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“The Economics of Telecoms” Report 2013 edition 5 December 2013 Arthur D. Little for the Fédération Française des Télécoms Arthur D. Little 51, rue François 1er 75008 Paris France Telephone + 33 1 55 74 29 00 Fax +33 1 55 74 28 03 www.adlittle.fr RCS Paris B 432 722 072 Agenda 1 The telecom sector contributes to shaping the future of the French economy 2 Despite a difficult environment, telecom operators are sustaining their level of investment 3 The European approach needs to change to favor investments 4 Two issues to deal with as priorities 5 Conclusion: For a digital New Deal 2 1 Telecoms: shapers of the French economy’s future Telecom operators are creating value for the French economy Efficiency improvements for the economic players Consumers Business Strong growth in telecom services usage: mobile Internet usage has multiplied by 200 since 2006 22% price decrease since 2006 15% gain in profitability for SMEs thanks to the telecom sector 58% of employees use mobile connected devices to do 3/4 of their work State In 2012, telecom operators paid 87% of the digital ecosystem’s taxes, while OTT players paid only 1% Multiplier effect on the economy as a whole Economy Telecom operators injected 245 bn€ into the French economy between 2006 and 2012 Amounts invested in telecommunication networks generate 6 times more wealth and 3 times more State revenues Upgrading broadband speed generates positive macroeconomic effects such as: – Time savings and productivity gains – Emergence of new players (cloud, catch-up TV, VOD…) – Job creation – Environmental gains – Social welfare Source: INSEE, ARCEP, SQW, Google, IDC , Arthur D. Little analysis 3 1 Telecoms: shapers of the French economy’s future Usage of telecommunication services is soaring, while prices are falling down Telecoms’ usage in strong growth Telecom’s prices falling down Mobile voice SMS Mobile data Billions of minutes +28% Billions of SMS x12 Billions of MB x200 119.9 183.1 Base 100 in 2006, consumer price index evolution 145 123 100.1 94.0 120 115 15.1 2006 2012 2006 0.5 2012 2006 110 2012 Fixed voice Fixed Internet1 Catch-up TV Billions of minutes +5% Millions of subscribers X3.5 Millions of videos 105.4 110.8 144 24.0 120 118 117 111 109 105 Gas + 44% Electricity + 23% Transport by rail + 20% Postal services Tolls & parking + 18% Inflation + 11% Financial services 100 + 17% + 9% 95 90 2.5 89 85 80 6,6 0.0 2006 2012 2006 2012 Source: INSEE, ARCEP, CNC, Arthur D. Little analysis 2006 Fixed and 78 mobile 75 2012 (1) (2) 2006 2007 2008 2009 2010 2011 2012 20132 telecom service -22% All Internet access with a minimal speed of 0.128Mb/s Average on H1 2013 4 1 Telecoms: shapers of the French economy’s future Business and administration productivity is supported by the telecom industry Increase of productivity for businesses and employees gain for SMEs thanks to +15% Profitability telecoms: +7% cost reduction (purchasing, Savings for the French administration €780m of savings and increase in revenues per year with the new online tax system In € millions marketing) +8% revenues increase (new customer segments, increased commercial reach) -7% Reduction of travel costs thanks to telecommunication services (phone, mail, conferences) 486 294 Increase in revenues Savings 780 €1.5bn savings per year due to the e-health “Vitale” card Cost of processing a medical reimbursement, in € -84% 58% Of employees use mobile connected devices for 3 quarters of their tasks 1.70€ 0.30€ Regular Post Electronic processing processing Source: Cisco, Google, IDC, Arthur D. Little analysis Source: Sénat, Cour des Comptes, INSEE, Arthur D. Little analysis 5 1 Telecoms: shapers of the French economy’s future In the French digital ecosystem, telecommunication operators account for 90% of investments and 61% of revenues Revenues, jobs, investments and taxes 2012 of 5 major players by sub-sector in France Revenues1,2: €69 bn Investments3: €8.3 bn Nr of direct jobs: 170,000 3% 10% 3% 1% 3% 2% 12% 14% 12% 1% 7% Taxes and licenses4: €6.7 bn 10% 1% 1% 1% 61% 4% 76% 87% 90% 5 telecom operators Orange, SFR, Bouygues Telecom, iliad, numericable Source: ARCEP, Diane, Reuters, annual reports, Arthur D. Little analysis 5 equipment vendors NokiaSiemensNetwork, Ericsson, AlcatelLucent, Cisco, Huawei 5 device manufacturers Samsung, Nokia, LG, Apple, RIM (1) Revenue declared or published in the press (2) Data