Survey on the “French Telecom Economics” 2012 edition

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Survey on the “French Telecom Economics” 2012 edition

  1. 1. Survey on the “French Telecom Economics” 2012 editionFédération Française des Télécoms / Arthur D. LittleNovember, 2012
  2. 2. Survey on the “French Telecom Economics” (period 2006-2011)1 The telecom industry is at the core of society and economy.2 Telecoms are a major driver in the development of the digital economy.3 In France, telecom operators’ performance is declining under strong regulatory, fiscal and competitive pressures.4 An ambitious and consistent industrial policy for telecoms is required at both French and European levels. 2
  3. 3. Telecoms, at the core of society and economyOver 3/4 of French people €39 B invested in telecom networkshave a mobile phone and an internet access since 2006Over 300,000 €204 B injected in the French economydirect and indirect telecom jobs since 2006based in FranceLess than 3% of French households’ spending 8% decrease in telecom pricesdedicated to telecom services since 2006 vs. inflation of +10% 503
  4. 4. 1 At the core of society and economy Telecom services are now almost universal in French society: more than 85% of the population equipped with a mobile and 76% having an internet access. Mobile equipment rate(1) Penetration rate of internet access(2) % of French population % of French households +11 points 85% +35 points 82% 83% 78% 74% 76% 74% 75% 69% 62% 55% 41% 2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011 Source: CREDOC, OECD, Arthur D. Little analysis (1) French people over 12 years with one mobile phone or more (2) Fixed and mobile 4
  5. 5. 1 At the core of society and economy Telecoms are a priority for the French population, French investors and French public representatives. 1 - Main saving items 2 - Mains levers to improve attractivity 3- Priority equipment for rural towns according to households of French cities for foreign investors If needed, on which item would you cut What are the key levers that French % mayors questioned your spending in priority? cities should use to increase their competitiveness in Europe? Leisure 47% First-class transport and telecom infrastructures Fixed broadband 78% 37% Clothing 21% Internationally renowned universities Schools 52% 37% Home equipement 14% Innovative business areas Roads 45% 30% Food 7% Excellent quality of life 22% 3G telephony 42% Transport 2% Public equipment and urban development projects 13% Medical houses 34% International advertising campaigns Energy 2% 13% Quality health equipment and services Theaters 23% Health & insurance 2% 11% Major sports and cultural events Sports equipments 19% Telecoms 1% 8% None None 4% Post offices 16% 1% Source: fig. 1: CSA polling institute, fig. 2: Barometer of France’s attractiveness, fig. 3: Survey by the Association of French rural mayors, Arthur D. Little analysis 5
  6. 6. 1 At the core of society and economy Telecom usage keeps on growing at a very rapid pace: +11% in mobile voice minutes, +69% in data traffic and +10 billion text messages in France over last year. Fixed telephony Mobile telephony Number of SMS Mobile data traffic volumes in France volumes in France in France in France B minutes B minutes B SMS B Mo +7% +13% +870% x127 113.5 106.1 146.0 58.6 105.7 94.0 +10 billion of SMS +69% +29% +11% -1% 23.0 45.7 28.1 26.8 29.7 27.7 35.5 13.7 15.1 0.5 2006 2011 2Q11 2Q12 2006 2011 2Q11 2Q12 2006 2011 2Q11 2Q12 2006 2011 2Q11 2Q12 Source: ARCEP - French Telecom NRA, Arthur D. Little analysis 6
  7. 7. 1 At the core of society and economy Telecom services represent less than 3% of French households’ spending and have remained stable since 2006. French households’ spending breakdown(1) €B Relative growth Share in spending % % of spending in constant euros 1 017 +1.7 pts 100% 11.1% 4.4% (2) 2.7% Other 4.4% Telecom services (3) 3.0% (4) 4.2% Digital devices +0.1 pts 4.5% Alcohol & tobacco 2.7% 2.7% 6.0% (5) Health 6.8% 2.6% 2,1% Clothing 6.9% Furniture 1,9% 1,3% 13.3% Leisure & culture 1,1% Hotels & restaurants 0,5% 13.5% Food 0,2% Transport Housing, electricity & gas 2006 2011 Digital devices 23.6% Of which Radio & TV sets Computer Mobile devices 2011 Telecom services (1) Final household spending Source: National Institute of Statistics and Economic Studies (INSEE), (2) Including postal services and education Arthur D. Little analysis (3) Excluding telephony devices (4) Including telephony, fax, TV & radio, computer and photography devices (5) Excluding social security 7
