2017 “Economics of Telecoms” Report Update of key …...2017 “Economics of Telecoms”Report –Update of key economic metrics December 2017. 2 Agenda ... Relative size of players

Fédération Française des Télécoms

2017 “Economics of Telecoms” Report

– Update of key economic metrics

December 2017

2

Agenda

1 Global digital ecosystem: what dynamics?

2 French digital ecosystem: what dynamics?

3

The global digital ecosystem pursues its strong growth, mostly driven by

internet players

Source: Thomson Reuters, Arthur D. Little

Note: 1) Panel of 180 companies corresponding to the top 30 by sector in terms of turnover 2) Constant exchange rate 2016

Global digital ecosystem: what dynamics?

Example of

companies

855 910 932 962

761 834 842969

316347 335

358404

434442

464478 487

250266 242

258263

262256

250253 261232

282335 427

908172

1 328

Devices

IT and

software services

Content

Internet

+5%3 939

2016

Telecom

operators

Telecom

equipment162

2 617

2007

171179

2 6032 832

2008 2009

113

180

2 434

1 149

3 076

1 060

148

2010

188

1 080

167

1 169

169158

2011 2012

1 215

3 301

1 031

188

2015

169

3 635

1 331

2014

3 452

3 847

2013

1 249

1 2801 212

160

1 266

Revenues of the digital ecosystem1

World, 2007-2016, Billions of constant Euros2

CAGR

2007-2016

+0%

0%

+6%

+5%

+22%

+5%

4

Telecom operators, device manufacturers and internet players have driven

~90% of the world ecosystem’s growth over 2007-2016


Note: 1) Panel of 180 companies corresponding to the top 30 by sector in terms of turnover 2) The exchange rate Euros vs local currency 2016 is applied to the

current value of the local currency


354

488

4732 434

171

Ecosystem

2016

Devices Content

8

Ecosystem

2007

Internet

3 939

11

IT and

software

services

Telecom

equipment

Telecom

operators

(31%)(1%)

(32%)

(11%)(1%) (24%)

(x%) : contribution to the digital ecosystem’s growth

Revenues of the digital ecosystem1

World, 2007-2016, Billions of constant Euros2

5

The global digital ecosystem continues to grow at a higher rate than the

world GDP growth, with a restart reboot in Europe

Source: Thomson Reuters, World Bank, Arthur D. Little

Note: 1) In constant 2016 dollars for the set of countries considered in the digital ecosystem (accounting for 75% of world GDP, or 70% of the European GDP for European data)


World GDP1

Global digital

ecosystem1

CAGR

2007-2016

+5%

+4%

144

162

117

110

90

100

110

120

130

140

150

160

170

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Global digital ecosystem revenues vs world economyWorld, 2007-2016, Base 100 in 2007

European GDP1

European digital

ecosystem1

+2%

+1%

6

European operators have witnessed the lowest growth over 2007-2016,

with a rebound in the last two years


Note: 1) Nationality according to the location of the head office 2) Includes top 30 players outside Asia, North America and Europe (only Oceania and South America)


Revenues of network operators by region1

World, 2007-2016, Billions of constant Euros

289 298 299 303 307 305 294 285 307 324

251 263 276 282 315 330 371 407431 450

285316 322 333

363 393432

465484

493

2009

932

531 031

35

2008

52910

2011

962

20122010

1 080

4432

2007

30

85547

1 1491 212

2013

55

2014

58

1 3281 280

61

2015

Other2

Europe

2016

+5%

North America

Asia

+3%

+7%

+5%

+5%

CAGR

2014-2016

+6%

+1%

+7%

+8%

CAGR

2007-2016

7

Agenda

1 Global digital ecosystem: what dynamics?

2 French digital ecosystem: what dynamics?

8

2015 2016 2017

58%

94%92%

65%

93%

73%

The French mobile market remains dynamic in terms of equipement and

data consumption

Source: ARCEP, Operators, AT&T, Arthur D. Little

Note: 1) Total population aged 12 and over 2) Active 3G or 4G internet client

French digital ecosystem: what dynamics?

