Telecompaper: Dutch trends for 2016

Wednesday 10 February 2016 | 12:10 CET | Background

The Dutch telecommunications market has entered an interesting year. Telecompaper has lined the most important trends for 2016 as well as regulation changes and expected consolidation.

Internet of Things

Dutch mobile operators are expected to see continued service revenue decline during the coming years (-2% for 2016), which sees them searching for new services as new revenue source, including IoT/M2M. The Internet of Things (IoT) means that an increasing number of devices needs internet access to be able to function. The underlying infrastructure needed for such services has to be robust and able to serve a large number of devices at the same time. The operators use their existing mobile and sometimes even fixed networks for M2M services like smart metering or container tracking in harbors. At the same time new technologies are being developed.

During 2015, a new technology for IoT services based on the LoRaWAN standard became popular. LoRaWAN means Low Power, Long Range Wide Area Network and uses licence free and unused spectrum. In the Netherlands, KPN started to deploy LoRaWAN based networks in The Hague and Rotterdam and expects to reach nationwide coverage in the second quarter of 2016. KPN was not the only LoRaWAN network operator emerging in 2015, as Dutch start-up The Things Network (TTN) started as well with networks in Amsterdam and Groningen, while expecting to have such networks in other big Dutch cities by the end of 2016. For 2016, Telecompaper expects other companies to deploy local or regional networks like IT service provider Sogeti did in Vianen, due to the low curb with regards to roll-out and costs for these networks. 

The LoRaWAN networks are mostly interesting for government agencies and companies to enable smart cities concepts using smart streetlights, smart bus shelters, smart traffic lights and smart other outdoor furniture or sensors to continuously monitor traffic in real time.
The Dutch mobile operators already invested heavily in deploying LTE networks, which are expected to be used for M2M/IoT services as well as they offer nationwide coverage and large data capacity. New standards like NB-IoT offer a migration from existing M2M services via 2G to 4g networks. In 2016, Tele2 and Vodafone are expected to be more active on the IoT market with their LTE networks and existing M2M solutions,

Smart home

The most interesting aspect of IoT for the mass market can be capture by the term smart home. In the Netherlands, the most known applications are the smart thermostats like Toon, Nest and Anna or the smart LED lights Hue by Philips. 

At the same time, three telecom providers have added smart home services to their portfolio during 2015, starting with Fiber Nederland in the summer, followed by KPN and Delta in October 2015. Telecompaper expects more providers to start offering similar services partnering with smart device manufacturers as well as security and/or energy suppliers to enhance their current bundles, as well as expansion of the smart home portfolio by the three early adopters.

OTT live TV

The introduction of OTT TV apps offering live TV streaming services like Play by KPN, Knippr by T-Mobile and the Nlziet live app offered by the Dutch public and commercial broadcasters are drivers for cord-cutters. Any negative influence on the traditional television market is not yet visible, but could be at the end of 2016.

A larger threat for the traditional television market comes from the so-called cord-nevers, mostly younger people that currently view TV and video content online and when they move to an independent living status continue to do so. They will not take a cable or IPTV via fibre/DSL subscription, which could lead to a smaller traditional TV market. It is currently unclear how large the group of cord-nevers is and if their viewing behavior stays the same when their household situation changes.

Mobile payments

The cooperation between Dutch mobile operator KPN and one of the largest Dutch banks Rabobank seems to be fueling mobile payment adoption in 2016, but the total number of customers that can actually use the services is still limited. Unless other Dutch banks and mobile operators join them, mobile payments becoming the norm in the Netherlands depends on the m-pay services offered by smartphone manufacturers like Apple Pay, Android Pay and Samsung Pay. Whether these services will become available in the Netherlands during 2016 is still unknown, but the odds are favourable.

Broadband in rural areas

KPN and T-Mobile have started to offer LTE as replacement for fixed broadband services, which finally seem to address the needs of households in Dutch rural areas, currently without broadband access or low-speed broadband access. KPN specifically targets the rural areas where no broadband or low-speed broadband via DSL is available, while T-Mobile wants to market LTE as fixed internet replacement for the whole Netherlands. At the same time, Greenet is expected to continue to test and roll-out mobile broadband in the rural areas of the Dutch province of Zeeland, using LTE as platform. 

With regards to fibre roll-out in rural areas, Telecompaper expects more provinces to give out subsidies and loans to fibre co-operatives and operators to deploy fibre networks in rural areas, following the example of Brabant. Fibre network operator CIF already started to deploy fibre networks in rural areas, focusing on the region of Twente and is expected to continue that strategy throughout 2016.

Virtual Reality

Following the wearables trend (2013-2015) 2016 is expected to become the year of Virtual Reality (VR). Microsoft has the Hololens and Samsung is offering the Gear VR device since the end of 2015. Meanwhile HTC and Facebook’s Oculus have announced the availability of their VR glasses. They will be followed by Sony, whose VR glasses are expected to be compatible with Sony’s smartphones and Playstation 4 game console.
At the same time, Google’s owner Alphabet is rumoured to have set up a VR division while rumours regarding Apple’s entrance in the VR market have been floating around for some time, although CEO Tim Cook only said that VR is an interesting development during the analyst call for the fiscal Q1 financials. Telecompaper expects VR to be a niche market in the Netherlands at first, following the wearables trend. Meanwhile the focus will shift to VR for mobile device use.

