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The price of fixed and mobile service falls due to strong competition in Europe

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European consumers, and especially Spanish consumers, are taking advantage of the struggle waged by mobile and fixed broadband operators to achieve the lowest possible rates and with a more than acceptable quality of service. Meanwhile, the expenses of the operators increase more than the income, especially for those with their own infrastructure, which can slow down the necessary deployment of 5G networks and fiber optics. The creation of four large operators in the main European markets by regulators to stimulate free competition is far from achieving the initially envisaged objectives.

 

Two years after the first commercial 5G NSA services began to be deployed, the current situation in Europe does not invite optimism. The networks 5G SA, or real 5G, and that give full meaning to the fifth mobile generation, are just beginning to be installed in Europe, even in the main market, Germany, and the full 5G regulation, Release 17, will not be approved until the end of this year hopefully.

 

The pilots for business uses of 5G, which are the ones that should really promote the use of the new high-speed mobile networks, are going well. But they are still use cases and, with the pandemic, the majority of 5G applications aimed at large human concentrations, one of the most promising, have had to be parked for a period that is desperately lengthening. Meanwhile, 5G business uses are waiting for proven applications.

The Spanish telecommunications market has serious problems, such as a continuous drop in prices, high portability and low profitability of the operators’ investments, which are weighing on the deployment of 5G

All the new generations of mobile telephony have had difficult beginnings. In some cases, because there were not terminals with sufficient capacity or reasonable price. In the case of 5G, the problem is that the technology was sold without being sufficiently ready and with an intermediate standard that used 5G over 4G backbones, Non-Stand Alone (5G NSA) with few advantages over 4G-LTE it already exists. And directed escialmente to final consumers, who was not the most appropriate target.

 

The ongoing pandemic, together with the associated economic and social crisis, have just ruined prospects that were no longer entirely favorable for the new mobile technology. The delay in deployment, however, cannot be attributed to the development of 5G either, because it had been several years, at least since the beginning of this decade, that the telecommunications sector, and especially in Spain, had suffered a series of problems that now have become more evident.

 

The difficulties that operators are now going through derive from the fall in the billing of mobile and fixed broadband telephony services caused by strong competition, the excessive portability of lines from one operator to another, the consequent drop in profitability of the operators and the price of their shares and the increase in virtual operators, without their own infrastructure, boosted by the facilities provided by the operators that did have it, among other factors.

Revenues fall by 6% in one year in Spain

The total income of telecommunications operators in Spain was 32,215 million euros in 2020, compared to 34,425 million the previous year and 39,719 million in 2010, when there was hardly any 4G and mobile Internet, according to recently published data from the four quarters of last year by the Comisión Nacional del Mercado de la Competencia (CNMC). This means that total revenue has fallen 6% in 2020 compared to 2019, which was 34,484 million, and 19% compared to 2010, which represents revenues lower than 7,500 million in ten years.

 

Retail revenues in Spain, that is, those invoiced to end customers, amounted to 23,327 million euros in 2020, 7% less than the previous year and no less than 31% compared to 2010. Wholesale revenues to large customers and operators without infrastructure fell a little less, 4%, and stayed last year at 8,887 million euros. The last quarter of 2020 was especially dramatic for the retail revenues of the three main operators, which again lost 1.4 points compared to the fourth quarter of 2019, as seen in the graph below. Meanwhile, the MásMóvil group and Euskaltel increased their retail income in the interannual rate to represent 8.5% and 2.7% of the total.

This means that operators without infrastructure gained market share in Spain at the expense of those that have it, an issue that can only be explained by the regulatory complexity of the telecommunications sector and by the interest in creating competition to lower prices, as well as It has been, apart from the favorable economic, technological and social situation. The strategy of operators with infrastructure to attract retail customers and achieve rapid occupation of their networks with lower commercial costs, which they now regret, has also contributed.

Telefónica has launched a fixed and mobile convergent package with 5G smartphone included, which remains to be seen if it will serve to increase the price of convergent services with 5G included compared to those that do not offer 5G

The three major operators in Spain (Movistar, Orange and Vodafone) saw their market shares for fixed broadband lines drop significantly in the last two years, to the benefit of the MásMóvil group and Euskaltel. In mobile phone lines, the big three operators also lost market share, although less than in fixed broadband lines. The winner in mobile lines was the MásMóvil group, to the detriment of the rest, although some of them were absorbed by MásMóvil, such as Lycamobile in the second quarter of 2020 or Hits Movile since the third quarter of 2019, as seen in the following two graphs of the CNMV

The fall of almost a third of the total income of the sector in Spain in a decade is much more relevant when compared with the greater number of users that there has been in those ten years. Fixed broadband lines have increased from 10.64 million to 15.85 million and total mobile lines increased from 51.38 million to 55.66 million from 2010 to 2020. Fixed and mobile connections have also improved significantly, from ADSL to fiber optics mainly (especially in Spain) and the 2G and 3G to 4G network to a large extent. And now, in 2011, it is migrating to 5G. The statistics of the last years and of the four quarters of 2010 of the National Commission of Markets and Competition (CNMC) allow to see its evolution. 