Average monthly

data consumption2

Mobile phone penetration rate1 4G cards

(Millions of active cards)

27m

Q2 2015

16m

Q2 2017

+53%37m

Q2 2016

X%

22% 37%

% of SIM card

105%

Q2 2017Q2 2016

1.8 GB

3.7 GB

50%

Connectivity and equipment in France – MobileFrance, 2015-2017

Illustrative:136h of music streaming

or 15h of SD video streaming

Mobile phone

Smartphone

9

France is experiencing strong growth in broadband subscriptions and a

high level of Multiplay2 subscriptions

Source: ARCEP, Arthur D. Little

Note: 1) Bandwidth >= 30 Mbps 2) Subscriptions considered are "multiplay" subscriptions that include Internet access or several services in addition to television


Fixed broadband (BB) and very high speed broadband

(VHSBB) subscriptions1 (Millions of subscriptions)

+21%

Connectivity and equipment in France – FixedFrance, 2016-2017

+35%

1.7

(6%)

+3%

22.6

Q1 2017

27.9

3.7

(13%)

2.1

(8%)

22.127.1

2.8

(10%)

Q1 2016

VHSBB >30 et < 100 Mb/s VHSBB >= 100 Mb/sBB

In Q1 2017, 70% of fixed Internet

subscriptions are Multiplay2

subscriptions

4K Movies Telemedicine

Video game

streaming

Connected house

10

1%1%

79%

1%

18%0%4%

87%

6%4%

3%

76%

13%

4%

16%

16%

12%

3%

53%

Telecom operators are essential to the French digital ecosystem

Source: Diane, annual reports, Arthur D. Little

Note: 1) Revenues declared in France or from literature search 2) Data adjusted to take into account the estimated actual turnover of international players in France 3) Nokia's

mobile division investments are integrated into Microsoft following the acquisition of the mobile division in 2014 4) Corporation tax, taxes and similar disbursements


5 content

providers

5 Internet OTT

players

5 Telecom

operators

5 equipment

vendors

5 device

manufacturers

Revenues1,2

€75 billion

Direct Employment

166 000

Investments3

€10 billion

Taxes4

€3 billion

Relative size of players in the digital ecosystemFrance, 2016

3%

R E I T

y compris filiales

11

While the French digital ecosystem has experienced an average annual growth

of 4% over 2013-2016, revenues of telecom operators have stagnated

Source: Diane, annual reports, Arthur D. Little

Note: 1) Revenues declared in France or from literature search 2) Data adjusted to take into account the estimated actual turnover of international players in France


Revenues1,2 of players in the digital ecosystemFrance, 2013-2016, Billions of euros

R E I T

12

+4%

9

12

40

73

9

12

2014

+26%

0%

2015

+6%

2

39

67

8

2016

10

102

40

2013

+3%

-1%

75

2

68

210

69

40

8

CAGR

2013-2016

y compris filiales

5 content

providers

5 Internet OTT

players

5 Telecom

operators

5 equipment

vendors

5 device

manufacturers

12

Contrary to other key regulated sectors, telecom services have witnessed

a sharp fall in prices over 2010-2016

Source: INSEE, Arthur D. Little


Consumer price index evolution on selected productsFrance, 2010-2016, Base 100 in 2010

134

128

114

116

106

63

60

65

70

75

80

85

90

95

100

105

110

115

120

125

130

135

Telecom services

Inflation

Rail

City gas

Electricity

20142011 2016

Postal services

20132012 20152010

R E I T

13

Prices of telecom services in France remain the lowest among large

Western countries

Source: Operators, Arthur D. Little

Note: 1) Triple play offers only; unlimited calls to landline at least; Unlimited broadband internet through xDSL or fibre; television included, excluding additional packs; operators

with market share > 10%, 2) Unlimited calls (whenever possible or else >500 minutes), unlimited SMS/MMS, at least 5 GB Internet; packages without devices, packages without

commitment; operators with market share > 10%


Offer benchmark – Main operatorsSelection of countries, November 2017, € incl. taxes/ month

51€

30€30€23€20€

10€

Fixed (Triple Play)1 Mobile2

78€

41€39€

25€21€18€

R E I T

14

Operators increased their investments despite lower turnover but could

not maintain employment levels

Source: ARCEP, DARES, Insee, Arthur D. Little

Note: 1) Investment efforts : operators’ investments (excluding frequency acquisition) / revenues of operators 2) Provisional ARCEP figures for 2016

3) ARCEP figures 4) ARCEP figures including part of indirect jobs 5) Provisional ARCEP figures for 2016 corresponding to revenues collected from final client


Employment, revenues and investments of French Telecom operatorsFrance, 2010-2016, base 100 in 2010

R E I T

91

82

138

169

60

70

80

90

100

110

120

130

140

150

160

170

2010 2011 2012 2013 2014 2015 2016

85

Revenues5

Operators direct jobs3

CAGR

2010-2016

- 1,6 %

- 3,2 %

Sector jobs4 - 2,7 %

Operators’ invesments

(excluding frequency acquisition)2

5,6 %

Investment effort1 9,1 %

15

Telecom operators’ investments have peaked in 2015 and 2016 – €71

billion were invested over the period

Source: ARCEP, Arthur D. Little

Note: 1) Investments excluding frequency acquisition


Investments of network operators1

France, 2007-2016, Billions of euros

3.8 4.3 3.7 4.4 5.0 4.9 4.7 4.75.5 6.2

2.4 2.22.2

2.12.3 2.5 2.6 2.4

2.32.7

7.4

2011 20162015

Mobile

investments

2013

7.37.8

2012

Fixed

investissements

2014

7.3 7.1

8.9

2007

6.2

201020092008

5.96.5 6.5

% of

revenue15% 15% 14% 15% 17% 18% 19% 19% 22%

R E I T

€71 billion

(excluding frequency acquisition)

