EUROPE'S TELECOM MARKET: PULLING AND PUSHING WILL LEAD TO MARGINAL GROWTH TO 2008
By Henry Lancaster

During the last few years a clear pattern has emerged in Europe's overall telecom market: the ailing fixed-voice sector has steadily pulled down market growth, which has otherwise been pushed upwards by a vibrant broadband sector and emerging trends and possibilities in the mobile data sector.

Across the board, fixed-voice losses, which number in the millions annually, will aggravate this state of affairs in coming years. In some markets the incumbents are losing up to 2% of PSTN lines annually as customers cancel subscriptions in favour of mobile-only options and as VoIP alternatives become more commonplace. The VoIP market remains small, but is doubling every year. In time, VoIP will be subsumed within wider triple play and quad play offers, but its detrimental effect on fixed-voice revenue is universal.

On the mobile front, fixed-mobile substitution (FMS), is being promoted by some operators as a home-based 'total communications solution', bundling an all-mobile homezone offer with DSL. O2 UK and Vodafone Germany were among the first operators to introduce an all-mobile zonal tariff and DSL bundle. The model has also emerged in Italy, France, Portugal, The Netherlands and Belgium. The offers are beginning to represent a significant share of operators' total contract customer base.

Growth from the mobile sector, which has otherwise underpinned the market, has been affected both by intense competition in the voice market (lowering voice tariffs and in turn encouraging consumer take-up of FMS) and by regulator controls on roaming and termination tariffs. Later in 2008 a ceiling on data roaming tariffs is expected to be implemented across the EU, further dampening mobile operator revenue. Data roaming represents such a cash cow for mobile operators that none has yet stepped forward to reduce tariffs ahead of anticipated legislation, as had happened with voice roaming. The potential saviour for mobile operators, in the form of mobile data services, has yet to materialise, and only a brave soul would bet on mobile TV taking off in the short term. So for the next few years basic SMS/text messaging will prop up mobile data revenue, even given the recent introduction of fixed-rate data plans by the more progressive operators such as H3.

The broadband sector has also underpinned the telecom market since about 2004. Although broadband ARPU for many major providers has risen steadily, if slowly, generating solid returns is problematic. Regulatory controls on competitive access to incumbent networks have led to an explosion in the number of ISPs joining the market, and stiff competition has brought down consumer prices to the point where there is little room for further squeeze. Some operators have responded by offering 'free' broadband to gain a market toe-hold (as with Orange and BSkyB in the UK). The 'free' offers have sharpened consumer awareness of value-for-money packages in terms of price, broadband speed, communications services and quality of customer care, resulting in higher churn for many ISPs. Given that prices have effectively bottomed-out, most of the major providers have increased capex to upgrade their networks to higher bandwidths, aiming to provide more features for their subscribers while encouraging churn from competitors. There remains room for innovation within the plethora of content deals being negotiated so regularly: in France, neuf Cegetel recently redesigned its Neuf TV platform following its purchase of direct broadcasting rights with the main French cinema studios, thus becoming a publisher of its own IPTV and VoD content.

Given these pressures in the mobile and broadband sectors, their potential to compensate for the tragic fixed-voice sector will be marginal. As European regulators tot-up their individual markets' value in coming months, they should not expect growth of more than 2-4% at best for both 2007 and 2008.

Table 1 - European telecom market value, select countries - 2006 - 2008

Country	2006	2007 (e)	2008 (e)
	Market value (€ billion)
France	41.0	42.6	44.1
Spain	42.3	43.5	44.8
Germany	61.9	63.1	65.3
UK	47.3	48.5	50.4
Italy	44.2	45.0	46.3
Sweden	48.0	48.5	50.4
Norway	31.0	31.0	31.4

(Source: BuddeComm based on industry data)

See also:
Europe - Infrastructure - FttH, NGNs & IP;
Europe - Broadband Market - Overview & Statistics
Europe - Convergence - Triple play and Digital TV
Europe - Mobile Market - Overview & Statistics;
Europe - Mobile Market - Mobile Data;
Europe - Regulatory Environment;
Europe (Western) - Telecoms, Mobile & Broadband Overview & Analysis 2007.

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