TeleGeography Globalcomms: Review of 2009 - Telecomms During Global Recession


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TeleGeography Globalcomms: Review of 2009 - Telecomms During Global Recession

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TeleGeography Globalcomms: Review of 2009 - Telecomms During Global Recession

  1. 1. GLOBALCOMMS INSIGHT DECEMBER 2009 Review of 2009: Telecoms During a Global Recession Executive Summary 2009 may have seen most of the world in the depths of a recession, but in some ways the global telecom market seemed to shrug it off. During the twelve months ending September, wireless and fixed broadband subscribers grew by 15-16%, which was only 1% off the longer-term subscriber growth trend. TeleGeography thoroughly reviewed its five-year subscriber forecasts, and despite the 1% reduction in 2009 growth rate it saw no reason to make any radical changes to its global 2013 forecast numbers. The main engines for subscriber growth remain India, China and a handful of other rapidly emerging markets. Service provider revenues tell a different story. During the same twelve-month period service providers saw their aggregated telecom service revenues grow by just 1.5% in real terms (which equates to a decline if translated into USD due to moves in exchange rates). This is a substantially lower growth rate than originally forecast, and TeleGeography estimates that the impact of the recession was to reduce the annual growth rate for 2009 by around 2.5% – equating to some USD40 billion in lost revenue opportunity during the year. The impact of this drop-off in growth rate was by no means a global phenomenon, and most of the pain was felt in Western Europe, with North America and Eastern Europe being impacted to a lesser extent. Other regions were mostly unscathed; the biggest story there was revenue shortfall due to overly aggressive price-based competition for low-revenue subscribers in India and some other large emerging markets. 1
  2. 2. GLOBALCOMMS INSIGHT DECEMBER 2009 FIGURE 1 Impact of Recession on 2009 Telecoms Services Market Growth Rate Source: TeleGeography research © 2009 PriMetrica, Inc. Many of the more important market trends seen in 2009 were reflected by merger and acquisition activities through the year. Consolidation of service providers – this was evident in some countries where competition has become over-heated or where fragmentation has resulted in unsustainable companies (examples were the United States, the United Kingdom, Germany and South Korea). It was also seen in developing markets where more powerful local champions were being built (examples were Russia, China and Brazil). High growth and market liberalisation in emerging regions – leading to large multi-national companies striving to expand their international operations. This could be seen in multiple countries around Africa, Latin America and the Middle East. Large service providers in developing countries expanding internationally – this was not exactly a ‘charge’ but it is clear that some of the new powerhouse companies are looking to flex their muscles more on the global stage. Companies like China Mobile and Bharti Airtel are becoming more active beyond their traditional national boundaries. Increased focus on profitability – in a variety of ways service providers were tempering their dash for growth with a drive towards more profitable revenues. This could be seen in infrastructure sharing agreements, merger activity, a more conservative stance towards acquisitions, and a changing emphasis of some marketing activities. The shift in emphasis was inevitable, but a combination of the recession and plummeting ARPUs in some countries sharpened the need or accelerated the shift. Explosion in wireless applications – 2009 saw more iPhones, more smartphones generally, more wireless applications, strong growth of 3G, launch of the first LTE networks and continued growth of WiMAX. Wireless data traffic levels are going through the roof and yet it’s still early days for this tectonic shift in the market. 2
  3. 3. GLOBALCOMMS INSIGHT DECEMBER 2009 What will 2010 bring and will the market recover the ground lost due to the recession? The short answers are ‘more of the same’ and ‘no’. Subscriber growth rates will continue to tail off somewhat as more and more markets reach maturity, but the subscriber growth will be sufficient to ensure that the telecom services market will continue to experience at least some growth. That growth will also be bolstered by wireless/broadband activities helping telecom to win a larger share of consumer spending. However, future revenue growth will be lower than previously forecast, and that will be a catalyst for continued consolidation of service providers. Subscriber Growth Despite the recession, in the twelve months to September 2009 global broadband subscribers grew by 15% and global wireless subscribers grew