Towards a new paradigm shift

11/4/2013

Antonio Robalo de Almeida

ETNO Executive Board Member

Outline

About ETNO

Sector outlook and industry challenges

EU policy trends and priorities

Outline

About ETNO

Sector outlook and industry challenges

EU policy trends and priorities

About ETNO ETNO was created in 1992 as the voice of Europe’s leading e-

communications operators and main investors in broadband

services and networks.

ETNO counts 37 member companies in 35 countries from the

Baltic to the Mediterranean sea and from Atlantic to ocean to the

Bosphorus. ETNO’s 12 observer members include telecoms

players from all continents and equipment manufacturers from EU

and beyond.

ETNO members are pan-European operators offering the full

range of e-communications fixed and mobile voice and broadband

services.

About ETNO members: Europe’s leading e-communications players – key facts and figures* ETNO members’ aggregated revenue amounted in 2011 to €208

billion. 52% of the turnover comes from fixed line operations,

including broadband, and 48% from mobile services.

ETNO members invested € 29 billion in new services and

networks in 2011, of which € 17 billion in the fixed and € 12 billion

in the mobile. ETNO members devoted 14% of revenue to

innovation and investment.

ETNO members account for 70% of total investment in the

sector and two thirds of NGA-passed households.

* ETNO Yearly Economic report, 11/2012

**

* Includes Telekomunikacja Polska **Includes Deutsche Telekom, Hrvastki Telekom, Magyar Telekom, Makedonski

Telekom and Slovak Telekom *** Includes Telefonica Czech Republic

*

***

Source of information on the sector

ETNO News

ETNO Digital: Weekly headlines on e-communications

Yearly Economic Report

Outline

About ETNO

Sector outlook and industry challenges

EU policy trends and priorities

Sector Outlook and Industry Challenges

1. Crisis of Crises

2. Economic & Politics “at risk”

3. Society is changing dramatically

4. Business is not anymore the same

5. Market consolidation: What’s that?

6. Dominant Players: a changing game

7. Regulator’s Future: a mixed bag

8. Technology and Consumption: together in perfect

harmony

1- Crisis of Crises

Economic & Politics

Social

Sector

• Debt

• Revenue Declining

• Increased CAPEX

• Market consolidation

• Growth agenda

• New value chain / new players: OTT +

chinese companies, …

• Unpredictable consumption behavior

2 – Economic & Politics “at risk”:

Europe at two speeds

Countries under financial assistance

Europe “without industry”

Euro Future?

USA with budget problems

Increasing role of emerging countries

Arabian changes (Egypt, Lebanon, Iran …)

North Korea Threat

Crisis of European Leadership

3- Society is changing dramatically

Society Structure

Daily Life

Social Values

3- Society is changing dramatically

Society Structure

• Aging Society

• Generation Millennial

• Increasing Social Disparity

• More Heterogeneous Families

• More Multicultural

• Women as Driving Force

Society Structure

Daily Life

Social Values

3- Society is changing dramatically

Daily Life

• Constant high mobility

• Consumer Empowerment

• Digitalized Leisure

• Flexible but Insecure work

• Lifelong Learning

• More Communication Forms

Society Structure

Daily Life

Social Values

3- Society is changing dramatically

Social Values

• Individualized Lifestyle

• More active about Health

• Need for Privacy

• Ecology, Green, Smart

• Wish for more simplicity

Society Structure

Daily Life

Social Values

4- Business is not anymore the same

6% revenue decline between 2008 and 2011

Source : IDATE

Evolution of European telecommunications market (EU-27, bn €)

0

50

100

150

200

250

300

2007 2008 2009 2010 2011

Fixed telephony Mobile services Fixed Internet & data

Telecom service revenue declining for third year in a row

Slight decrease expected again for 2012 (-0.4%)

Continued progress and substitution in access take up (1)

2

Continued progress and substitution in access take up (2)

2

+ 60% data traffic/ year (+100% on mobile networks)

