Www.idate.org Is Europe ready for a telecom rebound? Didier Pouillot Head of industrial department...

www.idate.org

Is Europe ready for a telecom rebound?

Didier Pouillot

Head of industrial department analysis, IDATE

Jean-Charles Doineau

Head of equipment division, IDATE

www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 22

Service provider markets

Network equipment markets


Telecom service markets:A rapid growth over recent years

As a result of the explosion of mobile services (half of growth in telecom services in 2000 and 2001 derived from cellular services)…

… and sector developments in emerging countries (e.g. China)

0

50

100

150

200

250

300

350

400

450

1999 2000 2001 2002 (e)

bill

ion

US

D

North America Western Europe Asia-Pacif ic Rest of the w orld

So

urc

e:

IDA

TE


Telecom service markets:But slowdown in the short term

Mobile sector has become mature in its traditional segment (voice) and is waiting for new growth drivers (mobile data applications)…

High speed revenues should represent only 6 to 8% of total telecom revenues in 2006

Effect of political crises in some areas (Latin America)

800

1000

1200

1400

1600

1999 2000 2001 2002 2003 2004 2004 2005 2006

billio

n U

S$

So

urc

e:

IDA

TE


Telecom service operators:Strong revenue growth over recent years

More than 10% of annual growth on average between 1998 and 2001 for the world market leaders (around 14% for the European top 6)

Mainly due to the development of mobile activities (more or less 30% of European telcos revenues in 2001) and international operations (up to 40% of consolidated revenues for Telefonica or France Telecom)

0

10

20

30

40

50

FT DT BT TI Telefonica KPN

bill

ion

EU

R

1998 1999 2000 2001

So

urc

e:

IDA

TE


Telecom service operators:But decline in profits

EBIT suffered from lower margins, due to competition (decrease in tariffs, loss of market shares)…

… while net earnings reflected the huge sums telcos were obliged to carry owing to the depreciation in their financial assets …

-60%

-40%

-20%

0%

20%

FT DT BT TI Telefonica KPN

1998 1999 2000 2001 1H02

-151%

Profit ratio (net earnings/revenues)

So

urc

e:

IDA

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Telecom service operators:And a very high level of debt

Most operators are today faced with the necessity of reducing debt, through:

The sale of non-core assets (and sometimes core assets !)The reduction of capital expenditureNegociations to find new sources of funding

0

15

30

45

60

75

FT

DT

BT TI

Tel

efon

ica

KP

N

bill

ion

EU

R

1H01 1H02

So

urc

e:

IDA

TE


Telecom service markets:Looking for new revenues (1)

Mobile data revenues could grow threefold between 2001 and 2007 and account for 30% of mobile revenues at the end of the period

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5

10

15

20

25

30

35

40

2000 2001 2002 2003 2004 2005 2006 2007

Billion EUR

SMS person to person SMS application to person PortalsMMS Modem / Mobile office Indirect revenues

Revenues generated by mobile data services, in Western Europe (2000–2007)

So

urc

e:

IDA

TE


Telecom service markets:Looking for new revenues (2)

Over a third of European households will have a broadband Internet connection by 2007

Revenues generated by the broadband access market in Western Europe (2001–2007)

0

5

10

15

20

25

Low High Low High Low High Low High Low High

billio

n E

UR

xDSL Cable modem

20022001 2003 2004 2005 2006 2007

So

urc

e:

IDA

TE


Service provider markets

Network equipment markets


Network equipment markets:An historical market trend

0

5

10

15

20

25

30

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

CA

PE

X /

Sal

es (

%)

0

10

20

30

40

50

60

70

80

Nb

r o

f N

.O.s

tak

en i

nto

acc

ou

nt,

wo

rld

wid

e

average CAPEX / Sales (%) nbr of N.O.s taken into account

Historical 16-17% average

CAPEX/sales ratio

Source: IDATE


In the mobile infrastructure field, the development of 2G technologies has been progressive during the 90’s, and reached its peak in Europe during the period 1995 - 1999.

In the WAN transmission market, 1996-2000 experienced strong technological improvements (2,5 & 10 Gbps DWDM), as well as numerous new network developments (up to 42 at its peak in 1999)

In the access field, 1996-1999 was dominated by the end of the digitalisation process of the US networks, and by the beginning of studies on DSL deployment afterwards.

In the LAN market, 1996-1999 was marked by the appearance of the « networked-company », model that now reaches more than 60% of companies in developed countries.

Network equipment markets:An historical market trend dominated by strong technical drivers


Network equipment markets:An historical market trend

0

5

10

15

20

25

30

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

CA

PE

X /

Sal

es (

%)

0

10

20

30

40

50

60

70

80

Nb

r o

f N

.O.s

tak

en i

nto

acc

ou

nt,

wo

rld

wid

e

average CAPEX / Sales (%) nbr of N.O.s taken into account

A >10% reversal in 2001-2002!

Source: IDATE


In the mobile infrastructure field, the GPRS (Europe), CDMA2000 1X (North America, Korea, China) and UMTS markets decreased by 4%. On the 2G front, 2001 was marked not only by a reversal of the GSM trend in Europe but also by significant expansions in APAC and China.

In the WAN transmission market, 2001 was marked by a significant shrinking of the market (19%) mainly due to long-distance carriers’ financial difficulties,

In the access field, as a result of CLECs significant financial difficulties in the DSL, cable and WLL sectors, the investments in broadband infrastructures were reduced or completely frozen.

In the LAN market, growth remained steady given the economic slowdown observed in 2001.

Network equipment markets:An historical market trend and an historical downturn!


Network equipment markets:A new network business model emerging

NE

P N

.O.

Vertical model: up to 1996

Horizontal model: 1996 -2001

EM

S

C.M

.

C.M

.

NE

P 1

NE

P 2

Incumb

.

Alterna

te

Collaborative network model:

2002 -2003

C.M

.

C.M

.

Fix N

EP

Mob N

EP

Fix. N

.O.

Mob. N

.O.

Engineering

Engineering

ISV

ISV


0

20 000

40 000

60 000

80 000

100 000

120 000

2001 2002* 2003* 2004* 2005* 2006*

millions USD

North America Asia-Pacif ic Western Europe Rest of the w orld

Network equipment markets:Limited perspectives of recovery in the short-term

Source: IDATE


Network equipment markets:What will be the evolution of CAPEX/sales ratio towards 2006?

0

5

10

15

20

25

30

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Ave

rag

e C

AP

EX

/ s

ales

(%

)

Average CAPEX / sales (%)

No objective signs of recovery before

2004!

So

urc

e:

IDA

TE


What if we assume that the majority of network operators will delay their UMTS network rollout plans, following Telefonica, Orange and Sonera's recent announcements?

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5

10

15

20

25

30

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Ave

rag

e C

AP

EX

/ s

ales

(%

)

Average CAPEX / sales (%) with UMTS delay Average CAPEX / sales (%) without UMTS delay

Network equipment markets:Impact of UMTS roll-out

Source: IDATE

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