The Belgian Telecom Landscape
Study on the Belgian Telecom Sector - 1st edition 12 January 2015
Arthur D. Little Benelux S.A. / N.V. Avenue du Bourgetlaan 42 B - 1130 Brussels Belgium Telephone 32.2.761.72.00 Telefax 32.2.762.07.58 adlittle.brussels@ adlittle.com Reference: P14004116
Content
1
The telecom sector is at the core of the Belgian society and economy
2
Telecom is the main engine for the digital eco-system
3
Despite a difficult environment, telecom operators are sustaining their level of investment
4
For a digital New Deal fostering Telecom investments
2
1
The telecom sector is at the core of the Belgian society and economy
Telecom services are part of our daily life By end 2013:
80%
68%
of Belgian households have a
broadband internet connection and
61,5%
uses the Internet on a daily basis
have interactive digital TV Around
54% 65% 52%
of the Belgian population
97%
of companies in
Belgium have Internet access
of Belgians use high-speed mobile data and
watch videos
48% of Belgians are active on
of people have bought something online
last year while the e-Commerce revenues of Belgian
social media companies account for
14%
1) Population of 18+ persons living in Belgium Source: SPF Economie, ICT barometer 2014; Our mobile planet report 2013 by Google; Global Digital Statistics 2014 by We are Social; Havas MMS 2014 report; Arthur D. Little analysis
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1
The telecom sector is at the core of the Belgian society and economy
Telecom services usage is strongly growing while prices are falling down Telecom use strongly growing
Telecom’s prices falling down
Mobile voice
SMS
Mobile internet
Billion minutes +30%
Billion SMS +86%
Billion Mb x15
17,3
29,3
Base 100 in 2006, consumer price index evolution
Not including discounts on Telecom packs
150
10,6
140
13,3
134; Electricity 15,8 0,7
2009
2013
Fixed voice1 Billion minutes -2%
2009
2013
Fixed broadband Million of lines +22%
129; Postal services
130
2013
2009
126; Natural gas
120
117; Inflation
Digital TV
109; Rail transport
110
107; Financial services
Million of users +87% 100
11,6
11,3
3,8
99; Parking
3,5
3,1
93; Telecom services2 90
1,9
80 2009
2013
2009
2013
2009
2013
2006 2007 2008 2009 2010
2011 2012 2013
Source : Operators, IBPT, SPF Economie; Arthur D. Little analysis 1) Including VoIP, 2) Telecom services: Fixed telephony, mobile telephony, internet and undiscounted telecommunication packs 4
1
The telecom sector is at the core of the Belgian society and economy
The share of Telecom services slightly decreased in Belgian households spending Evolution of Belgian Households Spending Average yearly spending per household, in € Share of wallet% 0,1% 1,1%
35.430
3,0%
Telecom Services Share of households spending (%)
100%
Postal services
4,2% 5,0% 6,4% 7,7%
Digital and multimedia devices 2 Telecom services 1
3,24% 2,96%
Health
-0,29 pts
Clothing and shoes
12,1%
Furniture, household equipment and maintenance 15,2%
Culture, leisure and training Transport Food, beverages and tobacco
16,7%
Other goods and services
3
Housing, water, electricity, gas and other fuels 2006
2012
28,7%
2012 Source : SPF Economie, Arthur D. Little analysis
1) 2) 3)
Excluding telecom devices Including telecom devices, radios, televisions, computers and cameras Including: traveling, body and personal care, hotel, restaurant and bar expenses, financial services…
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1
The telecom sector is at the core of the Belgian society and economy
Operators provide a substantially better offering that generates 4 to 7 times more value for money to the consumers Mobile “Customer Surplus”
Fixed “Customer Surplus”
Comparison of mobile post-paid offerings 2009-2013 >250-600 min AND unlimited SMS AND 1-2 GB 3G/4G data (avg. speed of 21 Mbps)
+119€ 150-400 min OR 300-400 SMS + paid access to 2G/3G (avg. speed of 3 Mbps)
36€
2009
1.5-2x more minutes Unlimited SMS 7x more speed + 0.5-2 GB 3G/4G mobile data
20€ 2013
Comparison of fixed offerings 2009-2013 Internet speed of 56 Mbps AND TV everywhere AND Homespot Wifi AND National + EU voice