adapted to take into account the estimated effective revenues of Internet players in France 5 content players France Télévisions, TF1, Canal+, Radio France, M6 5 Internet OTT players Google, Amazon, Yahoo, Facebook, Microsoft (3) Excluding licenses; if data unavailable, estimation based on the number of jobs located in France (4) Taxes on businesses, other taxes and assimilated payments excluding VAT and licenses 6 1 Telecoms: shapers of the French economy’s future The contribution of telecom operators to the economy is more important than the contribution of other players in the digital ecosystem, despite decreasing revenues Evolution of revenues compared to 2011 ̶ Jobs, investments and taxes for 1bn€ of revenues 2012 of 5 major players by sub-sector in France Nr of jobs for each 1€bn of revenues 1,2 : Revenues 1,2: Revenue evolution 2012 vs 2011 4,809 €m invested3 for each 1 €bn of revenues 1,2: €m of taxes4 for each 1 €bn of revenues 1,2: 180 139 26% 3,109 14% 17% 67 2,166 38 753 1% -4% 5 telecom operators Orange, SFR, Bouygues Telecom, iliad, numericable Source: ARCEP, Diane, Reuters, annual reports, Arthur D. Little analysis 28 29 27 26 7 255 5 equipment vendors NokiaSiemensNetwork, Ericsson, AlcatelLucent, Cisco, Huawei 5 device manufacturers Samsung, Nokia, LG, Apple, RIM (1) Revenue declared or published in the press (2) Data adapted to take into account the estimated effective revenues of Internet players in France 5 content players France Télévisions, TF1, Canal+, Radio France, M6 10 5 Internet OTT players Google, Amazon, Yahoo, Facebook, Microsoft (3) Excluding licenses; if data unavailable, estimation based on the number of jobs located in France (4) Taxes on businesses, other taxes and assimilated payments excluding VAT and licenses 7 1 Telecoms: shapers of the French economy’s future Telecom operators contribute heavily to France’s GDP growth, unlike the “GAFAM1” Value injected by telecom operators into the economy between 2006 and 2012 Share of the added value realized in France accounted3 in the national GDP4 – 2012 In billion euros 245 bn€ 10% 100% 24 bn€ to private shareholders 30 bn€ to the French State through 12% taxes (excl. VAT), licenses and dividends 19% 49 bn€ in the roll out, upgrade and 22% 23% maintenance of telecom networks Orange SFR Bouygues Telecom iliad numericable 56 bn€ in other expenditures (marketing, distribution) 92 bn€ in direct and indirect 37% salaries2 and benefits 3/4 of the added value realized in France by the “GAFAM1” are not accounted for in the French GDP growth 2006 - 2012 Source: Diane, annual reports, press, Arthur D. Little analysis Google Apple Facebook Amazon Microsoft (1) (2) (3) (4) Google, Apple, Facebook, Amazon, Microsoft Including wages and social charges Declared added value compared to estimated added value GDP = sum of declared added value in France 8 1 Telecoms: shapers of the French economy’s future Telecoms have a multiplier effect on the economy, as telecom investment yields 6 times the amount invested for the French economy Multiplier effect of telecom investment on the economy and income generation for the French State 2013-2022 In € billions French GDP in 2022: Examples of induced effects on the economy 46% of compulsory levy on GDP +1pts to +1.3pts Time and productivity gains for enterprises 112 - 144 52 - 67 20 - 25 Telecom operators’ investment in broadband networks (fixed and mobile) Cumulative creation of added value (GDP) in France Taxes and levies Time savings and customer experience improvement Emergence of new sectors of activities and new players ∑(2013 – 2022) 1 euro invested in broadband networks creates 6 euros of GDP, which represents 3 euros of revenue for the State Source: INSEE, IDATE, ARCEP broadband observatory, Arthur D. Little Ericsson Chalmers university of technology “Socioeconomic effects of broadband speeds”, French State finance law project 2013 report on compulsory levy and their evolution, Arthur D. Little analysis 9 1 Telecoms: shapers of the French economy’s future The existence of reliable infrastructures fosters the emergence of innovative players, leaders in their markets Sectors Payment Transport Animation Computer-aided design Leaders GEMALTO: Global leader of smart cards Oberthur Ingenico: Technologies: Global leader of 2nd player of smart EPT1 cards worldwide MAC GUFF Inforad European leader of events sales Global leader of 3D conception discount.com 2nd e-commerce