2018: the end of consolidation and the start of 5G

Tuesday 21 November 2017 | 15:27 CET | Background

The best forecast for tomorrow's weather is . . . the same as today. The same holds for the telecom sector: some of the same trends will continue in 2018, from network upgrades to consolidation and the arrival of new providers. Mobile prices remain under pressure, and the B2B market is going through a long period of contraction. Regulation will play less of a role in 2018, after the big impact of roam-like-home in 2017, but from mid-2018 the year-on-year comparison should lessen. Security will also be an important theme in 2018, at a number of levels, from cybersecurity and data protection/privacy to fake news and sexual harassment, both online as well as offline (#metoo). We look here at some of the other pending questions for the Dutch telecom market in the new year. 

Will the consolidation finish with a merger of T-Mobile and Tele2?

There are traditionally high barriers to entry in the telecom sector. Mobile spectrum is scarce, rolling out networks (fixed or mobile) is expensive, and scale is essential to the business. This leads to a certain extent to market consolidation, a phenomenon underway for so many years it's almost become business as usual. On the other hand, there is a never-ending stream of newcomers in the market, most often 'virtual', as they try to make a go of the business without their own network. The business case is based on a range of elements, such as low prices ('no-frills' MVNO's), services targeting a certain niche (Tibbaa), simplicity (e.g. Simpel), innovation (Facebook/WhatsApp), content (Netflix) or bundling non-telecom services and related discounts (NLE, Amazon Prime Video).

This already raises a number of questions for 2018:

  • Will there be a shake-out in the saturated MVNO market?
  • Which niches are sustainable? Will the adventure end with the sale of the company to one of the established players?
  • What role will the unlimited plans from T-Mobile and Tele2 play? Will they help the operators build a bigger market share? 
  • Can WhatsApp continue to grow, with more features such as payments, group calls and an iPad app?

In a market with two integrated players (KPN and VodafoneZiggo) and two mobile-only players active on the fixed market with a virtual offering (T-Mobile and Tele2) there is only one consolidation option possible: going from four to three mobile networks. When spectrum is scarce and KPN and VodafoneZiggo need to remain apart due to their dominance, the only option is a merger of T-Mobile and Tele2.

  • Would the government allow such a merger? Or do the two together have too much spectrum? What would be the conditions for the merger?
  • Who would have control of the merged company and who would become CEO? Is this an exit strategy for Deutsche Telekom, which tends to prefer integrated fixed-mobile operators? Or will it be a joint venture like Tele2 has in Kazakhstan or Telekom had with Orange in the UK?

5G: fixed network replacement or refined IoT network?

The newest generation of mobile network technology will take shape in 2018, as the standards and applications for 5G are be decided. Will it be an even better version of 4G (faster, more capacity), undermining the business case for FTTH? Verizon and AT&T are already heading in this direction in the US. Or will 5G be the network for the ultimate Internet of Things, delivering more connected devices than mobile video services? A refined IoT then.

Whatever the case, the Netherlands will take an important step with the multi-band spectrum auction planned for the second half of 2019. While the 3.5 GHz band has notably been left out, the auction will include the 700 MHz band, as well as unpaired spectrum in the 1,400 MHz band and the 2,100 MHz band already in use. Terms of the auction should be decided soon, including reserve prices. The ACM supports not reserving any spectrum for a newcomer and imposing caps to ensure that at least three MNOs obtain enough frequencies. 

In general, it's assumed that 5G will require a much more finely knit network than 4G. The consequences are huge: from decentralised data centres to bringing fibre to the backhaul. Significant investment will be required - another reason for further consolidation. 

Content: VOD competition, rise of linear OTT TV?

Content has become perhaps the most important differentiator in the market. It has not become any simplier in recent years and this won't change in 2018. Netflix is in control of the VOD market for the moment, while it's still early days for linear TV distributed through streaming. The big questions are:

  • Who's going to make life difficult for Netflix? Can Amazon Prime Video develop a similar offering or Disney launch a competitive service? How big can providers with a certain focus become, such as RTL's Videoland (Dutch series) or Pathe Thuis (recent films over TVOD)? 
  • Will NLziet be a success? Will more stand-alone providers of linear TV enter the market, like Play van KPN, T-Mobile's Knippr and Youfone TV? Will Canal Digitaal offer its OTT service on a standalone basis or will it remain limited to broadband customers of partner ISPs (Online, Stipte, Fiber NL)? Can they stimulate the broadband-only market or vice versa?
  • Will VodafoneZiggo announce the shutdown of analoge TV to create more room on its network? Its broadband offering would benefit, and it could provide an impulse for 4K video.

Unlimited mobile and smart home: ready for the mass market?

T-Mobile and Tele2 have yet to show any huge gains from their launch of unlimited mobile data plans. While they are leading in net additions, ARPU is not showing any signs of improvement, even if this could still come over time. KPN and VodafoneZiggo are positioning their multiplays as the response to the unlimited plans from T-Mobile and Tele2, with extras and discounts designed to keep customers close. Vodafone may also introduce the Vodafone Passes already available in most of its other markets. This gives customers unlimited traffic for certain social media and streaming applications for a monthly fee, so they don't use up their data bundle too quickly. The zero-rating is allowed in the EU and does not violate net neutrality rules. The question is more whether the offer can compete on price with the unlimited plans, as the Passes in other countries are offered mainly with expensive subscriptions. 

Another important segment is the smart home. Will it break through to the mass market in 2018? Similar to AR and VR, smart home applications are promising, but the current generation of products and technology may be a bit ahead of its time. 

Networks and devices: out-developed? 

As competition increasingly shifts to over-the-top platforms, the importance of the biggest enablers increases: broadband and devices. At the same time, there are signs that the two elements are fading to the background - if not reached the end of their development. 

  • Fixed network investments in 2018 will go not just to copper (VDSL roll-out and upgrades at KPN) but also to the start of Docsis 3.1 over (VodafoneZiggo). The question is what effect will Docsis 3.1 have on KPN - will it be able to compete with its combination of FTTH and copper?
  • Even in a country as densely populated as the Netherlands, covering remote areas remains a challenge. There are numerous efforts, such as CIF and Kabelnoord rolling out FTTH. Fixed-wireless will also play a role, such as KPN's hybrid DSL-LTE solution, Greenet's network in Zeeland or even early versions of 5G. 
  • Has the smartphone slowly reached the end of its development, now that each new iPhone offers less and less added value compared to its predecessor? Is the tablet market saturated? Will the smart speaker market take off, with Google, Amazon and many others (Facebook, Samsung, Deutsche Telekom)?

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