Telecommunications market
Demand for high-speed broadband – over the fixed and mobile networks – remains high. According to estimates by Analysys Mason, data traffic over the fixed network grew by 26 % worldwide in 2020. Estimates by Dialog Consult put the average data volume per fixed-network line and month in Germany in the reporting year at 168 gigabytes (GB) – an increase of 25 % year-on-year. According to Analysys Mason, mobile data traffic grew worldwide by 55 % in 2020. In Germany, the average data volume per SIM card and month stood at 3.0 GB in the reporting year, up by 45 % year-on-year (according to estimates by Dialog Consult). 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) decreased by 0.4 % in the reporting year to EUR 3.6 trillion as a result of the coronavirus pandemic. 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 a decrease of 2.1 % worldwide to EUR 1.7 trillion and the information technology (IT) market segment to record a slight increase of 1.2 % for 2020.
In the European Union (EU), revenues in the telecommunications market segment decreased by 3.3 % in 2020. Revenues from telecommunications equipment declined by 6.2 %, while revenues from telecommunications services were down by 2.2 %. In the United States, revenues with telecommunications equipment declined by 2.4 % in the reporting year and revenues with telecommunications services were down slightly by 0.1 % in the same period.
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 MVNOs becoming established in many markets using the network infrastructure of traditional mobile network operators. In the fixed network, too, established telecommunications companies are competing intensively 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) 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. 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 decreased by 0.1 % to EUR 143.5 billion in Germany in the reporting year, largely driven by the impact of the coronavirus pandemic. The decline was felt mainly in telecommunications revenue (telecommunications services, terminal equipment, and infrastructure), which decreased by 0.6 % to EUR 56.8 billion. Revenue with information technology increased slightly by 0.3 % to EUR 86.7 billion.
The number of broadband lines in Germany grew by 2.4 % in 2020 to around 36.7 million at year-end, according to EITO. For 2021, the number of broadband lines is expected to grow by a further 2.5 % to 37.5 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 for convergence products continued in the reporting year. We tapped into this trend with the addition of MagentaEINS Plus to our convergent offerings in September 2020. The original MagentaEINS was launched back in fall 2014 – Vodafone and O2 have since followed suit with convergence products of their own.
In the German mobile market, service revenues increased by 0.4 % against 2019 to approximately EUR 20.0 billion. This revenue growth was driven largely by the continued rise in data usage, which was offset by regulatory effects as well as sustained price and competitive pressure. Mobile data usage continues to increase strongly on the back of growing use of products such as mobile video apps. 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 other connected devices such 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
In the United States, the coronavirus pandemic dampened the economy and the mobile communications sector due in part to the temporary closure of shops and offices. In parallel, the increased use of video conferencing and streaming services caused a sharp rise in data traffic over the networks. Despite the higher loads, both the mobile networks and the mobile communications industry as a whole proved resilient during these times.
In the U.S. mobile communications market, the business combination of T‑Mobile US and Sprint has created a market with three national mobile providers alongside various regional network operators. Additionally, an array of mobile virtual network operators (MVNOs) offer mobile services, using the networks of one or more of the three national carriers to transmit their voice and data traffic.
The market remains highly dynamic, largely due to the competition posed by cable operators. Comcast, Charter, and Altice use their own existing Wi-Fi networks to deliver mobile communications services, with Comcast and Charter falling back on Verizon’s network and Altice previously/so far on Sprint’s network (which now belongs to T‑Mobile US) when out of their respective Wi-Fi footprints. Altice also has a roaming agreement with AT&T. These offerings from cable operators and MVNOs have slowly churned customers away from the traditional mobile providers, intensifying the competitive pressure and bolstering the ongoing efforts of cable operators to gain traction in the mobile market.
The entry of satellite TV operator DISH into the market is expected to add new competitive pressure: DISH holds licenses to vast swaths of airwaves and has announced plans for building its own 5G network in 2021. DISH benefited from the business combination of T‑Mobile US and Sprint, consummated in 2020, which included the sale of Sprint’s prepaid business to DISH effective July 1, 2020 as a major prerequisite for the U.S. authorities approving the merger.
In the United States, 5G commercialization continues to move at a swift pace. All three nationwide mobile providers have launched 5G services, as have a number of regional providers. 5G is being built out in the United States utilizing both sub-6 GHz spectrum and millimeter wave (mmWave). T‑Mobile US’s 5G network now covers 280 million people in the United States. All carriers will continue to expand their networks in the coming months according to different models which, for the time being, emphasize different spectrum bands.
For its part, the U.S. Federal Communications Commission (FCC) has taken various steps to encourage investment in mobile communications. For example, to help providers prepare for the deployment of 5G networks, the FCC has cleared regulatory hurdles, and preempted several state and local obstacles, in efforts to streamline the build-out. Additionally, in 2020 the FCC held several auctions for spectrum integral to the 5G build-out. The C-band auction for spectrum in the 3,700 to 4,200 MHz band began on December 8, 2020 and ended on January 15, 2021.