Most of traffic growth is coming from OTT applications. Traditional

business models do not allow operators to monetise on traffic

increase

Disconnection between traffic/ revenue

Disconnect between those who generate the traffic and those who bear the costs

130-170

192-240

220-270

300-380

Required investment for

Fixed infrastructure*

2010-2015. Billions USD

Announced investments for LTE

No. of operators

North

America

Western

Europe

Asia/

Pacific

Latin

America 21

30

54

104

Fixed

Operators need huge investments to upgrade their networks for the future

Source: World economic forum; GSA Evolution to LTE report

Mobile

Telco’s Business models at crossroads: Overall context:

Saturation of traditional markets

Competitive pressure on prices

Evolution towards data-centric business models

Regulatory constraints

Value shift OTT’s

Huge Debt

Opportunities for growth (1)

Need for new business models

• Move from flat rate to differentiated offers (based on quality, speed, services)

• Commercial agreements on QoS

Global sector: huge challenge

Contents: digitalization as a transversal trend

Mobility: key for future services and for answering to consumers’ changes

Virtualization: inevitable for reducing costs and increasing efficiency

Opportunities for growth (2)

Agenda for growth only with emerging markets:

• Role of BRIC’s

• Role of Internet e-services (healthcare, energy, security, payments,…)

online content

cloud computing

Up to €32 billion additional annual

revenue by 2020 according to AT K

report for ETNO

5- Market consolidation: What’s that?

European / trans border consolidation

National consolidation

“Shoot” the 4th Mobile Operator

Two competing Fixed (NGA) Platforms

Attacker’s could be bought if at a “decent price”

3M + 2F

6- Dominant Players: a changing game

OTT Players

Chinese Vendors

App Developers

Terminals Manufacturers

Social Networking Companies

Products

Internationalization in both ways

7- Regulator’s Future: a Mixed bag

Regulation still main driver:

• Price Pressure

• Regulate second mover !

• Market not big enough for many players

Regulator’s shrink and consolidation

Utilities Regulator

European Regulator

End of Micro Regulation

National Regulator phase out market is competitive!

But

Enlarged scope (broadcasting, cybersecurity): from telco to ICT regulator

8- Technology and Consumption: Together in perfect harmony

Consumerisation: Consumers first, enterprises after

• Advanced user interface

leveraging big touchscreens

• Operating with direct access to

app stores

• Bridges the gap between

smartphone and laptop

• Similar environment to

smartphones

• Services optimized for a multi

screen environment

Smartphone explosion Quick tablet take off

• Faster networks enable richer

content services (mobile HD

video, videoconference…)

• 4G smartphones and tablets to

be launched in 2012

• Increased usage of web

services on mobile devices

through native apps

• Users value mobile access and

service providers have been

able to monetize it

Faster networks – 4G Access to all web services

New Technology and device trends drive the mobile and usages

Transformação dos hábitos de consumo potenciada pela tecnologia

Tecnologia como enabler

Globalização dos hábitos de consumo e esbatimento das fronteiras no setor

Consumidores

• Nova forma de viver e comunicar

– Multi-tasking de aplicações e

funcionalidades

– Redes sociais

• Nova óptica de experienciar conteúdos

– Interativa e multi-ecrã

– Geração vs consumo

de conteúdos

Empresas

• Novo paradigma generalizado de eficiência

com soluções cloud e M2M de vanguarda

• Colaboradores always-on com convergência

pessoal-empresarial

Infraestrutura

e redes

Equipamentos

Virtualização

Explosão das redes sociais a alterar o paradigma do relacionamento social

* Definição mais lata inclui connected, communicating, content-centric, computerized, community-oriented, always clicking

** Após 1990

Fonte: Global Insight (WMM)

Emergência da “Geração C” – Connect, Communicate, Change*

Em 2020…

• 40% da população dos EUA,

Europa e BRIC nasceu na era

da conectividade**

• Cada pessoa

vai interagir diariamente com

200 a 300 outras pessoas

• Mais de metade das pessoas

vão trabalhar em grupos

virtuais

Ranking de países por população

Milhões. 2010

1.214

China 1.343

Brasil 190

Indonésia 232

EUA 310

600

Índia

• Consumo e

partilha de

informação antes

considerada

privada

• Definição de

personalidade

digital resultado de

convergência on e

offline

• Exigência de

conectividade

fiável e seamless

Multi-ecrã cada vez mais uma realidade

Fonte: McKinsey i-consumer, 2008-10; Utilizadores EUA com idades compreendidas entre os 13 e os 64 anos