Before Very

High Speed

Investment phase including

Very High Speed

25%

+ €7.2 billion of

frequency

acquisition over

the period

0.9 en 2010

0.9 en 2011

2.6 en 2012

2.8 en 2015

16

The 7.2 billion euros invested every year by telecom operators represent

a significant economic activity

Source: Companies, literature search, Arthur D. Little

Note: 1) Telecom: ARCEP figures (excluding frequency acquisition); Electricity: RTE (2009 to 2016) and ERDF; RFF; Highways: ASFA (Sanef, SAPN, ASF….)


Investments1 in Telecom vs. other sectorsFrance, 2008-2016, Billions of euros (annual average over 9 years)

7.2

5.14.7

1.7

Railways Tr. / distrib.

of electricity

Highways Telecom

equivalent to the

following

investments, each

year…

ou

208 TGV trains

ou

ou

ou

536 high schools

R E I T

20 « Stade de France »

1100 km of highways (i.e. Paris - Berlin)

5 nuclear power plants

17

Despite the decline in telecom operators’ revenues, specific taxation

remained stable in France

Source: Operators, FFT, Arthur D. Little

Note: 1) Perimeter: corporate tax on top 5 companies (set reconfigured in 2012 with corporate tax corresponding to Numéricable + SFR) & FFT members specific taxes 2) VOD &

private copy


Telecom operators’ taxationFrance, 2012 and 2016, Millions of euros and % of total taxes

R E I T

2016

2 5941 219

(38%)

1 258

(49%)

2 021

(62%)

3 240

1 336

(51%)

2012

Specific

tax

2016

Corporate

tax

+3%

-34%

Variation

12-16

225

(9%)

1 336

(51%)

192

(7%)

410

(16%)

205

(8%)

105

(4%)121

(5%)

TOCE (France TV)

IFER copper

Corporate tax1

IFER antenna

COSIP (CNC)

Frequencies + FH

Other2

18

Telecom operators suffer from an asymmetric taxation, which puts them

in a disadvantageous position in the digital ecosystem

Source: Greenwich Consulting, Conseil National du Numérique, PPL Marini, literature search, Arthur D. Little analysis

Note: 1) Forecast figures, 2) Google, Apple, Facebook, Amazon, 3) as % of revenues


€600 million of VAT loss on

electronic services in France

en 20141

Fiscal optimization mechanism in Europe of the GAFA

Country of final

consumption

Establishment country

Place of fiscal

registration

Ireland

Luxembourg

Exemples

VAT Corporate tax

€26 million of corporate tax

paid by « GAFA2 » in France in

2016

x133

Internet

players

Telecom

operators

Corporate tax paid in

France in 2016

R E I T

19

Telecom operators’ margins are used to finance strong investments

Source: Companies, literature search, Arthur D. Little analysis

Note: 1) Figures for top 5 French Telecom operators including Orange, SFR, Bouygues Telecom, Free and EI Telecom


Comparison between KPIs of the Telecom sector1 and CAC402016, Base 100 on Revenues

Telecom operators

2

3

22

31

100

R E I T

3

2

6

14

100CA

EBITDA

CAPEX

Corporate tax

Dividend

CAC 40 average

20

Increased investment is leading to lower cash flow despite productivity

efforts

Source: Companies, literature search, ARCEP, Arthur D. Little

Note: 1) Top 5 French Telecom operators including Orange, SFR, Bouygues Telecom, Free and EI Telecom 2) Estimated operational FCF

(EBITDA – CAPEX) 3) ARCEP figures representing sector investments, excluding frequency acquisition


Economic performance of major French Telecom operators1

France, 2013-2016, Billions of euros

Revenues EBITDA Operational FCF2

2016

-1%

39.8

2013

40.3

20162013

+1%

12.0 12.2

-30%

3.3

2013

4.7

2016

30% 31% 12% 8%

x% % of revenues

+22%

20162013

7.33

8.93

18% 22%

Capex

+€200 million

of EBITDA

+€1.6 billion

of investmentsvs

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2017 “Economics of Telecoms” Report Update of key …...2017 “Economics of Telecoms”Report –Update of key economic metrics December 2017. 2 Agenda ... Relative size of players