Incumbents regroup as competition loses its bite

Mark Newman/Ovum

OvumAn Ovum analysis of Western Europe’s largest telecoms markets demonstrates that incumbent telecoms operators’ market shares have started to stabilize over the past two to three years as consumers have embraced triple- and quad-play services.

In many European countries, convergent offers (telephony, broadband, mobile, and in some cases TV) are accounting for more than 50% of new business. Incumbent operators, which in most cases are the largest providers of retail mobile and retail broadband services, have led the multiplay market.

But the popularity of quad-play services has been damaging for the pure-play mobile operators, which tend to be the smallest operators in their respective markets. Ovum’s analysis includes eight European markets which have – or had until recently – four mobile operators. It shows that these smaller mobile operators often have only 5–7% of the combined national mobile and broadband market. Even though most are still growing their share of the mobile market, they are excluded from the big-ticket bundled services and experience higher rates of churn than their competitors because of the relative ease with which consumers can switch mobile providers.

The Ovum analysis illustrates how the traditionally separate fixed and mobile markets are converging – or where market dynamics are in place to facilitate convergence. It draws attention to the relative stability and sustainability of countries such as Germany, Italy, and Spain where the leading three players all have market shares (combined fixed and mobile) in excess of 20%. All players in each of these countries have a strong presence both in mobile and fixed. The one exception is Germany, where the two smallest mobile operators came together in 2015 to create a mobile market leader. This contrasts with the likes of the UK, Sweden, and Austria where only the largest mobile operators have a strong presence in fixed broadband.

Incumbent operators had between 33% and 48% of the combined mobile and broadband markets at the end of 2015 in the 10 countries covered in the Ovum analysis. In many cases their market shares have declined since 2000, as a result first of competition from mobile operators and then from the entry of new players into the broadband market taking advantage of local loop unbundling. But they have started to stabilize in the past two to three years as mobile market growth has slowed, competition has shifted into the multiplay arena, and the number of operators has started to consolidate.

In the rapidly converging European mobile, fixed, broadband, and TV markets there are few options open to small mobile operators. Expansion into fixed broadband through the resale of incumbent operators’ wholesale propositions is one option, but building attractive pay-TV propositions – a growing requirement for retail broadband providers – is often beyond their financial means.

Mergers with and acquisitions by rival mobile operators have tended to be the preferred option. In recent years we have seen mobile operator consolidation in Austria, Germany, Ireland, and the Netherlands. A merger in Denmark was rejected by European regulators, while in the UK the acquisition of O2 by the smallest mobile operator, Three, is awaiting regulatory clearance. Talks between Orange and Bouygues Telecom broke down earlier this week.

Ovum’s analysis is based on operators’ share of mobile and fixed broadband connections and gives equal weighting to broadband and mobile subscriptions. Even though there are three mobile connections for every fixed connection in Western Europe, fixed-line ARPU is between two and four times higher because of the strong adoption of broadband and pay-TV services. The analysis does not take account of different ARPU levels between operators in a given country, and it likely overstates the market shares of smaller mobile operators, which tend to have lower ARPU levels than the incumbents. Furthermore, the analysis does not factor in the revenues that incumbent operators generate from local loop unbundling or the wholesaling of broadband services.

Ovum Knowledge Center subscribers can read more here. Not an Ovum customer but would like to find out more, contact us.

Mark Newman is chief research officer of Ovum's telecoms research business. For more information, visit www.ovum.com/ 

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