Global Summary Telecommunications Oct 2019

OCT 2019

GLOBAL SUMMARY TELECOMMUNICATIONS Week Commencing 21st October

Global Summary Telecommunications | 20191021

Contents Global...... 4 What Our Clients Want To Know: LPWAN To Exist Alongside Enterprise 5G ...... 4

Asia...... 7 Quick View: China MNP To Impact Subscriber Churn...... 7 Malaysia 5G: Wholesale Network Proposals Unlikely To Be Favoured...... 9

Europe ...... 12 Competition, Financial Concerns Could Hamper Spusu's Ambitious Strategy...... 12 Proposed Law On Tech Companies A Risk To FDI Prospects In Russia...... 14

Middle East ...... 16 Quick View: Batelco 2G Spectrum Shutdown Supports Bahrain's 5G Push ...... 16

North America ...... 18 Quick View: Access Act Aims To Restore Competition Without Breaking Up Big Tech...... 18 Infrastructure For E-Scooters An Untapped Opportunity For Cities...... 19

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This report from Fitch Solutions Macro Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2019 Fitch Solutions Group Limited.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research. fitchsolutions.com 3 Global Summary Telecommunications | 20191021

Global What Our Clients Want To Know: LPWAN To Exist Alongside Enterprise 5G

Key View:

• Telecoms operators in developed countries are continuing to invest in both 5G infrastructure and Low Power Wide Area Networks. • The growing IoT market will see the two technologies co-exist, as different use cases will be developed.

We believe that Low Power Wide Area Networks (LPWANs) will continue to play a significant role in the Internet of Things (IoT) ecosystem, despite the imminent launch and adoption of 5G. The different characteristics of these two technologies will enable them to co-exist, powering different IoT applications across different industries. That said, we expect both 5G and LPWAN use cases to be focused on the enterprise sector, where we believe IoT could significantly impact efficiency and operation management.

LPWAN is best positioned to support the development of the utility, logistics and transport sectors, where the transmission of infrequent and/or small amounts of data across long distances makes poor use of large-capacity cellular networks. These characteristics make the technology particularly suitable to track devices and ensure good levels of penetration at a low cost to end-users and deliver viable margins for network providers. LTE-M (Long Term Evolution for Machines) and NB-IoT (Narrowband Internet of Things) networks are examples LPWAN deployment leveraging existing radio standards, but we believe LoRA- and Sigfox- based networks will also find a space in the growing IoT market as they use unlicensed spectrum (lowering costs) but have specialised security baked-in (appealing to enterprises).

Therefore, telecoms operators are continuing to invest in LPWAN, setting up networks to target specific industrial applications. The latest to announce this type of investment has been Three UK, which is now piloting LPWANs for utility companies before investing in a nationwide rollout. We believe IoT applications in the energy and infrastructure sector will increase going forward, driven by both efficiency gains and a stronger environmental concerns. Furthermore, given the global reach of today’s supply chains, cross- border connection will be essential. To this end, Europe-based Vodafone and US-based AT&T have already reached roaming agreements for both their LTE-M and NB-IoT networks.

Positive Outlook For Machine-To-Machine Growth Global Machine-To-Machine Connections (bn), 2017-2022

f = forecast. Source: Cisco VNI Mobile, 2019

That said, we continue to believe 5G has the potential to boost the IoT market. The new technology is more suitable to support the transmission of large amounts of data and able to ensure high speeds and low latency, thus being better equipped to support innovative applications such as autonomous vehicles, where real-time remote computing is a key enabler. However, 5G is more power-hungry than LPWAN and requires the rollout of extensive networks to ensure good coverage, making it considerably expensive. In addition to infrastructure deployment, costs will be further inflated by the need to buy airtime from operators or to purchase the necessary frequencies for private networks. 5G spectrum prices have reached extremely high levels in certain countries such as Italy and Germany, and these costs are likely to be passed on to end-users.

