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European Telecommunications Market Assessment 2002


Description: The European telecommunication services market was valued at e282.4bn in 2001, and we expect this to increase to e289.3bn in 2002. The rate of market growth has slowed significantly in recent years, reflecting slower regional economic growth and the continued downward pressure on prices in an intensely competitive environment. The market is divided between three main sectors: fixed line, cellular or mobile, and switched data and leased line. In the past five years, mobile revenue has been the most dynamic, along with areas related to data - for example, Internet traffic, virtual private networks (VPNs) - rather than voice transfer. The European telecommunications market is currently facing a number of serious challenges. While broad social trends, such as the rise of the so-called information society, are making telecommunications increasingly important, the industry is caught in a serious financial crisis. Major telecommunications groups, such as BT Group PLC (BT), Koninklijke KPN NV (KPN), Deutsch Telecom AG and France Télécom SA, have accumulated huge debts, and are having to take drastic action, such as asset disposal and financial restructuring, in order to cope. The WorldCom affair in 2002 compounded the problems faced by European players by undermining investor confidence in all telecoms companies and calling into question the accounting policies of leading groups. At the same time, the telecommunications market is seeing competition intensify - a factor encouraged by new pan-European, competition-promoting legislation - which is in turn, placing downwards pressure on end-user prices. The consequence is the undermining of profit levels, and weaker cash flow from core telecommunications services. The financial problems afflicting the industry stem from decisions taken in the late 1990s, when leading players - especially those in the mobile sector - made over-optimistic assumptions about the potential growth of the industry. Based on these false assumptions, companies used debt to finance acquisitions and buy licences that would enable them to provide third generation (3G) mobile telephone services, both of which in hindsight had highly inflated valuations. As a result, they are now saddled with large debts, while the mobile assets they acquired with the borrowed funds have since depreciated significantly. Today, cellular operators are extremely circumspect when planning the launch of 3G services. Despite the huge investment ploughed into the acquisition of the 3G licences - a total of over e100bn, excluding the cost of building the actual networks - there remains considerable uncertainty as to whether there will be a substantial return on that money. In addition, there are a number of issues to be resolved before services can be successfully launched, such as how 3G services will be charged for, the schedule for making 3G handsets available in sufficient numbers and the cost of such handsets. In the coming 5 years, we expect cellular and data services - especially Internet Protocol (IP) networks - to continue growing much more strongly than the rest of the telecommunications market. Overall, telecommunications revenue is expected to show improved rates of growth compared with 2001 and 2002, reflecting improved, stable economic conditions in Europe. In the future, integrated services will be a central feature of the market and new infrastructure (i.e. the communications skin) and new technologies will effectively integrate fixed-line with cellular technologies, computing technologies with telecommunications and telecommunications with the media industry. In this situation, mergers and strategic partnerships between telecommunications, computing and media players can be expected.


Contents: TABLE OF CONTENTS:

Executive Summary 1

1. Introduction 8

EXPECTATIONS OF KEY PLAYERS NOT MET 8
Table 1: Expenditure on Third Generation Licences by Selected European Countries (ebn), 2000-2002 8
Figure 1: Expenditure on Third Generation Licences by Selected European Countries (ebn), 2000-2002 9
NEW TECHNOLOGY UNDERPINS LONGER TERM GROWTH 9