  8. 8. 1 At the core of society and economy The prices of telecom services are decreasing, contrary to other major French households’ spending. Price index of major services for French households On a basis of 100 in 2006 140 + 36% 136 Gas Rail + 17% 117 Electricity + 16% 116 115 114 Mail + 14% 112 110 Tolls + 12% 110 107 Inflation + 10% 105 Financial + 7% services 100 95 92 Fixed and mobile -8% 90 telecom services 2006 2007 2008 2009 2010 2011 2012(1) Source: National Institute of Statistics and Economic Studies (INSEE), (1) 1H2012 average, except for tolls (increased as of Feb. 1st, 2012) Ministry of Transportation, Arthur D. Little analysis 8
  9. 9. 1 At the core of society and economy Telecom operators are the main private investors in infrastructure in France with €39 B invested in telecom networks over the last 6 years. Telcos’ investment in France between 2006 and 2011 Investment in infrastructures in France €B Yearly average over 6 years, for the period 2006- Excl. mobile Total 2006-2011: spectrum 2011, € B(1) €39.4 B 6.6 7.0 6.8 7.0 6.5 6.2 5.9 2.4 2.4 Mobile 3.2 €15 B 2.4 2.4 2.2 3.3(2) 3.2 1.8 4.4 4.6 Fixed 3.8 3.8 4.1 3.7 €24.4 B Telecoms Electricity Rail Highways networks Telecoms, 1st private investor 2006 2007 2008 2009 2010 2011 in infrastructures in France Source : ARCEP – French Telecom NRA, Association des (1) Telecoms: France Télécom, SFR, Bouygues Telecom, Iliad; Electricity: RTE et ERDF; Sociétés Françaises d’Autoroutes (ASFA), RFF, RTE, ERDF, Réseau Ferré de France: special status; Highways: ASFA (Sanef, SAPN, ASF, APRR….) Arthur D. Little analysis (2) Average on 5 years (2006-2011) 9
  10. 10. 1 At the core of society and economy The telecom industry supports employment with 128,000 direct jobs based in France. Direct jobs from telecom operators in France Jobs in the IT digital ecosystem in France Thousands of jobs based in France Thousands of jobs based in France(1) 2006 2011 133 133.0 128.0 130 128 126 126 124 18.3 22.3 11.6 14.0 0.7 1.9 1.8 3.1 2006 2007 2008 2009 2010 2011 5 telecom 5 equipment 5 device 5 content 5 internet operators(2) vendors(3) manuf.(4) providers(5) players (OTT) (6) Estimate: indirect jobs equal to direct jobs in the telecom industry Source: Diane, ARCEP – French Telecom NRA, Arthur D. Little analysis (1) 2010 data in case 2011 data are not available (4) By top revenues in France: Samsung, Apple, Nokia, LG et RIM (2) By top revenues in France: France Telecom, SFR, Bouygues Telecom, Iliad, Numericable (5) By top revenues in France: France Télévisions, Canal +, TF1, M6, Radio France (3) By top revenues in France: Alcatel-Lucent, Nokia Siemens Networks, Cisco, Ericsson, Huawei (6) Google, Facebook, Yahoo, Microsoft et Amazon 10
  11. 11. 1 At the core of society and economy Telecom operators paid €19 B in income taxes, licenses and industry-specific taxes between 2006 and 2011. Income tax paid by Industry-specific taxes Amounts spent French telecom operators paid by operators(2) to purchase spectrum Aggregate 2006-2011, in €B €B €B 2006-2011 total 2006-2011 total 2006-2011 total €14 B €3.6 B(3) €1.5 B 14.1 1.191 1.210 170 191 239 235 2.600 543 264 253 92 230 266 212 0.944 200 0 33 518 531 0.582 0 200 230 233 239 (1) 2006 2007 2008 2009 2010 2011 3G 4G 4G Management levies 2010 (2.6 Ghz) (800 Mhz) Other(4) (frequencies) 2011 2012 Telecom tax IFER (Flat-rate tax on network industries) (1) Fiscal group France Source: ARCEP – French Telecom NRA, FFTélécoms, annual reports, Les Echos, (2) Fiscal group France Orange, SFR and Bouygues Télécom Arthur D. Little analysis (3) Assumption: IFER set up in 2010 and telecom tax in 2009 (4) TST / COSIP / copyright levy, VoD 11