Although 5G use cases are still in their infancy, we believe the manufacturing industry and - to some extent - the healthcare sector are among those poised to benefit from the launch and adoption of the new technology in the medium term. 5G allows for the deployment of private networks, opening up opportunities for factories or hospitals to set up their own 5G connection. This would enable manufacturing companies and hospitals to develop and power more effective, IoT-enabled systems and other innovative technologies, like Artificial Intelligence (AI).

Partnerships with large telcos, which own 5G spectrum, could be a way for companies to set up private networks in their plants or buildings, as shown by the collaboration between Mercedes-Benz and Telefonica in Germany. This would also allow operators to recoup part of the costs related to 5G infrastructure and frequencies, passing some of them onto the company requiring private connection. Alternatively, some regulators have decided to reserve some 5G spectrum for industry players, enabling them to purchase the frequencies directly. However, we remain cautious towards this latter option, as private companies lack the necessary telecoms know-how and, as 5G applications are still being developed, risks of ineffective spectrum allocation and frequencies misuse remain high.

• ‘5G Will Underpin The Healthcare Revolution’, October 11 2019; • ‘Autos At Forefront Of Industrial 5G With Mercedes Deal’, June 20 2019; • ‘Telia To Benefit From The Growing IoT Market Across The Nordic Region’, April 29 2019; • ‘IoT Coming To The Fore In BT's Enterprise Segment Strategy’, March 12 2019; • ‘5G: First An Evolution, Then A Revolution’, Special Report, April 2019; • ‘Quick View: Telenor Norway At The Forefront Of IoT Development With New LTE-M Network’, December 4 2018; and, • ‘Vodafone Well Positioned For European Cellular NB-IoT Leadership’, September 20 2018.

Asia Quick View: China MNP To Impact Subscriber Churn

The Latest

All three Chinese mobile operators are set to implement mobile number portability (MNP) at the end of November 2019, following the conclusion of successful provincial level trials. As of July 2019, over 2.3mn subscribers had applied to port their numbers to another operator; overall, China Mobile registered a net loss of 535,000 subscribers, while China Telecom posted net additions of 506,000 subscribers.

Implications

We anticipate elevated subscriber churn in the short term, given that a majority of mobile subscriptions (Q219 estimate: 75%) are prepaid, which can theoretically be ported to another operator at any time. At the same time, multi-SIM ownership in China is low relative to other markets, given the country’s strict guidelines on mobile number registration, as well as how many over-the- top (OTT) services in China, including social media platforms, fintech apps, and ride-hailing services, among others, are tied to a user’s mobile phone number. This means that users which are enticed by the services of another operator will likely port their number over, rather than take up another subscription. Further, with 5G services set to be launched in December 2019, operators are also likely to pitch the robustness of their new generation networks to attract new subscribers.

Mobile Market Skewed Toward Prepaid Services China - Mobile Subscriptions (000)

f = Fitch Solutions forecast. Source: MIIT, Fitch Solutions

Aggressive customer retention strategies will also weigh on short-term ARPU growth; among others, China Mobile is offering additional data allocations based on how long a subscriber has been with the operator, while China Telecom is rewarding longtime subscribers with CNY1,000 (USD141) in rebates if they renew their postpaid contracts. China Unicom, on the other hand, has launched new bundles which are zero-rated for certain OTT services, such as WeChat. These offers come following 2018 directives from the Ministry of Industry and Information Technology (MIIT) to operators to introduce lower tariff plans, which had already caused mobile blended ARPU to slide by 4.9% y-o-y in 2018.

What’s Next

The introduction of MNP will unlikely alter the competitive landscape in the long run, although the MNP could help support the entrance of new operators into the market. China Broadcasting Network (CBN) was a surprise recipient for 5G licences in June 2019, following the award of a telecoms licence in June 2016. While CBN has yet to make any concrete moves into the telecoms space, reports suggest that the MIIT aims to make the national cable TV operator a competitor to the three incumbents, and MNP will help facilitate its entrance.

