The Italian Communications Regulatory Authority Annual Report on Performed and Scheduled Activities The Communications Regulatory Authority President Corrado Calabrò Members Nicola D'Angelo Giancarlo Innocenzi Botti Michele Lauria Gianluigi Magri Stefano Mannoni Roberto Napoli Enzo Savarese Sebastiano Sortino Secretary General Vice Secretary General Roberto Viola Antonio Perrucci Head of the Secretarial Division Guido Stazi Annual Report on Performed and Scheduled Activities 2009 1 The Communications System 1.1. International Framework 1.1.1. Telecommunications General framework The worldwide market of telecommunications services is still characterized by a significant dynamism. In 2008, in spite of the recessionary effects of the financial crisis, the dynamics of the sector shows moderate growth levels, thus creating significant advantages for users. In particular, with an increase by 4.2%, compared to 6% of the previous three-year period (figure 1.1), the worldwide telecommunications market is worth 9971 billion euro (figure 1.2). Once again, this positive trend is due to mobile services (+8%), thanks to the data component, but in 2008, Internet and fixed network data services equal such performance (over 8% of annual growth rate); whereas, in traditional services, the fixed network shows again a more marked decline in revenues compared to the past (-5%). Figure 1.1. Worldwide market of telecommunications services (2005-08 turnover in %) Average Fixed telephone services Internet and data Mobile telephone services Source: processing by AGCOM on Idate data Figure 1.2. Market of telecommunications services worldwide (billion €) 1 Data concerning telecommunications (as well as the audiovisual market) in section 1.1 of the report, simply due to the adjustment the euro/dollar exchange rate occurred in 2008 are not comparable to those specified last year. Moreover, it is outlined how the last year taken into consideration (2008 for this report), has been assessed by Idate, and therefore it is subject to variations, that in some cases may be relevant, in the final analysis. This explains, for 2007, the difference between data specified in figure 1.1 of the Annual Report for 2008 with data specified in figure 1.2 of this Report. __Mobile telephone services __Internet and data __ Fixed telephone services Source: processing by AGCOM on Idate data In relative terms, sector revenues are distributed among 268 billion euro (equal to 27%) coming from fixed telephone services, 187 billion from Internet and data services (19%) and, above all, 542 billion (54%) of mobile telephone services. In dynamic terms, it is pointed that, from 2004 to date, the value of traditional fixed telephone services decreased by more than ten percentage points (from 39% to 27%), whereas a significant increase has been recorded for Internet services (from 16% to 19%) and, above all, for mobile telephone services (from 44% to 54%). As already mentioned, the latter is the segment showing the highest increase and that, starting from 2005, accounts for more than 50% of the sector’s total. Such development is the result of two opposite trends: on the one hand, the significant increase in volumes continues, to which data traffic is to be added, with a customer base that, at the end of 2008, reached 3.82 billion users, with an increase by 17% compared to 2007 and on the other hand, the competitive pressure influenced the decline in prices and therefore in the average revenues per user, with the ARPU (average revenue per user) of voice services recording a sharp drop reaching in 2008 a monthly average of about 13.17 euro (Idate estimate), even if, with significant differences in the various geographical areas. As clearly outlined in figure 1.3, this decreasing trend is destined to continue, especially in mature markets. In a scenario in which in many countries the customer base reached saturation, the main reason of this growth is a strong competitive trend which reduced average prices and increased consumption, in terms of talk time, of SMS exchange, as well as of bundled services. A significant contribution to this trend is due also to the expansion of 3G and 3.5G mobile services. According to estimates, only in Europe, at the end of 2008, the customer base of 3G and 3.5G mobile operators exceeded 1003 million units, equal to 10% of the total number of mobile users (mainly in the Western area). In particular, data services in mobility were significantly boosted by the development of new mobile broadband technologies which improved the use of the end users, both in terms of quality and variety. Figure 1.3 Voice services monthly ARPU in the European market (euro) 2 Source: Idate estimates for 2009. 