01 February, 2023

The State of Digital Communications 2023

 

Executive Summary

 5G and FTTH: more local progress, but we risk falling short of the gigabit objectives

• FTTH population coverage reached 55.6% in Europe in 2022, up from 50% in 2021. However, current evidence suggests that European coverage is currently expected to reach roughly 90% by 2030, and will therefore risk falling short o the EU Digital Decade target on ‘gigabit for everyone’. This might concern tens of millions Europeans.

• 5G population coverage in Europe reached 73% in 2022, up from 62% in 2021. This means that Europe lags behind all of its global peers: coverage is approaching 96% in the USA, 95% in South Korea, 90% in Japan and 86% in China.

• The Asia–Pacific block leads in terms of the number of 5G standalone services with 15 active services. Europe has 4 and North America has 3. Telecoms investment is at its highest level yet, but that in Europe is lower than that elsewhere.

• Telecoms investment in Europe reached its highest level since 2016: in 2021, total telecoms CapEx (fixed, mobile and others) reached €56.3 billion. ETNO members solidly remain Europe’s telecoms investment leaders, and represent over 68% of the total telecoms investment in the bloc.

• When considering fibre investment (FTTH and FTTx) specifically, ETNO members continue to lead. They have invested €194 per capita compared to €139 for non-ETNO members.

• Nonetheless, Europe continues to trail its peers worldwide in terms of telecoms investment. Investment per capita adjusted to GDP was €104 in Europe in 2021 compared with €260 in Japan, €150 in the USA and €110 in China.
  
  

Edge computing, Open RAN and IoT: can telecoms innovation take off?

• Networks are, and will remain, the focus of telecoms investments. However, indicators show that operators are making major efforts to embrace innovation at both the network and service level.

• When it comes to Open RAN, Europe scored 6 trials in 2022, the same as China, followed by the US and South Korea with 3 trials, and Japan with 2. However, Europe still lags behind with respect to the number of real-world Open RAN deployments, despite many trials having been established. The most significant deployments are in Japan (Rakuten Mobile) and the USA (DISH Network).

• There were 204 million active IoT connections in Europe in 2021. We estimate that there will be about 370 million (that is, almost twice as many) in 2024 and 770 million in 2030. IoT is clearly an area of significant growth.

• Cyber security services are another area of growth. Retail revenue in Europe was €4.1 billion in 2022 and it is expected to grow to €5.2 billion by 2025.

• 18 edge cloud offers were announced in Europe in 2022, 10 of which came from ETNO members. The only region in which more offers were announced was Asia–Pacific (19 offers in 2022); North America had just 5.

• European operators are under pressure to create short-term shareholder value in the face of stagnating average revenue per user (ARPU), despite the significant potential for innovation in the telecoms sector. More investment capacity is needed to accelerate innovation, but the established current trends place additional pressure on many operators to sell or separate service and innovation-related assets.

Telecoms operators and tech companies: who invests and who monetises?

• Telecoms operators and tech companies (also known as content and applications providers (CAPs)) contribute to the European digital economy in different ways. There is an acute discrepancy between the returns on investment in European telecoms infrastructure and the returns on investment of the largest services that run over this infrastructure. When it comes to internet access, it is telecoms operators that shoulder the investment burden, while in terms of new value creation it is tech companies that benefit the most.

• New data shows that European telecoms operators invested €56.3 billion in digital infrastructure (mostly access networks) in 2021, while CAPs invested roughly €1 billion in infrastructure such as large international/undersea routes, peering, transit and caching. The remainder of CAPs’ digital infrastructure investment (around €16 billion) was devoted to data centres.

• The revenue per employee of ETNO members was €0.46 million in 2021, compared to €2.33 million for Netflix, €1.46 million for Alphabet and €2.33 million for Meta.

 

Sustainability: ‘greening of’ and ‘greening by’ the networks

• An essential action that operators can take when it comes to the greening of telecoms networks is to transition to next-generation networks, which are more energy-efficient than current networks. Five decommissioning dates per year were announced for legacy networks (PSTN) in 2017. This is due to increase to 10 in 2023 and 2024 and 11 in 2025–2030.
  
  
• Europe’s telecoms sector is also speeding up its transition to renewable energy sources. 83% of the total energy used by the sector came from renewables in 2021, up from 71% in 2018.

• The use of renewables and the improved network efficiency means that European operators’ scope 1 and 2 greenhouse gas (GHG) emissions per unit of revenue went down from 4.42 CO2e in 2018 to 2.18 CO2e in 2021.

• This report also describes some key use cases in which other sectors are “greened by” telecoms networks. These include smart utilities and green digitalisation, whereby the adoption of ICT tools decreases the emissions of industrial sectors.
  
  

Fundamentals of the sector: why they matter to Europe

• The fundamentals of the European telecoms sector remain weak, with significant uncertainties This is not desirable from a public policy viewpoint, especially in face of Europe’s digital sovereignty plans and the EU Digital Decade targets.

• Europe’s telecoms index has consistently underperformed a series of benchmarks on the stock market since 2018. The Stoxx Europe 600 index for telecoms is lower than the Stoxx Global 1800 for telecoms, and is also lower than selected stocks such as Alphabet, Meta, Amazon and Microsoft.

• The need to increase investment to achieve 5G and FTTH objectives also means that European telecoms companies have reached their highest investment intensity for many years (nearing 20% in home markets in 2021). This has practical consequences; the net debt/EBITDA ratio of ETNO members is now 2.53, its highest since 2014. Similarly, the average EV/EBITDA multiple (the measure of a company’s total value in relation to its profits) for ETNO members was 5.7 in November 2022, as opposed to 17.4 for Microsoft, 12.5 for Alphabet and 20.3 for Amazon. This shows that the European telecoms sector is considered to be a low-growth industry.