Malaysia 5G: Wholesale Network Proposals Unlikely To Be Favoured

Key View

• Supportive government policy and a clear spectrum roadmap will mean that Malaysia will be one of the first few South East Asian markets to launch 5G, likely behind only Singapore. • The telecoms regulator is unlikely to support a government-led rollout of a wholesale mobile network, although it will be keen for operators to pursue network sharing agreements.

We hold a positive view on Malaysia’s efforts to commercialise 5G, although plans to launch networks in early 2020 are ambitious, given that spectrum will only be allocated in the latter half of 2020. Like other countries, Malaysian operators will likely focus initial deployments in populous areas of the capital (Kuala Lumpur), before targeting other major cities (such as Johor Bahru, Melaka, Penang, and Ipoh). In the short term, we believe that 5G has great potential as a fixed-wireless service to solve the last-mile connectivity problem, while consumer-focused mobile services will take off in the medium term when 5G standalone (SA) standards are finalised, and more 5G-capable mobile devices become available.

Government Policy Supportive…

In August 2019, the Malaysian Cabinet approved the National Fiberisation and Connectivity Plan (NFCP) with a total allocation of MYR21.6bn (USD5.2bn); the initiative highlights plans to expand high-speed Internet access to 98% of populated areas by 2023, primarily through wide-scale fibre rollouts funded through public-private partnerships (PPPs) with allocations from the Universal Service Provision (USP) fund. Furthermore, the Malaysian Communications and Multimedia Commission (MCMC) highlights that having a concrete policy position on 5G is a key target for the NFCP, and we view that the new generation technology will be adopted to provide fixed-wireless broadband services in areas where wireline infrastructure is expensive to deploy. The government, through its 2020 budget released in October 2019, is also allocating MYR50mn (USD11.0bn) in grants to develop a national 5G ecosystem, although we do not expect these incentives to have any significant impact in accelerating the 5G rollout.

Strong, Proactive Regulator Bolsters Score Selected Asia Telecoms RRI Scores, Q120

Note: Scores out of 100, with higher scores indicating lower risks. Source: Fitch Solutions

…But A 2021/2022 Commercialisation More Realistic

While the government is pushing for service launches in 2020, we view that any network commercialisation for mobile services will likely take place in 2021 or 2022, for several reasons:

• First, the consumer appetite for 5G services is currently low. The mobile market is skewed toward low-value prepaid services, which are catered towards basic use-cases such as social media and over-the-top (OTT) video streaming, which 3G and 4G networks can adequately service. • Second, the regulator has yet to allocate 5G-suitable spectrum. The MCMC is designating wavelengths in the 700MHz, 2300MHz and 2600MHz bands for 5G services in Malaysia, and licences for these spectra are only set to be allocated to operators in the latter half of 2020. The 3.5GHz band is occupied by satellite communications providers. • Third, operators will want to monetise their 4G networks further through upgrading legacy subscribers to LTE. 2G and 3G penetration in Malaysia is still considerable (8.8% and 26.2%, respectively, in Q219, based on our estimates), and this provides opportunities for operators to upsell advanced 4G services to this pool of late adopters. LTE-A (4.5G) coverage also lags when compared to that of 4G, and focusing on 4.5G will be more cost-effective for operators given that both iterations of the technology use the same frequencies.

Migration To 4G Still Ongoing Malaysia - Mobile Subscribers By Technology ('000)

Note: Fitch Solutions estimate. Source: Fitch Solutions

National Wholesale Network Unlikely, Network Sharing Possible

Government announcements suggest that it prefers to allocate several licences for operators to build out their own 5G networks, meaning that Telekom Malaysia’s (TM) plan of building a single wholesale 5G mobile network is unlikely to gain much traction with the regulator. The MCMC has of late pursued greater democratisation of the broadband market to make services more affordable to consumers, mainly through its Mandatory Standard Access Pricing (MSAP) directives to lower wholesale broadband prices. The ownership of a network by one infrastructure provider could also needlessly increase access costs for service resellers, as evidenced by the case of the National Broadband Network (NBN) in Australia.

This, however, does not rule out the potential for network sharing arrangements, which operators will be keen to pursue in our view.

