- Working groups
Brussels, 29 January 2021 – At a time in which the EU is striving for digital sovereignty, fresh data shows that Europe is trailing global peers on key network roll-out and digital investment metrics, including on 5G, AI and network investment. Despite this, Europe shows progress with respect to last year, with more people covered by 5G, innovative services on the rise and the green transition picking up speed. These are some of the key findings of the 2021 “State of Digital Communications” Report, launched today by ETNO, Europe’s leading telecoms association, and prepared by leading research firm Analysys Mason.
Network roll-out speeds up, but global peers race ahead
Looking within European borders, significant progress has been made by telcos to improve connectivity: households covered by FTTH are expected to expand from 43% in 2020 to 50% in 2022. When it comes to mobile, the number of citizens covered by at least 1 5G network grew from 12.9% in 2019 to 24.4% in Q3 2020. This number, however, is lower than in the USA – where 76% of the population is already covered by 5G – or South Korea – where those covered are 93%. Demand metrics are also weaker than in other geographies, which in turn might affect the business case for faster roll-out: the average mass market telecoms spend per capita in Europe is €34.7, compared to €76.1 in the USA or €52.5 in Japan. The Average Mobile Revenue Per User is also lower in Europe (€14.9) as opposed to the USA (€36.9) and Japan (€28.1).
Investment is growing, but the sector is stretched
The total telecom investment in Europe reached €51.7bn in 2019, up from €48.6bn in 2018. 70% of this investment is delivered by ETNO companies. In addition, the telecom sector confirms its significant contribution to the EU economy: the value added by ETNO companies to GDP was €141.5bn in 2019, up from €136.9bn in 2018.
However, there are signs that the investment capacity of the European sector is stretched. The capital intensity of ETNO companies is at 18.7%, at higher level compared to South Korea, Japan and USA, who are all below 16%. This means EU telcos devote a relatively higher level of their revenues to investment. What is concerning is that, despite this, investment per capita in Europe was €94.8, as opposed to €229.8 in Japan and €214 in the USA.
The European telecom sector needs strengthening
Continued market fragmentation and high levels of regulatory restraints have contributed, over the years, to weakening the European telecoms sector. In 2020, all European telecom companies lost ground in the “World Top 15” operators ranking with respect to past years. Only 4 European telcos were left in the ranking in 2020, down from 6 in 2010. This reflects a fragmented market with over 39 Mobile Network Operators, but also low levels of digitisation and demand: Europe’s average usage per capita is 6.08 GB, as opposed to higher levels elsewhere: 11.05 GB in the USA, or 8.54 in South Korea.
Innovation: global competition is high, AI and OTT are a challenge
As the Continent strives to bridge digital gaps, European telecom companies continue expanding to areas that go beyond basic connectivity, including business models based on data, cloud and security. The report finds that European telecom revenues from digital services (e.g. enterprise solutions, security, desktop management, …) are expected to evolve from €65bn in 2017 to €100.4bn in 2021. Similarly, positive signs come from IoT, with the number of active connections in Europe expected to reach 838 million by 2027.
At the same time, competitive pressure from big tech companies remains high. OTT voice users are expected to increase from 40% of those with a mobile connection in 2017 to over 60% in 2024. OTT messaging users are expected to expand from almost 70% in 2017 to 90% in 2024. This highlights the role of big tech companies in communications markets, at a time in which the EU is looking to regulate digital services provided by large platforms.
When it comes to Artificial Intelligence, Europe has a significant role in advancing innovation. In the period 2010-2020, Europe scored 11.400 AI patents performing better than China (5.700) and Japan (4.000), but well behind the USA (53.200) and South Korea (16.800). AI is also a growing part of telecoms-related analytics and the telecoms sector’s increasing use of AI technology can help bridge the innovation gap.
Green transition: further improvements from telcos
EU telcos are first and foremost enablers of other industries as they strive to adopt digital solutions to shrink their carbon footprint. At the same time, operators are accelerating work to achieve carbon neutrality for their own sector. The carbon intensity of ETNO companies decreased in 2019, with emissions at 27 grams per EUR earned as opposed to 29 grams in 2018. ETNO companies also reduced their use of non-renewable energy by 23% and increased their use of renewable energy by 24% in one year (Period: 2018-2019). This is a further improvement compared to the previous period 2017-2018, where renewable went up 18% and non-renewable decreased by 9%.
Lise Fuhr, ETNO Director General, said: “We support the European Commission in their endeavour to achieve global digital leadership for the EU. This requires a renewed focus on investment in 5G, fibre and digital innovation. Digital networks and services are the foundation for Europe’s global competitiveness and green recovery, which will in turn empower European citizens”.
Rupert Wood, Research Director, Analysys Mason, said: “The pandemic presented European operators with dramatic changes in network usage as well as new operational challenges. European operators remain exposed to greater competitive pressures than elsewhere and consequently have revenue lines that change little in relation to surging demand. Despite these difficulties, they continue to invest heavily in fibre and 5G infrastructure to support European recovery and a post-pandemic digital agenda.”
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