Annual Economic Report 2012

Driving the digital Future

years 20 European Telecommunications Network Operators’ Association

publication November 2012 2 Contents

1. Introduction 4 2. Twenty years of revolution 8 3. Market trends 10

4. Revenue and service trends 16

5. Investment trends 18 6. Broadband 21 7. Next generation access networks (NGA) 22 8. New broadband services 24 9. Ranking in European and World Top companies 26

What is ETNO

ETNO has been the voice of Europe’s telecommunications network operators since 1992.

ETNO’s 38 member companies and 12 observers* from Europe and beyond represent a significant part of total ICT activity in Europe. They account for an aggregate annual turnover of more than €600 billion and employ over 1.6 million people. ETNO companies are the main drivers of broadband and are committed to its continual growth in Europe.

ETNO members also hold new entrant positions outside their national markets. ETNO brings together the main investors in innovative and high-quality e-communications platforms and years services, representing 70% of total sector investment.

ETNO strongly contributes to shaping a favourable regulatory and commercial environment for its members to continue to deploy innovative and high quality services and platforms for the benefit of European consumers and businesses.

* December 2012

ETNO Third Annual Economic Report 3

European Telecommunications Network Operators’ Association

years

20 ETNO represents 38 operators in 35 countries*, ETNO members’ far beyond the presence in EU boundaries of the and neighbouring European Union. ICELAND markets ETNO members’ total revenue from

FINLAND European operations amounted in 2011 to approximately SWEDEN € 208.2 billion.

52 % of the turnover NORWAY originates from fixed ESTONIA line operations, and 48 % from mobile LATVIA services.

LITHUANIA DENMARK

1 member IRELAND 2 members

POLAND UNITED KINGDOM 3 members NETHERLANDS 4 members & more BELGIUM

CZECH REP. LUXEMBOURG GERMANY SLOVAKIA

LIECHTENSTEIN AUSTRIA ROMANIA HUNGARY FRANCE SWITZERLAND SLOVENIA CROATIA

BOSNIA-HERZEGOVINA

BULGARIA

ITALY F.Y.R.O.M (Former Yugoslav Republic of Macedonia)

ALBANIA

PORTUGAL TURKEY SPAIN GREECE

CYPRUS

MALTA

* ALBtelecom (Albania), Belgacom, BH Telecom (Bosnia and Herzegovina), Telefónica O2 Czech Republic, Croatian Telecom, Cyprus Telecommunications Authority (CYTA), Deutsche Telekom, Entreprise des Postes et Télécommunications Luxembourg, eircom, Elisa Communications Corporation (Finland), Elion (Estonia), Finnet Group (Finland), France Telecom, Go (Malta), Invitel (Hungary), Koninklijke KPN, Lattelekom (Latvia), Makedonski Telekom (F.Y.R of Macedonia), Magyar Telekom (Hungary), OTE (Greece), Portugal Telecom, Romtelecom (Romania), Síminn (Iceland Telecom Ltd.), Slovak Telekom, Societatea Nationala de Radiocomunicatii (SNR-Romania), Swisscom, TDC, TDF (France), Telecom Italia, Telecom Liechtenstein, Telefónica, Telekom Austria, Telekom Slovenije, Telekomunikacja Polska, Telenor (Norway), TeliaSonera (Sweden-Finland), TEO (Lithuania), Türk Telekomünikasyon (Turkey), Vivacom (Bulgaria).

Third Annual Economic Report ETNO 4

1 . Introduction

years 20 Introduction by Daniel Pataki ETNO Director

I am pleased to introduce to The past 20 years have brought European users a you the third edition of the lot of innovation and choice. This would not have ETNO annual economic report been possible without investment of ETNO members which coincides with the 20th which today continue to account for more than two anniversary of ETNO. thirds of investments in the sector.

As demonstrated in the report, As ETNO celebrates its 20 years, it is also the time the telecoms markets have gone through a major when the telecoms sector should get ready for the revolution over the past 20 years. Value of the sector next 20 years. These will be marked by ever more in- has shifted from fixed to mobile for voice and Inter- novation and integration of ICT in our everyday life. net. With a total turnover for 2011 of 208.2 billion , Increasing cooperation with other sectors will allow ETNO members experienced a revenue decline for the entire economy to benefit from the Internet. This the third year in a row. At the same time their invest- will lead to new ways of envisaging transport, en- ments continued to increase. ergy and education.

In the long run, however, new business models and With a more targeted and flexible regulatory envi- revenue sources will be needed in order to sus- ronment, in line with the announcement by Vice tain the pace of investment required in Europe to President Kroes last July, operators should be bet- fully realize the potential of this sector and for ETNO ter equipped to get ready for the new challenges members to play their role in achieving the Digital ahead. The future of the telecoms sector is starting Agenda goals. now. ETNO is an integral part of it.

