Survey on the “French Telecom Economics” 2012 edition
1. Survey on the “French Telecom Economics”
2012 edition
Fédération Française des Télécoms / Arthur D. Little
November, 2012
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. Telecoms, at the core of society and economy
Over 3/4 of French people €39 B invested in telecom networks
have a mobile phone and an internet access since 2006
Over 300,000 €204 B injected in the French economy
direct and indirect telecom jobs since 2006
based in France
Less than 3% of French households’ spending 8% decrease in telecom prices
dedicated to telecom services since 2006
vs. inflation of +10%
503
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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Telecoms, major driver of digital growth
Growth of the digital ecosystem since 2006: Share of telecoms in the French
digital ecosystem:
+49% worldwide
77% of jobs
vs. +7% in Europe
92% of investments
Share of telecoms in the global Investment of telecom operators
digital 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. 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. 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. 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. 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. 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. 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. 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. 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. Sharp drop in telecom operators’ performance
Market capitalisation of European telecom operators
since 2006
€15 B of revenue loss
-28% for French telecom operators due to decreases in
mobile termination rates and roaming charges
since 2006
Expected trend of French telcos’ revenues
until 2014 €1.2 B of industry-specific taxation
-9% paid by telcos each year in France
Expected trend of French telcos’ EBITDA Telcos’ mobile revenues
until 2014 that may be captured by internet players
-5 points 7.5%
23
50
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. 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. 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. 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. 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. 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. 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. 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. 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. 3 French telcos facing strong pressures
Taxation: unlike telecom operators, global internet players choose to benefit from tax loopholes
in 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. 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. 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
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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. An ambitious and consistent
industrial policy for telecoms is required
in France and in Europe
37
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
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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
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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
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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
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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