by 16%. That’s 60 million new broadband and almost 600 million new wireless subscribers. The subscriber growth percentages were within a percentage point of TeleGeography’s long term historic and forecast growth trends. What is more, last month TeleGeography did a total refresh and update of its subscriber forecasts, and the forecast subscriber count for the end of 2013 barely moved. At a global level the wireless forecast essentially stayed the same and the broadband subscriber forecasts actually nudged upwards a little. Recession; what recession? Of course, the current picture owes a lot to China and India. Together the two countries alone accounted for over 40% of the wireless growth and over 30% of the broadband growth. Indeed, collectively the Asia & Pacific region accounted for no less than 58% of net new subscribers during that twelve-month period, and regional subscriber additions were pretty much in line with pre-recession expectations. FIGURE 2 Wireless and Broadband Subscriber Growth by Region, Q3 2008 – Q3 2009 Wireless Broadband Subscribers Q3 Annual Subscribers Q3 Annual Region 2009 (m) Growth 2009 (m) Growth Africa 426 25% 4 33% Asia & Pacific 2,025 21% 182 18% Eastern Europe 434 9% 29 23% Latin America 491 13% 33 24% Middle East 247 16% 13 17% U.S. & Canada 295 5% 96 11% Western Europe 513 3% 109 8% Grand Total 4,431 16% 465 15% Source: TeleGeography research © 2009 PriMetrica, Inc. In terms of annual growth rates, Western Europe was the region with the lowest incremental increases – 8% growth in broadband subscribers and just 3% growth in wireless. North 3
  4. 4. GLOBALCOMMS INSIGHT DECEMBER 2009 America didn’t do too much better. It’s tempting to say that those two regions were the hardest hit by the recession, which in turn resulted in the lowest growth rates, but it is much more accurate to say those two regions are closest to saturation and are reaching market ceilings before other regions. Clearly, however, the recession has had an impact. Had it not been for the recession, Western Europe could have expected an extra percentage point or two in its annual growth rates. North American subscriber growth turned out to be pretty much in line with TeleGeography expectations, though again the economy had some impact. Had it not been for the economic downturn then North America too might have expected another percentage point or two on top of the achieved growth rate (and thereby surpassed TeleGeography’s forecast). Of the other regions, subscriber growth in Africa, the Middle East and Latin America showed little evidence of any recessionary impact; while in Eastern Europe growth was held back only moderately. In summary, TeleGeography estimates that global subscriber growth rates were reduced by around 1% as a result of the recession. Service Provider Revenues While subscriber numbers have continued to grow at a healthy pace, service provider revenues are a different story. In the four quarters that ended in September 2009, the world’s top 30 service providers (by revenue) generated total revenues of USD1,160 billion, compared with USD1,192 billion in the previous four quarters – an apparent decline of almost 3%. This is, however, misleading. During that 24-month period there were wild swings in exchange rates, with key currencies weakening and strengthening against the USD at different times and by different amounts. That situation can be partially untangled by converting revenues back into the reporting currencies of the individual companies, which then shows that annual revenues from the top 30 service providers actually grew by some 3.3%. This is still an imperfect measure, especially for those companies with substantial revenues across multiple countries, but it is far more reflective of the real growth achieved by those companies. What does this say about growth in the total telecoms services market? The top 30 companies account for over two thirds of the total global market, so trends among this group of companies are certainly a good indicator of the total market. (TeleGeography will be updating its detailed bottoms-up analysis of 2009 revenues after final results for the fourth quarter are announced and analysed). However, one major factor does need to be netted off against the 3.3% revenue growth, and that is the impact of acquisitions. Looking back over the last two years, TeleGeography estimates that without the positive revenue boost from acquired companies, annual growth among the top 30 would have been halved, to around 1.5%. While not scientific, that is a very decent indicator of real market growth rate in 2009. 4