Enjoy reading

Daniel Pataki ETNO Director

European regulatory agenda

1992 1996 1997 1998 2000 2002 2003 2007 2009 2010 2011 2012 Telecom Review Mobiles Directive Bill on the separation Effective liberalisation Unbundling Telecom package Recommendation Second Telecom Telecoms Reform A Digital Agenda Report on the cost 2 recommendations (liberalisation of voice (licensing procedures of cable activities of voice telephony regulation (incl. Directive on on relevant markets Review Package for Europe of non-Europe in to boost investments communications for new entrants in (structural separation markets in most Universal Service and (leading to national telecommunication in NGA markets postponed) the mobile market) of cable activities for EU countries Directive on Access analyses of relevant Infra-community markets (cost assessment telcos in a dominant and Interconnection) markets for remedies roaming regulation ('Steps towards a truly method for wholesale "Full Competition" position) to be implemented internal market for access prices and Directive when necessary) e-communications in non-discriminatory (liberalisation of voice the run-up to 2020') access) annouced telephony markets to by Digital Agenda be effective from Commissioner 1 Jan. 1998)

ETNO Third Annual Economic Report 5

Introduction by Luigi Gambardella ETNO Executive Board Chairman

I am pleased to introduce the 2012 ETNO Annual targets of the EU Digital Agenda are well on track. Economic Report, prepared in close cooperation As for 2020 objectives, figures clearly show that they with IDATE. This report provides an overview of the will be reached only through a mix of technologies main trends in the European telecoms sector and of and platforms, fixed and mobile.A chieving these the role of ETNO members. goals will require combined efforts by all. Creating the best conditions for investment and reassuring Latest figures demonstrate that in 2011 EU telecoms the markets in today’s difficult times must remain the sector’s revenues experienced a decline for the key priorities. third year in a row, in a context of moderate economic recovery, showing that structural rather than The continued increase in the usage of social net- cyclical changes are shaping the sector. working sites and other Over the Top applications confirms the need for new models of cooperation. As revenues from traditional fixed and mobile voice products are declining, EU telcos have to develop Policies for our sector need to be flexible in order new business models that will generate new rev- to enable operators to adapt to rapidly changing enue streams. realities and let new business models emerge from the markets. Today one out of four customers subscribes to a managed VoIP service, while video downloads and As the main investors in tomorrow’s networks and search engines remain the bulk of Internet usage. services, ETNO members enable European citizens and businesses to fully benefit from broadband and However, despite this complex scenario, data shows directly contribute to achieving the objectives of the sthat operators remain committed to investing. Digital Agenda for Europe. Telcos’ investments in Europe were up 5.2% in 2011, which is quite remarkable when compared to This year marks the 20th anniversary of our associa- Capex growth in the USA and in advanced Asia tion. We are proud of what we have achieved so far last year (up 1.4%). ETNO members provide 63% of and we keep looking forward in order to provide the overall investments in networks and telecom- European citizens with future-proof telecommunica- munication services in Europe. tion services and high-quality user experience.

ETNO members continue driving broadband de- Luigi Gambardella ployment. Latest coverage figures show that 2013 ETNO Executive Board Chairman

Third Annual Economic Report ETNO 6

1 . Introduction

Introduction by Didier Pouillot, IDATE

1992-2012: ETNO celebrates main "game changers" in the digital ecosystem, its 20th anniversary this year. namely hyperconnectivity dominated by the mo- 20 years during which the bile, content and application deployment in the telecommunications land- cloud and big data accompanying the explosion scape has changed be- in traffic which occupies a central position in busi- yond recognition, both at ness models of the future. the European and global levels. The explosion in An increasingly open equipment and usage, the industrial structure… opening up to competition and the turmoil in the digital ecosystem… are all In 1992, the majority of telecom services were still tangible indicators of this transformation. in the hands of incumbent operators. Only the mobile sector had started to open up (newcomers Increasingly advanced accounted for almost 20% of mobile subscribers equipment and usage at the end of 1992) as had the more limited sector of business services. As far as fixed telephony In 1992, there were 6 million mobile subscribers in was concerned on the other hand, only the Unit- Europe (within the area covered by ETNO). By the ed Kingdom, leading the way, had embarked on end of 2012, the number is expected to border on the process of deregulation and, in total, close to 800 million. High speed access, initially reserved 100% of the European market was in the hands of for companies through dedicated networks and incumbent operators. links, has recently crossed the 160 million mark, implying that just over half of European house- Twenty years on, incumbent operators' share of holds are connected. This advanced equipment the mobile sector has fallen to 36% (in share of has partially replaced traditional forms of access, subscribers) and to nearly 60% in fixed telephony to begin with fixed telephony: having risen until (in terms of revenues). Within the European Union the early 2000s, the number of switched lines has and its 27 member states, the number of mobile since been on a steady decline which has espe- operators has risen from 22 in 1992 to over 100 in cially gained momentum over the past five years. 2012, representing an average of one incumbent In 2012, the number fell below the 1992 level! for three alternative providers. As far as fixed internet access is concerned, the incumbents' share In parallel, there has been a tremendous diversi- is approaching 50% (in terms of subscribers) but fication in usage, with a general trend away from the number of suppliers on a European scale voice in favour of data, especially as IP paves the amounts to several hundreds. way for an extremely wide range of new services and applications. As a result, the internet has given rise to Industry and market a large variety of innovations and is in particular the source of the three 1992 1997 1999 2000 2005 2007 2008 Creation of ETNO 500,000 broadband European mobile Vodafone- Purchase of Orange 5 UMTS licences European mobile European Mobile retail subscribers in Europe subscriber base Manneman merger by France Telecom granted in the UK for subscriber base broadband revenues exceed 6 million mobile (ETNO perimeter) at passes the in a €180-billion (€40 billion excl. £22.4 billion passes the subscriber base fixed retail revenues subscribers in Europe year end 100-million mark transaction debt) and of US 500-million mark passes the in overall Europe (ETNO perimeter) at mobile operator 6 UMTS licences 100-million mark (ETNO perimeter) year end More than 100 VoiceStream by granted in Germany mobile operators Deutsche Telekom for €50.8 billion in Europe (ETNO ($35 billion) perimeter)

