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 25 % worldwide in 2021 and mobile data traffic by 37 %. The coronavirus pandemic in particular brought home the fundamental role that resilient, high-performing broadband infrastructure plays in the digital transformation. Numerous countries have announced ambitious build-out targets. In March 2021, the European Commission published new connectivity targets under which all households in the European Union (EU) should have a gigabit-capable line and all populated areas should be covered by 5G by 2030. According to a study by Boston Consulting Group, investments totaling EUR 300 billion will be needed to make this goal a reality.
Digitalization and broadband infrastructure are also major factors in the coronavirus stimulus packages. In February 2021, agreement was reached within the EU on the creation of the Recovery and Resilience Facility allocated with EUR 672.5 billion as the central pillar of the NextGenerationEU recovery plan. At least 20 % of the funds flowing to member states are earmarked for digital transition projects. Further numerous funding initiatives at national level were launched to support the broadband build-out and the digital transformation. For example, in November 2021 the United States Congress passed a comprehensive infrastructure subsidies program, which will provide USD 65 billion for broadband infrastructure deployments and aims to boost demand for broadband services.
The telecommunications industry continues to be characterized by intense competition. Consumers benefit from a greater range of products to choose from. In the fixed network, established telecommunications companies are competing intensively with cable network operators, city network operators, and resellers, who predominantly make use of regulated wholesale products. Financial investors are increasingly providing money for the build-out of regional and supra-regional fiber-optic networks. In addition, internet companies with over-the-top (OTT) communication services are further intensifying the competitive pressure. Moreover, three or four mobile carriers operate in each of our markets using 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 Bundesnetzagentur’s Activity Report, published in December 2021, the agency reported year-on-year growth in revenue from telecommunications services, pay TV, and IT services in Germany in the reporting year, mainly driven by the first signs of economic recovery following the negative impact of the coronavirus pandemic. The increase in revenue was predominantly due to the growth in mobile telecommunications services. Revenue from fixed-network services, including television, also increased, although at a slower rate.
According to the Bundesnetzagentur, the number of broadband lines in Germany had risen by 0.8 % to 36.5 million by the end of the first half of 2021. For 2022, Analysys Mason forecasts further growth of 2.2 % in the number of broadband lines. High-bandwidth lines are increasingly marketed in cable and VDSL/vectoring networks. The offerings in this area are supported by fiber-optic lines and 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. Providers are recording growth in broadband revenue driven by rising customer numbers in addition to higher revenues per customer for broadband products and triple-play bundles comprising telephony, a broadband line, and TV service. The trend for convergent product bundles comprising fixed-network and mobile offerings (FMC) also continued.
Service revenue in the German mobile communications market increased slightly compared with 2020, driven mainly by the uninterrupted upswing in data usage, which grew by 54 % (source: Analysys Mason). This additional demand for higher-value rate plans and devices offset revenue declines from dwindling international roaming traffic owing to weaker international travel, as well as regulatory effects and sustained high price pressure and intense competition. Mobile data usage continues to increase strongly on the back of growing use of products such as mobile video apps. The availability of next-generation 5G mobile technology also expanded rapidly in 2021. 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 wearables such as watches and fitness trackers, are growing ever more popular, pushing up demand for high-speed mobile broadband, large data volumes, and extra SIM cards 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.
In the United States, the ongoing coronavirus pandemic has led to continued demand for broadband services, both in fixed and mobile services. Broadband adoption in the retail sector benefited from over USD 10 billion in pandemic-related funding for consumers, schools, and libraries. The pandemic has also accelerated the adoption of digital services, leading to increased demand for enterprise ICT services.
To meet rising demand, operators are investing heavily in both fixed and mobile networks in urban, suburban and, increasingly, in rural areas. As part of their infrastructure expansion, telecommunications providers have announced plans to significantly invest in fiber-optic networks. AT&T announced in early 2021 that it planned to increase its fiber-optic footprint by an additional 3 million customer locations across more than 90 metro areas. Verizon, as well, plans to continue fiber deployments as do smaller providers. Frontier, a fixed-line provider, aims to cover 10 million premises by 2025, up from 6 million originally planned. Similarly, in 2021, regional provider Windstream began a program for the rollout of fiber to the premises (FTTP).
Wireless providers, too, have continued to heavily invest in the deployment of 5G networks in the United States. All three national mobile operators – AT&T, T‑Mobile US, and Verizon – claim 5G wireless connections across the United States. At year-end 2021, T‑Mobile US announced that its own 5G network covered 310 million people via the 600 MHz band, and over 210 million people with Ultra Capacity 5G in the 2.5 GHz band and millimeter wave (mmWave) spectrum. AT&T said in July 2021 that its 5G network reached more than 250 million people across the country. Verizon’s low-band mobile 5G service covers more than 230 million people in the United States. Operators are also increasingly offering fixed wireless services in competition with established cable operators and internet service providers (ISP) and in areas where traditional broadband connections are not available. Of the large providers, Verizon and T‑Mobile US, in particular, are investing in 5G fixed wireless, with T‑Mobile US’ offering being available to more than 30 million households nationwide and Verizon’s in 62 cities across the United States. Additional facilities-based competition could come from DISH, which continues to build its 5G network. The U.S. Federal Communications Commission (FCC) obligations require DISH to offer 5G broadband service to at least 20 % of the U.S. population and to deploy a core network by no later than June 14, 2022. The FCC continued to allocate spectrum for 5G deployments, including licenses in the 3.5 GHz band and in the 3.7 GHz band. Another auction for 100 MHz of spectrum in the 3.45 to 3.55 GHz band started in early October 2021 and was completed at the end of January 2022. A further auction of spectrum in the 2.5 to 2.7 GHz band is expected to take place in 2022.
