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Is Europe ready for a telecom rebound?. Didier Pouillot Head of industrial department analysis , IDATE Jean-Charles Doineau Head of equipment division, IDATE. Service provider markets Network equipment markets. Telecom service markets: A rapid growth over recent years. Source: IDATE. - PowerPoint PPT Presentation
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www.idate.org
Is Europe ready for a telecom rebound?
Didier Pouillot
Head of industrial department analysis, IDATE
Jean-Charles Doineau
Head of equipment division, IDATE
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 22
Service provider markets
Network equipment markets
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 33
Telecom service markets:A rapid growth over recent years
As a result of the explosion of mobile services (half of growth in telecom services in 2000 and 2001 derived from cellular services)…
… and sector developments in emerging countries (e.g. China)
0
50
100
150
200
250
300
350
400
450
1999 2000 2001 2002 (e)
bill
ion
US
D
North America Western Europe Asia-Pacif ic Rest of the w orld
So
urc
e:
IDA
TE
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 44
Telecom service markets:But slowdown in the short term
Mobile sector has become mature in its traditional segment (voice) and is waiting for new growth drivers (mobile data applications)…
High speed revenues should represent only 6 to 8% of total telecom revenues in 2006
Effect of political crises in some areas (Latin America)
800
1000
1200
1400
1600
1999 2000 2001 2002 2003 2004 2004 2005 2006
billio
n U
S$
So
urc
e:
IDA
TE
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 55
Telecom service operators:Strong revenue growth over recent years
More than 10% of annual growth on average between 1998 and 2001 for the world market leaders (around 14% for the European top 6)
Mainly due to the development of mobile activities (more or less 30% of European telcos revenues in 2001) and international operations (up to 40% of consolidated revenues for Telefonica or France Telecom)
0
10
20
30
40
50
FT DT BT TI Telefonica KPN
bill
ion
EU
R
1998 1999 2000 2001
So
urc
e:
IDA
TE
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 66
Telecom service operators:But decline in profits
EBIT suffered from lower margins, due to competition (decrease in tariffs, loss of market shares)…
… while net earnings reflected the huge sums telcos were obliged to carry owing to the depreciation in their financial assets …
-60%
-40%
-20%
0%
20%
FT DT BT TI Telefonica KPN
1998 1999 2000 2001 1H02
-151%
Profit ratio (net earnings/revenues)
So
urc
e:
IDA
TE
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 77
Telecom service operators:And a very high level of debt
Most operators are today faced with the necessity of reducing debt, through:
The sale of non-core assets (and sometimes core assets !)The reduction of capital expenditureNegociations to find new sources of funding
0
15
30
45
60
75
FT
DT
BT TI
Tel
efon
ica
KP
N
bill
ion
EU
R
1H01 1H02
So
urc
e:
IDA
TE
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 88
Telecom service markets:Looking for new revenues (1)
Mobile data revenues could grow threefold between 2001 and 2007 and account for 30% of mobile revenues at the end of the period
0
5
10
15
20
25
30
35
40
2000 2001 2002 2003 2004 2005 2006 2007
Billion EUR
SMS person to person SMS application to person PortalsMMS Modem / Mobile office Indirect revenues
Revenues generated by mobile data services, in Western Europe (2000–2007)
So
urc
e:
IDA
TE
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 99
Telecom service markets:Looking for new revenues (2)
Over a third of European households will have a broadband Internet connection by 2007
Revenues generated by the broadband access market in Western Europe (2001–2007)
0
5
10
15
20
25
Low High Low High Low High Low High Low High
billio
n E
UR
xDSL Cable modem
20022001 2003 2004 2005 2006 2007
So
urc
e:
IDA
TE
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 1010
Service provider markets
Network equipment markets
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 1111
Network equipment markets:An historical market trend
0
5
10
15
20
25
30
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
CA
PE
X /
Sal
es (
%)
0
10
20
30
40
50
60
70
80
Nb
r o
f N
.O.s
tak
en i
nto
acc
ou
nt,
wo
rld
wid
e
average CAPEX / Sales (%) nbr of N.O.s taken into account
Historical 16-17% average
CAPEX/sales ratio
Source: IDATE
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 1212
In the mobile infrastructure field, the development of 2G technologies has been progressive during the 90’s, and reached its peak in Europe during the period 1995 - 1999.
In the WAN transmission market, 1996-2000 experienced strong technological improvements (2,5 & 10 Gbps DWDM), as well as numerous new network developments (up to 42 at its peak in 1999)
In the access field, 1996-1999 was dominated by the end of the digitalisation process of the US networks, and by the beginning of studies on DSL deployment afterwards.
In the LAN market, 1996-1999 was marked by the appearance of the « networked-company », model that now reaches more than 60% of companies in developed countries.
Network equipment markets:An historical market trend dominated by strong technical drivers
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 1313
Network equipment markets:An historical market trend
0
5
10
15
20
25
30
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
CA
PE
X /
Sal
es (
%)
0
10
20
30
40
50
60
70
80
Nb
r o
f N
.O.s
tak
en i
nto
acc
ou
nt,
wo
rld
wid
e
average CAPEX / Sales (%) nbr of N.O.s taken into account
A >10% reversal in 2001-2002!
Source: IDATE
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 1414
In the mobile infrastructure field, the GPRS (Europe), CDMA2000 1X (North America, Korea, China) and UMTS markets decreased by 4%. On the 2G front, 2001 was marked not only by a reversal of the GSM trend in Europe but also by significant expansions in APAC and China.
In the WAN transmission market, 2001 was marked by a significant shrinking of the market (19%) mainly due to long-distance carriers’ financial difficulties,
In the access field, as a result of CLECs significant financial difficulties in the DSL, cable and WLL sectors, the investments in broadband infrastructures were reduced or completely frozen.
In the LAN market, growth remained steady given the economic slowdown observed in 2001.
Network equipment markets:An historical market trend and an historical downturn!
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 1515
Network equipment markets:A new network business model emerging
NE
P N
.O.
Vertical model: up to 1996
Horizontal model: 1996 -2001
EM
S
C.M
.
C.M
.
NE
P 1
NE
P 2
Incumb
.
Alterna
te
Collaborative network model:
2002 -2003
C.M
.
C.M
.
Fix N
EP
Mob N
EP
Fix. N
.O.
Mob. N
.O.
Engineering
Engineering
ISV
ISV
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 1616
0
20 000
40 000
60 000
80 000
100 000
120 000
2001 2002* 2003* 2004* 2005* 2006*
millions USD
North America Asia-Pacif ic Western Europe Rest of the w orld
Network equipment markets:Limited perspectives of recovery in the short-term
Source: IDATE
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 1717
Network equipment markets:What will be the evolution of CAPEX/sales ratio towards 2006?
0
5
10
15
20
25
30
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Ave
rag
e C
AP
EX
/ s
ales
(%
)
Average CAPEX / sales (%)
No objective signs of recovery before
2004!
So
urc
e:
IDA
TE
www.idate.orgNetwork Equipment and handsets market divisionNetwork Equipment and handsets market division 1818
What if we assume that the majority of network operators will delay their UMTS network rollout plans, following Telefonica, Orange and Sonera's recent announcements?
0
5
10
15
20
25
30
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Ave
rag
e C
AP
EX
/ s
ales
(%
)
Average CAPEX / sales (%) with UMTS delay Average CAPEX / sales (%) without UMTS delay
Network equipment markets:Impact of UMTS roll-out
Source: IDATE
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