Next to the aforementioned trends, changes in legislation and regulation will also see to interesting developments in the Dutch telecom market. At the same time, a spectrum auction will take place, not for mobile spectrum as the last auctions but for digital TV via DVB-T2 spectrum.

Net neutrality adjustments

Starting on 30 April 2016, the European net neutrality regulation will become active in the Netherlands, enabling (mobile) providers to offer selected OTT services with free data usage, so-called zero-rating. The Dutch regulator ACM has announced that no regulatory framework has been set yet with European regulators group Berec currently working on a set of rules for that framework. Those rules have been to ratified by 30 August 2016. Until then net neutrality can only be tested following the literal text of the EU regulation and the Dutch law, which is still needs an adaption.

The current Dutch net neutrality law forbids zero rating explicitly, but from the end of April, KPN, Vodafone and T-Mobile could respectively offer Spotify, Napster and Deezer (with which they already have a marketing agreement)  as part of a subscription with data usage for those music streaming service being free. Similar constructions could be possible for OTT TV services Play by KPN, Knippr by T-Mobile and TV Anywhere by Vodafone. 

Another possibility is an operator following the example of T-Mobile US with BingeOn (zero rating for video services) or Music Freedom (zero rating for streaming music), with T-Mobile Netherlands being the most obvious choice.

EU roaming tariffs lowered again, abolition in 2017 

Another EU measure is the abolition of roaming tariffs per April 2017. The last step to reach that goal will be lowering of the maximum roaming tariffs within the EU per 30 April 2016 to EUR 0.05 per minute, EUR 0.02 per SMS and EUR 0.05 per MB with the possibility to let part of the EU usage billed at expense of the national subscription bundle. The European Commission will set the limits of fair use. These are either rather low, letting the telecom lobby win or high leading to very happy European consumers.

Financial supervision act also for mobile operators? 

Another legislative issue regards the new Dutch Financial Supervision Act (Wft). The Dutch mobile operators and the Dutch Finance Ministry have been negotiation about implementing the Wft. According to the literal interpretation of the Act, selling smartphone phones with a monthly payment plan as mobile operators do falls under the same strict regulation as other financial credit services like mortgages, car loans or personal loan. 

The parties tried to come to a compromise before the end of 2015, which failed and the negotiations have been extended until 1 March 2016. The mobile operators have offered self-regulation using a code of conduct and promise to re-started filing at the Dutch office of credit registration (BKR). What the exact outcome of the negotiations will be is still unclear. Before the end of 2016, Telecompaper expects more clarity regarding so-called handset subsidies as well as the government’s satisfaction with the changes already implemented by the operators, leading to either self-regulation or more strict rules.

DVB-T2 spectrum auction

During this year, the government will organise a spectrum auction, this time not for mobile service, but for digital TV via DVB-T2. KPN is the current licence holder with its Digitenne product and will participate in the auction. An auction is needed because the Ministry of Economic Affairs received indication of interest from a second party during the consultation with regards to the DVB-T2 spectrum during 2015. The ministry did not disclose the name of the second company. Telecompaper expects it to be either German DVB-T2 network operator Media Broadcast or the M7 Group, which already owns Dutch satellite TV operator CanalDigitaal.

Dutch consolidation to continue

Liberty Global and Vodafone are currently in talks to set up a joint-venture of their Dutch activities. If the joint-venture is created, the Netherlands will have a second operator with an (almost) nationwide covering fixed network and mobile network: Ziggo/Vodafone. The Dutch market situation will not be a hurdle for receiving permission from the European Commission for the joint-venture as no mobile operator will disappear.

At the same time, Deutsche Telekom is trying to sell its Dutch subsidiary T-Mobile Netherlands, which will most likely be sold to a private equity investor as the only possible strategic buyer Ziggo will no longer be interested. Another possible consolidation target could be the cable network activities of regional utilities provider Delta, as Delta is bound to comply with the so-called separation act for which it needs cash. The most logical buyer would be Dutch fibre network operator CIF that would keep the infrastructure while upgrading it from coax to fibre. The customers and services would then be moved to CIF subsidiary Caiw. 

If the planned joint venture between Ziggo and Vodafone Netherlands fails, the chance that Ziggo wants to acquire T-Mobile Netherlands from Deutsche Telekom increases. At the same time Vodafone should be looking at possible acquisition targets in the fixed market. A possibility could be the acquisition of Caiw and partnering with CIF to acquire Delta’s cable activities with CIF taking the infrastructure and Vodafone/Caiw acquiring the customers and services.

All in all, it promises to be an interesting and challenging year for the telecom industry in the Netherlands as well as internationally. Telecompaper will keep you informed of all developments and trends as well as offering insights and analyses of those developments.

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