Digi and Celcom could explore agreements to share their future 5G networks, or even pursue a merger following the collapse of the regional deal agreed between their parents, Telenor (Asia) and Axiata. Maxis and U Mobile have already previously explored network sharing arrangements to the benefit of the latter, which did not have network coverage in the more rural areas in Malaysia, and the same could be seen for 5G. As of October 2019, the major mobile network operators have yet to announce their 5G network strategies or collaborations.

Spectrum Roadmap Already Clear

The MCMC stated plans to reassign spectrum in the 2,300MHz and 2,600MHz bands for 5G services through its consultation paper published in July 2019, though it is unlikely to reassign spectrum in the globally popular 3.5GHz band, which is currently used in Malaysia by communications satellite provider MEASAT for enterprise communications and for direct-to-home (DTH) broadcasting services. In the 2,300MHz band, the regulator aims to vacate and reassign the existing 4x30MHz blocks of spectrum currently held by Asiaspace, Redtone, YTL and TM into nine blocks of 10MHz for greater band flexibility. The MCMC has stated that it plans to allocate 700MHz and 2,300MHz spectrum via a beauty contest approach rather than through auction, with the intention to keep prices low. While the MCMC had previously highlighted that it did not wish to profit from 5G spectrum allocations, budget shortfalls and mounting government debt could potentially inflate prices.

Operators Will Appreciate More Spectrum Malaysia - Spectrum Holdings By Operator, Q219 (MHz)

Source: MCMC, Fitch Solutions

The new Malaysian government openly-stated receptiveness toward Chinese companies Huawei and ZTE will be positive for operators in planning their 5G roadmaps. Huawei in October 2019 announced an agreement with Maxis to build out the latter’s 5G networks, and stated that it has also signed memoranda of understanding (MOUs) with Celcom and TM. Smaller player U Mobile has an MOU with counterpart ZTE.

Europe Competition, Financial Concerns Could Hamper Spusu's Ambitious Strategy

Key View:

• Austrian MVNO Spusu to launch its 5G network in late October 2019. • The company is looking to become Austria’s fourth mobile network operator and to enter the Italian market as an MVNO in 2020. • Stiff competition in both countries and low margins could put Spusu's finances under great pressure.

Austrian mobile virtual network operator (MVNO) Spusu has announced it will launch its 5G network in late October 2019. The operator has the ambitious plan to become Austria’s fourth mobile network operator (MNO), alongside A1 Telekom, T-Mobile and Drei Austria. We remain cautious on the outcome of this investment, as we believe the three-player balance of the Austrian market, which has been achieved through a series of mergers and acquisitions, will be considerably difficult to disrupt. Spusu is also aiming at entering the Italian market in 2020, targeting the broad local prepaid base by adopting an aggressive price strategy. We believe these investments could put the operator’s financial sustainability under significant pressure.

Spusu’s 5G network will cover parts of Burgenland and Lower Austria. The operator purchased 30MHz of 5G frequencies in the 3.4-3.8GHz band covering these two regions in March 2019, for a total of EUR1.8mn (see ‘Quick View: Initial 5G Auction Fosters Competition In Austria's Regional Mobile Markets’, March 12 2019). Spusu will also be among the bidders of the next 5G auction, which will be held in H120, seeking to secure spectrum in the 700/1500/2100MHz bands. Its transformation into an MNO and the build-out of its own network will be gradual, with the operator remaining Drei’s wholesale customer at the national level in the meantime. We identify two possible reasons behind Spusu’s decision to become Austria’s fourth MNO:

• Firstly, to address the postpaid share of the market. Spusu launched its services in 2015 and, reportedly, now has 300,000 subscribers. Given the ongoing transition of Austrian consumers towards more premium offerings, Spusu could look to adapt to this market trend. • Secondly, Spusu could see opportunities in underserved areas, where large MNOs do not invest extensively due to limited returns. The operator could specialise in providing services to consumers and small businesses in underpopulated and rural parts of the country, such as Burgenland, where it is able to offer 5G connectivity directly.