ETNO Third Annual Economic Report 7

At the level of ETNO, the situation is slightly more Drivers of change among others optimistic insofar as its members, incumbent operators on their respective domestic markets, Among all the factors that have transformed the have often taken up positions in alternative op- telecommunications landscape in the last 20 erators abroad as part of their internationalization. years, quite a few others could also have been Overall, their share of the sector's total revenue is mentioned. Regulation is indisputably one of about 60%. They also provide 63% of the invest- them, owing to the growing importance of the au- ment made in networks and telecommunication thorities of the Commission and national regula- services in Europe and account for almost 72% of tors. The economic climate is also another, which the activity of operators of all origins. of course partially explains why the sector has been in a slump in recent years, over and above …and operators face increasing the structural factors mentioned earlier. Mention challenges within the digital could also have been made, half way through ecosystem these two decades, of the "reprehensible exuber- ance" of operators that got carried away with the In more general terms, operators' standing is dot.com bubble and became involved in com- measured in relation to what is now referred to as mitting huge sums to activities promising grossly the digital ecosystem, which itself has also been overestimated rewards. Nowadays, it is financing in a state of upheaval, in particular since the early the NGAN, needed to meet the boom in traffic, 2000s insofar as value has shifted both down- which raises a number of questions concerning stream towards content provision and upstream the development of business models to enable towards intelligent equipment and nowadays European industry to regain the initiative. above all in terminals. Operators find themselves in the midst of these developments, under pres- All these factors merely serve to highlight further sure with respect to their own growth. After a long the challenges faced by operators throughout period of continuous growth, their revenue has this period and those they must still face today begun to fall since 2009; for the first time last year, such as how to achieve a return to growth and there was a slowdown in revenue from mobile ser- to continue to invest in an increasingly restrictive vices throughout Europe. Operators' capitalization environment? is shrinking just as Google's, or more strikingly Ap- ple's, is soaring. In September 2012, the consoli- dated market value of the five largest European Didier Pouillot incumbent operators is not even a third of Apple's Head of BU Telecom Strategy, value! IDATE

1992 1997 1999 2000 2005 2007 2008 Creation of ETNO 500,000 broadband European mobile Vodafone- Purchase of Orange 5 UMTS licences European mobile European Mobile retail subscribers in Europe subscriber base Manneman merger by France Telecom granted in the UK for subscriber base broadband revenues exceed 6 million mobile (ETNO perimeter) at passes the in a €180-billion (€40 billion excl. £22.4 billion passes the subscriber base fixed retail revenues subscribers in Europe year end 100-million mark transaction debt) and of US 500-million mark passes the in overall Europe (ETNO perimeter) at mobile operator 6 UMTS licences 100-million mark (ETNO perimeter) year end More than 100 VoiceStream by granted in Germany mobile operators Deutsche Telekom for €50.8 billion in Europe (ETNO ($35 billion) perimeter)

Third Annual Economic Report ETNO 8

2 . Twenty years of revolution

Overall figures 1992>2012

PSTN lines Telecom access in Europe Mobile customers ETNO perimeter | million units Broadband accesses

800 785,1

700 664,2

600

500

400 382,7

300 274,3 252,5 249,9 200,2 197,0 200 162,5

109,5 ATE I D 100 58,8 6,0 0,0 0,5 13,9 0 : S ource 1992 1997 2002 2007 2012

Revenue breakdown by activity Fixed teledensity Mobile teledensity ETNO perimeter | billion € Data & Internet TOTAL 300

283,1 250 273,3 272,4

234,9 200

150 140,2 141,8 141,8

104,2 130,9 94,9 100 90,3 85,7 70,0 68,7 71,1 57,2 62,8 58,7

84,0 ATE

50 I D 28,9 35,9 5,7 8,2 11,7

0 : S ource 1992 1997 2002 2007 2011 2012

ETNO Third Annual Economic Report 9

PSTN lines Mobile customers Broadband accesses

Number of European telcos among world top … out of world top 20 ETNO perimeter … out of world top 50

20 19 20 17 15 16 15 16 10 ATE

8 I D 5 7 6 6 5 5

0 : S ource 1992 1996 2000 2004 2008 2011

Fixed teledensity Mobile teledensity Fixed teledensity Data & Internet Teledensities Mobile teledensity TOTAL ETNO perimeter | as a % of population Broadband teledensity

150 130,7

120 112,7

66,6 60 47,7 39,2 42,4 31,6 32,8 30 27,0 ATE 18,6 I D 9,1 0,9 0,0 0,1 2,4

0 : S ource 1992 1997 2002 2007 2012

Third Annual Economic Report ETNO 10

3 . Market Trends

Main developments in European telecoms markets

Totalling € 274.7 billion in 2011, the European telecom service market decreased for the third year in a row, by 1.5% that year, in a context of moderate economic recovery (+4.2% for current GDP in the region) showing that structural rather than cyclical changes are definitely shaping the sector. Moreover, Europe's share of the global telecoms market has been declining regularly over the recent years, from 31% in 2005 to just over 25% in 2011 as the gap between global growth (+3.2% in 2011) and that of Europe is broadening. Telcos’ investments in Europe were up 5.2% in 2011 to € 45.5 billion which is quite remarkable notably when compared with Capex growth in the USA and in advanced Asia last year (+1.4% in both).