website in France Source: FEVAD, Companies, press, Arthur D. Little analysis Leaders Deezer Leader of online music listening services2 in France Dailymotion Video Folimage Les Autochenille Armateurs World’s 3rd in animation industry Dassault Systemes Music Wikango Coyote: Leader of driving assistance systems in France vente-privee.com E-commerce Sectors 2nd biggest video platform in the world Ubisoft Video games Dating sites Professional social networks (1) (2) VLC Most downloaded software in France Gameloft European leader of video games French leader of mobile gaming Meetic European leader of dating sites Viadeo French leader of professional social networks EPT: Electronic payment terminals Ranking in number of paying users for streaming services or podcasts, excluding direct download 10 Agenda 1 The telecom sector contributes to shape the future of the French economy 2 Despite a difficult environment, telecom operators are sustaining their level of investment 3 The European approach needs to change to favor investments 4 Two issues to deal with as priorities 5 Conclusion: For a digital New Deal 11 2 Sustaining investment level in a difficult environment Despite lower revenues and margins, telecom operators continue to invest significantly Evolution of revenue, EBITDA, CAPEX and cash flows - telecom operators in France1 In billion euros In percentage of revenue 44.7 37.4 35% 23% 12% 2006 46.6 46.4 45.9 44.8 Revenue 40.0 37% 34% 34% 33% 35% 24% 28.3% 25% 11% 12% 2007 2008 EBITDA 23% 11% 19% 13% 14% 14.5% CAPEX 13.8% EBITDA - CAPEX 2009 Source: ARCEP, Diane, annual reports, operators’ communication, Arthur D. Little analysis 21% 2010 (1) 2011 2012 Atos Worldline, Bouygues Telecom, Breizh mobile, BT, Casino Mobile, CIC Mobile, Cofidis Mobile, Colt France, Crédit Mutuel Mobile, DartyBox, Hub Telecom, Iliad, La Poste Mobile, M6 Mobile, Naxos, Numericable, NRJ Mobile, Orange-France Télécom, Prosodie, SFR, Télé 2 mobile, 12 Universal Mobile, Verizon Business, Virgin Mobile, Wifirst 2 Sustaining investment level in a difficult environment Telecom’s investment level in France reached a new record in 2012, far above that of other private infrastructure networks Telecom’s investment in France – 2006-2012 Excluding mobile license fees In billion euros 7.0 6.2 Mobile 3.2 2.4 6.5 6.8 7.0 2.4 2.4 7.3 Investment in privately owned infrastructures in France Yearly average, 2006 - 2012, in billion euros1 6.8 5.9 2.4 4.0 19 bn€ 2.2 3.7 Fixed 3.8 3.8 4.1 3.7 4.4 4.6 3.5 1.8 3.3 28 bn€ Telecom3 2006 2007 2008 2009 2010 2011 2012 Source: “Association des Sociétés Françaises d’Autoroutes“ (ASFA), RFF, RTE, ERDF, ARCEP, Diane, Reuters, annual reports, Arthur D. Little analysis (1) (2) (3) Electricity: Rail network Highways transport & distribution2 Telecoms: Orange, SFR, Bouygues Telecom, Iliad, Numéricâble; Electricité: RTE et ERDF; Réseau Ferré de France: statut d’EPIC; Autoroutes: ASFA (Sanef, SAPN, ASF….) Average for 2008–2012 Excluding mobile license fees 13 2 Sustaining investment level in a difficult environment Telecom operators have rolled out high-quality networks and are now investing at a steady pace in tomorrow’s networks Present networks Tomorrow’s networks 3G coverage in population percentage 75% 58% Mobile 99.7% 89% 4G coverage in population percentage and antennas number 11345 63% 25% 0 0% 2002 2004 2006 2008 2010 2012 2014 DSL(1) coverage in population percentage 82% Fixed LW1 2010 0 558 2011 2012 10% FttH coverage in percentage of households 99.3% 96% 97% 98% 9% 62% 25% 6% 3% 2000 2002 2004 2006 2008 2010 2012 2014 2010 Source: ARCEP, ANFR, operators’ communication, Arthur D Little analysis 2013 (1) 4% 2011 2012 2013 Digital Subscriber Line 14 Slide 14 LW1 Can't edit this chart - the number 11345 needs a comma added after the 11. Lindsay Wilson; 04.01.2015 2 Sustaining investment level in a difficult environment Operators are offering growing broadband speeds and widening their content offers Strong growth in broadband speed Wider content offers Average speed, Mbps1 1,54 x 20 LW2 Up to 130 TV channels included Premium applications including Deezer, Napster, iCoyote, Cinédays… Creation of new services “Connected household” services (Security, home automation, smart meter) Mobile 0,08 Cloud storage services 2007 2012 Average speed, Mbps +177% 8.8 Transformation of the box in the household’s media center Integrated hard TV: up to 500 channels (70 HD) drive (320Go) Fixed 