Spusu will have to face stiff competition coming from the three established players. Mobile penetration in Austria is very high, around 190%, limiting the room for future organic growth. Furthermore, A1 Telekom, T-Mobile and Drei are all converged players and backed by large international companies with significant financial resources. Mass Response, Spusu’s parent company, is unlikely to display a comparable financial strength.

Italy's Prepaid Focus To Benefit Spusu Postpaid And Prepaid Subscriptions As Shares Of Total Mobile Connections (%), Q119

Source: RTR, AGCOM, Fitch Solutions

Spusu’s ambitious plan also envisages entering the Italian market as an MVNO in 2020. The company will use WindTre’s network, building on its existing relationship with Drei in Austria. Although very competitive, the Italian market is still heavily prepaid, a characteristics that benefits Spusu. The MVNO sees scope for expansion on the example of Iliad, which reported 3.8mn subscribers one year after launching its Italian operations, and will seek to undercut the competition by adopting an aggressive pricing strategy.

That said, Italian telcos have already experienced the entrance of a strong disruptor over the recent quarters and could be better equipped to contest a new entrant this time around. In addition, it will be interesting to see how Iliad will decide to respond to Spusu’s aggressive pricing, with ARPUs possibly declining further over the coming years. We believe the low margins resulting from low prices in Italy and the expensive network investments required in Austria could considerably increase the pressure on Spusu’s finances, posing downside risks to the sustainability of its business strategy.

Proposed Law On Tech Companies A Risk To FDI Prospects In Russia

Key View:

• Russia is planning to cap foreign ownership of major technology companies operating in the country. • If implemented, this measure could further curb foreign direct investment (FDI) in Russia.

The Russian government has supported a draft law aimed at capping foreign ownership of major technology companies to 50%- minus-one share, a sharp increase from the 20% initially proposed. The measure targets companies that can be classified as ‘significant informational resources’ and have Russia as their core market, meaning that the US-based Google and Facebook would likely not be included. The draft law is seen as the latest attempt by the Russian government to increase its control over the media and the Internet, although government sources have stated that the intention is to preserve the Internet’s Russian-language segment.

Among the critics of the draft legislation are those companies that will be most affected by the measure, including Yandex and Mail.ru. The former is the most used search engine in the country, the ‘Google of Russia’, with a market share of around 57%. The company, registered in the Netherlands and listed on Nasdaq, has several foreign investors, particularly American firms. Furthermore, Yandex reported that as of February 15 2019, an unnamed US-based investor held around 43% of the company’s outstanding shares by voting power. As for Mail.ru, it provides several services, including the two popular social networks VKontakte and Odnoklassniki. The company has notable foreign investors, such as South Africa based Naspers and Chinese- owned Alibaba and Tencent, which have a combined stake of 45%.

This measure is regarded as the latest attempt by the Russian government to enhance its control over media and tech companies. In March 2019, a new law against the spread of fake news came into force, allowing the state to instantly block websites and impose fines, while in May 2019, President Vladimir Putin signed the so-called ‘Sovereign Internet’ law. The latter sparked protests in the country, with some citizens considering the law a method to increase censorship, as it allows the Russian government to isolate its Internet services from the global infrastructure and facilitates the restriction of Internet access in certain parts of the country.

Political Interference Weighs On Russia's Attractiveness Selected Central And Eastern European Countries - Legal Risk

Source: Fitch Solutions Trade and Investment Risk Index. 100=Lowest Risk. 0=Highest Risk

The new draft law could further hamper FDI in Russia. Our Country Risk team believes an acceleration of FDI over the next two years to be unlikely, as it is already declining. By restricting investment in major tech companies and leaving the sector increasingly exposed to possible future governmental interference, this trend could intensify even further and lower Russia’s attractiveness as an investment destination. Moreover, rising headwinds to the global economy coupled with existing sanctions could weaken the Russian economy over the coming quarters, likely limiting the availability of national funds to pour into the development of local tech players. This would have negative consequences on the Russian tech sector, which would struggle to thrive and create a dynamic Russia-focused ecosystem.