Estimates 2012 Europe : Revenues still under pressure • Overall sector revenue growth : - 0,4% • ETNO members : - 3% with investments flat despite revenue decline

Source : IDATE

ETNO Third Annual Economic Report 11

In 2011, telecoms markets have been declining or or Google Talk. Fixed broadband subscriber base flat in all European countries except a few, such as was up 5.5% to 154 million connections in Europe the Netherlands, Romania and more notably Turkey. (ETNO perimeter) at end 2011 with penetration Some national markets which could keep positive rates ranging from less than 10% (10 subscribers growth over the recent period were down last year per 100 inhabitants) in Turkey or 15% in Romania to for the first time, in particular France (-2.3% in 2011 over 40% in Switzerland or in the Netherlands for a vs +0.8% in 2008 and +0.9% in 2008) and Norway 26% European average. Broadband revenues were (-0.8% vs +2.3% and +2.1% for the two years before). up 6.5% during the year, now accounting for more Revenues were flat (between –0.5% and +0.5%) than 15% of total telecom revenues (7% in 2005). in six countries only, while declines were close or stronger than –5% in five national markets (Croa- Mobile services remain the bulk of telcos revenues, tia, Greece, Bulgaria, the Czech Republic, Hungary) accounting for 52% of the total market (142.7 billion and to a lesser extent in Spain (-4.3%). EUR in 2011) but sector revenues also declined last year (-0.6%) as dynamics in mobile data could not Fixed telephony revenues were down 8.3% in aver- compensate for decline in mobile voice. The Euro- age with the number of PSTN lines declining by 5% pean cellular subscriber base increased by 24 mil- (-22% from 2005) as more and more subscribers lion units and mobile density gained 3.6 pp in 2011 switch to VoIP using their broadband lines for te- exceeding 127% in average for the ETNO perimeter. lephony service; at end 2011, 60.9 million subscribers used VoIP managed services, which is one out of 4 fixed voice service subscribers not taking into account those users of OTT solutions such as Skype

Overall figures Fixed telephony Mobile services Total telecoms services revenues in Europe Data & Internet (incl. Turkey, excl. Russia, Ukraine & Georgia) | € billion TOTAL

300

250 TOTAL : 288,3 : TOTAL TOTAL : 284,8 : TOTAL TOTAL : 278,8 : TOTAL TOTAL : 281,8 : TOTAL TOTAL : 278,7 : TOTAL 200 274,7 : TOTAL

150 146,0 143,1 143,6 142,7 141,2 100 134,8 91,2 86,2 ATE 81,0 I D 74,2 68,8 68,9

50 66,3 64,4 63,1 61,3 57,3 52,9 : : S ource 0 2006 2007 2008 2009 2010 2011

Third Annual Economic Report ETNO 12

3 . Market Trends

Telecoms market revenue growth in EU compared to US/Asia & overall economic growth | %

4 4,5

2 2,3 2,1 ATE 1,9 1,8 1,8 I D 1 1,6 1,2 0,8 1,0 3,1 0 0,5 : : S ource 0 0,4 -0,6 -0,7 -1,0 -1,1 -1,1 -1 -1,2 -1,5 -,5 -1,7 -1,8 -1,8 -1,9 -2,2 -2,2

-2 -2,3 -2,5

-3

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Current GDP growth | %

6 6,0 5 5,8 5,4 5,2 4 4,9 4,2 4,2 4,1 3,7 3,7 3,7 3,6 3,6 3 3,5 3,4 3,1 3,0 3,0 2,9

2 ATE 2,3 I D 2,3 1 1,9 0,3 1,2

0 : S ource -1 -2 -2,5 -3,1 -3,2 -3,2

-3 -3,4

-4 -4,2 -5

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

EU-5 EU-15 EU-27 EU (ETNO perimeter) USA Advanced Asia

ETNO Third Annual Economic Report 13

EU telecoms market growth 2010-2011 compared to IT services & TV services ETNO perimeter | %

3.5 3.0 2.5 2.0 1.5

1.0 u u ATE Telecom +2,9% +3,4% I D 0.5 services

0.0 : S ource -0.5 t IT TV services services -1.0 -1,5% -1.5

Investment in EU telecoms sector compared to US/Asia | % CAPEX growth of the EU telecoms sector vs. CAPEX in the USA and in advanced Asia

6 5,2 4 5,1 4,6 4,6 4,4 4,1 ATE I D 3,2 2 3,1 2,3 0,8 1,9 0,4 0,3 1,4 1,4

0 : S ource -1,2 -2,0 -0,5 -0,9

-2 -2,6 -3,0 -4,1 -4 -4,3 -6,3

-6 -6,6 -7,0 -7,9 -8,0 -8,2

-8 -8,6

-10

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

EU-5 EU-15 EU-27 EU (ETNO perimeter) USA Advanced Asia

Third Annual Economic Report ETNO 14

3 . Market Trends

Fixed access lines Mobile subscribers Access to telecoms services in Europe Internet subscribers (incl. Turkey, excl. Russia, Ukraine & Georgia) | million lines/subscribers of which broadband subscribers

800

700 762,5 738,2 725,5 600 709,1 664,2

500 596,6

400

300

200 155,9 160,8 260,9 144,6 151,3

249,9 137,4 239,8

124,2 ATE 227,7 217,8 I D 100 206,9 153,9 145,9 136,4 124,1 109,5 87,3 0 : S ource 2006 2007 2008 2009 2010 2011

Teledensities in Europe (incl. Turkey, excl. Russia, Ukraine & Georgia) | lines/subscribers per population

150 140 130 120

110 127,3 123,7 122,0 100 119,7 112,7 90 80 101,8 70 60 50 40 26,9 44,5 24,4 25,4 26,1 42,4

30 23,3 ATE 21,2 40,5 38,3 I D 36,5 20 34,5 25,7 24,4 22,9

10 21,0 18,6 14,9 0 : S ource 2006 2007 2008 2009 2010 2011

fixed teledensity mobile density internet density of which broadband density

ETNO Third Annual Economic Report 15

ETNO members

Split of ETNO members’ | € billion turnover ETNO outside EU-15 12 NMS* EU-27 perimeter EU-27

