Portugal Update, April 2017 Sai Vivek Kammari, Analyst, Europe [email protected] TE0014-000461 July 2017 Contents . Executive summary . Key economic data and demographics . Key revenue, subscription, and technology KPIs . Key service provider KPIs . Country analysis . Ovum outlook . Subscription, revenue, and technology outlook dashboards . Key market movements . Ovum service provider, product portfolio, and pricing analysis . Service provider performance . Operators' multiplay services and bundling . Pricing dashboard . TV and video market outlook . New product launches and operator initiatives . Regulatory outlook . Regional market dashboard 2 Ovum | TMT intelligence | informa Copyright © Informa PLC Portugal update – executive summary . In 2016, Portugal's mobile subscriber base declined by 1.2% to reach 16.16 million. The three major mobile operators, namely MEO, Vodafone Portugal, and NOS, held subscriber market shares of 45.6%, 27.9%, and 26.5%, respectively. Multiplay bundles in the Portuguese telecom market had higher penetration than those in other Western European markets. By the end of 2016, about 84% of the Portuguese population had subscribed to bundled services. Operators are continuing to invest in fixed and mobile infrastructure. As part of its 2015 plan to roll out fiber to an additional 3 million households by 2020, MEO is rapidly spreading its fiber network in Portugal; on the mobile side, it signed an MOU with Huawei for network modernization. The Portuguese pay-TV market is highly competitive with NOS leading the market with a share of 40.8%. The IPTV platform dominated the pay-TV market as the migration from conventional cable to IPTV continued in 2016. Leading cable operator Nowo is negotiating a deal to get wholesale access to MEO's fiber network. The deal is the first of its kind in Portugal, and if signed will boost competition in the broadband and pay-TV segments. There were about 3.42 million broadband subscribers at the end of 2016. Fiber broadband subscribers increased by 31.1% in 2016 to reach 1.1 million, surpassing cable subscribers. In December 2016, ANACOM reduced fixed wholesale termination rates by 42% to increase competition in fixed telephony services. The new wholesale fixed termination price is €0.0644 per minute. 3 Ovum | TMT intelligence | informa Copyright © Informa PLC Key economic data and demographics – Portugal GDP annual growth forecast Statistics 2017 2.0% Population 10,419,000 1.5% 1.0% Urban population 64.2% 0.5% 0.0% % of households with broadband 87.2% -0.5% Unemployment rate 10.9% GDP growth -1.0% -1.5% Mobile penetration 157.8% -2.0% 2013 2014 2015 2016 2017 2018 2019 2020 Mean monthly mobile ARPU ($) 17.10 Source: Source: Ovum, IMF, World Bank IMF Inflation (CPI) National debt as % of GDP 2.0% 132% 130% 1.5% 128% 126% 1.0% 124% 122% 0.5% 120% 118% 0.0% 116% Inflation (local currency) 114% -0.5% Nationaldebt as % of GDP 112% 2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 Source: IMF Source: IMF 4 Ovum | TMT intelligence | informa Copyright © Informa PLC Key revenue, subscription, and technology KPIs QoQ change, 4Q16 Statistics 2Q16 3Q16 4Q16 (%) Total subscriptions: 24,366,346 24,717,225 25,055,504 1.4 Mobile 16,687,287 16,932,630 16,947,966 0.1 Fixed broadband 3,199,011 3,261,171 3,325,957 2.0 Fixed voice 4,480,048 4,523,424 4,781,581 5.7 Total revenues ($m): 1,711 1,719 1,669 -2.9 Mobile 947 960 934 -2.7 Of which voice 399 416 380 -8.7 Fixed 764 759 735 -3.2 Mobile ARPU ($): 9.77 9.98 9.35 -6.3 Postpaid share of total subs (%) 50.0 49.9 50.5 0.6* 3G/4G share of total subs (%) 61.7/25.8 60.0/28.3 58.5/30.4 2.6/6.9 Operator mobile capex ($m) 990 206 299 45.2 * percentage points Source: Ovum 5 Ovum | TMT intelligence | informa Copyright © Informa PLC Key service provider KPIs Last reported quarter Vodafone Portugal MEO NOS Total revenues ($m): 261.61 579.71 386.75 Fixed revenues ($m): 64.74 377.24 236.62 Fixed broadband subscriptions (000s) 538 1,403.99 1,289.50 Market share (%) 15.95 41.64 38.24 Net subscription additions 33,779 3,692 20,000 FTTx net additions 15,990 31,000 1,100 FTTx market share (%) 16.5 71.2 11.7 Mobile revenues ($m) 196.87 202.47 150.13 Mobile subscriptions (millions) 4.72 7.73 4.49 Market share (%) 27.86 45.64 26.50 Net subscription additions (000s) -62 12 31 LTE additions (000s) 100.8 197.3 99.2 LTE market share (%) 25.5 48.7 25.8 Note: See WCIS for latest data sets Source: Ovum 6 Ovum | TMT intelligence | informa Copyright © Informa PLC Contents . Executive summary . Key economic data and demographics . Key revenue, subscription, and technology KPIs . Key service provider KPIs . Country analysis . Ovum outlook . Subscription, revenue, and technology outlook dashboards . Key market movements . Ovum service provider, product portfolio, and pricing analysis . Service provider performance . Operators' multiplay services and bundling . Pricing dashboard . TV and video