If approved, the law will come into force in January 2020. Those companies not complying with the law will not be allowed to promote themselves or others inside Russia. A ban on advertisements will be devastating for companies like Yandex and Mail.ru, as the business model of search engines and social networks is based almost exclusively on advertising revenues.

Middle East Quick View: Batelco 2G Spectrum Shutdown Supports Bahrain's 5G Push

The Latest: Batelco has announced it will phase out its 2G network in Bahrain by December 2020. We at Fitch Solutions believe this will heavily impact 2G availability and have revised down our forecasts for 2G mobile subscriptions. We have also upwardly revised our 4G and 5G subscriber forecasts, as Batelco will re-farm spectrum to meet the future goals of 5G connectivity.

Implications: Batelco holds the largest share of mobile subscribers in Bahrain's mobile market, compared to its rivals Zain and Viva Telecom, so this decision is likely to have a large impact on the availability of 2G. As a result, we have revised down our 2G subscription forecast to end 2020 at 20,800 subscribers, and we expect this service to be completely phased out by 2023.

Batelco 2G Shutdown Is Widely Felt By Market Mobile Subscriptions Market Share (%), Q219

Source: Fitch Solutions, Telecommunication Regulatory Authority

Batelco is expected to ease migration from 2G by offering special discounts on 3G/4G devices for 2G device users; we forecast 2G subscribers will equate to 1% of the market by 2020. This shutdown will support Batelco's plans to redeploy additional frequencies to its 4G and 5G networks, in line with its corporate digital strategy to provide 5G services and solutions to the business sector.

We have added 5G to our Bahrain forecast, expecting to see the largest growth in subscriptions to this platform. In April 2019, Batelco announced a partnership with Ericsson to begin its 5G roll-out and in June 2019 Batelco launched Bahrain's first 5G network. This is in line with the strategic goals of the Fourth National Telecommunication Plan (NTP4); the NTP4 calls for household downstream data speeds of at least 100Mbps, and 1Gbps for businesses and radio sites.

By 2025, we believe there will be 1.2mn 5G subscriptions, which will account for the largest demand for spectrum.

Bahrain Mobile Market Trend, 2018-2028 Mobile Subscriptions ('000)

f = Fitch Solutions forecast. Source: Telecommunications Regulatory Authority, Fitch Solutions

What's Next: As countries in the GCC continue to diversify their industry and develop their economies, telecommunication operators in the region are under pressure to adopt new technological solutions. Goals from the NTP4 are highly prioritised as part of Bahrain's agenda. We have seen this from Batelco re-farming spectrum and its recent official launch of National Broadband Network (BNET), the group's first independent wholesale infrastructure unit. We at Fitch Solutions believe Batelco will continue to meet the aims set out by the NTP4 and will maintain a high priority on the development of high-speed internet services. This bodes well for overall growth within the country's small telecoms market.

Related Research

• 'MENA 5G Overview: Rapid, But Unequal Growth', April 9 2019; • 'Bahrain's Spectrum Auction Positive For Advanced Telecoms Services', August 21 2018.

North America Quick View: Access Act Aims To Restore Competition Without Breaking Up Big Tech

The Latest: Three US Senators - two Democrats and one Republican - have proposed The Access Act, looking to improve competition in digital markets.

Implications: The Act is based on three key ideas:

• Portability: this means that consumers will be able to transfer their own data to other platforms, should they choose to do so. This is a right that is already available in Europe, through the General Data Protection Regulation (GDPR), but not one that has been used at scale so far. This is because it requires another step, the second key idea of the Act; • Interoperability: As well as portability, the Act wants data to be interoperable across different platforms, like phone calls or emails. This would mean that customers could still share data with their friends, even if they do not decide to change platforms, and switch to a multiple of different providers. Tech companies have been looking to keep customers within their own ecosystem recently, and such a change would impact their current business model; • Delegatability: This is the most innovative element of the Act, as it gives customers the option to allow a third-party service to manage their privacy settings across multiple platforms. The Act recognises that convenience is a major attraction for consumers on tech platforms, and it wants to give them a similar experience while looking to boost competition through portability and interoperability.