Europe
The traditional telecommunications markets in our segment were primarily impacted by the coronavirus pandemic in the reporting year. This resulted, among other effects, in a substantial year-on-year decline in mobile roaming revenues due to travel restrictions. Full and partial lockdowns in our footprint countries over the course of the year led to the temporary closure of shops and other measures. Public life moved online to a large extent, driving a corresponding increase in demand for broadband and TV services. According to Analysys Mason, fixed-network business (excluding systems solutions business) proved robust and was able to offset the decline in revenues from voice telephony. Despite posting losses in roaming business, revenue from mobile communications remained stable year-on-year. Overall, revenues were on a par with the prior-year level.
Following a sustained period of market consolidation in our European footprint driven by a number of mergers and takeovers in recent years, activities in this area continued in 2020 albeit to a much lesser extent. For instance, in Poland Iliad took over Play and in Greece United Group took over Forthnet. Furthermore, no new market entrants were identified, for instance, as participants in the 2020 5G auctions. Investments in the 5G network were stepped up in the reporting year. Auctions were held in various countries, including Hungary, Greece, Austria, the Czech Republic, and Slovakia.
The unabated strong trend towards convergent product packages combining fixed-network and mobile communications (FMC) gained further momentum. The experts at Analysys Mason expect FMC revenues to grow year-on-year, bolstered on the one hand by the takeover of selected Liberty Global cable operations by Vodafone, e.g., in Hungary and Romania in 2019, 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 Prime Video still only have limited potential for substituting traditional pay TV in the markets of our Europe operating segment. Analysys Mason puts the share at around just 8 %, partly due to the fixed international pricing of the majority of these services – prices that are not (or only marginally) localized to purchasing power – and partly because content is not or only to a limited extent dubbed into local languages and thus only appeals to small sections of the population. Despite this, the appeal of this business model is evidenced by the year-on-year trend: according to Analysys Mason, revenues with streaming services in Europe posted above-average growth – the customer base grew by almost 50 %.
For the business customer area, 2020 was a year of manifold opportunities and challenges alike. The latter include not least the record low hit by roaming revenues in the European telecommunications market as just one of the effects of the coronavirus pandemic. Nevertheless, the telecommunications industry is emerging as one of the winners of the worldwide coronavirus crisis, with most businesses posting stable to rising revenues across their mobile communications, fixed-network, and ICT/cloud divisions. So, too, were most of Deutsche Telekom’s European subsidiaries able to leverage the opportunities arising from the crisis despite falling revenues from hard-hit industries, especially tourism, or from postponed tendering processes for corporate customer projects. Attractive mobile data bundles, home-working solutions, and collaboration tools were marketed with great success, particularly at our Polish and Austrian subsidiaries. Cisco Webex and Microsoft Teams were some of the most popular services from our ICT/cloud portfolio in the reporting year across all business customer segments and in the public sector.
Systems Solutions
In the information technology (IT) industry in our core market of Western Europe, the volume addressed by our Systems Solutions operating segment and the T‑Systems brand decreased by 2.6 % in the reporting year to EUR 185 billion largely due to the coronavirus pandemic. The IT services market, in particular, posted revenue declines in 2020, with coronavirus the biggest contributor to this trend. The effects of the global pandemic have negatively affected IT customer spending. Challenging conditions across virtually all industries led to the deferral of many large-scale IT projects. However, this trend impacted the business areas of the market in very different ways.
In terms of IT services, demand has grown further for public cloud services and cybersecurity services, as has the importance of digitalization, the Internet of Things (including Industry 4.0), and communication between machines (M2M). The health sector also developed positively, with growth reaching double digits in some areas. By contrast, demand was down in the market segments for traditional infrastructure, project business, and SAP services. Business with outsourcing and managed services proved much more resilient. The market for cloud-based systems integration services grew by almost 1.5 % despite the coronavirus pandemic.
Competitive and price pressure persisted in all submarkets of our Systems Solutions operating segment. This was due on the one hand to competitors from traditional IT services business, such as IBM, Atos, and Capgemini, and on the other to cloud providers such as Amazon Web Services, Google, and Salesforce. Prices were eroded further by providers of services that are delivered primarily offshore (e.g., Tata Consultancy Services, Infosys, Wipro).
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).
While the Dutch mobile communications market continues to be characterized by sustained high price pressure and intense competition, this is expected to ease moderately in the coming years. The Netherlands is ahead of much of Europe with its bundling of fixed-network and mobile products into convergent offers (FMC). The dominance of KPN and VodafoneZiggo in fixed-network business is keeping the pressure on mobile product pricing high due to the FMC trend. Moreover, the rapid technological transformation calls for high investments. Investments in building out 5G network infrastructure continued in 2020 following the Dutch 5G auction.
DFMG is the biggest provider of passive wireless infrastructure for mobile communications and broadcasting in Germany. Despite the coronavirus pandemic, the market again saw increased demand for cell sites in the 2020 financial year, 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.