AT&T is still teasing the markets about its interest in Europe, but it claims to be deterred by the regulatory environment, and is becoming something of a rallying flag for local operators’ criticisms of their market conditions.
The US carrier’s CEO Randall Stephenson, speaking at the ETNO (European Telecommunications Network Operators) conference in Brussels this week, said that he sees a ‘huge opportunity for somebody’ to invest in mobile broadband in Europe, a market that could be ‘incredibly exciting’. However, he was coy about whether AT&T would be the company to grasp those opportunities, despite many recent reports that he is looking at acquisitions in the region, even perhaps a ambitious bid for Vodafone itself.
He used the home of the European Commission to call for regulatory changes, which he hinted would encourage inward investors such as AT&T. ‘I continue to be fascinated and impressed by how slow mobile broadband is moving in Europe,’ he said, arguing that without new spectrum policies, the EU’s mobile broadband market would not fulfil its full potential for new services and carrier profits.
For instance, he believes telcos would find it easier to justify accelerated investment in networks if spectrum rules were harmonized across the EU, especially as many operators are cross-border, and if they could buy longer term spectrum licences. He called for a ‘regulatory rethink’, adding: ‘I know most of the CEOs here and they are pretty smart people who like to earn money for their shareholders. So if the investment case were there they would be doing more.’
While few would argue that US regulatory policy is as transparent and flexible as it could be, Stephenson stood up for the FCC, saying that, had spectrum in New York been allocated in the European way, there would have been a ‘radical misallocation of a very precious resource’.
In particular, he wants moves to technology neutrality to be accelerated so that operators can choose their own combinations of 2G, 3G and 4G technologies and trade or lease their spectrum. ‘It’s best for the industry to decide what to do with spectrum,’ he went on. ‘If the EU were to focus on making sure the secondary markets for spectrum are fluid ‘ you will see spectrum footprints harmonize by themselves by virtue of the markets.’
European cellcos might dread the possible arrival of AT&T on their shores, but they support many of Stephenson’s comments. Orange CEO Stephane Richard said at the same conference that Europe had become ‘stifling for expansion and investment’ and the proposed slashing of roaming fees would make this situation worse.
‘Our main problem in Europe is that we have no growth,’ he said. ‘Europe has to accept the idea that the price for services, for new technology, for mobile broadband, for fiber will need to increase a little bit. If not, I don’t see how we could manage; there is no more money in Europe.’
Carriers are violently opposed to the eventual ending of roaming charges, a key element of the package of telecoms reforms recently outlined by EU digital commissioner Neelie Kroes. These also include more harmonized spectrum rules and unified rules for net neutrality and consumer rights, as she tries to push Europe towards being a single telecoms market. ‘Bringing down barriers is ultimately good for the sector,’ Kroes said in a keynote speech at the ETNO event. ‘But you can’t do that without removing roaming surcharges, without removing the arbitrary high charges for calling across borders.’
European telcos have invested 2% less per year on infrastructure over the past five years, a shortfall of €3.5bn ($4.7bn) in 2012 compared to 2008, says Boston Consulting Group, which also says that carrier revenues will fall by as much as 2% a year too, until 2020, a cumulative loss of up to €190bn.
‘I am still surprised by people that are thinking that we are going to increase our investment by cutting our resources,’ Richard continued. ‘When we look at this package, I don’t see anything substantial regarding investment because investment is linked to resources.’
As well as claiming the reduction of a valuable source of revenue will worsen this outlook, in a region still suffering from recession and currency crisis, carriers want less regulation in areas such as wholesale fees. They also demand greater freedom to consolidate in order to stabilize prices. Price wars have been particularly aggressive in countries like France, which has four cellcos, but the EU has generally been unwilling to see the number of competitors reduced.
‘We cannot compete in our environment anymore,’ said Timotheus Hoettges, deputy CEO of Deutsche Telekom. ‘Europe is at a scale too small to be relevant.’ He claimed the major European carriers would all have to combine to achieve market capitalization comparable to AT&T’s, which stands at around $175bn.
Operators’ dire predictions are not all about self-interested defence of old privileges like roaming fees. They are backed up by various researchers, including Ovum, which this week forecast that western European carriers’ revenues would decline at a CAGR of 1.5% up to 2018, while cellcos will face revenue decline on a global basis for the first time in history in 2017-2018.
Global connections will grow by a CAGR of less than 4% between 2012 and 2018, while global revenues will grow at less than half that rate as growth slows, markets saturate and ARPUs decline, says the firm. That means operators will have to find ways to serve customers more profitably, rather than concentrate on traditional KPIs like market share and subscriber numbers alone.
According to Ovum’s figures global mobile connections will grow from 6.5bn in 2012 to 8.1bn by 2018, while annual mobile service revenues will rise from $968m to $1.1 trillon. However, global service revenues will fall in 2018 by 1%, compared to 2017, or $7.8bn.
Connections in western Europe will grow by a CAGR of less than 1% during the period, while revenues will decline at 1.48% a year. The US will also see year-on-year revenue decline in 2018 as it mature, though the sharpest drop will be in the Middle East, at 2.5%. Much of the global shortfall will be caused by falling ARPU, which will continue to decline across all markets, at a global CAGR of 2.7% .
The greatest opportunities will be in Africa, where revenues will continue to grow throughout the period of the study, at a CAGR of 4.2%, the only region which will see rates above 3%. African connections will rise at 5.6% a year and by 2017 they will total one billion. The three huge Asian markets of China, India and Indonesia will account for 57% of global connections at the same date, totalling 4.2bn.