What's Next: The Act is bipartisan and, while there has been common ground between the two parties with regards to regulating big tech, it would still face difficulty in Congress. The 2020 Presidential Elections provide another risk, as some candidates, led by Elizabeth Warren, have called for big tech to be broken up, which this Act does not do. It would however require a major change of business model, and we believe there might be a greater consensus, both in the US and abroad, which looks to open up the data market to drive competition.

Infrastructure For E-Scooters An Untapped Opportunity For Cities

Key View

• Infrastructure for e-scooters, such as docking, remains a largely untapped infrastructure class that will attract growing investment as operators and regulators pursue viable solutions to accommodate the growth of shared mobility. • We expect the proliferation of e-scooters to continue and spread into new markets, intensifying efforts from authorities to manage the safe operation of such light EVs alongside existing modes of transport. This will offer opportunities in projects such as the expansion of cycle lanes, as well as for technology firms aiming to enhance city management via the leveraging the data captured by e-scooters. • We expect cities with specific initiatives that seek to encourage shared mobility will be the most attractive destinations for infrastructure investment of this kind. • A key challenge we foresee for such investment will be in establishing the appropriate sharing of financing between e-scooter operators and public authorities.

The experiences of cities that have seen rapid growth in e-scooters will reinforce the need for infrastructure investment to assimilate the vehicles, with a need to uphold the safety of the wider city environment being a pertinent issue for regulators to address by encouraging greater investment. Investment activity will focus on mitigating the health and safety risks posed by e-scooters and their surroundings during use, whilst also providing them with more orderly and efficient storage and charging network. A regular criticism of e-scooters is that they are perceived to ‘litter’ pavements and pedestrian zones in cities, leading authorities to be acutely aware of the need to seek a more structured means for users to pick-up and drop-off e-scooters whilst ensuring that they can be charged and maintained efficiently. Without such planned investment, we note the risk of a potential backlash against such mobility solutions, undermining their potential to act as a means to address urban congestion. Two key areas that we expect to see infrastructure investment to manifest and alleviate these issues are:

• Docking Infrastructure: Docking for e-scooters to provide a structured network for picking-up and dropping-off e-scooters, which can also provide charging capabilities. For investors, such infrastructure would offer similar characteristics as EV charging infrastructure. • Protected Lanes: Dedicated lanes for the use of e-scooters, potentially branded as ‘anything but car’ lanes. These could take the form of enhanced cycle lanes with added safety features for e-scooter use alongside larger vehicles, or could entail more expansive street areas, in new developments in which pedestrian and low-emission travel are given priority.

Conversely, for proponents of docking infrastructure, its absence can prove appealing to e-scooter operators as this can widen the potential areas of coverage and leave users unconstrained by where they can pick-up and drop-off e-scooters. On this factor, therefore, the impetus for operators to invest in the infrastructure is weak. However, analysis of typical e-scooter usage would likely find key clusters of activity around which most journeys occur, therefore overlaying docking positions over this data would likely allow for infrastructure without actually reducing the coverage or spread of the vehicles.

KEY CITIES NAVIGATING THE RISE OF E-SCOOTERS Main E- City Scooter Recent Developments Operators

Jump Minneapolis, • Minneapolis recently launched ‘mobility hubs’ where citizens can access public transport alongside parking (Uber), United for e-scooters, supporting the cities aims for lowering its emissions. Of the 2,000 e-scooters permitted in the Lime, States city, at least 600 scooters must be placed in deprived areas. Lyft, Spin

• With 12 operators currently in Paris, the city intends to restrict this to 2-3 operators to limit the current Bird, Circ, number of e-scooters to below 20,000. Paris, France Lime, Voi • The parking of e-scooters on pavements is set to be prohibited, with e-scooters instead required to use vehicle parking spaces.