3.2 2007 Music S1 2013 Photos Multi-SIM offers with several complementary SIM cards for tablets included in the contract Home signal amplifier (femtocell) Replay offer: TV on demand, simultaneous recordings Source: Opérateurs, ARCEP, Akamai, Degrouptest, Arthur D Little analysis (1) Download speed reached for 90% of the measures on the best-sold smartphones 15 Slide 15 LW2 Can't edit this chart - the commas in the numbers need changing to decimals. Lindsay Wilson; 04.01.2015 2 Sustaining investment level in a difficult environment Thanks to investment in broadband networks, telecom operators improve the customer experience and support the development of the usage of telecom services Case of Palaiseau FttH(1) connected city 4G impact on customers’ comfort 90% of households are eligible for a FttH(1) 100Mbps connection Gain in time in everyday life: Percentage of users in France saying that 4G helps them save time Strong growth in the use of services – x3 on the volume of downloaded data 85% Usage increase Percentage of users in France using video conference services 56% – x3 on the consumption of video on demand – x3 on customers subscribing to paying TV 31% – x7 on the consumption of catch-up TV Stronger interactivity New services – x8 on the volume of uploaded data – Reduction of the asymmetry between upload and download Source: TNS, operators, press (zdnet, clubic), Arthur D. Little analysis Mobile HD TV (1) before 4G HD Video call 4G Instant navigation Augmented reality Fiber to the Home 16 Agenda 1 The telecom sector contributes to shape the future of the French economy 2 Despite a difficult environment, telecom operators are sustaining their level of investment 3 The European approach needs to change to favor investments 4 Two issues to deal with as priorities 5 Conclusion: For a digital New Deal 17 3 Favoring investment through a different European approach The European approach towards the digital sector has contributed to the industrial decline of the continent Ambitious goals but a short-term regulation focused on competition and development of demand Framework for network rollout Access to affordable communication infrastructure of best-in-class quality Infrastructure-based competition State help in lower-density areas Decline of the European ecosystem Operators Revenue share of European operators in the world top 30 30% 2006 2012 Device manufacturers Framework in favor of consumers Market share of European device manufacturers in the global market 47% 2000 Regulated tariffs of certain services 18% 2012 Equipment 2000 Lisbon’s strategy “The most competitive and dynamic knowledge economy in the world” 42% Market share of European mobile equipment manufacturers1 in the global market Lack of initiatives supporting innovation and investment The 2013 regulation project of the European Commission heads in the same short-term consumer-oriented direction Internet players Share of European businesses with Internet players (capitalization exceeding 1.5M$) 98% 2000 62% 2012 2% Source: European council communication regarding Lisbon’s initiative March 23rd, IDC, CGSP, BoA-Merrill Lynch, Thomson Reuters, equipment manufacturers’ annual reports, Arthur D. Little analysis (1) Businesses considered: 2000: Alcatel, Ericsson, Lucent, Motorola, Nokia Networks, Nortel, Siemens Networks; 2012: Nokia, Ericsson, Alcatel-Lucent, Huawei, Motorola, NSN, ZTE 18 3 Favoring investment through a different European approach The growth in other geographical areas shows that Europe’s decline is not a fatality Revenue evolution of the top 30 players of each sub-sector of the digital ecosystem by nationality1 In billion dollars 2007–2012 Growth +35% 2,962 20 978 3,190 24 3,181 20 1,122 1,175 3,452 21 3,760 27 1,441 4,008 26 +28% Oceania 1,560 +59% Asia +101% South America North America 1,317 66 70 85 42 37 45 1,200 1,295 1,266 1,382 1,559 1,676 +40% 722 712 673 666 664 662 -8% 2007 2008 2009 2010 2011 2012 Source: Thomson Reuters, Arthur D. Little analysis Europe (1) Top-30 players according to their revenue in each sub-sector: Content, software, network equipment, Internet players, telecom operators Players are classified according to the nationality of their head office 19 3 Favoring investment through a different European approach Unlike in other regions, European telecom operators have hardly grown in 6 years, which resulted in a sharp drop in value Revenue of the top 30 telecom operators