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Telecommunications: a sector in rapid change with the emergence of multiple players


transformation of consumer habitsGlobal telecommunications sector

Consumer habits are changing

The surge of new devices and faster networks coupled with the proliferation of new innovative players in the telecommunications, media and technology market are creating new needs and changing consumer habits. Consumers are demanding digital content, a full mobility experience and access to data everywhere. Content is going digital, with usage time of online content growing faster than that of offline content, namely in gaming, video and music. Mobility has become the standard as consumers have more personal devices and spend an increasingly higher share of their online time using these devices, especially for data services. This new consumer demand for access to data and content across several devices is paving the way for new consumer cloud services, where users can have their personal contents virtualised and available seamlessly on every device, everywhere. As consumers go digital, so do companies need to transform their business models to adapt to new consumer habits. As companies undergo their digital transformation, they become increasingly dependent on information technologies, and search for more efficient and effective solutions. Telecommunication operators need to address these new needs by delivering integrated solutions, encompassing communications, networks and information technologies, and by offering flexible, scalable and secure cloud services.

technological evolution and development of new access technologiesNetwork investment is critical 

The increasing digitalisation of consumers and companies is leading to a surge in usage of heavy data services. This surge is generating a ‘data tsunami’ that is flooding communication networks around the globe, particularly in mobile networks driven by the exponential growth of mobile video consumption. This new paradigm of network scarcity places a significant premium in network investment as operators strive to enhance customer experience for increasingly more demanding customers.

Proliferation of new access technologies

change in consumption patterns led by new access devicesThe deployment of new access technologies and networks continues to be an overriding trend across the sector, with operators announcing plans, trials and investments in Next Generation Access Networks (NGAN ) namely fibre-to-the-home (FTT H) networks in the fixed business and Long Term Evolution (4G-LTE ) in the mobile business. Both technologies offer more speed, lower latencies and higher reliability. FTT H improves customer experience by providing higher and guaranteed speed, download and upload symmetry and lower latency. Moreover, fibre investment also supports an enhanced mobile network, with high-quality fibre connections for mobile base stations. The mobile 4G-LTE technology is also critical to offer a seamless connectivity experience everywhere, thus addressing the increasing need for mobility with a high quality connection. Both FTT H and 4G-LTE dramatically improve efficiency of data transmission, thus enabling significant cost reduction for operators.

Challenging context in mature markets

As operators strive to cope with network investments, the sector is facing a significant increase in competition in mature markets, both in fixed and mobile communications. In the wireline market, traditional telcos are threatened by both cable and mobile operators. CableCos are placing a significant bet on DOCSIS 3.0, a next-generation access technology that enables cable to compete with fibre solutions. In Europe alone, the number of DOCSIS 3.0 households is expected to grow 44% annually up to 2015. On the other hand, LTE is being rolled-out at a global level, and its high speed and low latency create an opportunity for mobile operators to compete on the residential arena.
On the mobile market competition is also heating-up, due largely to regulators pushing an aggressive decrease in mobile termination rates, which in Europe are expected to reach 1.9 eurocents per minute in the short term. These levels open opportunities for aggressive offerings by attacker operators, including low-cost all-net bundles that dilute incumbent operators’ network externalities. Such offers are being launched in several countries with strong customer take-up.

Emerging markets remain attractive as a growth engine

NETWORKxxxEmerging markets continue to appeal to telecommunication operators as they remain sources of scale and growth. Simultaneous growth in population and GDP per capita is driving the emergence of new consumers in the middle and upper classes. The new demand thus created has untapped potential in traditional telecom services, with penetration of most services still to reach levels of mature markets. In fact, emerging markets are accounting for most of the telecommunications sector growth, having grown faster than mature markets (CAGR 2009-2012 in fixed and mobile revenues of 6.0% and 12.5% respectively for emerging markets versus 0.8% and 1.6% in mature markets respectively). This trend is expected to persist in the medium term (CAGR 2012-2015 in fixed and mobile revenues of 7.7% and 9.4% respectively for emerging markets versus -0.2% and 1.1% in mature markets respectively).

New competitive boundaries at a global level

The broad telecommunications sector is expected to continue to expand at a global level, but an increasingly larger share is now occupied by adjacent sector players such as equipment manufacturers, internet service providers and media players. These players are taking advantage of improved connectivity and platform-agnostic technologies to offer over-the-top and cloud based services. Telecom operators are expected to maintain traditional access services and a billing relationship over which users access a myriad of services from adjacent players such as music (iTunes), video (YouTube), photos (Facebook, Picasa, Flickr), apps (Google, App Store) and retail (Amazon, Ebay). These adjacent competitors are being able to build strong global brands. For example, in the equipment manufacturers market, Apple and Samsung accounted for 50% of total global revenues, up from only 16% in 2007. The expansion of the competitive boundaries is creating additional pressure for telecommunication operators, but also creating significant opportunities. In fact, between 2011 and 2012 there have been more than 300 deals globally in which Telco operators acquired players in adjacent sectors, such as cloud providers, internet companies or software developers.


Telecommunications context in Portugal

Bundled offers paving the way to convergence

he Portuguese telecommunications market has been changing with triple-play packages gaining traction in the fixed market. In Portugal there are 1.8 million triple-play customers, which account for 57% of the total Pay-TV subscriptions. Triple-play success is driven by the intrinsic value of pay-TV as an attractive entertainment alternative and by the differentiated content enabled by set-topboxes. The transformation towards a triple-play based market was initiated in 2008 and continued throughout 2012 with the consolidation of cable operators in the voice segment and of Telco operators in the TV segment. As a result of its relentless and focused investment in pay-TV and bundled offers, PT has significantly improved its dynamics in voice and broadband, whilst being able to achieve triple-play leadership. In response to strong customer appetite for an integrated quad-play offering, PT further enhanced its bundled offering with a quad-play convergent offer with TV, broadband, fixed voice and mobile voice, becoming the only national player providing a real convergent offer with the same invoice, customer support and commercial touch points.

Competitive landscape

The telecommunications competitive landscape is expected to change significantly in Portugal, with the announced consolidation of the largest cable operator with the third mobile operator, thus creating a new integrated telecom operator in Portugal. This transaction will further increase the focus on bundled offers, going from triple to quad-play as the two integrated players leverage on the strength of being an integrated telecommunications operator and on the consumer appetite for bundles that will provide them with simplicity, convenience and economy.

Last Update: 8 May 2013