2011 European turnover 166,6 18,7 185,3 208,2 22,9 ATE of which fixed 89,3 6,6 95,9 108,5 12,6 I D of which mobile 77,3 12,1 89,4 99,7 10,3 : : S ource

250

200 99,7 208,2 89,4 150 185,3 77,3 166,6

100 108,5 95,9 89,3 50 ATE I D

22,9 18,7 12,1 22,9

0 6,6 10,3 : S ource EU-15 12 NMS EU-27 ETNO perimeter outside EU-27

Aggregated revenue of ETNO members ETNO members’ employees (EU + non EU) | € billion (EU + non EU) | thousand share of total sector revenue = 73,0 % share of total sector employment = 71,5 %

ETNOO membersm s : 286,16 t – 2,2 % ETNON membersm : 806,0 0,0 %

Totaal sectorc reevenuee : 391,9 u 0,4 % Total sectort emplp oyment : 1127,0 t – 0,1 %

Source : IDATE Source : IDATE 0 50 100150 200250 300350 400 00200400 600800 1000 1200

Third Annual Economic Report ETNO 16

4 . Revenue & Service Trends

Overall mobile segment in decline despite mobile data dynamics

2011 was another difficult year for the economy of telecom services in Europe with two factors in particular contributing to the overall decline in revenues: a continued drop in fixed telephony and a more recent downturn in mobile services.

There are clearly 3 areas with contrasted dynamics:

• decline in fixed telephony revenues is accelerat- this can be explained by a decrease in tariffs but ing (-8.3% in 2011 and –31% over the last 5 years). also in metered traffic notably through the switch The segment now accounts for only 23% of the to IP applications, such as IM or VoIP total retail telecoms market vs 33% in 2006 • broadband remains the sole segment where • mobile revenues are also declining but at a revenues are increasing (+3.8% in 2011), fueled much more limited pace (-0.6%) thanks to the by an expanding subscriber base (+5.5% to 154 dynamics of mobile data (+10%). Mobile voice millions at the end of 2011 in ETNO countries). revenues were down 4.7% in 2011 (–13.2% over The segment's share is total telecom service rev- the past 3 years), a decline driven by significant enues is now 25%. drops in some large countries: Spain (-8.3%), France (-8.2%) and Germany (-7.1%).

Overall figures

Fixed telephony vs mobile telephony take up growth + take up of VoIP services in Europe (incl. Turkey, excl. Russia, Ukraine & Georgia) | million

762,5 800 738,2 709,1 725,5 700 664,2 596,6 600 Mobile subscribers Analog fixed access lines 500 VoIP lines 400

300 260,9 249,9 239,8 227,7 217,8 206,9 200 ATE I D 100 60,9 34,6 44,7 53,0 13,8 24,4

0 : S ource 2006 2007 2008 2009 2010 2011

ETNO Third Annual Economic Report 17

4 . Revenue & Service Trends

ETNO members Total retail revenues o/w Fixed services Retail services revenues in Europe | € billion o/w Mobile services

250

200

150 +0,2% -4,9% -3,2% -4,1% 98,2 102,7 104,1 198,9 199,3 94,1 189,6 91,1 183,6 100 176,1 ATE 50 I D 96,2 95,1 91,4 84,9 89,5

0 : S ource 2007 2008 2009 2010 2011

Third Annual Economic Report ETNO 18

5 . Investment Trends

ETNO members accounting for more than two thirds of investment in fixed networks

Investments in wireline networks in Europe amounted to € 24.8 billion, increasing by 4.9% in 2011 compared to 2010 (with ETNO members still accounting for 67% of this expenditure) and regaining levels very close to pre-crisis spending.

The number of FTTx homes passed increased to The number of FTTH/B subscribers reached 5.2 mil- 123.9 million at the end of 2011, of which 28 million at the end of 2011, a 34%-growth over one year, lion FTTH/B homes passed (+35% compared to the which represents a 18.6% penetration rate in areas end of 2010) with ETNO accounting for 43% of this covered. total. The situation remains very diverse according Investments in mobile networks represented 45.5% to the countries, with few of them largely or almost of the total CAPEX in Europe in 2011 or € 20.7 bil- fully covered mainly in eastern countries (Lithuania lion, a 5.6% increase compared to 2010 as network is 95% covered with FTTH/B). In western countries, operators need more and more capacity to meet large deployments of VDSL or FTTLA networks (in customer demand for mobile data, investing in 3G+ Germany, in the UK, in Belgium…) appear to have and first 4G networks. ETNO members accounted retained investments in FTTH until now. for nearly 63% of this expenditure.

ETNO Third Annual Economic Report 19

Overall figures

Total sector investment for 2011 ETNO members' CAPEX (ETNO perimeter) and share of total sector CAPEX | € billion

Share of ETNO members = 62,9 %

40 45.5 30 + 5,2%* 20 28.6 + 4,6 %* 10 ATE I D

0 : S ource Total sector CAPEX ETNO members' CAPEX

Investment in fixed vs mobile segments Telcos' tangible CAPEX (ETNO perimeter) | € billion

30,1 30,8 30,5 30 28,6 26,9 27,4 13,2 12,7 13,3

25 12,0 11,5 11,1

20 16,9 15,4 15,7 15,5 16,2 15,9 15 8,7 17,8 17,6 8,5 16,1 8,1 16,6 8,0 8,2 7,9 15,8 15,8 10 ATE 8,2 I D 7,7 7,8 7,6 7,3 5 7,5