by region 1 Basis 100 in 2006 Market cap of the top 30 telecom operators by region 1 Basis 100 in 2006 185 Asia +85% North America +65% 165 +18% 118 150 World Asia +50% 100 102 96 North America +2% World -4% 68 Europe 109 Europe 100 2006 2007 2008 2009 2010 2011 2012 European telecom revenue growth is 7 to 9 lower than that in Asia and North America -32% +9% 2006 2007 2008 2009 2010 2011 2012 times Source: Thomson Reuters, Banque mondiale, Arthur D. Little analysis European telecom value shrank by 32% between 2006 and 2012 (1) Top 30 players according to their revenues Players are classified according to the nationality of their head offices; revenue growth of Australian and South American players are respectively 52% and 162% 20 3 Favoring investment through a different European approach In their core markets, OTT players enjoy strong positions while facing numerous operators Market share – Europe 2012 Search engines Numerous European operators Social networks 48% 150m connected households… 92% Google Online video 58% YouTube Facebook Music 63% Apple iTunes1 Source: Comscore, NPD Group, Nielsen, analyse Arthur D. Little Note: 1)Market share in number of users except music(revenues) …shared between more than 100 operators (1) Market share worldwide 21 3 Favoring investment through a different European approach Europe has seen only a few leading companies emerge in digital services Market Top 31 Nationality Samsung Smartphones Market Video on demand3 Apple Huawei Skype fring Social networks Yahoo Music4 VoIP2 Viper Search engines Video platforms Google Top 31 Nationality Netflix hulu iTunes Facebook Twitter Weibo iTunes Baidu Spotify Soundcloud iCloud YouTube Dailymotion Cloud solutions dropbox SkyDrive metacafe Apart from a few notable exceptions (Dailymotion, Spotify), the majority of companies in digital services stem from America or Asia Source: Strategy Analytics, Netmarketshare, Alexa, eBizMBA, Cloud services Review, Soundcloud, Analysys Mason, Techcrunch, Arthur D. Little analysis (1) (2) (3) (4) Ranking according to the number of users Voice over Internet Protocol Legal downloading platform (iTunes) or paying services (ex: Netflix, Hulu) Ranking according to the number of paying users for web radio or streaming services 22 Agenda 1 The telecom sector contributes to shape the future of the French economy 2 Despite a difficult environment, telecom operators are sustaining their level of investment 3 The European approach needs to change to favor investments 4 Two issues to deal with as priorities 5 Conclusion: For a digital New Deal 23 4 Two issues to deal with as priorities 1 No long-term strategic vision in favor of investment 2 Loss of leadership of Europe and France in the digital ecosystem 24 4 1 Two issues to deal with as priorities The telecom sector bears heavy and long-term investment requirements Return on investment timeframe for various business sectors(2) – 20 largest CAC40 companies, 2013 Estimated minimal period for return on investment (1 / ROCE(1)), in years 26 years Utilities and environmental services 23 years Telecoms 20 years Health 19 years Consumer goods 18 years Construction 13 years Industry 11 years Food and agriculture 11 years Luxury goods Oil Source: Thomson Reuters, Arthur D. Little analysis 7 years (1) ROCE: return on capital employed is the ratio between income and invested capitals, (EBIT/capital employed) (2) Utilities: EDF, Veolia, GDF-Suez ; Construction: Saint Gobain, Vinci ; Telecoms: Orange, Vivendi, Bouygues ; Consumer goods: Carrefour, Casino; Health: Sanofi; Industry: Renault, Michelin, Schneider Electric; Luxury goods: LVMH, Dior, L'Oréal; Food and agriculture: Danone; Oil: Total 25 4 1 Two issues to deal with as priorities Legal and regulatory cycles are not in line with the long cycles of telecom investment Unbalanced situation between investment, technological, regulation and tax cycle Investment cycles >20 years Technological cycles ~10 years European regulation cycles French tax cycles ~5 years ~1 year Source: operators, ARCEP, European commission, Journal Officiel, infinancials, FFT Thomson Reuters, Arthur D. Little analysis Around 1991: 2G Around 2001: 3G Around 2013: 4G 2002: 1st telecom regulatory package 2007: Roaming I, amended in 2009 2007: 2nd regulatory package 2012: Roaming II 2013: CE regulation project 2014: 3rd regulatory package French legal cycles ~1year 2002: “LOPPSI 1” 2004: “LCEN” 2006: “DADVSI” 2008: “Loi Chatel” 2008: “LME” 2009: “Hadopi” 2009: “Loi Pintat” 2010: “Loi jeux en ligne” 2011: “Loppsi 2” 2013: “PJL consommation” 2007: Creation of the TSTD1 2009: Creation of the “Taxe Télécom”2 2010: Creation of the IFER 2011: VAT increase on multiplay offers 2013: New scale for the private copying levy 2014: Increase of the corporate tax on benefits (1) Tax on television services (2) Tax based on operators’ revenues financing French public television NB: For technological cycles, licenses' attribution in France 26 4 1 Two issues to deal with as priorities Telecom investment constitutes a powerful lever for the economy and for State revenues Effect of an additional investment of 2 bn€ in broadband networks In billion euros 122-155 8-11 56-72 4-5 112-144 +€2 bn over 10 years of additional investment in superfast broadband… 52-67 22-27 2 20-25 Investment in superfast broadband Cumulated GDP growth in France ∑(2013–2022) …would generate +€5 bn in taxes, of which +€3 bn before 2017 Taxes and levies NB: Non-discounted amounts Source: INSEE, IDATE, ARCEP broadband observatory, Arthur D. Little Ericsson Chalmers university of technology ”Socioeconomic effects of broadband speeds” ,State finance law project 2013 report on compulsory levy and their evolution, Arthur D. Little analysis 27 4 2 Two issues to deal with as priorities Regulation is focusing on players that contribute the most to national wealth Players’ regulation Income tax in France 2012, in percentage of revenues1 Regulation of French telecom operators ARCEP CSA 4.49% European Commission Competition Authority French telecom operators DGCCRF CNIL 0.42% Regulation tools are inefficient and not adapted to apply competition rules to OTTs’ market, i.e.: – 1995 general framework doesn’t apply to operators based outside of the EU – Private copy directive applies only to telecom operators Source: comScore, ARCEP, Diane, annual reports, press, Arthur D. Little analysis French telecom operators (1) "GAFAM" (Google, Apple, Facebook, Amazon, Microsoft) Revenues estimates for the “GAFAM” 28 4 2 Two issues to deal with as priorities The outburst of services located outside of the European Union requires creation of a strong trust relationship between users and the networks French population survey 46% of the revenues of the data center market is located in North America 48% of French people fear the consultation of their personal data by a third party 92% of French people wish to impose a time limit for the conservation of their personal data 66% of French people do not trust websites with safeguarding their personal data; for example, social networks such as Facebook or e-commerce websites “Regarding the use of Internet means for economic intelligence, our country and our businesses are not sufficiently aware of the dangers that Internet represents. This is one of tomorrow’s biggest challenges” – Patrick Calvar, National director of the French counter-intelligence agency Source: Caisse des dépôts, IFOP, IDATE, Gartner, Institut BVA, Arthur D. Little analysis 29 4 2 Two issues to deal with as priorities Development of future digital businesses depends on the existence of efficient networks and telecommunication services Future businesses Big Data Leaders & potential leaders Software & embedded systems Digital hospital E-learning ingensi talend Cloudwait OHV.com NUMERGY Dassault Systemes Leaders & potential leaders coorpacademy Criteo Cloud computing Future businesses Sopra Telecom sovereignty Alcatel-Lucent Connected objects netatmo Thales Orange EyeTechCare ingenico Augmented reality gemalto Buyster Contactless services Oberthur Technologies Linky Denko Schneider Electric gemalto Oberthur Technologies Withings Parrot AUGMENT Total Immersion Santech Smart grids OpenClassrooms EDUNAO denyall Cyber security Auto-piloted vehicles Renault inwebo Peugeot Bull Valeo Source: French government press release 12th September 2013 (34 industries), Alcatel-Lucent (white paper ”Smart Choices for the Smart Grid”), campustechnology.com, CIO.com, (“Fast broadband critical to future of education: teachers”), Arthur D. Little analysis 30 Agenda 1 The telecom sector contributes to shape the future of the French economy 2 Despite a difficult environment, telecom operators are sustaining their level of investment 3 The European approach needs to change to favor investments 4 Two issues to deal with as priorities 5 Conclusion: For a digital New Deal 