2. Strategic Overview 11

MARKET SIZE AND TRENDS 11
Services Account for Bulk of Market Value 11
Table 2: European Telecommunications Market by Sector by Value (ebn and %), 1998-2002 11
Figure 2: European Telecommunications Market by Value (ebn), 1998-2002 12
Table 3: European Telecommunications Services Market by Type of Service by Value(ebn and %), 1998-2002 13
Germany and the UK Hold Largest Value Shares 14
Table 4: European Telecommunications Markets by Value (ebn and %), 2001 14
THE THIRD GENERATION GAMBLE 14
Technological Stepping Stones 14
A Wealth of Opportunities 15
The Financial Cost of Third Generation 15
Reverse the Charges? 16
THE THIRD GENERATION DILEMMA 16
Caution Over Third Generation Rollout 16
General Packet Radio Services Launched/Due to Launch 16
Launched in 2000 16
Launched in 2001 17
Launched in 2002/2003 17
Your Call On Hold? 18
Interest in Third Generation Services Waning 18
Billing Problems 19
Tiered Payment Structure Possible 19
The Need for Industry Consolidation 20
Patent Problems Could Affect Service Rollout 20
CORPORATE DEVELOPMENTS 21
Key Issues 21
Pressure On Fixed-Line Operators 21
Pressure on Mobile Operators 22
Table 5: The Cost of Third Generation Licences in Europe (number and ebn), 2000-2002 22
Lower Corporate Valuations 23
Mergers and Acquisitions Few and Far Between 23
The Key Players 24
Table 6: Dominant Telecommunications Operators by Country, 2002 24
The Competitive Environment 26
Table 7: Percentage of European Telecommunications Markets That are Fully or Partially Competitive, 2002 27
Table 8: Penetration of Telecommunications Services in European Markets (% of countries), 2002 29

3. European Telecommunications by Country and Region 30

INTRODUCTION 30
TELECOMMUNICATIONS IN GERMANY 30
Table 9: Profile of the German and European Telecommunications Market (million and %), 2001 30
Figure 3: Profile of the German and European Telecommunications Market (million), 2001 31
Table 10: The Competitive Structure of the German Telecommunications Market by Sector, 2002 32
Market Size and Trends 32
Table 11: The German Telecommunications Market by Value (ebn and %), 1998-2002 33
Figure 4: The German Telecommunications Market by Value (ebn), 1998-2002 33
Local Loop Unbundled in Germany 33
Table 12: The German Telecommunications Market by Service by Market Share (%), 1998 and 2002 34
General Packet Radio Service Delay Dampens Growth 34
Recent Developments 35
Financial Health of Deutsch Telecom AG 35
MobilCom/Third Generation 35
TELECOMMUNICATIONS IN THE UK 36
Table 13: Profile of the UK and European Telecommunications Market (million and %), 2001 36
Figure 5: Profile of the UK and European Telecommunications Market (million), 2001, 2001 37
Table 14: The Competitive Structure of the UK Telecommunications Market by Sector, 2002 38
Market Size and Trends 38
Table 15: The UK Telecommunications Market by Value (ebn and %) 1998-2002 39
Figure 6: The UK Telecommunications Market by Value (ebn), 2001 39
Broadband the Only Area of Growth for Fixed-Line Services 39
Mobile Services See Most Dynamic Growth 40
Table 16: The UK Telecommunications Market by Service by Market Share (%), 1998 and 2002 40
Figure 7: The UK Telecommunications Market by Service by Market Share (%), 1998 and 2002 41
Recent Developments 41
Main Players Face Financial Crises 41
Intense Price-Led Competition 42
TELECOMMUNICATIONS IN FRANCE 42
Table 17: Profile of the French Telecommunications Market (million and %), 2001 42
Table 18: The Competitive Structure of the French Telecomunications Market by Sector, 2002 43
Market Size and Trends 44
Table 19: The French Telecommunications Market by Value (ebn and %), 1998-2002 44
Figure 8: The French Telecommunications Market by Value (ebn), 1998-2002 45
France Télécom Promotes ADSL Services 45
Table 20: The French Telecommunications Market by Service by Market Share (%), 1998 and 2002 46
Figure 9: The French Telecommunications Market by Service by Market Share (%), 1998 and 2002 46
More Third Generation Bids Sought in France 47
Recent Developments 47
Third Generation Prices Cut 47
France Télécom SA Debt Crisis 47
Mobile Services at Heart of France Télécom's Problems 47
Ownership Battle for SFR 48
TELECOMMUNICATIONS IN ITALY 48
Table 21: Profile of the Italian Telecommunications Market (million and %), 2001 49
Table 22: The Competitive Structure of the Italian Telecommunications Market by Sector, 2002 50
Market Size And Trends 51
Table 23: The Italian Telecommunications Market by Value (ebn and %), 1998-2002 51
Figure 10: The Italian Telecommunications Market by Value (ebn), 1998-2002 51
Fixed-Line Services Suffer as Mobile Penetration Increases 52
Table 24: The Italian Telecommunications Market by Service by Market Share (%), 1998 and 2002 52
Figure 11: The Italian Telecommunications Market by Service by Market Share (%), 1998 and 2002 53
New Tariff Structures Stimulate Growth in Italy 53
Recent Developments 54
New Fixed-Line Services Launched as Competition Increases 54
Operators Reluctant to Launch Third Generation Services 54
Broadband Essential for Further Growth 55
TELECOMMUNICATIONS IN SPAIN 55
Table 25: Profile of the Spanish Telecommunications Market (million and %), 2001 56
Table 26: The Competitive Structure of the Spanish Telecommunications Market by Sector, 2002 56
Spanish Market Size and Trends 57
Table 27: The Spanish Telecommunications Market by Value (ebn and %), 1998-2002 58
Figure 12: The Spanish Telecommunications Market by Value (ebn), 1998-2002 58
Increased Competition in Spain Pressurises Prices 58
Shift From Prepay to Contract Tariffs Evident in Spain 59
Table 28: The Spanish Telecommunications Market by Service by Market Share, 1998 and 2002 59
Recent Developments 59
Fixed-Line Liberalisation 59
Telefonica's Finances 60
TELECOMMUNICATIONS IN SCANDANAVIAN COUNTRIES 60
Table 29: Profile of the Scandanavian Telecommunications Market (million and %), 2001 61
The Regulatory Sturcture of the Scandanavian Telecommunications Markets in 2002 62
Denmark 62
Finland 63
Norway 63
Sweden 63
Table 30: The Competitive Structure of Scandanavian Telecommunications Markets, 2002 64
Scandanavian Market Size and Trends 64