5x more speed + out-of-home TV and Internet + EU voice
+171€ Internet speed of 11 Mbps AND Basic TV AND National voice
67€ Excl TV
56€ Excl TV
2009
2013
Monthly average invoiced amount per user1 Source: Operators, Arthur D. Little analysis
“Customer surplus”: average 2013 telecom usage at 2009 prices, per user1 (1)
Based on actual revenues and usage
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1
The telecom sector is at the core of the Belgian society and economy
Business and administration productivity is supported by the telecoms industry Improved productivity for businesses and employees improvement for SMEs +15% Profitability due to telecoms:
+7% due to cost savings (supply, marketing…)
+8% increase of revenues (client segmentation, geographic zones)
-7%
Reduction in transport costs thanks to telecommunication services (phone, mail, conferences…)
Savings for the Belgian Administration
50% of the population was in contact with the public authority via internet over the past year Over 65% use Internet-based vehicle registration and over 73% tax-on-web submission 80
% of population 73
70
65
60
Tax-on-web
50 40
58%
of employees carry out 75% of their work with connected tools
30
28
0 2005 Source : Cisco, Google, IDC, Arthur D. Little analysis
Vehicles e-Registration 21 2006
2007
2008
2009
2010
2011
2012
Source : SPF Economie, ICT Barometer 2013; Arthur D. Little analysis 7
1
The telecom sector is at the core of the Belgian society and economy
Continuously increasing average broadband speeds, with the addition of new services Increasing bandwidths Average bandwidth, 2009-2013
Enriched Content Offering Up to 80 TV channels available
New Services Smart Home
Premium applications included
Fixed Broadband x5
Possibility to watch live and catch-up TV on mobile devices
Cloud storage services
Fixed broadband speed: average speed, weighted according to the number of subscribers that have a broadband connection with a certain bandwidth
Transformation of the TV-box
Mobile Broadband x7
WiFi homespots and hotspots
Integrated hard drive PVR: Personal video recording
Mobile broadband speed: average speed for the 3 mobile operators according to Commsquare
Replay offer: TV on demand and catch-up TV
Multi SIM offers with several complementary SIM cards for tablets included in the contract
Source : Commsquare; Arthur D. Little analysis 8
Content
1
The telecom sector is at the core of the Belgian society and economy
2
Telecom is the main engine for the digital eco-system
3
Despite a difficult environment, telecom operators are sustaining their level of investment
4
For a digital New Deal fostering Telecom investments
9
2
Telecom is the main engine for the digital eco-system
Globally, the digital sector is enjoying strong growth across all segments Revenues of the digital ecosystem by sub-sector1 In billion dollars
Internet
82 280
Software & IT services
371
Devices Equipment Network operators
+39%
2,900
Content
Growth 2007-2013
3,127 92 283
3,106 102 263
414
399
3,372 127 275
3,959 212 286
4,028 286
+2%
501
500
+35%
1,316
1,322
+59%
208
205
191
-17%
+33%
3,702 166 285
830
938
432
1,076
229
225
205
212
1,199
1,249
1,362
1,439
1,471
1,107
1,190
2007
2008
2009
2010
2011
2012
2013
Source: Thomson Reuters, Arthur D. Little analysis
+215%
481
1,201 924
259
Illustrative companies
1) Top 30 per category by 2013 revenues 10
2
Telecom is the main engine for the digital eco-system
Growth is strong in all parts of the world except in Europe Revenues of the digital ecosystem by region1,2 In billion dollars
Oceania
+39%
2,900 20
3,127 24
3,106 21
1,123
1,150
3,372 21
Growth 2007-2013 3,702 27 1,409
3,959 26
4,028 24
+18%
Oceania
1,527
1,544
+57%
Asia
67
68
1,274
Asia
984
South America
34
30
36
1,145
1,257
1,237
1,368
1,566
1,692
North America
717
693
661
652
646
2007
2008
2009
2010
2011
Europe
Source: Thomson Reuters, Arthur D. Little analysis
56
54
+102%
South America
1,786
+56%
North America
647
606
-16%
Europe
2012
2013 1) 2)
Top 30 per category by 2013 revenues Nationality according to HQ location 11
2
Telecom is the main engine for the digital eco-system