Santa Bird, Monica, Jump • Santa Monica’s Share Mobility Pilot Program, launched in September 2018, seeks to explore the United (Uber), opportunities enabled by e-scooter usage data captured by operators for use in city planning. States Lime, Lyft

San • San Francisco is expanding the number of e-scooters respective operators can rent-out, from 1,000 to 2,500, Bird, Francisco, to realise a total of 10,000 rentable e-scooters in the city. Lime, United • Permits are being granted to operators based on their device safety standards, maintenance practices and Spin States their engagement with the city’s neighbourhoods.

Bird, • Tel Aviv is limiting the total e-scooter fleet of any licensed operator to 2,500. Tel Aviv, Lime, • Scooters are being restricted from parking in certain areas of the city, with designated parking locations Israel Wind being established to reduce interference with vehicles and pedestrians.

Source: Fitch Solutions

E-Scooter Uptake Supportive For City Management And Emissions Reduction

The sharing of data between operators and authorities regarding usage patterns would offer widespread benefits for urban planning and the management of traffic flows. If properly monetised by the operator, this could go some way towards sharing the costs of upgrading urban infrastructure; operators providing valuable data on the behavioural patterns and the use of public space, enabling authorities to make intelligent investments in the necessary infrastructure to manage these behavioural patterns. Whereas current analysis of street use transport tends to focus on vehicle traffic, the data captured by e-scooter operators would provide a more complete picture of the volume of people traversing urban environments, after which investments can be made to nudge people towards more effective travel modes and improve the efficiency of limited street space.

A wider benefit of the spread of e-scooters their potential contribution to lowering emissions, given that many journeys taken by e- scooter may otherwise have been taken by car. The implication of much of the promotional material touted by e-scooter operators is that e-scooters hold the potential to displace a significant proportion of short car journeys and even journeys taken on public transport where e-scooters can offer a more direct route. Furthermore, the strategic positioning of e-scooter infrastructure nearby to public transport stations and routes could for the light EVs to complement the use of public transport and make both modes

more attractive. Whereas these contributions to emissions reduction would occur as a result of relatively short journeys taken by car, by highlighting the use of e-scooters for first/last-mile trips, operators could also effectively funnel users towards the use of public transport by improving its connectivity, exemplified by the aforementioned mobility hubs promoted in Minneapolis.

Challenges Posed In Sharing Of Financing For Public Infrastructure

The key challenges for the integration of light EV infrastructure into urban environments relate to the responsibility for financing the investment, and the potential for unease regarding their safety to result in restrictions on their use. E-scooter operators acknowledge the need to share the responsibility to safety between themselves and cities, emphasising a need for enhanced bike lanes or, what they may ultimately become known as; anything-but-car lanes. Bird, for example, emphasises that as cities look to lower their emissions levels they will orient their urban planning priorities towards infrastructure that will improve the safety of light EVs, due to the low emissions entailed in their use. They point to better-protected and wider bike lanes as key desires to urban infrastructure for e-scooter users; a desire likely reflected in pedestrians since such improvements would deter users from riding on pavements. However, Bird’s recent phase-out of its initiative for assisting cities in paying for protected bike lines highlights a potential downside risk in the pursuit of effective collaboration between operators and authorities. Citing misuse of funds on unrelated investment by recipient cities, this demonstrates the need for a robust framework for the sharing and responsibility for financing in this infrastructure class.

Meaningful infrastructure investment by operators will need to be preceded by a meaningful degree of profitability for the additional costs of infrastructure to be met. A reluctance by operators to make fixed infrastructure investment is partly due to their current profitability, or lack of, which is likely exacerbating their reluctance in practice to conduct fixed investment. The avoidance of such investment is an implicit tenet of the business model pursued by scooter operators, as their ability to deploy scooters directly onto street pavements removes the need for them to invest in docking infrastructure prior to this. Operators pursuing an ‘arrive first, ask later’ approach has allowed them to exploit an under-developed area of regulation and influence its development in response, however with regulation now gaining a better understanding of how to effectively police the operations of what are essentially footloose companies, the granting of licensing to operators may increasingly become conditional on the willingness of them to work with cities to develop safe infrastructure solutions.