The expansion of infrastructure in the United States will benefit from additional government subsidies programs over the coming years. This includes the Rural Digital Opportunity Fund (RDOF): The FCC plans to provide USD 20.4 billion for broadband infrastructure deployments in unserved and underserved areas of the United States over the next ten years. A Phase 1 auction was completed in September 2020 and will provide USD 9.2 billion in build-out support in unserved areas. The timeline for the Phase 2 auction has yet to be determined. Further support will come in the amount of USD 65 billion allocated by legislation passed by the U.S. Congress in September 2021. Congress has appropriated USD 42.45 billion to be allocated in grants to states to support broadband infrastructure, mapping, and adoption. A further USD 14.2 billion will be used to make broadband adoption more affordable. USD 2.75 billion will be allocated toward digital equity and inclusion programs.
Early in the reporting year, the traditional telecommunications markets in our Europe segment were affected in particular by the coronavirus pandemic, which resulted, among other effects, in a 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) reflected this trend with slight growth and was able to offset the decline in revenues from voice telephony. Mobile business also performed slightly better than in the prior year, with revenues also up overall year-on-year.
Market players in our European footprint continued their merger acquisition activities in the reporting year on a level equaling that seen prior to the outbreak of the coronavirus crisis. For instance, in Greece the United Group acquired Forthnet/Nova and is also expected to acquire Wind Hellas in the first half of 2022. In Poland, the Iliad Group acquired Play and is expected to acquire UPC PL in the first half of 2022. In Hungary, Digi announced plans to sell its Hungarian fixed-network, mobile, and pay TV business to the Hungarian ICT group, 4iG. In Romania, Orange acquired OTE’s 54 % stake in Telekom Romania effective September 30, 2021. Activities relating to the acquisition of spectrum licenses were restrained on the markets in the reporting year. However, the activities of the cell tower businesses picked up pace. For example, the Polish companies Play and Polkomtel both reached agreements on cell tower business with Cellnex.
Convergent bundle offerings consisting of fixed-network and mobile services (FMC) are now established in our markets and consistently post high growth rates. Analysys Mason expects the number of FMC customers and revenues to grow year-on-year, underpinned by further acquisitions in selected European markets such as Greece or Croatia on the one hand, and on the other by the further development of existing retail offerings to address specific target groups, such as Proximus in Belgium, and innovative advantage bundles, such as MagentaOne in our national companies. These integrated convenience packages are enjoying sustained strong growth in our companies and frequently address the majority of consumers, which is having a positive impact on customer satisfaction, churn rates, and revenue growth.
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 10 %. This is attributable to two effects: Firstly, the prices for these services are not (or only marginally) adapted to the local purchasing power, i.e., the price levels are generally the same internationally. Secondly, successful offerings, like Disney+, are either unavailable in most of our markets or only offer partial language content localization, thus narrowing their appeal to smaller sections of the population. Despite this, the appeal of this business model, which will continue to develop in our markets, is evidenced by the year-on-year trend: according to Analysys Mason, revenues with streaming services in Europe and the customer base both posted strong growth.
For the second year in succession, our B2B operations in Europe felt the effects of the pandemic. The lockdowns and major restrictions that dominated the first half of 2021 were followed in the second half of the year by delivery bottlenecks and supply shortages, which led to uncertainty in a disproportionately large number of industries. The success of business in Europe is now showing clear signs of heavy reliance on other continents and a need for dependable logistics. This led to some investments being pushed back to the next financial year as a matter of precaution. Despite this, demand grew in 2021 for solutions for mobile working and collaborating, video-conferencing systems, and more cost-efficient system landscapes in the cloud or IoT world. In virtually all European markets, public-sector employees were supplied with equipment for mobile working. Large companies also followed the trend in 2021 for future-proofing their system landscapes, e.g., with Microsoft Azure and similar solutions. A large number of small and medium-sized businesses began digitalizing their data back-up processes and ramping up their presence in the digital economy via online marketing and web shops.
In the information technology (IT) industry in our core market of Western Europe, the volume that can be addressed by our Systems Solutions operating segment and the T‑Systems brand increased by 4.3 % in the reporting year to EUR 157 billion. The effects of the global pandemic have positively affected IT customer spending. Many companies launched digitalization projects; for instance, home workstations were set up to enable employees to work remotely in virtually all industries.
In Germany, in terms of IT services, demand has grown further for public cloud services and cybersecurity services, as has the importance of digitalization (including Industry 4.0) and machine-to-machine communication (M2M). The security market addressed by T‑Systems grew by 11.9 % in 2021. The health sector also developed positively, posting double-digit growth rates in areas including telehealth and the healthcare cloud. By contrast, growth in demand slowed in the market segments for traditional infrastructure, project business, and SAP services.
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, Microsoft, and Google. Prices were eroded further by providers of services that are delivered primarily offshore (e.g., Tata Consultancy Services, Infosys, Wipro).
The environment of our Group Development operating segment is largely dominated by the markets served by our companies T‑Mobile Netherlands, Deutsche Funkturm (DFMG), and Magenta Telekom Infra (MTI) in Austria.
The Dutch mobile communications market served by T‑Mobile Netherlands continued to be marked by high price and competitive pressure. The Netherlands is ahead of much of Europe with its bundling of fixed-network and mobile products into convergent offerings (FMC). The dominance of KPN and VodafoneZiggo in fixed-network business kept the pressure on mobile product pricing high due to the FMC trend.
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 2021 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.
MTI is the second-largest provider of passive wireless infrastructure for mobile communications and broadcasting in Austria. The densification of the Austrian market continued throughout 2021, driven by rising demand for mobile data services and the fulfillment of coverage obligations by the network providers.