  5. 5. GLOBALCOMMS INSIGHT DECEMBER 2009 FIGURE 3 Revenue Growth at the Top 30 Service Providers, Twelve Months Ending 09/30/2009 USD Local Currency Annual Annual Annual Company Revenue (b) Currency Revenue (b) Growth AT&T Inc 123.2 USD 123.2 -0.1% NTT 107.6 JPY 10,249.9 -3.8% Verizon Communications 105.4 USD 105.4 9.1% Deutsche Telekom 87.2 EUR 64.5 5.1% Telefónica 76.4 EUR 56.5 -1.8% France Télécom 70.0 EUR 51.8 -3.0% China Mobile Communications 66.6 RMB 456.1 9.3% Vodafone Group 66.2 GBP 42.9 11.7% Telecom Italia 38.8 EUR 28.7 -5.5% KDDI 36.5 JPY 3,473.3 -3.8% BT Group 32.9 GBP 21.3 1.0% Sprint 32.8 USD 32.8 -11.4% China Telecom 29.8 RMB 204.1 11.3% Softbank Corp 28.3 JPY 2,693.3 -1.7% America Movil 28.3 MXN 382.0 13.8% China Unicom 22.3 RMB 152.5 73.9% Vivendi 20.3 EUR 15.0 12.5% KPN 18.5 EUR 13.7 -4.7% Telstra 18.5 AUD 25.5 2.4% Carso Global Telecom/Telmex 15.3 MXN 206.2 4.1% Telenor 15.2 NOK 100.0 5.7% BCE 14.9 CAD 17.6 -0.8% Weather Investments 14.5 USD 14.5 -3.1% KT Corp 14.4 KRW 19,158.2 -0.0% TeliaSonera 14.0 SEK 109.8 9.4% Saudi Telecom Company 13.3 SAR 50.0 11.8% MTN Group 13.1 ZAR 118.7 28.5% Oi/Telemar Norte Leste 12.7 BRL 27.2 47.6% Qwest Communications 12.6 USD 12.6 -7.1% SingTel 10.3 SGD 15.2 -0.2% Grand Total 1,159.9 3.3% Source: TeleGeography research © 2009 PriMetrica, Inc. How has the recession impacted that figure? It is certainly lower than forecast by TeleGeography a year ago, and recession is one of the two main causes. The other main factor is an even more aggressive level of price competition than predicted in rapidly developing markets, dragging down ARPU below previously forecast levels. India provides a 5
  6. 6. GLOBALCOMMS INSIGHT DECEMBER 2009 prime example. While the three leading wireless operators in India grew their subscriber base by an average of 51% over the twelve-month period, they saw monthly ARPU decline by 30%. In addition to the 1% reduction in subscriber growth rates, TeleGeography estimates that the recession has lowered the global growth rate in market value by a further 1.5%, with the prime impact being felt in Western Europe, and to a lesser extent North America. That 2.5% drop-off in growth equates to some USD40 billion in lost revenue opportunity. There is one footnote to add on revenues. With global subscriber counts growing by around 15% and real revenue growth of just 1.5%, does that mean that ARPUs tumbled by something like 13%? The answer is both ’yes’ and ‘no’. At the global level they did, but the dramatic fall was driven by a changing mix of regional subscribers within the global total, with high-growth but low-ARPU countries accounting for an ever larger portion of the world market. In most well developed markets, ARPUs are changing only marginally from one year to the next, and the direction is sometimes up rather than down. Highlights of the Year Telecom Market Numbers and Some Milestones Passed • There were four billion wireless subscribers globally at the start of January 2009; the four and a half billion mark was passed in November • By the end of October over 500 million of those were 3G subscribers • By the end of September there were 450 million broadband subscribers globally • In October China surpassed 700 million wireless subscribers and 100 million broadband subscribers • Within the first eight months of the year, India had already added another 100 million wireless subscribers • Africa saw wireless subscriber growth of 25% in the year with broadband subscribers growing by 33%, though it still lags way behind all other regions in telecoms penetration rates • In November wireless subscribers in Latin America passed the 500 million mark; at some time around the end of December North America will pass the 300 million mark • The top 20 countries by wireless subscribers now includes Pakistan, Vietnam and Nigeria • AT&T held its position as the world’s largest service provider (by revenue), though Verizon leapfrogged NTT into second place and continues to close the gap on AT&T • For the last seven years China Mobile has been able to claim it has more wireless subscribers than any other service provider; this year it passed Vodafone and can now also claim the largest wireless revenues of any service provider • Among the top 30 service providers, eight can claim annual revenue growth in excess of 10%; excluding the revenue impact of M&A activity, the leading organic growth performers were MTN and America Movil • Among the top 30, Sprint experienced the largest annual revenue decline, at over 11% • In June, both Western and Eastern Europe achieved average wireless subscriber penetration rates of 125% • By the end of 2009 several countries will have achieved broadband household penetration rates of 90%; while most are small countries, the list will include South Korea • The jury will remain out until all fourth quarter results are announced, detailed roll-up analysis is carried out and the full impact of exchange rate movements are taken into account – but 2009 could well be the year that Asia Pacific overtakes Western Europe to 6