  12. 12. 1 At the core of society and economy In total, telecom operators injected €204 B in the French economy between 2006 and 2011. Between 2006 and 2011… French State Telecom operators paid €23B to the State in taxes (excl. VAT), licenses and dividends. Direct and indirect Networks jobs 11% Telecom operators paid €76B Telecom operators invested in salaries and benefits for 37% 19% €39B in the roll-out, upgrade direct and indirect jobs.(1) and maintenance of their telecom networks. 10% Other suppliers / outsourcing 23% Private shareholders Telecom operators spent €46B Telecom operators paid €20B to in other types of expenditures their private shareholders. (marketing, distribution,...). Source: companies, Arthur D. Little analysis (1) Salaries and social charges 12
  13. 13. Survey on the “French Telecom Economics” (period 2006-2011)1 The telecom industry is at the core of society and economy.2 Telecoms are a major driver in the development of the digital economy.3 In France, telecom operators’ performance is declining under strong regulatory, fiscal and competitive pressures.4 An ambitious and consistent industrial policy for telecoms is required at both French and European levels. 13
  14. 14. Telecoms, major driver of digital growthGrowth of the digital ecosystem since 2006: Share of telecoms in the French digital ecosystem:+49% worldwide 77% of jobsvs. +7% in Europe 92% of investmentsShare of telecoms in the global Investment of telecom operatorsdigital ecosystem: in very high speed broadband in France:70% of investments over 1 point a potential of of additionnal GDP benefiting the French economy 14 50
  15. 15. 2 Major driver of digital growth Globally, the digital sector is sharply growing across all segments. Revenue evolution of the digital ecosystem by sub-sector(1) $B Growth Examples of +49% 2006-2011 companies 3,332 3,066 157 +152% 2,817 2,819 121 305 +10% 2,619 87 97 301 78 320 299 Internet players 2,243 302 62 1,286 +68% Content providers 279 1,175 987 1,007 889 Device manufacturers 765 179 +19% 181 166 173 177 Equipment vendors 150 1,242 1,251 1,297 1,405 1,173 Network operators 987 +42% 2006 2007 2008 2009 2010 2011 Source: Thomson Reuters, Arthur D. Little analysis (1) Top 30 per category by 2011 revenues 15
  16. 16. 2 Major driver of digital growth In Europe, revenues of the digital ecosystem are stalling - contrary to North America and Asia. Revenue evolution of the digital ecosystem by region(1)(2) $B Growth 2006-2011 3,333 3,067 27 +58% Oceania 2,817 2,820 21 2,619 24 21 20 1,446 +73% Asia 2,243 1,312 Oceania 17 1,117 1,165 968 Asia 837 70 +118% South America 37 66 42 45 South America 32 893 954 1,025 1,155 +51% North America 937 North America 762 Europe 594 696 686 652 643 635 +7% Europe but -9% since 2007 2006 2007 2008 2009 2010 2011 Source: Thomson Reuters, Arthur D. Little analysis (1) Top 30 per category by 2011 revenues (2) Nationality according to HQ location 16
  17. 17. 2 Major driver of digital growth Globally, telecom operators generate the vast majority of investments, whereas device manufacturers and internet players capture more and more value. Investment share by sub-sector(1) Free cash flows by sub-sector(1) % of total investment of the ecosystem % of total free cash flows of the ecosystem +0 pt -9 pts 70% 70% 57% 48% +16 pts -1 pt -7 pts 26% +7 pts 21% 20% -1 pt +1 pt -3 pts 17% +0 pt 13% 12% 7% 10% 6% 5% 4% 5% 2% 2% 2% 3% Network Device Equipment Content Internet Network Device Equipment Content Internet operators manuf. vendors providers players operators manuf. vendors providers players 2006 2011 2006 2011 Source: Thomson Reuters, Arthur D. Little analysis (1) Top 30 per category by 2011 revenues 17
  18. 18. 2 Major driver of digital growth Globally, market capitalisation reflects the value capture of players within the digital ecosystem. Market capitalisation by sub-sector(1) Basis of 100 in 2006 220 202 200 Internet players +102% 180 159 160 Device manuf. +59% 140 120 114 Total +14% 99 100 Network operators -1% 81 80 Content providers -19% 56 60 Equipment vendors -44% 40 2006 2007 2008 2009 2010 2011 2012(2) Source: Thomson Reuters, Arthur D. Little analysis (1) Top 30 per category by 2011 revenues (2) As of Sept. 28th, 2012 18