4. Rest of Western Europe 65

PROFILE 65
Table 31: Profile of Telecommunications Markets in the Rest of Western Europe (million and %), 2001 65
THE REGULATORY STRUCTURE OF TELECOMMUNICATIONS MARKETS IN THE REST OF WESTERN EUROPE IN 2002 66
Austria 67
Greece 67
Republic of Ireland 67
Portugal 67
Switzerland 67
Table 32: The Competitive Structure of Telecommunicaitons Markets in the Rest of Western Europe, 2002 68
MARKET SIZE AND TRENDS IN THE REST OF WESTERN EUROPE 69
Table 33: The Telecommunications Market in the Rest of Western Europe by Value (ebn and %), 1998-2002 69

5. Eastern Europe 70

MARKET SIZE AND TRENDS IN EASTERN EUROPE 70
Table 34: The Telecommunications Market in Eastern Europe by Value (ebn), 1998-2003 70
Figure 13: The Telecommunications Market in Eastern Europe by Value (ebn), 1998-2003 71

6. Other Issues 72

WORLDCOM, INC. 72
Fallout in Europe as WorldCom Reverses the Charges 72
Greater Transparency Evident Among European Players 72
CORPORATE DATA NETWORKS 73
Corporate Data Networks Buck Trend 73
Advantages of Internet Protocol Networks 73
Improved Security 73
NEW REGULATORY FRAMEWORK FOR DATA NETWORKS 74
A Single Regulatory Framework for Networks 74
Framework Directive 75
Access Directive 76
Authorisation Directive 78
Universal Service Directive 78

7. The Future 79

THE FUTURE FOR CELLULAR AND INTERNET PROTOCOL SERVICES 79
Bleak Outlook for Fixed-Line Services 79
New Telecommunications Infrastructures 79
`Communications Skin' Likely to Develop 80
Convergence Key to Future Market Growth 80
Further Investment Required Before Third Generation Success 81
FORECASTS FOR EUROPEAN TELECOMMUNICATIONS 81
Economic Recovery Offset by Increasing Competition 81
Table 35: Forecast European Telecommunications Services by Value (ebn), 2003-2007 82
Figure 14: Forecast European Telecommunications Services by Value (ebn), 2003-2007 82
Bright Future for Mobile Services 82
Table 36: The Forecast European Telecommunications Market by Sector by Value (ebn), 2003-2007 83

9. Further Sources 84

Associations 84
Publications 86
General Sources 87
Bonnier Information Sources 88
Government Publications 89
Other Sources 90




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