THE OPERATORS AND THEIR FUTURE THE STATE OF PLAY AND EMERGING BUSINESS MODELS OECD DIGITAL ECONOMY PAPERS September 2019 No. 287 2 | THE OPERATORS AND THEIR FUTURE Foreword This report, “The Operators and their Future: The State of Play and Emerging Business Models”, was prepared by the Working Party on Communication Infrastructure and Services Policy (WPCISP). It explores how communication operators may develop in the future. The report takes a five to ten year perspective and examines trends in the industry around different operator models. The paper was approved and declassified by written procedure by the Committee on Digital Economy Policy on 3 May 2019 and prepared for publication by the OECD Secretariat. It was drafted by Bengt Mölleryd (PTS Sweden), Verena Weber and Sam Paltridge from the OECD Secretariat. The authors received contributions from Maximilian Reisch from the OECD Secretariat and WPCISP delegates regarding their country experiences. It was prepared under the supervision of Sam Paltridge and Verena Weber. It contributes to the OECD Going Digital project, which aims to provide policy makers with the tools they need to help their economies and societies prosper in an increasingly digital and data-driven world. For more information, visit www.oecd.org/going-digital. #GoingDigital Note to Delegations: This document is also available on O.N.E. under the reference code: DSTI/CDEP/CISP(2017)5/FINAL This document, as well as any data and any map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. 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All requests for commercial use and translation rights should be submitted to [email protected] DIGITAL ECONOMY PAPERS THE OPERATORS AND THEIR FUTURE | 3 Table of contents Foreword ................................................................................................................................................ 2 Executive summary ............................................................................................................................... 5 The Operators and their Future: The State of Play and Emerging Business Models ..................... 8 Introduction .......................................................................................................................................... 8 An evolving policy landscape .......................................................................................................... 8 New models and new players ........................................................................................................... 9 Key policy questions ........................................................................................................................ 9 Broad trends in the financial performance of the communication industry ................................... 10 The database ................................................................................................................................... 10 Key financial indicators ..................................................................................................................... 12 Leading-edge demand, and the operators and their future ................................................................. 17 Broadband outliers ......................................................................................................................... 17 Average speeds in the OECD viewed through the metric of online video games .......................... 20 Steam’s measurement of ISP speeds .............................................................................................. 22 The fastest networks recorded by Steam by ISPs ........................................................................... 23 Blade: An operator in the cloud ..................................................................................................... 29 Different types of operators ............................................................................................................... 31 Traditional (vertically integrated) mobile and fixed broadband providers..................................... 31 (Vertically integrated) cable operators ........................................................................................... 40 Wholesale-only operators (utility) ................................................................................................. 42 Wireline wholesale-only providers ................................................................................................ 43 Wireless wholesale-only providers ................................................................................................ 49 (Terminal) equipment and online service providers ....................................................................... 55 Examples of technologies that may influence the operators and providers ....................................... 58 Comparing different types of operator models against policy objectives .......................................... 61 Competition .................................................................................................................................... 62 Innovation ...................................................................................................................................... 64 Investment ...................................................................................................................................... 65 Summing up ................................................................................................................................... 66 Annex I.A. Selected wholesale-only wireless tower and distributed antenna systems (DAS) operators............................................................................................................................................. 68 References ............................................................................................................................................ 71 Notes ..................................................................................................................................................... 79 Tables Table 1. Number of companies in different categories ......................................................................... 11 Table 2. The fastest 25 networks recorded by Steam for ISPs in OECD member countries* .............. 25 Table 3. Cumulative total return for American Tower (AMT) versus other indexes ............................ 52 Table 4. Overview of Google’s investment in submarine fibre cables.................................................. 57 Table A.1. Overview of selected tower companies and DAS operators ............................................... 68 DIGITAL ECONOMY PAPERS 4 | THE OPERATORS AND THEIR FUTURE Figures Figure 1. Revenues for different categories 2002-17 ............................................................................ 13 Figure 2. Average EBITDA and EBIT margins for the operators 2002-17 .......................................... 13 Figure 3. EBIT margin for the subcategories 2002-17 .......................................................................... 14 Figure 4. Capex-to-sales for the data 2002-17 ...................................................................................... 15 Figure 5. Capex-to-sales: Challengers vs. Incumbents .......................................................................... 16 Figure 6. Return on invested capital for telecommunication carriers, and cable & satellite as total average........................................................................................................................................... 17 Figure 7. Average download speed (Mbps)........................................................................................... 21 Figure 8. Average download speeds recorded by Steam and Akamai .................................................. 22 Figure 9. Elisa: Mobile service developments....................................................................................... 33 Figure 10. Elisa: Key financials ............................................................................................................ 33 Boxes Box 1. Quality beyond speed................................................................................................................. 18 Box 2. Swiss fibre access models .......................................................................................................... 29 Box 3. Network optimisation and full automation at Elisa ................................................................... 34 Box 4. Jio and the digital transformation in India ................................................................................. 35 Box 5. The Orange Bank ......................................................................................................................