Globally, telecom operators generate the vast majority of investment, while they benefit only from a third of the added-value Investment by sub-sector1
Free cash flows by sub-sector1
% of total ecosystem investment
% of total ecosystem FCF
+8 pts
-2 pt
+6 pts
-14 pts 68% 66%
30%
28%
28% 22%
22%
+2 pts +2 pt 17%
19%
14% +0 pt 2% 2%
-1 pts 6% 5%
Network Devices Equipment Software operators 2007
2013
Source: Thomson Reuters, Arthur D. Little analysis
-1 pt
+3 pt 5%
4% 3%
2%
Content
Internet
+5 pts
- 6 pts 11% 13%
10%
6%
4%
Network Devices Equipment Software operators 2007 1)
11%
Content
Internet
2013 Top 30 per category by 2013 revenues 12
2
Telecom is the main engine for the digital eco-system
The relative share of telecoms in the digital ecosystem varies dramatically by region of the world; Europe is overweighed in telecoms (or underweighted in other segments…) Turnover and market capitalization of top 30 players in each category by nationality1 Turnover – 2013
Market capitalization – 2013
In €B
In €B 4,204
1,786 Internet Content IT services and software
225
1,544
917
Content
403
184 350 IT services and software
853 Devices
Internet
1,097 1,410
469
12 161
606 Telecom equipment Network operators
89
26
4 54
82 75
469
North America
527
Asia
Source: Thomson Reuters, Arthur D. Little analysis
391
Europe
Devices 0
936
199
Telecom equipment
197
Network operators
654
436 20 581
North America
Asia
824 102
127
8 0 81
506 Europe
1) Top 30 players by 2013 revenues in each category, geographic breakdown according to headquarters location 13
2
Telecom is the main engine for the digital eco-system
In the Belgian digital ecosystem, telecom operators generated 59% of the revenues while accounting for 87% of investments, 75% jobs and 90% of taxes in 2013 2013 Digital Eco-system Turnover, Investment, Employment and Taxes Turnover1
Investments2
6%
7% 5% 0% 0%
12%
Direct employment3
1%
3%
16%
0%
7%
5 OTT Internet players
Taxes4
6%
5 content providers 2%
1%
19%
5 device manufacturers
4%
89%
87% 75%
5 equipment vendors
59%
5 telecom operators
Source : Trends Top, BelFirst, Annual Reports, National Bank Central Balance Sheet Office Arthur D. Little analysis
1)
For LG Electronics and Apple, Benelux turnover pro rata of the share of the Belgian population. Facebook revenue calculated on the basis of the EU ARPU. Amazon revenues calculated as a share of turnover in FR with respect to Belgian site visits. Google publicised revenue rescaled for reseller margin
2) 3) 4)
Yearly average in terms of FTEs Incl estimates for own content production, incl. estimate for Google Data Center expansion investment 2013-2014 14 Corporate taxes, excluding license fees for telecom players
2
Telecom is the main engine for the digital eco-system
1 euro invested in new high-speed broadband (fixed and mobile) networks creates 3 euros of GDP which represents 1,5 euros of revenue for the State Multiplier effect of telecom investment on the economy and revenues for the Belgian State Examples of induced effects on the economy
In billion euros, cumulated from 2013 to 2022
Time and productivity gains for enterprises Belgian GDP in 2022:
45,4% of compulsory levy on GDP
+0,65pts to +0,83pts
Time savings and customer experience improvement
15-19 7-9
6-7 Investments of telecom operators in new very high speed networks (fixed and mobile)
Creation of cumulated GDP in Belgium
∑(2013 – 2022)
Compulsory taxes
Emergence of new sectors of activities and new players Next to this, operators will invest in the same time frame €13-14 billion in IT, services, the existing network… with a multiplier of 1,5 to 13
Source : Akamai, IDATE, Arthur D. Little Ericsson Chalmers university of technology « Socioeconomic effects of broadband speeds », Eurostat « Taxation trends in the European Union », Etno Agenda for Europe, Arthur D. Little analysis 15
2
Telecom is the main engine for the digital eco-system
Besides, Belgian operators kept their employment levels stable (the 5 main telecom operators employed >28.000 FTEs in 2013) Employment Evolution in Belgium1 Base 100 in 2009 101
102 100
100
98 96
94
94 92
86 84
