Telecommunications market Demand for high-speed broadband – over the fixed and mobile networks – remains high. According to estimates by Analysys Mason, fixed-network data traffic grew by 30 percent worldwide in 2019. In the same period, estimates by Dialog Consult put the average data volume per fixed-network line and month in Germany at 137 gigabytes – more than five times the level seen five years ago. Analysys Mason estimates that mobile data traffic grew by 70 percent worldwide in 2019, representing an eighteen-fold increase in five years. For the telecommunications industry, these developments present both a challenge and the opportunity to monetize the strong growth in volume. Worldwide, revenues on the market for information and communications technologies (ICT) grew by 2.5 percent in the reporting year to EUR 3.2 trillion. The German digital association for information technology, telecommunications and new media Bitkom and the European Information Technology Observatory (EITO) expect the telecommunications market segment (services and equipment) to record an increase of 0.4 percent worldwide to EUR 1.7 trillion and the information technology (IT) market segment to record an increase of 5.0 percent for 2019. In the European Union (EU), revenues in the telecommunications market segment increased by 1.9 percent in 2019. Revenues from telecommunications equipment rose by 8.2 percent, while revenues from telecommunications services declined by 0.6 percent. In the CEE countries, revenues from telecommunications equipment and services grew by 3.0 percent in the reporting year. The telecommunications industry continues to be characterized by intense competition. Consumers benefit from a greater range of products to choose from. Each of our markets is occupied by three or four mobile operators with their own network infrastructure. On top of this, we are seeing mobile providers becoming established in many markets using the network infrastructure of the mobile network operators. Competition is also intense in the fixed network. Established telecommunications companies are competing with cable network operators, city network operators, and resellers, who predominantly make use of regulated wholesale products. Added to this are internet companies with over-the-top (OTT) communication services that further intensify the competitive pressure. The rapid technological transformation in the telecommunications sector calls for high investments to build out next-generation network infrastructure. GSMA Intelligence estimates that mobile operators will invest some USD 1 trillion worldwide in the rollout of 5G networks (excluding spectrum acquisition) over the next few years. Telecommunications networks are continually being upgraded with optical fiber. Established telecommunications companies like Deutsche Telekom are investing a substantial portion of their revenues in building out network infrastructure and acquiring spectrum. SDG 9 To ensure that these efforts can continue, we expect political and regulatory conditions that allow network investors to plan ahead reliably and generate appropriate returns for their investments. Germany According to EITO, revenue from IT products and services, telecommunications, and consumer electronics increased by 3.3 percent to EUR 144.1 billion in Germany in the reporting year. This was primarily attributable to the 4.2 percent growth in information technology. Telecommunications revenues (telecommunications services, hardware, and infrastructure) increased by 2.0 percent to EUR 59.7 billion. The number of broadband lines in Germany grew by 2.9 percent in 2019 to around 35.9 million at year-end, according to EITO. For 2020, the number of broadband lines is expected to grow by a further 2.5 percent to 36.8 million. Companies with their own infrastructure benefited the most from this market growth, along with resellers and regional providers. High-bandwidth lines are increasingly marketed in cable and VDSL/vectoring networks. The offerings in this area are supported by innovative hybrid connection technologies. The availability of high bandwidths in Germany and the large choice of HD content and video-on-demand services are stimulating customer growth in IPTV business. Convergent offers comprising fixed-network and mobile communications (fixed-mobile convergence, FMC) offer customers many advantages and help increase customer retention. The trend towards FMC offerings continued in the reporting year, with more and more providers expanding their portfolios. We launched our first convergent offering, MagentaEINS, on the market in fall 2014. Since then, we have been gradually enhancing the service both in the area of traditional communication and add-on services such as smart home, cloud computing, and security applications. Vodafone and O2 made up ground in terms of convergent offers. In the German mobile market, service revenues increased by 0.8 percent against 2018 to approximately EUR 20.0 billion. This revenue growth was driven largely by the continued rise in data usage, which offset regulatory effects as well as sustained price and competitive pressure. The use of mobile data continues to grow exponentially. The percentage of voice and data rate plans is rising steadily. Traditional voice and text messaging services are increasingly being replaced by free IP messaging services like WhatsApp and social networks like Facebook. Connected products such as smartphones and tablets, as well as watches, shoes, bicycles, and much more, are growing ever more popular, pushing up demand for mobile broadband speeds and for large data volumes in the rate plan portfolios. Digitalization is continuing apace, and as a result there is also growing demand by the industry for more connectivity to allow machines and production sites to be networked and to tap efficiencies in value chains. Extensive IT and cloud solutions, as well as intelligent approaches to M2M communication are needed in order to meet these demands. United States The mobile communications market in the United States continues to be divided between four major facilities-based nationwide providers – AT&T, Verizon Wireless, T‑Mobile US, and Sprint – and various regional network operators. In addition there are a number of mobile virtual network operators, which rely on the networks of one or more of the four national carriers to transport their voice and data traffic. The two largest national network operators are AT&T and Verizon Wireless, followed by T‑Mobile US and Sprint. The market continues to be very dynamic. Comcast, Charter, DISH, Altice, and Google have successfully entered or are on the verge of entering the wireless market, demonstrating the intensity of current competition in the sector. For example, the cable companies Comcast, Charter, and most recently Altice, have begun offering mobile services to their customers by leveraging their respective existing Wi-Fi networks, with Comcast and Charter falling back on Verizon’s network and Altice on Sprint’s network when out of their respective Wi-Fi footprints. These cable MVNO offerings have slowly churned subscribers away from the traditional wireless providers, exerting new competitive pressures and blurring market boundaries. DISH, which holds licenses to vast swaths of airwaves, has announced near-term plans for both a NarrowBand IoT network and a 5G