially as OTT content grows in power.
NGN technologies allow telcos to increase speeds and introduce noticeable improvements in quality, both of which can differentiate their solutions and enable new pricing strategies. So the innovation challenge here is as much a technical one as a marketing one.