0 : S ource 2006 2007 2008 2009 2010 2011

ETNO members operators other operators fixed mobile

Third Annual Economic Report ETNO 20

5 . Investment Trends

ETNO members

Aggregated investment by ETNO members in Europe ETNO members' tangible CAPEX in Europe (ETNO perimeter) | € billion

30 2,6 3,0 30,8 30,5 3,6 25 3,9 3,6 2,9

3,0 28,6 28,2 27,5 27,4

26,9 2,8 2,9 2,8 25,0 24,5 24,3 23,9 20 23,9 22,2 21,7 21,0 15

10 ATE

5 I D

0 : S ource

2007 2008 2009 2010 2011

EU-15 EU-15 12EU -27NM S EU-27 outside EU-27 ETNO perimeter 12 NMS Outside EU-27 ETNO perimeter

Share of revenue devoted to CAPEX in 2011 Part of turnover devoted to investment (ETNO members) | percent

ETNO outside EU-15 12 NMS EU-27 perimeter EU-27

Tangible CAPEX/turnover 13,3% 14,8% 13,5% 13,7% 15,4% ATE

fixed 14,8% 18,6% 15,0% 15,2% 16,2% I D

mobile 11,7% 12,7% 11,8% 12,1% 14,5% : : S ource

ETNO Third Annual Economic Report 21

6 . Broadband

Broadband take up continues to increase with NGA accounting for nearly 20% of net growth

Broadband penetration in Europe continued to increase to 25.7% at the end of 2011 (25.7 broadband subscribers per 100 inhabitants), with a subscriber base of 154 millions (140.5 millions in EU-27).

Fixed broadband coverage is now over 90% (in ADSL remains the prominent broadband access terms of population) in most European countries technology supporting nearly 3 connections out with ADSL as the primary access technology but of 4 but its share has been declining slightly over take up still varies widely from one country to an- recent years (DSL's share was 80% in 2008) in favour other. At the end of 2011, penetration was over 40% of cable modem, second with 13%, and alterna- in the Netherlands and Switzerland or close to this tive technologies (FTTx, WLL, satellite). In particular level in Denmark and Norway while it only reached FTTH/B connections whose share is still low (3.5% at the 10%-mark in Turkey. Generally speaking, take up end 2011) have gained 0.7 pp in one year. is higher in Western countries (nearing 31% in average) than in Central and Eastern European countries (15%). It is also higher in Scandinavian and in Benelux countries. Fixed vs mobile broadband Fixed and mobile broadband Overall figures subscribers in EU-27 | thousand subscribers

300 Broadband Fixed broadband subscribers 289,0 3G subscribers penetration per 250 technology 232,3 200 Structure of the European 173,1 153,9 fixed broadband market (EU-27) 136,4 150 136,4 124,1 | % of total broadband connections 109,5 100 117,5 4,9% 3,5% 87,3 77,7 ATE

50 I D 45,0

16,1% 0 : S ource 2006 2007 2008 2009 2010 2011 End 2011 Total fixed broadband connections in 2011 = 75,6% 153,9 millions of which :

ADSL: 116,3 Cable modem: 24,8 Source : IDATE FTTx: 5,3 Other technologies*: 7,5 (LAN, FBWA, satellite…)

* VDSL and cable/ DOCSIS 3.0 are accounted for in the FTTx category

Third Annual Economic Report ETNO 22

7 . NGA

ETNO members to drive NGA deployments

The total number of FTTH/B homes passed reached 29 million in Europe (133 million FTTx homes passed including VDSL, FTTLA notably) at the end of 2011, with 5.2 million subscribers (14.4 million FTTx subscribers).

There have been close to 300 FTTx rollouts in Europe carriers are either involved in FTTH/B rollouts, are thus far, most of them based on an FTTH/B archi- gearing up to it or are in the planning stages an- tecture (236), on scales that vary from only a few nouncing multi-billion Euro investments. dozen buildings to several million homes passed. Furthermore, some of them are greatly involved in Even though until now incumbent carriers account VDSL projects in their domestic markets (Deutsche for only part of those deployments (representing Telekom with over 12 million homes passed at the just over 30% of homes passed with fibre in Europe, end of 2011; Belgacom, 3.8 millions; Swisscom, 3.5 43% for ETNO members including subsidiaries act- millions or Türk Telekom, 3 millions) with penetra- ing as competitive operators outside their domes- tion in covered areas varying greatly according tic markets), they are the ones with the greatest to countries, from approximately 6% in Germany to growth potential. Virtually all of Europe's incumbent 50% in Switzerland.

Overall figures

Main technologies/network architecture models NGA deployment (Homes passed at end 2011) | million

Homes passed at end 2010 Total EU ETNO members % ETNO members ATE I D FTTH/B 29.1 12.6 43,4% FTTx* (incl. VDSL, FTTLA, LAN…) 132.7 43.4 32,7% : : S ource

*All cable/DOCSIS 3.0 deployments are taken into account in the FTTx category

ETNO Third Annual Economic Report 23

NGA deployment in Europe Broadband coverage (1) FTTx deployments and share of ETNO members at end 2011 per country (end 2011)