 

Another serious problem in the Spanish sector is the high portability that continued to exist in 2020, despite many months of strict confinement. Last year there were 6.8 million changes of operator in mobile phone numbers and 2.1 million exchanges in mobile phones. “It is one more example of the competitive intensity of the Spanish telecommunications market”, as the statement of the National Commission of Markets and Competition (CNMC)  laconically indicates. During the past month of January, 582,499 mobile numbers and 163,237 fixed numbers were ported, so the portability does not diminish.

Large fiber run makes 5G less necessary

The most positive thing about the situation of the telecommunications sector in Spain is the high number of fiber optic connections to homes (FTTH), which reached 11.6 million lines at the end of January 2021, according to the latest published data by CNMC. From January 2021 to January 2020, FTTH lines increased by 1.3 million, compared to the loss of 700,000 DSL lines, with copper pair. Thus, the deployment of FTTH fiber optic lines continues to be very important, despite the fact that they already represent 74% of the total, of which 40% are from Movistar, as seen in the following graph from the CNMV.

This high penetration of fiber optic lines in Spain is much higher than countries such as Germany or Great Britain and even France, which is the important European market with more fiber after Spain. This profusion of fiber optics in Spain facilitates, in theory, the deployment of 5G, because very high-speed mobile lines cannot function without a good infrastructure that reaches their link stations. But it also mortgages 5G, because many households can already have an excellent fixed broadband connection with fiber and, in these times of pandemic, very high-speed mobile connection is not so necessary because there are fewer trips.

 

Another problem that hinders the acceptance of 5G by consumers is the ambiguity with which operators market and promote it, without making much distinction in whether a medium-band mobile link network is accessed, at 3.5 GHz, or low band, which achieves a considerably lower speed, which is known in many markets as true 5G (at 3.5 GHz) or false (at lower frequencies). Nor are reliable coverage maps given by working frequencies and if 5G is operated with 4G networks with DSS spectrum sharing technology.

 

The problem for operators is precisely that there is not a single 5G, but several, depending on whether 5G backbones are used with 5G SA or mixed 4G / 5G with 5G NSA, and at different frequencies. In addition, the consumer is used to being promoted a mobile generation, 4G or previously 3G, with many more features and with a notable increase in speed. With 5G, the improvement is very diffuse, because it also depends on the consumer’s usual range of action and the coverage and type of coverage that it has in the areas that are most frequent.

 

The technical aspects of 5G are unknown in detail by consumers, due to the generic marketing made by operators that have already started to deploy the new mobile generation. But everything indicates that they intuitively consider that 5G can contribute little at the present time, and that is why they do not hire it, or they cannot bear a higher cost, at least that derived from the change of terminal.

 

Just a couple of days ago, the main mobile phone operator in Spain, Telefónica, launched a new promotion of a convergent package of fixed and mobile lines with a 5G smartphone included.  It remains to be seen what its acceptance by the market will be and if it will really serve as a catalyst to promote 5G mobile services and increase the price of converged services with 5G included compared to services that do not carry 5G.

 

The main problem that practically all European mobile operators have with 5G is precisely that, on average, the monthly fee for full convergent services with 5G is only a few euros higher than the monthly fee with similar services without 5G. And in some cases, as is happening in France, there are operators that offer 5G cheaper than 4G to achieve a higher share, or promote 5G at low frequencies or on the basis of 4G backbones, with no appreciable difference between different offers. All this only complicates a panorama, that of 5G, already quite confusing at the moment in Europe.

Insist on the consumer and leave SMEs aside

European operators have traditionally focused on large accounts and consumers when offering fixed and mobile broadband services, leaving aside small and medium-sized companies, which constitute a very attractive market but require more. dedication. A report last year by BearingPoint // Beyond, in collaboration with Omdia, argued that most European operators allocate 70% of their resources to 1% of large companies.

 

Small and medium-sized companies, the consultancy considers, see 5G as an opportunity to improve their income, but 72% prefer to go to a telecommunications services company rather than an operator because they believe that they will better serve their needs. Operators are marketing 5G as they did with 4G, missing a great business opportunity and to make 5G profitable faster, says the consultancy.

 

Be that as it may, the case is that 5G networks require operators to allocate greater investments without it being clear that higher revenues will be achieved, at least in the short term in Europe. This low profitability of the operators is a serious problem, as the European operators have recently shown through the association that groups them ETNO.

 

The GSMA, the association that brings together the majority of operators, and ETNO also consider that European telecommunications regulation is too strict and markets too fragmented, so regulators should encourage infrastructure sharing, both within between countries and between European countries.

 

The low profitability of European operators is leading to a continuous fall in the value of their shares, which are trading at a fraction of those of ten years ago in the case of large operators such as Telefónica or Vodafone. A little over a month ago, in the presentation of the 2020 results, the president of Telefónica was favorable to any operation that leads to a consolidation of the Spanish telecommunications market. The purchase of Euskaltel by MásMóvil seems to go against these wishes and consolidates the model with four very competitive operators in Spain, instead of three, as it seemed a few months ago.

 

All this will make it difficult in Spain, but also in other European countries, because many problems are common, for large operators to continue investing heavily in networks, especially in 5G, while their profitability is not clear. And, on the rebound, the competitiveness of the Spanish and European economy is burdened, which has repeatedly been announced that it will cause the deployment of 5G.