3 Source: Idate estimates for 2009. Western Europe Eastern and Central Europe Source: Informa Telecoms & Media The other growth driver of the whole sector – Internet access from fixed workstation – during 2008, produced additional revenues for 15 billion euro. The broadband is the real engine of the services from fixed workstation: in 2008, customers of broadband services increased by nearly 20%, thus reaching in the aggregate 4154 million users worldwide. This trend, is counterbalanced by the quick and structural drop in voice services that, if in 2004 accounted for 70% of the fixed network revenues, now are at 58%. On the whole, in spite of the growth of the broadband, fixed telecommunications have lost market shares, accounting now for 46% of the total telecommunications market worldwide, against 56% of five years ago. From a geographical viewpoint, growth trends (figure 1.4) continue not to be uniform, with areas where the market is fully mature and the growth is close to zero and developing areas, where the growth rate still reaches a two-figure percentage. On the whole, worldwide countries of the Asia-Pacific area - in particular China and India (figure 1.4) - are still the driving force for the sector’s growth worldwide. Among the mature markets, Europe has the highest development rate (+2% in 2008), whereas the United States record a sharp slowdown (+1.4%, against 3.9% in the previous year) and Japan marks time, recording, for the second year in a row, a drop in the sector of about 3% (in 2007 there was a 0.2% reduction). Figure 1.4 Market of telecommunications services worldwide (% variation) United States Europe China India Japan Other countries Average 4 Source: Idate estimates for 2009. Source: processing by AGCOM on Idate data In spite of the evolution over the last few years, the geography of the sector remains essentially the same (figure 1.5): industrialized countries with about two-thirds of the market (63.6%), continue to dominate telecommunications services worldwide, even if the weight of the Chinese market is increasingly important (7.2%), even posing a threat to Japan’s position (8.3%). In the United States, where usually international and national calls from fixed workstation are not included in the flat rate offers, the drop in the volumes of voice traffic on fixed networks is mainly due to a combined use of the mobile service for short calls and of VoIP for international and national calls. On the whole, advanced markets which recorded to a lesser extent a drop in voice traffic volumes on fixed network are those markets in which operators adopted more diffusely flat pricing, with offers including an unlimited use of the telephone. Therefore, it is increasingly evident the general trend by fixed operators to pursue pricing strategies which include an unlimited use of calls in order to face the growing migration of their users to competitors’ services either mobile and/or on the Internet. Still as far as traditional fixed networks are concerned, they find extraordinary competitors not only in mobile operators but also and mainly in cable operators that updated their infrastructure (through the DOCSIS 3.0 standard supporting the advanced IPv6 standard and extremely high connection speeds), with reference to the offer of traditional broadband and especially high-capacity broadband services. In this regard, the US market and in Europe, the British, Spanish and Dutch markets, are benefitting from an infrastructure competition due to the historical presence of cable networks. With regard to mobile services, the voice segment has now reached saturation in every countries of the economically advanced areas; therefore, the development of the market depends essentially on the trend of last generation services, which account for up to one-third of the customer base. Moreover, operators that cannot rely any longer on a significant increase in terms of new users, are now aiming at increasing consumption of the existing customer base, by means of targeted marketing and price strategies. In this regard, Japan is an interesting case study: this country is characterized by a mobile segment in a position of world leadership, being the only one, among the economically advanced countries, that recorded since 2005 already, voice traffic volumes on mobile networks higher than those on fixed networks. However, starting from 2007, a decrease in such volumes has been recorded, as a result of a growing migration to the use of other types of mobile services available, such as instant messaging and e-mail, and because of an increase of the use of VoIP from fixed network. In this regard, the Japanese market seems to show a double turning passage: first, from fixed to mobile, then, a subsequent partial return, to last generation fixed services. The analysis of the emergent markets shows that these markets are gaining constantly market shares worldwide, with a increase from 20% of the world turnover in 2002, to 33% in 2008. This area concentrates 85% of growth, in value, of telecommunications services. Five countries – China, Brazil, Mexico, India and Russia – account for more than half of the overall value assigned to emergent markets; a fourth of the revenues in these regions is concentrated in China only.