TeleGeography Globalcomms: Review of 2009 - Telecomms During Global Recession

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.
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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.
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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
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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.
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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
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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
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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
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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
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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
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10. GLOBALCOMMS INSIGHT DECEMBER 2009
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