31 5 For a digital New Deal Given the strong growth in telecom services usage and the economic context, it is critical to support the investment effort of telecommunication operators Usage of telecom services is growing strongly x 200 Mobile Internet usage since 2006 The European approach has had negative consequences -32% Decline of market capitalization of European telecom operators between 2006 and 2012 Operators have nonetheless maintained their investment level in an uncertain environment 14.5% Of operators’ revenues were invested in 2012 >100 bn€ Of cumulated GDP will be created between 2013 and 2022 by operators’ investment in super-fast broadband networks The telecom sector has a major boosting effect on the French economy Source: Fédération Française des Télécoms, Arthur D. Little 32 5 For a digital New Deal For a digital New Deal that will foster telecommunication investment (1/3) Develop a strategic long-term vision to foster a productive investment Restore European and French leadership in the digital industry Source: Fédération Française des Télécoms, Arthur D. Little 33 5 For a digital New Deal For a digital New Deal that will foster telecommunication investment (2/3) 1 Guarantee predictability and stability of the regulatory environment to ensure the necessary visibility for investment – Prepare the new telecom regulatory package within the context of a strategic vision for the industry – Shift from a microeconomic to a macroeconomic regulatory system designed to foster the development of European players Develop a strategic longterm vision to foster a productive investment – Carry out detailed impact studies before any change in regulation – Ensure consistent management of the radio spectrum with an industrial logic – Implement the European roaming framework adopted in 2012 2 Implement tax incentives and financial mechanisms to foster investment in the telecommunication sector – Reduce the over-taxation of telecommunication operators – Release €2 billion over 10 years to accelerate private investments in accordance with the plan “France high-speed broadband” Source: Fédération Française des Télécoms, Arthur D. Little 34 5 For a digital New Deal For a digital New Deal that will foster telecommunication investment (3/3) 3 Establish a tax and regulatory playing field among all players of the digital ecosystem – Apply the principle of ”same rules for competing businesses” – Terminate the possibility given to OTT players to massively reduce their European taxes, with a new international tax regime – Widen the taxation base of OTT players to specific sector charges – Spread widely in Europe the concept of “restrictive practice” in order to apply it to global OTT players Restore European and French leadership in the digital industry Reinforce confidence in networks in the digital era 4 5 – Carry out the digital identity project based on SIM cards (requires a strong political leadership of the State and/or Europe) – Set up and promote a European certification for data storage – Certify software and critical equipment distributed in Europe Stimulate the development of future digital businesses through public authorities initiation – Ensure the exemplary role of the State to foster the usage of digital services without excluding alternative European solutions (secured public cloud, NFC in public transport, extension of the MOOC1 objectives especially for professional training, usage of telecenter among civil servants, invoice and administrative exchange digitization) – Support innovative and future digital systems (big data, cloud, contactless application, M2M, smart home, smart city) Source: Fédération Française des Télécoms, Arthur D. Little (1) Massive Online Open Courses 35 Arthur D. Little is the oldest management consulting firm in the world and assists clients with complex assignments in a wide range of industries Arthur D. Little, founded in 1886, is a global leader in management consultancy, linking strategy, innovation and transformation with deep industry knowledge. We offer our clients sustainable solutions to their most complex business problems Arthur D. Little has a collaborative client engagement style, exceptional people and a firm-wide commitment to quality and integrity For further information please visit www.adlittle.com Copyright © Arthur D. Little 2013. All rights reserved. Project 98-759 - Ignacio Garcia Alves, Didier Levy, Eytan Koren 36