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Is Europe ready for a telecom rebound?

Is Europe ready for a telecom rebound?. Didier Pouillot Head of industrial department analysis , IDATE Jean-Charles Doineau Head of equipment division, IDATE. Service provider markets Network equipment markets. Telecom service markets: A rapid growth over recent years. Source: IDATE.

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Is Europe ready for a telecom rebound?

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  1. Is Europe ready for a telecom rebound? Didier Pouillot Head of industrial department analysis, IDATE Jean-Charles Doineau Head of equipment division, IDATE

  2. Service provider markets • Network equipment markets

  3. Telecom service markets:A rapid growth over recent years Source: IDATE • As a result of the explosion of mobile services (half of growth in telecom services in 2000 and 2001 derived from cellular services)… • … and sector developments in emerging countries (e.g. China)

  4. Telecom service markets:But slowdown in the short term Source: IDATE • Mobilesector has become mature in its traditional segment (voice) and is waiting for new growth drivers (mobile data applications)… • High speed revenues should represent only 6 to 8% of total telecom revenues in 2006 • Effect of political crises in some areas (Latin America)

  5. Telecom service operators:Strong revenue growth over recent years Source: IDATE • More than 10% of annual growthonaverage between 1998 and 2001 for the world market leaders (around 14% for the European top 6) • Mainly due to the development of mobile activities (more or less 30% of European telcos revenues in 2001) and international operations (up to 40% of consolidated revenues for Telefonica or France Telecom)

  6. Telecom service operators:But decline in profits Profit ratio (net earnings/revenues) Source: IDATE • EBIT suffered from lower margins, due to competition (decrease in tariffs, loss of market shares)… • … while net earnings reflected the huge sums telcos were obliged to carry owing to the depreciation in their financial assets …

  7. Telecom service operators:And a very high level of debt Source: IDATE • Most operators are today faced with the necessity of reducing debt, through: • The sale of non-core assets (and sometimes core assets !) • The reduction of capital expenditure • Negociations to find new sources of funding

  8. Telecom service markets:Looking for new revenues (1) Revenues generated by mobile data services, in Western Europe (2000–2007) Source: IDATE • Mobile data revenues could grow threefold between 2001 and 2007 and account for 30% of mobile revenues at the end of the period

  9. Telecom service markets:Looking for new revenues (2) Revenues generated by the broadband access market in Western Europe (2001–2007) Source: IDATE • Over a third of European households will have a broadband Internet connection by 2007

  10. Service provider markets • Network equipment markets

  11. Historical 16-17% average CAPEX/sales ratio Network equipment markets:An historical market trend Source: IDATE

  12. Network equipment markets:An historical market trend dominated by strong technical drivers • In the mobile infrastructure field, the development of 2G technologies has been progressive during the 90’s, and reached its peak in Europe during the period 1995 - 1999. • In the WAN transmission market, 1996-2000 experienced strong technological improvements (2,5 & 10 Gbps DWDM), as well as numerous new network developments (up to 42 at its peak in 1999) • In theaccess field, 1996-1999 was dominated by the end of the digitalisation process of the US networks, and by the beginning of studies on DSL deployment afterwards. • In the LAN market, 1996-1999 was marked by the appearance of the « networked-company », model that now reaches more than 60% of companies in developed countries.

  13. A >10% reversal in 2001-2002! Network equipment markets:An historical market trend Source: IDATE

  14. Network equipment markets:An historical market trend and an historical downturn! • In the mobile infrastructure field, the GPRS (Europe), CDMA2000 1X (North America, Korea, China) and UMTS markets decreased by 4%. On the 2G front, 2001 was marked not only by a reversal of the GSM trend in Europe but also by significant expansions in APAC and China. • In the WAN transmission market, 2001 was marked by a significant shrinking of the market (19%) mainly due to long-distance carriers’ financial difficulties, • In theaccess field, as a result of CLECs significant financial difficulties in the DSL, cable and WLL sectors, the investments in broadband infrastructures were reduced or completely frozen. • In the LAN market, growth remained steady given the economic slowdown observed in 2001.

  15. Collaborative network model: 2002 -2003 Vertical model: up to 1996 Horizontal model: 1996 -2001 EMS Engineering Engineering NEP C.M. C.M. C.M. C.M. ISV ISV NEP 1 NEP 2 Fix NEP Mob NEP N.O. Incumb. Alternate Fix. N.O. Mob. N.O. Network equipment markets:A new network business model emerging

  16. Network equipment markets:Limited perspectives of recovery in the short-term Source: IDATE

  17. No objective signs of recovery before 2004! Network equipment markets:What will be the evolution of CAPEX/sales ratio towards 2006? Source: IDATE

  18. Network equipment markets:Impact of UMTS roll-out • What if we assume that the majority of network operators will delay their UMTS network rollout plans, following Telefonica, Orange and Sonera's recent announcements? Source: IDATE

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