  19. 19. 2 Major driver of digital growth In France, telecom operators are the main contributors in terms of revenue, employment, taxes and investments - by far. Revenues, jobs, taxes and investments of 5 players by sub-sector – in 2011 and in France Revenues(1): Direct jobs: Taxes and licenses(2): Investments(3): €68 B 167,000 €7.1 B €7.6 B 2% 1% 4% 8% 10% 1% 13% 1%2% 1%1% 14% 1% 7% 11% 64% 3% 77% 88% 92% 5 network operators 5 equipment vendors 5 device manufacturers 5 content players 5 internet players (OTT) Source: ARCEP – French Telecom NRA, Diane, Reuters, annual reports, Arthur D. Little analysis (1) Revenue reported for France or disclosed in the press, some adjusted data to estimate actual revenue generated on French market (2) Income tax, other taxes excl. VAT, licenses and industry-specific taxation 19 3) Excl. licenses, if data for France unavailable then estimated with prorata of jobs in France
  20. 20. 2 Major driver of digital growth Nationally as well as globally, telecom operators are key players in the development of potential « sectors of tomorrow » in the growing digital ecosystem. Selected examples Cloud computing Contactless payment E-health Support to start-ups Strategic partnerships Support to start-ups in communication services e.g.: Association Française du Public funding: €75M Sans Contact Mobile (AFSCM) initiated by Orange, SFR et Bouygues Telecom – Over 1 million Cityzi mobile handsets Illustrative services: distributed in France by – Medical imaging through Investment fund in start-ups 1H12 cloud such as: Public funding: €75M – Objective of 2.5 million by – Partnership for end of 2012 management of chronic diseases, mobile assistance … Technocom 2 Strategic partnership Creation of electronic wallet solution Orange’s 2020 objective for Investment fund in start-ups access to digital health with focus on digital applications(1): developments in networks, – 1/3 of EU hospitals energy, smart home and health – 20% of EU citizens Source: companies, Arthur D. Little analysis 1) Orange’s “10 commitments” contributing to implement EU’s Digital Agenda 20
  21. 21. 2 Major driver of digital growth Through their broadband investments, telecom operators can contribute to the economic recovery by generating over 1 point of additionnal GDP growth in France. Impact of investment in mobile and fixed broadband in France directly or through the digital ecosystem and improvement of competitiveness of companies ~€20 to €30B ~€6.2B investment in 4G investment in fiber (excluding licenses) in the coming 15 years in the coming 5 years Fixed broadband throughput X5 Investing ~€5B in 4G in equipped households would yield 0.37 point (from 20 Mbps to 100 Mbps) of additional GDP2) Doubling the broadband speed for an economy increases GDP by 0.3 point(1) +0.75 point +0.46 point extra GDP (1) extra GDP(1) Source: ARCEP, Tactis, IDATE, Capital Economics, Arthur D. Little analysis (1) According to Ericsson (« Socioeconomic effects of broadband speeds », September 2011) in a survey focused on OECD countries (2) According to Capital Economics (« Mobile Broadband and the UK Economy », 21 April 2012) addressing the UK market
  22. 22. Survey on the “French Telecom Economics” (period 2006-2011)1 The telecom industry is at the core of society and economy.2 Telecoms are a major driver in the development of the digital economy.3 In France, telecom operators’ performance is declining under strong regulatory, fiscal and competitive pressures.4 An ambitious and consistent industrial policy for telecoms is required at both French and European levels. 22
  23. 23. Sharp drop in telecom operators’ performanceMarket capitalisation of European telecom operatorssince 2006 €15 B of revenue loss-28% for French telecom operators due to decreases in mobile termination rates and roaming charges since 2006Expected trend of French telcos’ revenuesuntil 2014 €1.2 B of industry-specific taxation-9% paid by telcos each year in FranceExpected trend of French telcos’ EBITDA Telcos’ mobile revenuesuntil 2014 that may be captured by internet players-5 points 7.5% 23 50