The 5 main telecom operators in Belgium employed >28.000 FullTime Equivalents in 2013
Water distributors
+ 0%
Railway network
- 6%
Motorway network
- 6%
Gas and electricity
- 10%
Postal services
- 18%
82
82 80 2009
+1%
90
90 88
Telecom operators
2010
Source : NBB, Annual reports, Arthur D. Little analysis
2011
2012 1)
2013
Telecom operators: Base Company, Belgacom, Mobistar, Telenet and Voo; Water distribution: Watergroep, Société Wallonne des eaux, TMWV, Antwerpse waterwerken, Vivaque; Railway network: Infrabel; Motorway network: Wegen en Verkeer; Gas and electricity: Electrabel, Elia, EDF Luminus; Postal services: Bpost
16
2
Telecom is the main engine for the digital eco-system
Telecom operators contribute heavily to Belgium’s GDP growth, unlike the “GAFAM1” Share of added value made in Belgium accounted for in the national GDP2,3 - 2013
Value injected by the telecoms into the economy In billion euros 45 bn€ 7% 15%
21%
21%
100% 3 bn€ other expenses (marketing, distribution fees) to other suppliers 6,6 bn€ to private shareholders 9,5 bn€ in the deployment, enhancement and maintenance of the telecom networks 9,7 bn€ to the state in taxes (excluding VAT), licenses and dividends
9% Operators
10,2 bn€ direct land indirect labour costs and benefits
GAFAM
22% 6,2 bn€ to the state in effective net value-added tax (VAT) 14% >90% of the added value realised in Belgium by the “GAFAM(1)” are not accounted in the Belgian GDP growth
2007 - 2013 Source : Annual reports, TrendsTop, BelFirst, National Bank Central Balance Sheet Office, Arthur D. Little Analysis
1) 2) 3)
Google, Apple, Facebook, Amazon, Microsoft Publicised added value share of estimated added value. Estimated is the added value scaled for the effective revenues of internet players in Belgium 17 GDP is the sum of all publicized added value in Belgium
Content
1
The telecom sector is at the core of the Belgian society and economy
2
Telecom is the main engine for the digital eco-system
3
Despite a difficult environment, telecom operators are sustaining their level of investment
4
For a digital New Deal fostering Telecom investments
18
3
Despite a difficult environment, telecom operators are sustaining their level of investment
Despite decreasing margins in the industry, operators have continuously increased the level of investment, raising the question of medium-term sustainability Evolution of Turnover, CAPEX and cash flows - telecom operators in Belgium1,2 In percentage of Turnover
7,2
7,3
7,5
7,9
8,0
7,8
7,7
Turn-over Investments Cash Flow3
34% 27% 14%
16%
28%
25%
15% 17%
2007
2008
2009
Source: Annual reports, Operators, Arthur D. Little analysis
2010
22%
22%
23% 15%
20%
18%
2011
2012
1) 2) 3)
2013
Base Company, Belgacom, Mobistar, Telenet and VOO VOO is not included in 2007 and 2008 due to the unavailability of the data Cash Flow = EBITDA - Investments
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3
Despite a difficult environment, telecom operators are sustaining their level of investment
Telecom Operators have rolled out high-performance networks and are investing in the networks of tomorrow Fixed High-speed Broadband Coverage
Mobile Broadband Coverage Coverage as % of the population
Coverage as % of households
100%
100%
90%
90%
High-speed internet coverage (≥30Mbps)
80% 70%
3G Outdoor 3G Indoor
80% 70%
4G 60%
60%
50%
50%
40%
40%
30%
30%
WiFi Homespot /hotspot coverage
20% 10%
20% 10% 0%
0%
2008
2009
2010
2011
2012
2013
H1 2014
2008
2009
2010
2011
2012
2013
H1 2014
Source : Operators, IBPT, European Commission (Broadband coverage in Europe reports), Arthur D. Little analysis 20
Despite a difficult environment, telecom operators are sustaining their level of investment
Belgium is leading in fixed Next-Generation Access broadband coverage and catching-up on 4G Fixed High-speed Broadband Coverage Next-Generation Access broadband coverage/availability in 2013, as % of households 100%
Mobile: 4G Coverage Outdoor coverage as % of the population 100%
SE
90%
PT
80%
80%
CH
70%
NO
60%
BE
60%
UK FR
50% DE
40%
40%
30% IT
20%
20%
10% 0%
0% MT BE NL LT LU LV PT DK UK CY HU NO DE EE SI FI SE AT BG RO ES CZ EU 27 IS SK IE PL FR HR EL IT
