Future of Telecoms: a sector at dcrossroads

New business and regulatory challenges 24/4/2013

Thierry DieuDirector for Communications and Public Policy

ETNOETNO

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 andETNO 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 i i d iinnovation and investment.

ETNO members account for 70% of total investment in theETNO members account for 70% of total investment in the sector and two thirds of NGA-passed households.

* ETNO Yearly Economic report, 11/2012

26/04/2013 3

Telco’s business models at crossroads:Telco s business models at crossroads:overall context

Fall in revenues for the third year in a row due a ongoing decline in traditional services

Regulatory constraints bringing prices down (termination rates)

Competitive pressure on pricesCompetitive pressure on prices

Lack of capacity to monetise on traffic increase and shift of value shift towards OTTs

6% revenue decline between 2008 and 2011

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

250

300

150

200

50

100

02007 2008 2009 2010 2011

Fixed telephony Mobile services Fixed Internet & data

Source : IDATE

Disconnect between those who generate the trafficand those who bear the costs+ 60% data traffic/ year (+100% on mobile networks)

Disconnection between traffic/ revenue

and those who bear the costs

Most of traffic growth is coming from OTT applications. Traditionalbusiness models do not allow operators to monetise on trafficpincrease

Telcos’ investments under pressure

Value shifted from telco’s to OTTValue shifted from telco s to OTT

Overall value European network operators shrunk by 28% between 2006 and 2012

Opportunities for growthOpportunities for growth

Need for new business models• Move from flat rate to differentiated offers (based on quality,

speed, services)• Commercial agreements on QoSg

Exploit potential of e-services (healthcare, energy, security, payments ) online content and cloud computingpayments, ...), online content and cloud computing.

Up to €44 billion additional annual revenue by 2020 according to AT K report for ETNOreport for ETNO

New opportunities for growthNew opportunities for growth

Value based pricing: up to €12 bn p a

Mobile advertising, M2M, content, cloud, g, , , ,m-payments: up to €32 bn pa

Achieve greater efficiency: up to €10 bn p a

Source: AT K report for ETNO April 2013

ETNO call for a bold EU strategy to incentiviseETNO 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 playersover the top players

Improve conditions for investment and innovation by allowing more consolidation and enabling operators to achieve greatermore consolidation and enabling operators to achieve greater scale for innovation and the development of new services through the creation of a single European market for telecoms

Towards a new regulatory approach for broadband

Vice-President Kroes set out a new approach to EU price and access regulation on July 12 2012access regulation on July 12 2012

• Stability of wholesale access prices for copper• Reinforced non-discrimination obligations (‘equivalence’) • Pricing flexibility for fixed NGA wholesale products• Pricing flexibility for fixed NGA wholesale products

Draft regulation to drive down costs linked to civil works

On going Review of the recommendation on the relevant marketsOn going Review of the recommendation on the relevant markets Stability of wholesale access prices for copper

• Removal of competitive markets from of markets to be regulated• Change to regulation of remaining markets (broadband)Change to regulation of remaining markets (broadband)

Towards a level playing field between telco’sTowards a level playing field between telco s and OTTs

D t P t ti R l tiData Protection Regulation

Draft Information and Network Security Directivey

• Extension of obligations towards all players offering online services to EU citizensservices to EU citizens

The way forward:The way forward:Accelerating the single market for telecoms

Towards a single market for telecoms

Vice President Kroes: Building our Digital Single Market: 10Vice-President Kroes: Building our Digital Single Market: 10 steps to deliver broadband (January 30, 2013)• “That's not easy, and the EU can't do it alone. Broadband

may be a miracle but there's no magic wand But we canmay be a miracle, but there s no magic wand. But we can make it easier, using our Single Market. By smashing barriers, thinking big and helping companies to build their business case Quite simply: the more consistent the rulesbusiness case. Quite simply: the more consistent the rules, the fewer the obstacles. The more consistent the environment, the wider your ambition can spread. In fact completing the telecoms single market could give us a boostcompleting the telecoms single market could give us a boost of €110 billion a year.”

Towards a single market for telecomsTowards a single market for telecoms

Extract from 14-15 March Council Conclusions: • a) digital agenda and other services (October 2013): the

European Council notes the Commission's intention to report well before October on the state of play and the remaining obstacles to be tackled so as to ensure the completion of a fully functioning Digital Single Market by 2015, as well as concrete measures to establish the single market in I f ti d C i ti T h l lInformation and Communications Technology as early as possible;

Towards a single market for telecomsTowards a single market for telecoms

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

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

• Address the fragmentation of sector and allow for more consolidation, increasing competitiveness of EU telecoms on global scene

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

ETNO is currently commissioning a study to identify key obstacles to EU single digital market and policy measure to be takentaken

Thank you for your attention

Thi DiThierry DieuDirector for Communications and Public Policy

dieu@etno bedieu@etno.be