Market expectations

Germany

The German market for telecommunications services saw slight growth in 2018 of 0.3 percent. A further small increase of 0.4 percent is expected for 2019 (source: EITO, European Information Technology Observatory). The negative trends resulting from regulatory effects and the decline in traditional fixed-network telephony will be offset by growing demand for mobile data volumes and faster connectivity in the consumer and business customer area. The trend of slight revenue growth in the German mobile market recorded in 2018 is therefore expected to continue in 2019 (source: EITO).

For the wider ICT market, which covers IT services as well as telecommunications, EITO forecasts growth of 1.7 percent for 2019. This increase is primarily attributable to growth in the IT market, which stood at 2.5 percent in 2018 and was mainly driven by strong demand in two areas: services for business customers (e.g., outsourcing, project business, consulting) and software-based services (virtualization and cloud business, e.g., in the form of Software as a Service, Platform as a Service, or Infrastructure as a Service).

Innovative integrated products and attractive supplementary services – such as TV and music options – are becoming increasingly important for our competitive position with consumers, while cloud services, security applications, and solutions for Industry 4.0 are gaining in significance with business customers. We are also setting ourselves apart from other providers with our download and upload bandwidths, the mobile data volumes we include in our rate plans, and innovations in our rate plans.

The mobile communications market in Germany is dominated by three providers, each with its own network infrastructure, who deploy 4G/LTE technology – and in future also 5G – to ensure that the majority of the population has access to high-speed mobile internet. By contrast, the fixed-network broadband market hosts a large number of players with differing infrastructures – from national through to regional providers. We are assuming that competition from cable network operators will remain intense and that the number of providers who have their own DSL and fiber-optic networks will increase.

United States

The U.S. economy’s positive momentum in 2018 impacted the country’s ICT market, for which overall spending grew by 5.0 percent in 2018 (source: EITO). Much of the growth was due to greater expenditures on software, IT and business services, as well as telecommunications equipment. Spending on smartphone and mobility infrastructure significantly impacted the latter. Slightly lower levels are forecasted for 2019 (+3.7 percent), due to lower growth of IT equipment revenues. Growth in the telecommunications segment remains solid, with market revenues increasing by 2.6 percent in 2018 and a forecasted 2.5 percent in 2019.

The U.S. mobile market, in particular, continues to be characterized by intense competition among the major mobile carriers. This has resulted in relatively strong price competition and corresponding pressures on ARPU. According to Analysys Mason, industry ARPU (excluding IoT) declined by 0.5 percent in 2018 and is projected to decline by 1.1 percent in 2019. Recent changes by service providers, such as the removal of overage charges, the move toward unlimited data plans, and Equipment Installment Plans (EIPs) have contributed to the reported decline in ARPU (source: Federal Communications Commission). Nevertheless, Analysys Mason expects total mobile revenues to grow thanks to an increasing number of mobile connections, rising data usage, and an expected boom in the number of IoT connections. With respect to data usage, monthly data usage per mobile connection rose to an average of 5.9 GB per subscriber per month in 2018, an increase of approximately 58 percent from 2017. In 2019, monthly data usage is expected to average 8.8 GB per subscriber per month, an increase of 48 percent.

Leading industry associations such as GSMA expect the United States to lead global migration to 5G. GSMA expects almost half of all mobile connections to be running on 5G networks by 2025. T-Mobile US aims to achieve nationwide 5G coverage by 2020, utilizing the 600 MHz spectrum holdings it acquired in April 2017.

Europe

We expect the traditional communications markets in the Europe operating segment to remain stable overall over the next two years, for both mobile communications and the fixed network (including traditional TV services). Continuing declines in voice services can be offset by data services in both submarkets, as well as by traditional TV services (excluding OTT) in the fixed network. For 2019 and 2020, Analysys Mason expects annual growth in fixed-network business of 2 percent in both the broadband and TV markets, while the significance of voice services will likely continue to diminish, shrinking by around 7 percent and 6 percent, respectively, per year. In the mobile markets, data services are expected to grow by 7 percent in 2019 and 5 percent in 2020, driven mainly by the use of mobile video services. Analysys Mason expects the overall data volume in the countries of the Europe operating segment to grow by 46 percent in 2019 and by another 36 percent the year after. We are already seeing preparatory investments in 5G networks in almost all markets of our Europe operating segment, which will further improve the coverage of large parts of the population with high-speed mobile internet. By contrast, the relevance of traditional voice services also continues to wane in mobile communications: Analysts forecast a revenue decline of around 6 percent per annum in this area. Demand for convergent offers comprising fixed-network and mobile services (FMC) also continues unabated in the markets of our Europe operating segment. We expect the number of convergent households to grow by more than 20 percent over the next two years. This means that by 2019, more than 30 percent, and by 2020, almost 40 percent of all broadband lines in the consumer market would be part of a convergent offer.

According to Oxford Economics, real GDP will continue to rise in all our footprint countries in 2019 by between 2 and 4 percent per annum. This positive economic situation will have a particular impact on the IT markets in our Europe operating segment. EITO forecasts growth of more than 2 percent for the countries of Central and Eastern Europe for 2019.

Systems Solutions

Growth in the ICT market is expected to continue apace over the next two years, while cost pressure and intense competition are expected to persist. At the same time, we expect the digital transformation to stoke demand for solutions for cloud services, big data, smart network services such as Industry 4.0, the Internet of Things, and M2M, as well as for the mobilization of business processes and ICT security (cybersecurity).

We estimate that the ICT markets will develop along divergent paths in the two main market segments:

• Telecommunications: The highly competitive fixed-network market for large business customers remains challenging. Innovative change, intense competition, constant price erosion, and the interventions of national regulators are all likely to slow down market growth, even though business with both mobile data services and the Internet of Things will continue to grow in the coming years.
• IT services: The clear growth in the market for IT services in the reporting year is likely to continue in 2019 and 2020. At the same time, this market is undergoing a radical transformation, e.g., due to ongoing standardization and automation, demand for smart services, and the changes being wrought by cloud services in outsourcing business. Further challenges have arisen in the shape of digitalization, the growing importance of cybersecurity, big data, and increasing mobility. Traditional IT business is likely to decline due to price competition, while cloud services, mobility, and cybersecurity may reach double-digit growth. In view of this, we continue to plan to step up investments in growth markets – especially in digitalization, cloud services, cybersecurity, and smart network solutions for the healthcare sector, the public sector (smart city), and the automotive industry.

Group Development

Our companies T-Mobile Netherlands and Deutsche Funkturm (DFMG) dominate the development of our Group Development operating segment.

• The high price and competitive pressure in the Dutch mobile market will continue over the coming years. One of the main trends contributing toward this is the growing bundling of fixed-network and mobile products into convergence offers (FMC). What is more, both the strong discount segment, comprising mobile providers’ secondary brands, and MVNOs will continue to make for lively competition.
• With some 29,000 locations, DFMG is the biggest provider of passive wireless infrastructure for mobile communications and broadcasting in Germany. We expect demand for cell sites to rise steadily over the next few years, due to the fact that network operators plan on the one hand to close gaps in coverage, and on the other to increase the density of mobile networks to meet the growing demand for mobile data services.