market outlook . New product launches and operator initiatives . Regulatory outlook . Regional market dashboard 7 Ovum | TMT intelligence | informa Copyright © Informa PLC Ovum country outlook: Portugal Key market statistics Mobile subscription growth, 2016–21: 0.2% Fixed broadband subscription growth, 2016–21: 3.7% TV subscription growth, 2016–21: 2.0% Market dynamics Portugal's mobile penetration currently stands at 157.2%. Given the already high penetration, Ovum expect Portugal's mobile subscribers to grow marginally, at 0.2%, over the next five years to reach 16.3 million by end-2021. Multiplay bundles are the most popular products in the Portuguese telecom market, and the demand for bundles continued to grow in 2016. By end-2016, bundled subscribers reached 3.51 million and penetration 84%. Quintuple- play (5P) services (fixed voice, fixed broadband, TV, mobile telephony, and mobile broadband) lead the segment with 1.44 million subscribers, followed by triple-play services with 1.42 million subscribers. Increasing adoption of converged service contracts is pushing operators toward attaining a stable mobile subscriber base. Prepaid mobile subscribers continued to decline and fell below postpaid subscribers for the first time in June 2016. Further, the revenues from fixed voice services saw positive trends as fixed voice subscribers grew significantly because of the rapid increase in users opting for integrated services . Fixed telephony penetration reached record levels of 46.3% by end-2016 – the growth was primarily driven by a 16.9% increase in VoIP subscribers over fiber and cable networks. Intensifying competition in the multiplay segment is driving operators to increase the data allowances in various bundles and enrich their multiplay bundles, complementing them with value-added services. For instance, Vodafone increased mobile data allowances by about 300% for its packages (TV+Net+Voz+Movel+Internet Movel , TV+Net+Voz, TV+Net+Voz+Movel); a similar approach was adopted by MEO, which increased mobile data allowance for its M4O and M5O packages. 8 Ovum | TMT intelligence | informa Copyright © Informa PLC Ovum country outlook: Portugal (contd.) In Ovum's view, NOS will try to improve its market share in multiplay bundled services and attempt to surpass Altice Group (MEO). NOS's continuous development of its popular Iris platform and launch of other applications such as NOS Share, which are focused on delivering content on multiple devices, will catalyze NOS's growth. Technology migration and availability, 3Q16 Number of LTE connections: 4,794,283 LTE connections growth in the past year: 94% FTTx connections: 1,014,239 By end-2016, 3G and 4G accounted for 90.9% of mobile connections. We expect LTE to account for 86.5% of connections by end-2021, driven by operators' ongoing and planned investments in the advanced LTE networks. By end-2016, FTTx evolved as the leading broadband technology in Portugal, surpassing cable. Operators are adopting new technologies to deliver better speeds and hit the national target; furthermore, MEO intends to replace its entire copper network with FTTH by 2020. Currently, 5.1million households are passed by FTTH/B and 4.25 million by Docsis 3.0 networks. Incumbent MEO is the only operator with significant NGN coverage in rural areas, as it continues to expand its fiber optic network to new localities, aiming to pass 5.3 million households by 2020. Additionally, ANACOM's decision not to compel MEO to open its rural fiber optic network to other operators despite the EC's recommendations enables MEO to continue its strong hold in the rural market. M2M development: Compared with its peers, Portugal lags in M2M development. Operators are gradually shifting focus toward enterprise services and IoT/M2M solutions to drive revenue growth. MEO plans to launch new M2M solutions through partnerships with Sigfox and Narrow Net. NOS launched NB-IoT network using Huawei infrastructure and tested smart meters that work on 4.5G NB-IoT technology. 9 Ovum | TMT intelligence | informa Copyright © Informa PLC Portugal subscription outlook dashboard FIXED MOBILE TV (Source: WBIS) (Source: WCIS) (Source: WTVIS) DISRUPTORS Broadband market share, 2017 Mobile market share, 2017 Multichannel TV share, 2017 OTT VoIP connections (active users) 8 PT Portugal 38.11% MEO Portugal 46% NOS 39.5% 6 Zon Multimedia 37.45% Vodafone Portugal 28% MEO 32.0% 4 Vodafone Portugal 14.91% Vodaf one 14.6% Millions NOS 26% 2 Other 9.53% Other 0% Other 14% 0 2016 2017 2018 2019 2020 Fixed Mobile 2017 subscriptions: 3,618,800 2017 subscriptions: 16,199,070 2017 subscriptions: 3,739,086 Growth vs 2016: 5.9% Growth vs 2016: 0.3% Growth vs 2016: 2.8% Broadband subs forecast Mobile subs forecast Pay-TV subs forecast MVNO subs forecast 5 20 5 1 4 15 4 1 3 3 10 0 2 2 Millions Millions Millions 1 Millions 5 1 0 0 0 0 0 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 .