Growth on the horizon ETNO report sees new opportunities

The European Telecommunications Network Operators’ Association (ETNO) represents the interests of Europe’s leading telecom operators. Its Annual Report 2014 suggests that a new phase of growth may be in sight for the European telecoms sector. Industry Europe looks at some of the key findings of this report and the implications for the future.

GROWTH ON THE HORIZON

ETNO has long been a strong voice for Europe’s telecommunications network operators and also acts as a barometer for market trends and fluctuations. Its most recent Annual Report, according to its director general Daniel Pataki, suggests there is room for cautious optimism. He makes this claim despite the fact that investment growth in EU telecoms was slightly negative in the year 2012–13 and there is likely to be a contraction of Service Revenue growth in 2014, following on from a similar situation in 2013.

He explains the reason for this optimism: “There is a high level of excitement in the industry that the new market trends – while challenging for traditional business models – bring the promise of a return to growth.

“Our confidence comes from three main facts: first, the figures in this report show how excited consumers are about being constantly connected and being able to enjoy online services; second, ETNO companies do more than just respond to these trends – they are fully embracing them; third, the new EU leadership, which took office in November 2014, has come across as being fully aware of the challenges and opportunities of Europe’s digital economy.” Key trends

In short, whilst revenues have been falling every year since 2009 and the decline even accelerated in 2013 there are signs that things may be changing.

“The downturn,” says the report, “seems to be losing momentum and growth levels in Europe have become less negative than before. In the ETNO perimeter, overall telecom services growth will be -2.7 per cent in 2014 and in the EU-5, telecom services will fall at a rate of -2.5 per cent compared to twice as much the previous year. IDATE expects this improvement to last through 2015 and growth rates to eventually return to positive levels in 2016.”

Mobile, meanwhile, is on the rise with the number of subscriptions approaching the 800 million mark in Europe. Compared to 2012, according to ETNO’s figures, the number of subscribers rose 0.9 per cent to reach 782 million in 2013 and was expected to hit 794 million by year-end 2014. In particular, it says, “the prolonged growth of the overall number of access lines is definitely a promising trend for the industry and a lever for growth in the future.”

The report also draws attention to the ways in which the so-called ‘next-generation’ access networks are making inroads into the market to increasingly become ‘current-generation’ access networks. “It is also encouraging to see that the adoption of ultra-fast internet access is making good progress. 34.5 million users have subscribed to an NGA-based offer. This corresponds to a take-up rate of 18 per cent of the homes covered, thus slightly more than the previous year’s 16 per cent.”

Revenue, services and broadband

In terms of services, the report discusses the continued decline of PSTN/ISDN fixed lines, as IP-based offers and mobile phones are adopted instead. Indeed, by the end of 2014 it there is an expectation that fixed broadband subscriptions will outnumber traditional circuitswitched fixed lines for the first time ever.

The report states: “On the one hand there are still new customers coming to the broadband market, pushing the penetration rate to 27.2 lines per 100 inhabitants in the ETNO perimeter. On the other end of the market, the transition from legacy broadband to ultra-fast access lines continues. In total we expect the number of fixed broadband lines to hit the 170 million mark in ETNO territory by the end of 2014.”

But for the operators, growing demand will not translate into higher revenues as the volume effect of increasing subscriber numbers is outweighed by falling average revenue per access. (In the EU28, for example, mobile ARPU will have lost some 25 per cent of its value between 2008 and the end of 2014.)

Widening investment gap

The report goes on to highlight a significant investment gap between the European telecoms market and its counterparts in the US and Japan. However, it goes on to point out that growth in the latter two areas is slowing down. “Whilst it remains solidly positive in the US with 2.4 per cent in 2013 and an expected 1.8 per cent for 2014, growth became negative in Japan in 2013 with -0.4 per cent and is to decrease further in the course of this year.

“The picture is similar with respect to investment. While in the light of falling revenues, Europe’s telcos have been forced to slightly scale back their absolute level of investment in 2013, their peers in the US have continued to increase their capital expenditures by more than 5 per cent compared to 2012. Investments in Japan increased as well, but at a significantly more moderate rate of 0.4 per cent.”

Of course, that is not to say investment amongst Europe’s telecoms operators has been non-existent: in 2013, €46.7 billion was invested in their networks. They continue to build new ultra-fast fixed and mobile access networks and upgrade their backhaul facilities. In fact, the report states that European operators have largely maintained their investment levels in absolute (-0.4 per cent in the ETNO perimeter in 2013), thereby actually devoting more of their resources to new infrastructures in relative terms as the CapEx to revenue ratio improves. The majority of investments have been in fixed networks (around €26.3 billion) – reflecting the cost of civil engineering works when it comes to deploying them closer to the end user.

According to Luigi Gambardella, chairman of ETNO’s executive board, there are many reasons to be positive but the focus for the future does need to be on narrowing the investment gap still further. “I am a believer in investment as a driver for growth. For this reason, the Annual Economic Report 2014 gives me the opportunity to ask an important question, a political one: is today’s level of investment in networks up to our digital ambitions? Are we thinking big enough here?

“I am truly convinced that even flat levels of investment growth are unacceptable. They are unacceptable from the industry viewpoint and I believe they are also unacceptable from a political perspective. In this context, I am confident that the new European Commission will help the industry return to growth. President Jean-Claude Juncker and Commissioner Günther Oettinger have been very vocal in underlining how investments and infrastructures will be the focus of their political action.” n To view the report in full, visit: www.etno.eu