  7. 7. GLOBALCOMMS INSIGHT DECEMBER 2009 become the region with the highest level of telecoms service revenues; it already has 3.5 times as many subscribers Mergers & Acquisitions • Verizon acquired Alltel; CenturyTel acquired Embarq – expect more consolidation in the US in 2010 • Deutsche Telekom (DT) increased its stake in OTE; Telefonica to acquire Hansenet; Sunrise to merge with France Telecom (FT) – the big guns in Europe are clearly split into investors (Telefonica, DT, FT) and those who are re-trenching into ever smaller footprints (BT, Telecom Italia) • Oi completed its acquisition of Brasil Telecom – Brazil remains one of the more interesting markets in the world due to its scale and potential for future growth. While the local companies are bulking up, multi-national operators continue to jostle for position (particularly the ongoing GVT/Telefonica/Vivendi saga) • Liberty Global to acquire Unitymedia (Germany) – cablecos are well positioned to continue taking share away from telcos, and Liberty Global remains the one true multi-national cableco • Comings and goings in Africa – FT is seeking to increase its stake in MobilNil of Egypt and has already raised its holding in Senagalese telco Sonatel; Vivendi tried unsuccessfully to increase its presence on the continent; Zain continues to mull the sale of its valuable African operations; and through much of the year India’s Bharti was in extended merger talks with South African powerhouse MTN. Despite the dire political and economic issues of the region, Africa remains a long-term high-growth market and will continue to attract a lot of attention from growth-oriented multi-national operators • T-Mobile UK and Orange UK agree merger – a sign that some balance and business sanity may be making an entrance in markets that have become over crowded with large competitors. Too much competition may be a boon for consumers but is unsustainable for the suppliers. While there remains a huge struggle to introduce more competition in many countries round the world, in some places it has gone too far. The pendulum will swing back in certain markets • A relatively quiet year for Vodafone on the M&A front – but it increased its stakes in Vodafone Essar of India and Vodacom of South Africa, and merged with Hutchison 3G in Australia. Vodafone’s relative lack of activity is one sign of an increasing industry focus on profitability rather than all-out growth • Consolidation and rationalization in South Korea – KTF was absorbed into KT Corp while LG Telecom agreed to absorb both LG Dacom and LG Powercom. This feels more like national and corporate housekeeping rather than a significant shift in market power, but the Korean power players are clearly looking to rationalise and to improve efficiencies and financial performance • The re-organization of China Inc. was largely completed and China Netcom went away – this was truly more of a throwback to the end of 2008, but it continues to bolster the three remaining national giants. More open competition be damned; don’t expect anyone else to penetrate the market in a significant way any time soon Significant Events and Trends What were some of the other more significant events or trends evident in 2009? • TeliaSonera launched the world’s first commercial LTE service – after all of the hype and hoopla over 4G, in mid-December TeliaSonera quietly (and ahead of plan) launched the world’s first commercially available LTE network, covering Stockholm (Sweden) and Oslo (Norway). This truly is more of an evolution than a revolution, but it is certainly a significant step towards a more mobile broadband world 7
  8. 8. GLOBALCOMMS INSIGHT DECEMBER 2009 • WiMAX gets a boost by Clearwire going commercial – after a limited initial launch in a single US market at the end of 2008, during 2009 services were launched in many more cities across the US. The end of 2009 will see coverage of 25 markets, a figure which is expected to grow to 80 by the end of 2010, at which point the network will cover some 40% of the US population. Global WiMAX market numbers have been a huge disappointment to date, and the 802.16e standard will lag far behind LTE (E- UTRA) as the 4G/mobile broadband technology of choice. It will, however, remain an interesting and substantial market niche • The confirmed death of UMB and the end of separate upgrade paths for GSM and CDMA operators – for the first time since the advent of wireless services almost all cellcos are working towards a single technology choice. The likely implications include further consolidation amongst equipment vendors, lower network rollout costs, increased network sharing among operators, and less diversity in operator service offerings and handset choices. It could also lead to more/larger multi-national operators, since different technologies between countries/operators will no longer be such an issue • iPhone mania goes global – and the war heats up between leading smartphone vendors. A tremendous array of applications emerges, driving wireless data usage to ever higher levels. One short term response will be restrictive