network. In the United States, 5G commercialization is moving at a swift pace. All four national providers have launched 5G offerings on the market, which began with fixed-wireless plays in trial cities, and which currently take shape in true mobile services. Since December 2019, T‑Mobile US has covered large parts of the United States with its 5G network. All carriers are expected to continue to expand their networks in the coming months and according to different models which, for the time being emphasize different spectrum bands. For its part, the FCC has taken various steps to encourage investment in the wireless space. For example, to help providers prepare for the deployment of next-generation networks, the FCC has cleared regulatory hurdles, and preempted several state and local obstacles, in efforts to streamline the build-out of 5G mobile networks. Europe In the 2019 financial year, the traditional telecommunications markets continued last year’s growth trend in the highly competitive market environment in our Europe operating segment. Steady growth in broadband and TV services more than offset declining revenues from voice telephony in fixed-network business. Growth rates for mobile data usage remained high, especially due to the increased demand for the wide range of video services available. Overall, mobile business developed positively. Market consolidation in our European footprint continued in 2019 through mergers and acquisitions (e.g., Vodafone/Liberty Global (UPC) in Hungary, the Czech Republic, and Romania; United Group/Tele2 in Croatia). The unabated strong trend towards convergent product packages combining fixed-network and mobile communications (FMC) gained further momentum, bolstered on the one hand by the takeover of selected Liberty Global cable operations by Vodafone, e.g., in Hungary and Romania, and on the other by attractive retail offers, such as Orange Love in Poland, but also MagentaOne and CosmoteOne in our subsidiaries. These integrated convenience packages are enjoying strong growth in our companies and in some areas, already address the majority of consumers, which is having a positive impact on customer satisfaction and churn rates. Subscription-based streaming services such as Netflix and Amazon Prime Video still only have limited potential for substituting traditional pay TV in the countries of our Europe operating segment. According to Ampere Analysis, household penetration for these services increased from around 6 percent to 9 percent in 2019. By comparison, penetration in Western Europe increased by 10 percentage points in the reporting year to around 40 percent. In the business customer segment, European telecommunications providers benefited from advancing digitalization. The topics trending in 2019 were smart solutions for intelligent and clean cities and municipalities. We were able to successfully market our Smart City offers, such as charging points for electric vehicles in Croatia, in almost all of our national companies, especially in Romania and Greece. SDG 11 Thanks to innovation pressure from the European Union towards companies making their economic output digital and more productive and the predominantly stable economic situation prevailing in Europe, there was greater demand from companies in 2019 for complex digitalization projects. As a result, we also performed very well with our convergent products for everyday business (MagentaOne Business). Systems Solutions In the information and communications technology (ICT) industry in our core market of Western Europe, the volume addressed by our Systems Solutions operating segment and the T‑Systems brand increased by 6.4 percent in the reporting year to EUR 229 billion. However, this trend impacted the business areas of the market in very different ways. In the telecommunications (TC) segment, the market was dominated by continued price erosion in telecommunications services and by intense competition, while the weaker economic development in Europe had relatively little impact. The focus in this segment continues to be on the substitution of elements of the portfolio and demand for stable, intelligent and secure network solutions with increasingly large bandwidths. Growth in ICT security (cybersecurity), Internet of Things (IoT), cloud computing, and unified communications is leading to long-term stabilization of the markets we serve. Price erosion and the migration from high-value VPNs to low-cost internet-based solutions are offset by the development of overlay solutions (software-defined WANs), leading to a stable market volume and new short-term opportunities. While traditional business for telephony and unified communications is shrinking, demand for cloud-based communications and collaboration solutions (Unified Communications & Collaboration, UCC) is even driving moderate growth in the overall Western European UCC market. The trend towards managed LAN solutions continues and is also contributing to slight growth in the LAN market. Substitution effects between fixed-network and mobile operations continue to intensify. The migration to all-IP solutions, e.g., the combination of internet access, Voice over IP, IP VPN, and Unified Communications, continues to increase. In terms of IT services, demand has grown further for cloud services and cybersecurity services, as has the importance of digitalization, intelligent networks, the Internet of Things (including Industry 4.0), and communication between machines (M2M). Growth in this area reached double digits. The advance of digitalization and the shift towards cloud solutions also transformed demand in the systems integration business. Traditional project business in Germany declined. By contrast, the market for cloud-based SI services increased by almost 11 percent. Competitive and price pressure persisted in all submarkets of our Systems Solutions operating segment. This was caused in part by competitors such as BT Global Services and Orange Business Services in the telecommunications market, and IBM, Atos, and Capgemini in the IT segment; in addition, the IT segment in particular came under price pressure from cloud providers such as Amazon Web Services, Google, and Salesforce. This effect is further intensified by providers of services rendered primarily offshore. Group Development The environment of our Group Development operating segment is largely dominated by the markets served by our companies T‑Mobile Netherlands and Deutsche Funkturm (DFMG). The mobile communications market in the Netherlands has been marked by high price and competitive pressure for quite some time, and this situation intensified again in 2019. One of the trends contributing toward this is the growing bundling of fixed-network and mobile products into convergent offers (FMC), an area that is dominated by the two companies KPN and VodafoneZiggo. In recent years, prices for wireless products have come under increasing pressure from the FMC trend. DFMG is the biggest provider of passive wireless infrastructure for mobile communications and broadcasting in Germany. The market also saw increased demand for cell sites in financial year 2019, due on the one hand to the fact that network operators plan to close gaps in coverage, and on the other to the fact that demand for mobile data services is growing, which calls for a further increase in the density of mobile networks.