  24. 24. 3 French telcos facing strong pressures Contrary to other regions in the world, the European telecom industry has hardly grown in 5 years, which implied a sharp drop in its value. Revenues of network operators by region(1) Market cap of network operators by region(1) Basis of 100 in 2006 Basis of 100 in 2006 172 +72% Asia 156 +56% North America +18% Asia 118 142 Dow Jones +17% World +42% 117 Industrial 100 107 +7% North America 99 World -1% 72 Europe -28% Europe +8% 100 108 2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011 2012(2) Telco’s revenue growth is 7 to 9 times lower European telcos’ value has shrunk by 28% in Europe than in Asia and North America between 2006 and 2012(2) Source: Thomson Reuters, World Bank, (1) In top 30 global operators, nationality according to HQ location Arthur D. Little analysis Revenue growth of Australian and South American network operators is respectively 13% and 26% (2) Value as of Sept. 28th, 2012 24
  25. 25. 3 French telcos facing strong pressures The decrease in revenues is stronger in France than in other European countries and in other parts of the world. Mobile revenue growth Fixed revenue growth(2) 4Q11 vs. 4Q10 2011 vs. 2010 Revenue growth in % Revenue growth in % 11.3% 5.0% 4.6% 0.2% -4.0% -2.2% -2.7% -5.3% US Canada UK France North Asia Pacific Europe France(1) America Source: Bank of America Merrill Lynch, ARCEP, Arthur D. Little analysis (1) Retail market revenues (source: ARCEP – French telecom NRA) (2) 3 main wireline operators (USA: AT&T, Verizon, Sprint; Canada: BCE, Telus, Shaw Communications; UK: BT, Virgin Media, TalkTalk; France: Orange France, SFR, Iliad) 25
  26. 26. 3 French telcos facing strong pressures In France, telecom operators’ revenues and margins are expected to sharply decrease until 2014. Aggregated revenues Aggregated EBITDA margin of main telcos(1) in France of main telcos(1) in France €B % revenues +4% -2% 40% -9% 45 -9% 37.5% 43.4 43.6 -14% 42.6 35.1% 41.9 34.3% 34.0% 41.0 39.5 40 Revenues 38.8 EBITDA 30.9% as of 29.8% 29.2% 30% as of 1H12: 1H12: €20.7 B 32.9% 35 Analyst consensus Analyst consensus 30 20% 2008 2009 2010 2011 2012e 2013e 2014e 2008 2009 2010 2011 2012e 2013e 2014e Source: Citigroup, HSBC, Exane, Natixis, Credit Suisse, JP Morgan, Deutsche Bank, (1) Orange France, SFR, Bouygues Telecom, Iliad Arthur D. Little analysis 26
  27. 27. 3 French telcos facing strong pressures Margin decline will negatively impact investment capacity as illustrated by the case of the UK market. Case of UK – Mobile and fixed(1) EBITDA / Revenue (%) Investment / Revenue (%) Basis of 100 in 2006 Basis of 100 in 2006 -6.3% -28.3% 100 100 94 72 2006 2011 2006 2011 Source: Bank of America Merrill Lynch, Arthur D. Little analysis (1) Mobile: Vodafone, O2, Orange / T-Mobile, Three; Fixed: BT only 27
  28. 28. 3 French telcos facing strong pressures Operational cash flows of French telcos are in the same range as those of other major French companies. (EBITDA – CAPEX) / Revenue CAC 40, 2011 % 27% 23% 21% 20% 17% 18% 16% 17% 17% 14% 13% 12% 13% 12% 13% 10% 10% 9% 9% 9% 9% 8% 8% 7% 7% 6% 5% 5% 5% 4% 4% 3% 3% 3% 2% 1% -2% Bouygues Telecom STMicroelectronics Schneider Electric France Télécom Pernod Ricard Alcatel Lucent Saint Gobain Capgemini Air Liquide GDF Suez Bouygues Carrefour Vallourec Peugeot Legrand Michelin Technip Danone Renault Publicis Lafarge Vivendi L’Oréal Arcelor Alstom Essilor Safran Sanofi LVMH Veolia EADS Accor Total Vinci PPR SFR EDF Source: Thomson Reuters, operators, Arthur D. Little analysis 28
  29. 29. 3 French telcos facing strong pressures Market value is negatively impacted by declining performance, which may open the door to bids by foreign players. Compared value of selected US and European telcos(1) Enterprise Value(2) / EBITDA 2011 Share of revenue in NA 100% NA 53% 73% 100% 90% 69% 83% Europe 10.2 9.8 US telecom average America Movil bid in 2012 8.3 7.5 European telecom 5.8 average 4.5 4.4 4.9 4.0 4.0 3.5 At&T Iliad Verizon DT KPN FT Vivendi Bouygues Group Group Source: Reuters, KPN, Infinancials.com, Morgan Stanley, analyse Arthur D. Little (1) Bouygues Group and Vivendi Group used as proxies for Bouygues Telecom and SFR (2) As of Sept. 28th, 2012 29