3
Q1 11
Q2 11
Q3 11
Q4 11
Q1 12
Q2 12
Q3 12
Q4 12
Q1 13
Q2 13
Q3 13
Q4 13
Q1 14
Q2 14
Source : European Commission digital agenda, Exane, Arthur D. Little analysis 21
3
Despite a difficult environment, telecom operators are sustaining their level of investment
Telecom’s investment level in Belgium has reached a new record in 2013, exceeding that of other network infrastructures Telecom’s investment in Belgium
Investment in network infrastructures in Belgium
2007 – 2013, in billion euros1
Yearly average, 2009 – 2013, in billion euros2
1,8
1,8 1,6
1,6
1,5
1,3
1,4 1,2
2,0
1,2 1,0
1,5
1,4
1,1
1,1
1,0
1,0
0,8
0,8 0,7
0,6 0,5
0,4 0,2
0,0
0,0 2007
2008
2009
2010
2011
2012
Source : NBB, Annual reports, Operators, Arthur D. Little analysis
Telecom
2013
1) 2)
Railway
Electricity transmission and distribution
Motorway network
Excluding mobile license fees Telecoms: Base Company, Belgacom, Mobistar, Telenet and Voo; Railway: Infrabel; Motorway network: Wegen en Verkeer and Direction générale routes et batiments; Electricity transmission and distribution: 22 Elia, ORES, Tecteo, Régie de Wavre, AIESH, AIEG, Sibelga, Eandis and Infrax
Content
1
The telecom sector is at the core of the Belgian society and economy
2
Telecom is the main engine for the digital eco-system
3
Despite a difficult environment, telecom operators are sustaining their level of investment
4
For a digital New Deal fostering Telecom investments
23
4
For a digital New Deal fostering Telecom investments
Given the strong growth in telecom services usage and the economic context, it is critical to support the investment effort of the telecommunication operators Usage of telecom services is growing strongly
Value received increases Operators have nonetheless maintained their investment level in an uncertain environment The telecom sector has a major boosting effect on the Belgian economy
x 15
Mobile internet volume from 2009 to 2013
x 10
Number of fixed fast broadband (>30Mbps) users from 2009 to 2013
x 4-7
Digital bonus: Operators provide a substantially better offering that generates 4 to 7 times more value for money to the consumers
24%
Of the operators’ turnover have been invested in 2013
15-19 bn€
Of cumulated GDP will be created between 2013 and 2022 by the operators’ investment in new super fast broadband networks
Source: BIPT, Operators, Arthur D. Little analysis 24
4
For a digital New Deal fostering Telecom investments
Legal and regulatory cycles are not in line with the long cycles of telecom investment Misalignment between the length of economic, technology, regulatory and fiscal cycle
Investment cycles1)
~15years
Technology cycles
1994 : 2G 2004 : 3G 2012 : 4G
~10 years
European Regulatory Cycles Belgian Regulatory Cycles Belgian Legislative Cycles
2002 : 1st Telecom Package 2007 : Roaming I, amended in ‘09 2007 : 2nd Telecom Package
~5 years
2012 : Roaming II 2013: Projet de règlement CE 2014 : 3rd Telecom Package
Market analysis by regulators
~3 years
2005-2014 : New telecom Act with yearly amendments 2012 : Telecom Law 2012 : VAT increase on digital TV 2013 : Walloon regional and municipal tax on GSM masts
~1 year
Source : Operators, BIPT, European Commission, Thomson 1) Reuters, Moniteur Belge, Arthur D. Little analysis
Average years needed to effectively amortize telecom assets. Calculated as being the inverse of the return on capital for Mobistar, Belgacom and Telenet as provided by ThomsonOne NB: For technological cycles, licenses attribution in Belgium 25
4
For a digital New Deal fostering Telecom investments
For a digital New Deal that will foster telecommunication investment
1
Guarantee regulatory predictability to ensure necessary visibility for the telecom investments
2
Set-up fiscal and financial incentives (reduction of over-taxation) to stimulate private investment in high-speed networks
3
Set-up regulatory and fiscal level-playing field for all actors in the digital ecosystem
4
Build trust in the networks in this digital age
5
Public Authorities to stimulate the development of the digital economy
26
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