D.A. 2013 digital agenda 2020 FTTx homes share ETNO (2) (2) passed (000s)1 ADSLx VDSL FTTLA FTTH/B Austria 3 505 60% Austria 99% 55% 36% 5% Belgium 6 779 56% Belgium 100% 79% 62% 0% Bulgaria 1 550 6% Bulgaria 90% 0% 0% 49% Croatia 496 56% Croatia 100% 16% 13% 4% Cyprus 0 100% Cyprus 98% na na na Czech Republic 2 074 14% Czech Republic 92% 29% 0% 5% Denmark 2 806 67% Denmark 100% 24% 52% 32% Estonia 432 57% Estonia 95% 8% 32% 35% Finland 667 94% Finland 100% na na 26% France 6 600 14% France 100% 0% 0% 19% Germany 33 919 36% Germany 98% 30% 50% 3% Greece 125 100% Greece 96% na 0% na Hungary 2 843 38% Hungary 98% 5% 51% 17% Iceland 150 39% Iceland 95% na na na Ireland 838 2% Ireland 96% 0% 48% 2% Italy 3 083 97% Italy 96% 2% 0% 11% Latvia 601 67% Latvia 95% 11% 0% 61% Lithuania 1 258 53% Lithuania 95% 0% 0% 93% Luxembourg 249 100% Luxembourg 100% 91% 0% 21% Malta 0 0% Malta 99% na na na Netherlands 4 032 36% Netherlands 99% 7% 33% 14% Norway 549 na Norway 97% na 0% 25% Poland 3 528 44% Poland 80% 7% 12% 2% Portugal 5 350 30% Portugal 100% 0% 78% 53% Romania 5 700 na Romania 85% 0% 14% 27% Slovakia 1 514 45% Slovakia 90% 0% 22% 58% Slovenia 707 21% Slovenia 95% 2% 30% 39% Spain 11 349 20% Spain 100% 4% 53% 9% Sweden 1 632 51% Sweden 98% na 0% 36%

Switzerland 5 933 66% ouncil E urope for ATE Switzerland 97% 99% 57% 12% Turkey 4 000 75% Turkey 100% 16% na 5% UK 20 400 0% UK 100% 26% 48% 1% ource : I D : S ource

Total EU-15 99% 17% 32% 10% F TTH C ouncil E urope for ATE (1) aggregated data Total EU-27 97% 15% 29% 12% ETNO 97% 16% 29% 12% ource : I D : S ource

(1) homes passed as a % of households (2) capable of speeds over 30 Mbps

Third Annual Economic Report ETNO 24

8. New Broadband Services

Over the Top services and applications become more and more popular

Internet usage is fueled by a very large variety of services, most of them develop- ing very rapidly. Besides email which is certainly the most basic one, online search, social networks, video viewing and e-commerce represent the biggest challenges in terms of additional Internet revenues, the first two in particular that also promote mobile usage.

Online search should remain the most popular fixed online activity:

• search and derived services (mapping, direc- • other very popular web services such as mail, tory services) remain strong, whilst e-commerce non-merchant services (wikipedia, governmen- incurs online payments which often acts as a tal services…) generate only minimal revenues barrier Search and mobile networking, now saturated or near saturation on fixed networks, are growth engines for mobile usage:

• mobile search is less popular than fixed online search, with mobile apps the dominant model for accessing content. Still, as mobile Internet user numbers grow, so will mobile search • mobile social networking will be neck and neck with mobile search, with the mobile allow- ing users to stay logged on while on the move.

Overall figures

Proportion of Internet users searching online 2012 by country, in 2012 and 2016 | % 2016

100 97 % 97 % 96 % 95 %

80 93 % 91 % 87 % 84 % 80 % 60 77 %

0 UK France Germany Italy Spain

Source: IDATE, in "World Internet Services Market", June 2012

ETNO Third Annual Economic Report 25

Use of social networks by country, 2012 in 2012 and 2016 | % of Internet users 2016

80 70

60 70 % 68 % 65 % 65 % 63 % 61 % 50 60 % 58 % 57 % 40 54 % 30 20 10 0 UK France Germany Italy Spain

Source: IDATE, in "World Internet Services Market", June 2012

Use of online video services by country, 2012 in 2012 and 2016 | % of Internet users 2016 100

80 90 % 90 % 89 % 88 % 87 % 86 % 85 % 84 % 83 % 80 % 60

0 UK France Germany Italy Spain

Source: IDATE, in "World Internet Services Market", June 2012

Proportion of Internet users shopping online 2012 by country, in 2012 and 2016 | % of Internet users 2016

70 79 % 77 % 75 %

60 71 % 69 %

50 63 % 40 30

20 33 % 29 % 23 %

10 19 % 0 UK France Germany Italy Spain

Source: IDATE, in "World Internet Services Market", June 2012

Third Annual Economic Report ETNO 26

9 . Ranking in european & world companies

Top 50 telecom operators in the world

Rank Company Country 2011 sales (€ million) 1 NTT Japan 94 624 2 AT&T USA 91 076 3 Verizon USA 79 686 4 Telefónica Spain 62 837 5 China Mobile China 58 728 6 Deutsche Telekom Germany 58 653 7 Vodafone UK 53 547 8 France Telecom France 45 277 9 America Móvil Mexico 38 480 10 KDDI Japan 32 168 11 Telecom Italia Italy 29 958 12 Softbank Japan 28 839 13 China Telecom China 27 245 14 Comcast USA 26 754 15 Sprint Nextel USA 24 205 16 China Unicom China 23 264 17 BT UK 22 273 18 Telstra Australia 18 602 19 Vimpelcom Russia 14 562 20 BCE Canada 14 161 21 Time Warner Cable USA 14 140 22 KT South Korea 13181 23 KPN Netherlands 13 022 24 Telenor Norway 12 641 25 SFR France 12 234 26 MTN South Africa 12 064 27 Tele Norte Leste Brazil 11 990 28 TeliaSonera Sweden 11 550 29 Bharti Airtel India 11 003 30 STC Saudi Arabia 10 775 31 SingTel Singapore 10 757 32 SK Telecom South Korea 10 368 33 Swisscom Switzerland 9 281 34 Rogers Canada 9 027 35 MTS Russia 8 853 36 Hutchison Whampoa HK 8 312 37 Qwest USA 8 030 38 Everything Everywhere UK 7 816 39 Telus Canada 7 552 40 Rostelecom Russia 7 241 41 Liberty Global USA 6 836 42 Belgacom Belgium 6 406 43 Etisalat UAE 6 311 44 Qtel Qatar 6 272 45 Portugal Telecom Portugal 6 147 46 LG U+ South Korea 6 002 47 MegaFon Russia 5 934 ATE