  30. 30. 3 French telcos facing strong pressures The French telcos’ drop in performance can be explained by the deterioration of the regulatory and fiscal context as well as through a tougher competition. Regulation Taxation Competition National regulation National over-taxation Growth of low-cost model Regulatory pressure (loi Chatel, Taxing telecom operators to Model based on lighter decision on VAS…) benefit sectors in turmoil customer management with France Gradual implementation of the instead of investing in telecom limited distribution footprint, no innovative infrastructure and handset subsidizing national regularoty framework for investments (LTE, fiber) services Lower prices impacting compared to policies followed by profitability, investments, jobs other countries (Japan, S. Korea, and quality of service USA…) European regulation Tax optimisation by other Competition of over-the-top Regulatory pressure aiming at players players (OTT) International tariff decrease (interconnection, Unfair taxation compared to voice & data roaming) Development of these players: global internet companies Integration of communication that use tax loopholes in Europe channels (telephony, SMS, e.g. VAT in Luxembourg and videocalling, video …) income tax in Ireland Customer relations partially captured through closed ecosystems (Apple, Google…) Source: Arthur D. Little analysis 30
  31. 31. 3 French telcos facing strong pressures Regulation: since 2006, decreases in termination rates and roaming tariffs have reduced telcos’ revenues in France by ~€15 B. Impact of decreases in MTR and roaming charges (1) on telecom operators’ revenues (2) in France €M Impact of MTR decrease -840 -1,283 Impact of roaming -274 charges decrease -2,348 -1,114 -2,950 -585 -1,867 -4,048 -635 -2,984 -814 -3,764 Strong -901 decrease in roaming tariffs -4,949 in 2012 2007 2008 2009 2010 2011 Total 2006-2011: ~€14.7 B Source: ARCEP, Arthur D. Little analys (1) Roaming-in and roaming-out (2) Gap analysis with same volumes vs. case where MTR and roaming charges would have remained flat since 2006 31
  32. 32. 3 French telcos facing strong pressures Taxation: telecom operators in France suffer from an industry-specific taxation of €1.2 B per year, i.e. much higher than the one in force in the 4 largest countries in Europe and in the USA. Main industry-specific taxes for telecoms(1) in 2011 Telecom industry-specific taxation €M % of 2010 revenues Financing… 1,211 End of advertising on 2.79% 235 “Telecom Tax” France Télévisions 150 TST / COSIP(3) Cinema (CNC) and TV 41 Copyright levy, VoD Cinema, right holders 1.95% 1.79% 253 Management charge State (frequencies) 127 Regions, cities IFER antennae 0.81% 405 IFER copper(2) Regions 0.12% 0.06% Taxes France Italy Spain US Germany UK Total: €1.2 B per year i.e 15% to 20% of annual investments Source: FFTélécoms, Reuters, Durieux report, (1) On the perimeter of FFTélécoms members Upnext Research, press (2) IFER: Flat-rate tax on network industries (3) TST: Tax on TV services, used for COSIP (Compte de Soutien à l’Industrie des Programmes Audiovisuels) 32
  33. 33. 3 French telcos facing strong pressuresTaxation: unlike telecom operators, global internet players choose to benefit from tax loopholesin Europe. Tax optimisation mechanisms used by some global internet companies Income tax paid in France 2011, % of revenues Examples Country of end Country Ireland consumption of taxation 5.78% Luxembourg VAT Income tax €300 M of VAT loss 0.16% for France on electronic Only €12 M of income tax services in 2008 paid by « GAFA »(1) (2) companies in France in 2011 Opérateurs GAFA €600 M expected in 2014 From 2019 onwards, VAT will be fully due in the country of end consumption. Source: Greenwich Consulting, French Digital Council, Marini Bill, Arthur D. Little analysis (1) Google, Apple, Facebook, Amazon (2) Fiscal group France 33
