Europe’s advanced telecommunications networks and population density have enabled the region to be a prime testing ground for emerging technologies. As fixed-voice traffic and revenue continues to fall, the focus has gradually shifted to other data-rich applications such as mobile TV and HSDPA, which in turn have placed competitive pressure on the business models of developing WiMAX networks across the EU. The copper networks have continued to be augmented by substantial cable and fibre network deployments during 2006. Further investment to the end of the decade is expected following the consolidation of cable operators in key markets (the UK, Germany, The Netherlands) as operators extend and upgrade networks in an effort to compete with dominant DSL. In addition, new technologies including wireless networks, Broadband Powerline, 3G mobile networks and satellite broadband have increased the reach and versatility of telecoms’ provision. Effective regulatory controls have enabled rivals to encroach on the incumbents’ market shares in all sectors.
Other key developments during 2006 were the further progress towards Next Generation Networks (NGN), moving infrastructure to an IP packet-based, full service typology. The principal innovator in this sector is British Telecom, which opened the first stage of its 21CN all-IP network in November 2006. The company successfully underwent structural separation and has since operated its Openreach division to service competitors on an equal footing. BT’s regulated approach, in particular Openreach, is likely to be imitated by the Dutch regulator in 2007 and by other regulators in Europe in coming years.
Broadband
Europe continued to show strong broadband growth in 2006, driven by intensifying competition and by regulatory measures to improve competitor access to local loops. In addition, technological developments in both the cable and DSL platforms have provided sufficiently fast data speeds for a large number of consumers to be able to extend broadband from its limited PC-based function to one which is increasing the basis for household entertainment through services such as Video-on-Demand (VoD) and IPTV.
The main growth driver remains xDSL followed by cable, but with fibre enjoying an improving footprint in certain markets, notably Scandinavia, The Netherlands and Italy, as the cost of roll-outs falls and network builds are undertaken by municipalities and other groups as often as by telcos. Satellite Internet and wireless broadband retain a niche presence, though the European Commission (EC) has facilitated the use of WLANs for accessing public services, and WiFi / WiMAX systems have been widely deployed in Europe.
Broadband penetration varies considerably across European states and is generally highest in countries where infrastructure-based competition exists via cable and other alternative networks, and where Local Loop Unbundling (LLU) is well regulated. Countries which implement pro-competitive regulatory frameworks have experienced faster broadband adoption, while those countries with unrestrained incumbent market power have fallen behind. Thus countries, such as France and the UK, with established bitstream and/or alternative infrastructures have seen substantial growth.
There remains scope for improvement in the development of LLU, the success of which largely relies on regulatory pressure. The overall broadband growth rate in 2006 was about 9% per quarter, compared to 15% per quarter in 2005. Slower growth was noticeable in some countries where adoption was already high (Belgium and Sweden) though it continued to grow strongly in The Netherlands.
Convergence
During 2006 the triple play model in Europe saw widespread deployment by a number of network operators and providers. Through mergers and buyouts, the year also saw the first quad-play offers, notably in the UK, with mobile telecoms added to existing bundles of fixed-voice, Internet and TV. Triple play offers a number of value-added services including broadcast and specialty TV channels, VoD, Voice over IP (VoIP), and Digital Video Recorders (DVR or PVR). This has been possible through operators upgrading most of Europe’s communications networks to IP packet-switched technology. To the communications provider, most of the carry cost occurs in building transmission infrastructure; once the infrastructure is in place, the cost to deliver new services is negligible.
This natural bundling of voice, Internet and TV has transformed the telecommunications and TV broadcasting industries, bringing players in both industries together as direct competitors in the triple play market. By 2006, much of Europe was able to take advantage of the numerous services offered, and by the end the decade most countries will have sufficiently fast and widespread broadband networks to make IP-content within reach of the a sufficient proportion of the population to make a wider range of digital media commercially available. With this infrastructure in place, companies can deliver innovative services, which will in turn feed demand for more content. Remaining profitable and competitive in this environment will pose many challenges. One key to revenue growth is being able to deploy new multimedia services quickly and simply as the market develops.
The market for digital home services (TV, broadband and telephony) in Europe is promising for 2007 and coming years. By 2010, Digital TV (DTV) will be available in 60% of European households, and DTV may replace broadband Internet as the principal driver of growth of Europe’s digital economy. Billions of Euro will be invested in this sector, and local content providers will also profit. The long-term winners will be those players who are first to offer the consumer triple play on favourable terms. The stronger competition in the market in coming years will require further investment in developing or expanding networks and in creating new digital content. Those players with good funding and a large subscriber base to leverage will benefit from some competitive advantages. These will include new players in the sector such as Yahoo! and Google. National incumbents have a good starting position, since they dominate the infrastructure industry with a customer base of around 151 million. Yet cable network operators have around 51 million subscribers, and many have been at the forefront in developing new strategies to encourage digital media.
Mobile communications
Europe’s mobile market continues to grow despite market saturation - by mid-2006, 14 of the region’s 29 markets exceeded 100% penetration. Regulatory controls and increasing competition among network providers and from a growing number of MVNOs has resulted in falling ARPU and voice prices, while SMS promotions and bundles have also affected data ARPU. To combat this declining revenue, operators have focused on migrating subscribers to 3G services – by mid-2006 the 3G subscriber base approached 35 million, but despite this extraordinary growth, providers have struggled to encourage subscribers to use services such as mobile TV, which are perceived as expensive and of uncertain value.
GSM remains the dominant platform, accounting for 97% of all subscribers, of whom about 80% were on prepaid plans. SMS remains the most successful data service, accounting for 15-20% of many operators’ revenues, and up to 95% of data revenues. There were also more than 200 Mobile Virtual Network Operators (MVNOs). Europe remains an important laboratory for emerging mobile technologies such as Enhanced Data for GSM Evolution (EDGE) and High-Speed Downlink Packet Access (HSDPA), while countries such as Finland are in the forefront of utilising 900MHz spectrum for 3G.