VoD/DVR 17

Web-based

OTT 19

Linear 64

Peso do total

Percentagem

-2

11

42

Variação 2008-10

Percentagem

Tipo de

conteúdo

Exemplos

1

12

87 4

79

18 Meio de

visualização

Salto de competitividade com virtualização em cloud

Fonte: Inquérito McKinsey Cloud Online a 70 CIOs/CTOs

… com ganhos significativos para

empresas

Novo paradigma de virtualização…

Software-as-a-service

• Aplicações de negócio

partilhadas

• Elevada customização

Platform-as-a-service

• Ambiente integrado de

aplicações

Infrastructure-as-a-service

• Servidores virtuais

• Armazenamento dinâmico

Flexibilidade/escalabilida-de

a nível de atividade

Time-to-market

significativamente mais rápido

Custos de desenvolvimento

20-50% mais baixos

Diminuição do perfil de risco

de utilização de hardware

New usages/equipment will require very high speed

TV HD

TV Mobile Laptop PC PDA/PMP

Personalized services

TV HD development

Rich Media usage that requires high

speed access

Community development on the web

and UGC production (eg : Photos)

Long trail services

Broadcasted

services

Illustrations

Multiplication of

content production

Need to access

content « Anytime,

anywhere, any

device »

Customization of

customer data

consumption

Device multiplication,

connected (wireless)

Need to guaranty oS on

shared network

Content adaptation

constraints (Codecs, etc.)

Internet traffic increase

More and more

connected

Traffic level difficult to

regulate: need to adapt

band dynamically

Fatores chave nos smartphones

Importância do OS

• Consumidores valorizam tanto ou mais a plataforma (OS) que as especificações técnicas do dispositivo

Smartphones de “marca branca”

• Equipamentos de terminais de baixo custo essenciais para a massificação

Ecrãs finos, brilhantes e maiores

Fonte: NBCNews

A caminho de equipamentos híbridos:

Phablets (1 dispositivo: phone + tablet)

Fonblets (2 Peças: phone + Tablet)

Tablet-laptops

Smartphone à prova de água

Smartphone + Câmera

…

Outline

About ETNO

Sector outlook and industry challenges

EU policy trends and priorities

ETNO call for a bold EU strategy to incentivise growth in the EU telecoms sector

Implement a more targeted regulatory approach to networks, improving investment incentives and allowing new business models to emerge

Provide for a level playing field between telecoms operators and over the top players

Improve conditions for investment and innovation by allowing operators to achieve greater scale

Main trends in policy making: overview of recent developments

Towards a new regulatory paradigm: Vice-President Kroes announcement (July 2012)

Review of the Digital Agenda (December 2012)

A single market for telecoms: call by the Council in March 2013 for Commission’s proposals by October 2013 at Council devoted to Digital Agenda

DAE broadband targets: Challenges ahead

2013 Target: Basic Broadband for all

• 95.7% of EU homes are already passed by at least one fixed broadband network.

• 9.1 million homes still do not have fixed broadband coverage, more than 90% of which are in rural areas.

• The EU is close to achieve the target of 100%

2020 Target: 30 Mbps available to all households

• Next Generation Access (NGA) technologies capable of providing at least 30 Mbps are available to half of EU homes.

2020 Target: half of EU households to subscribe to 100 Mbps

• Only 2.5% of lines (about 2% of homes) feature speeds of 100 Mbps or above

Commission review of the Digital Agenda priorities around 7 key priorities

1. Create a new and stable broadband regulatory environment.

2. New public digital service infrastructures through Connecting Europe Facility

3. Launch Grand Coalition on Digital Skills and Jobs

4. EU cyber-security strategy and Directive

5. Update EU's Copyright Framework

6. Accelerate cloud computing through public sector buying power

7. Launch new electronics industrial strategy

Towards a single market for telecoms

ETNO reiterated its support to a single market for telecoms in order to:

• Create more scale for operators to develop new innovative products and services

• Address the fragmentation of sector, increasing competitiveness of EU telecoms on global scene

• Address fragmentation of rules across the EU and implement a more targeted regulatory approach