  34. 34. 3 French telcos facing strong pressures Competition: on mobile and fixed markets, French prices are the lowest, when compared to the 4 largest countries in Europe and compared to the USA. Price of a comparable mobile offer(1) Price of a comparable fixed offer(2) € per month, October 2012 € per month, October 2012 78 77 67 56 50 48 42 43 38 40 32 20 Source: operators, Arthur D. Little analysis (1) Unlimited voice (min. 500 minutes), unlimited SMS/MMS (min.1000 SMS,) Internet 1, 2 or 3 Go; SIM only, tethering when available, no contract when available, operators having a market share > 15%; (2) Unlimited fixed national calls (min. 3000 minutes), broadband with no fair usage for heavy users when available,TV; excluding cablecos 34
  35. 35. 3 French telcos facing strong pressures Competition: new type of competition by over-the-top players is becoming a reality, especially in France on TV and VoD services. SMS Voice Video calls Video Skype: 254 million /IM active users in the world, 20% of calls globally and 33% of international calls Whatsapp: 5% of instant messages in the world as of November 2011 Netflix: 33% of US peak time traffic in 2011 OTT services may capture up to 7.5% mobile revenues by inhabitant in Europe by 2015. Source: Exane BNP Paribas, Sandvine Intelligent Broadband Networks, press, Arthur D. Little analysis 35
  36. 36. Survey on the “French Telecom Economics” (period 2006-2011)1 The telecom industry is at the core of society and economy.2 Telecoms are a major driver in the development of the digital economy.3 In France, telecom operators’ performance is declining under strong regulatory, fiscal and competitive pressures.4 An ambitious and consistent industrial policy for telecoms is required at both French and European levels. 36
  37. 37. An ambitious and consistentindustrial policy for telecoms is required in France and in Europe 37
  38. 38. 4 Need for a new industrial policy for telecoms Re-building an industrial policy is paramount in order to foster investment and growth in the telecom industry. Very high speed broadband ? Broadband 4G Connected objects for all Digital Fiber growth First equipment areas Smartphones of individuals TV and homes Mobile Internet ADSL boxes internet Mobile telephony Which regulatory and fiscal framework Markets open for competition Consumerist approach (new licenses, to foster next generation networks? « Beauty contests » for licenses lower MTR & roaming charges) Tariff asymmetry License auctions Which industrial policy to develop very High MTR and roaming to finance network Network unbundling high speed broadband as well as investment Net neutrality Internat. internet players not regulated Internat. internet players not regulated new digital services? 1990 2000 2012 Source: Arthur D. Little analysis 38
  39. 39. 4 Need for a new industrial policy for telecoms So far, initiatives to support the digital economy have remained patchy and heterogeneous. Initiatives in France Initiatives in Europe Government Digital Plan Digital Agenda for Europe Very high speed broadband for all by 2022 Broadband target: >30 Mbps for all and > 100 Mbps for at least Development of digital services in education, health, administration 50% of households by 2020 Doubling public investment of Member States to €11 B in ICT “Paris Capital Numérique”, high-tech cluster gathering start-up R&D companies, universities and investors on the same location Digital inclusion (increase regular internet use to 75% by 2015) On Oct. 9th, 2012, the French government announced eGovernment: 50% of citizens using it by 2015 measures promoting employment & investment in telecoms Observatory of investment in mobile networks … Incentives to speed-up 4G roll-out EU infrastructure funds: “Connecting Europe Facility” Operators’ commitments for France-based jobs in call centers (European Commission proposal) Update of rules regarding handset subsidizing €50 B of which €9.2 B for telecoms Programme “Investments for the future”: digital part Europe 2020 project bond initiative Innovative digital services, usages and contents Pilot phase starting with €230 M for strategic infrastructure – Digitization of scientific, education and cultural contents investments – Cloud Computing (€150 M funding by the French State) Targeted sectors: telecoms, transport, energy Support to private investments in fiber Expected private investment: up to €4.6 B due to a x15-x20 Smart grid (innovative energy networks) multiplier effect Source: French government, EU, Arthur D. Little analysis 39