usage plans from network operators, as their networks struggle to cope with the volume of traffic. But the genie is out of the bottle… • More opportunity in the Middle East as more markets introduce competition – the region has been one of the most conservative with regards to enabling and stimulating competition, but in 2009 there were signs of real change. There were significant announcements or events in Qatar, Palestine, Kuwait, Oman, Saudi Arabia, Jordan and Iran. This is noteworthy as TeleGeography forecasts that over the next five years the Middle East will be the region with the second highest growth rate (behind Africa) • There was a noticeable shift among some cellcos away from grabbing subscribers and towards profit margins – this was partly driven by market saturation and partly by the negative impact of overly aggressive price competition. More cellcos are re-orienting themselves and their marketing activities towards ensuring that they have good quality customers, and are not just seeking subscriber additions at any cost. Beyond changes in marketing activities, there is an increasing level of infrastructure sharing agreements (Telefonica and Vodafone being a good example) and merger and acquisition activity aimed at consolidation in over-competitive markets. These are good things. Scale will always be important but maturing markets demand different and smarter strategies • Chinese and Indian service providers go global – the staggering growth in the Chinese and Indian markets has produced local powerhouse companies, with China Mobile and Bharti Airtel leading the charge. Both are now flexing their muscles in other markets and are looking to build international businesses. China Mobile already has operations in Pakistan and Hong Kong, and during 2009 it announced plans to buy its way into Taiwan, expressed interest in buying some international assets from MTN, and indicated a desire to enter the Indian market. For its part Bharti already has a presence in Sri Lanka and has just agreed to buy a majority stake in Warid Telecom of Bangladesh. Bharti has been clear that it is on the look out for international acquisitions and it also spent much on 2009 locked in talks with MTN over a possible merger, though this eventually came to nothing. TeleGeography expects both China Mobile and Bharti will continue to generate a lot more speculation and press coverage than deals, but slowly they will expand their international footprint • More clarity in the Russian market – and it was long overdue; the market structure was Byzantine and conflict was rife. It seems that Telenor and the Alfa Group have ended their long-running legal battle over ownership and control of Vimpelcom and are now combining their common assets, one result of which will be a merger between Vimpelcom and Kyivstar of the Ukraine. Meanwhile it was announced that via a stake swap with Sistema, the Russian Government will be taking over all outstanding shares in 8
  9. 9. GLOBALCOMMS INSIGHT DECEMBER 2009 Svyazinvest, the holding company that controls the seven major regional telcos. Svyazinvest will also be combined with the long-distance operator Rostelecom, and there remains a strong possibility of an IPO of the combined company once the rationalisation has taken place. For its part Sistema now controls MTS, Comstar UTS and MGTS via majority stakes. The four clear leaders in the Russian market will be Vimpelcom, Sistema, Svyazinvest and MegaFon. While Russia will see lower growth rates than the other BRIC markets, it will remain one of the larger and more interesting market growth opportunities in the world Table of Contents • Executive Summary • Subscriber Growth • Service Provider Revenues • Highlights of the Year • Telecom Market Numbers and Some Milestones Passed • Mergers & Acquisitions • Significant Events and Trends • Table of Contents • List of Figures List of Figures • Figure 1. Impact of Recession on 2009 Telecoms Services Market Growth Rate • Figure 2. Wireless and Broadband Subscriber Growth by Region, Q3 2008 to Q3 2009 • Figure 3. Revenue Growth at the Top 30 Service Providers, Twelve Months Ending 09/ 30/2009 9
  10. 10. GLOBALCOMMS INSIGHT DECEMBER 2009 The content on the preceding pages is a section from TeleGeography’s GlobalComms Insight The work is based on sources believed to be reliable, but the publisher does not warrant the accuracy or completeness of any information for any purpose and is not responsible for any errors or omissions. This work is for the confidential use of subscribers. Neither the whole nor any part of this publication may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopied, recorded or otherwise, without prior written consent from PriMetrica, Inc. All rights reserved. © 2009 PriMetrica, Inc. TeleGeography Research. A Division of PriMetrica, Inc. Washington, D.C. / San Diego / Exeter U.S. tel: +1 202 741 0020 / U.K. tel: +44 1392 315567. 10