48 PT Telkom Indonesia 5 839 I D 49 Bouygues Telecom France 5 741 50 Türk Telekom Turkey 5 123 : : S ource

ETNO Third Annual Economic Report 27

9 . Ranking in european & world companies

Top 20 European telecoms operators

Rank Company Country 2011 sales (€ million) 1 Telefónica Spain 62 837 2 Deutsche Telekom Germany 58 653 3 Vodafone UK 53 547 4 France Telecom France 45 277 5 Telecom Italia Italy 29 958 6 BT UK 22 273 7 KPN Netherlands 13 022 8 Telenor Norway 12 641 9 SFR France 12 234 10 TeliaSonera Sweden 11 550 11 Swisscom Switzerland 9 281 12 Everything Everywhere UK 7 816 13 Belgacom Belgium 6 406 14 Portugal Telecom Portugal 6 147 15 Bouygues Telecom France 5 741 16 Türk Telekom Turkey 5 123 17 OTE Greece 5 038 18 Virgin Media UK 4 605 ATE 19 Tele2 Sweden 4 510 I D 20 Telekom Austria Austria 4 455 : : S ource

Further information:

• ALBtelecom (Albania) www.albtelecom.al • Belgacom (Belgium) www.belgacom.com • • BH Telecom (Bosnia and Herzegovina) www.bhtelecom.ba • Croatian Telecom (Croatia) www.t.ht.hr • • Cyprus Telecommunications Authority (Cyprus) www.cyta.com.cy • Deutsche Telekom (Germany) www.telekom.com • • eircom (Ireland) www.eircom.ie • Elion (Estonia) www.elion.ee • Elisa Communications Corporation (Finland) www.elisa.com • • Entreprise des Postes et Télécommunications Luxembourg www.pt.lu • Finnet Group (Finland) www.finnet.fi • • GO (Malta) www.go.com • Koninklijke KPN (The Netherlands) www.kpn.com • Lattelecom (Latvia) www.Lattelecom.lv • • Magyar Telekom (Hungary) www.magyartelekom.hu • Makedonski Telekom (F.Y.R. of Macedonia) www.telekom.mk • • Orange (France) www.orange.com OTE (Greece) www.ote.gr • Portugal Telecom (Portugal) www.telecom.pt • • RomTelecom (Romania) www.romtelecom.ro • Síminn (Iceland) www.simi.is • Slovak Telekom (Slovakia) www.slovaktelekom.sk • • Societatea Nationala de Radiocomunicatii (Romania) www.radiocom.ro • Swisscom (Switzerland) www.swisscom.com • • TDC (Denmark) www.tdc.com • TDF (France) www.tdf.fr • Telecom Italia (Italy) www.telecomitalia.it •

• Telecom Liechtenstein www.telecom.li • Telefónica (Spain) www.telefónica.com • Telefónica O2 (Czech Republic) www.cz.o2.com • • Telekom Austria (Austria) www.telekom.at • Telekom Slovenije (Slovenia) www.telekom.si • • Telekomunikacja Polska (Poland) www.telekomunikacja.pl • Telenor (Norway) www.telenor.com • • TeliaSonera (Sweden – Finland) www.teliasonera.com • Teo Lt (Lithuania) www.teo.lt • • Türk Telekom (Turkey) www.turktelekom.com.tr •VIVACOM (Bulgaria) www.vivacom.bg •

Third Annual Economic Report ETNO ETNO Members

ALBtelecom Elion Enterprises Ltd. OTE Swisscom Telefónica Czech Republic Teo (Albania) (Estonia) (Greece) (Switzerland) (Czech Republic) (Lithuania)

Belgacom Elisa Corporation Entreprise des Postes TDC Telekom Austria Türk Telekom (Belgium) (Finland) et Télécommunications (Denmark) (Austria) (Turkey) (Luxembourg)

Net (Croatia)

BH Telecom GO Portugal Telecom TDF Orange Polska VIVACOM (Bosnia and Herzegovina) (Malta) (Portugal) (France) (Poland) (Bulgaria)

Cyprus Koninklijke KPN Societatea Nationala Telecom Italia Telenor Telecommunications (The Netherlands) de Radiocomunicatii (Italy) (Norway) Authority (Cyprus) (Romania)

Deutsche Telekom Lattelecom RomTelecom Telecom Liechtenstein Telekom Slovenije * Deutsche Telekom Group* (Latvia) (Romania) (Liechtenstein) (Slovenia) Group companies who are members of ETNO: Deutsche Telekom, Hrvastki Telekom, Magyar Telekom, Makedonski Telekom & Slovak Telekom eircom Orange Síminn Telefónica TeliaSonera (Ireland) (France) (Iceland Telecom Ltd.) (Spain) (Sweden-Finland)

ETNO Observers

ETNO a.i.s.b.l. • Av. Louise 54 • 1050 Brussels, Belgium • Tel: +32 (0)2 219 32 42 • Fax: +32 (0)2 219 64 12 • eMail: [email protected] • www.etno.eu