  40. 40. 4 Need for a new industrial policy for telecoms 3 priorities for France and Europe to invest and create jobs in the telecom sector: Ensure and support continued investment in the telecom infrastructures Priority #1 of tomorrow Create a level playing field for competition and negotiations Priority #2 between telecom operators and global internet players Support the creation of new digital growth areas around telecom Priority #3 operators at the benefit of the “sectors of tomorrow” Source: FFTélécoms 40
  41. 41. 4 Need for a new industrial policy for telecoms 3 priorities for France and Europe: detailed actions to be implemented 1. Continued investment 2. Level playing field through a fair tax and regulatory 3. New digital in networks treatment growth areas Regulatory framework End of regulatory asymmetry Incentives to develop conducive to a balance – Same regulatory context for telecom operators and OTT players to digital clusters around between profitability, ensure fair competition telcos and start-up investment and companies competition – EU support to invest in Fair taxation very high speed – At least, a tax relief for industry-specific taxation and new rules for First-move in the usage of broadband networks governance (Telecom Tax, TST, copyright levy,…), restrictions for new technologies by public taxes on new services (VoD and catch-up TV,…), no new taxes services (e.g. in NFC, eHealth – End of termination rate such as CNM, eBook,… and eEducation) asymmetry Fair taxation Continuation of Crédit Impôt – Same calculation base for OTT players and telcos regarding Recherche (tax relief based Tax incentives for industry-specific taxes on R&D expenditures) for investment digital businesses – Public stimulation of – Taxation of OTT players in proportion of their effective business demand through tax in France (IS, VAT, CVAE, accis project, …) incentives for very high Training programs for speed broadband technicians and engineers and connection communication campaigns to Fair remuneration for usage of infrastructure by all players bolster attractiveness of digital jobs Source: FFTélécoms 41
  42. 42. Survey on the “French Telecom Economics” - 2012 edition: key conclusions Telecoms are at the core of society and the economy. – Demand and usage are growing fast. – Telecom operators are the first private investors in infrastructure in France by far (€6.6 B per year) and have injected over €200 B in the French economy since 2006. Telecoms are a major driver in the development of the digital sector. – Globally, the digital ecosystem is growing sharply (+49% since 2006) but Europe is lagging (+7% since 2006). – Telecom operators generate the vast majority of investments. Meanwhile, device manufacturers and internet players capture more and more value. – In France, telcos are the main contributors in terms of revenue (64%), jobs (77%), taxes (88%) and investments (92%). Telecom operators’ performance is sharply declining under regulatory, fiscal and competitive pressures. – In France, revenues and margins have started to drop and the trend is expected to continue. – This drop in performance is due to a combination of heavier regulation and taxation as well as stronger competition. – On mobile and fixed markets, French prices are now the lowest, when compared to the other four largest countries in Europe and compared to the USA. To drive investment and growth in telecoms, it is paramount to re-build an ambitious and consistent industrial policy in France and in Europe. – Priority #1: Ensure and support continued investment in the telecom infrastructures of tomorrow – Priority #2: Create a level playing field for competition and negotiations between telecom operators and global internet players – Priority #3: Support the creation of new digital growth areas around telecom operators at the benefit of the “sectors of tomorrow” 42
  43. 43. Présentation ERDF 43 50

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