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 21 % worldwide in 2022 and mobile data traffic by 34 %. The coronavirus pandemic as well as the war in Ukraine and its consequences have brought into sharp relief that resilient, high-performance broadband infrastructure is of central importance to the economy and society.
Numerous countries have announced ambitious build-out targets for their digital infrastructure. 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. At least 20 % of the funds flowing to member states from the Recovery and Resilience Facility are earmarked for digital transition projects. In November 2022, the EU institutions agreed on the “declaration on European digital rights and principles for the digital decade,” which provides among other things for all players benefiting from the digital transition to make an appropriate contribution to the costs of the network infrastructure. Further numerous initiatives at national level were launched to support the broadband build-out and the digital transformation. In Germany, the Federal Government’s Gigabit and Digital Strategy was adopted in 2022. The Gigabit Strategy aims among other things to improve framework conditions in order to accelerate and facilitate the network build-out.
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 also further intensifying the competitive pressure. Moreover, three or four mobile network operators operate in each of our markets using their own network infrastructure. On top of this, we are seeing mobile virtual network operators (MVNOs) becoming established in many markets using the network infrastructure of traditional mobile network operators. Against this backdrop, we no longer see a justification for the continued intense regulation of the EU’s telecommunications markets. Many analysts also feel there is a need for regulatory realignment in the telecommunications sector.
In January 2023, the industry association Bitkom estimated that total revenue in the telecommunications industry in Germany had increased by 1.3 % year-on-year to EUR 68.9 billion in the reporting year. This was largely due to the abatement of the coronavirus pandemic, such that the telecommunications industry recorded growth despite the war in Ukraine. The increase in revenue was mainly attributable to growth in telecommunications infrastructure (7.3 %) and telecommunications terminal equipment (1.8 %), but also to a lesser extent to growth in telecommunications services (0.3 %).
According to market research company Analysys Mason, the number of broadband lines in Germany increased by 1.1 % year-on-year by the end of the first half of 2022 to 38.0 million lines. High-bandwidth lines are increasingly marketed in cable and VDSL/vectoring networks. The drive to build out modern fiber-optic networks continues: in addition to established telecommunications companies, smaller and regional companies are increasingly active. The growing availability of high bandwidths in Germany and the large choice of HD content and video-on-demand services are stimulating sustained 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. Furthermore, the trend towards using convergent product bundles comprising fixed-network and mobile offerings (FMC) continued, although growth was much weaker than in previous years.
According to the industry association VATM, service revenue in the German mobile communications market increased by 3.4 % compared with 2021, driven mainly by the uninterrupted upswing in data usage, which grew by 47.4 %. As well as the additional demand for higher-value rate plans and devices, revenues from international roaming traffic also increased owing to the rising levels of international travel once again. Regulatory effects as well as sustained high price pressure and intense competition offset this increase in revenue. Mobile data usage continues to increase strongly on the back of growing use of products such as mobile video apps. The availability of 5G mobile technology also expanded rapidly in 2022. 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 (machine-to-machine), are needed in order to meet these demands.
In the United States, consumers continued to show strong demand for telecommunications services. In the third quarter 2022, residential broadband market growth was stronger than in the third quarters preceding the coronavirus pandemic, adding approximately 625 thousand subscribers compared to between 515 and 540 thousand before the pandemic. Wireless broadband services, too, rose, with the largest three wireless operators and Comcast and Charter adding 2.3 million postpaid phone subscribers in the third quarter 2022, continuing the upward trends of recent quarters. Wireless demand was driven, among other things, by strong business demand, desires for more second devices, stronger demand by younger and older consumers and an ongoing shift from prepaid to postpaid.
To meet consumer demand, U.S. operators have continued to invest in infrastructure and network upgrades. T‑Mobile US has expanded its 5G wireless network to cover 325 million people across the United States. Verizon now provides 5G service in over 2,700 markets and AT&T’s 5G network reaches over 285 million people nationwide. Apart from meeting consumer demand, carriers see 5G networks as enabling enterprise opportunities given the lower latency and network slicing capability.
Wireless carriers in 2022 also invested significantly in fixed wireless broadband services in the United States. T‑Mobile US and Verizon, in particular, saw significant growth in consumer uptake in 2022, after having launched their 5G fixed wireless services in 2021. T‑Mobile US said it had 2.6 million High Speed Internet customers at year end 2022, whereas Verizon says it passed 1 million fixed wireless subscribers in the third quarter of 2022 and reported 379,000 fixed wireless net additions for the fourth quarter of 2022. As of January 2023, T‑Mobile US’s 5G fixed wireless home Internet service was available to more than 50 million homes. In November 2022, Verizon’s fixed wireless service was available to 40 million homes.
Competition from fixed wireless broadband as well as general demand for broadband services is prompting cable providers to invest in their networks. Cable companies continue to perform broadband capacity upgrades, deploy small cell antennas and expand in rural markets to capture new broadband customers. In addition, cable operators have been promoting wireless-broadband bundles as fixed-mobile convergence is gaining traction in the U.S. consumer marketplace due to demand.
Operators are also showing strong interest in fiber buildouts. Fiber is seen by many as an effective long-term solution to satisfy broadband demands. Fiber penetration in the U.S. is currently put around 36 % and estimated to rise to 55 % by 2025. Deployment could be slowed, however by cost inflation, supply chain factors and a rise in interest rates. On the other hand, fiber deployment is expected to benefit from U.S. federal government subsidies. The Infrastructure Investment and Jobs Act passed by Congress in 2021 allocates USD 65 billion to broadband buildout and adoption and foresees around USD 42 billion for infrastructure buildout, with a focus on fiber technology.
In 2022, the U.S. Federal Communications Commission allocated additional frequencies for commercial wireless use to further support the buildout of 5G networks. This included 100 MHz of spectrum in the 3,450 to 3,550 MHz band as well as 117.5 MHz of spectrum in the 2.5 GHz band. No further auctions are planned at this stage.
The telecommunications markets of our segment were heavily affected by global events in the reporting year: The war in Ukraine had a major negative impact on economic development. The associated extensive sanctions against Russia had a knock-on effect on energy and producer prices. This resulted in sharp rises in inflation rates in these countries, leading to customers making economies in their selection of telecommunications products. Nevertheless, demand for broadband and TV services remained high. This is also reflected in Analysys Mason’s figures for the fixed-network business (excluding systems solutions) for the first half of 2022: The business is growing, driven in particular by the increase in broadband business. This offset the decline in revenues from voice telephony. Mobile business also performed better than in the prior year.
The market players in our European footprint focused their acquisition activities in the reporting year on becoming providers of convergent product bundles comprising fixed-network and mobile services (FMC). In Greece, for example, a new convergent competitor emerged from the United Group’s takeover of Nova and Wind. In Poland, the Iliad Group strengthened its convergent position by taking over Play and UPC Poland. In Hungary, the ICT group 4iG made a number of acquisitions, including that of Digi, Invitel, Antenna Hungary, and Vodafone/UPC Hungary, so as to establish itself as the second largest convergent company in Hungary. In Croatia, Telemach acquired Tele2 and Optima, making it the third strongest company with convergent services. In terms of the acquisition of spectrum licenses, there was only limited activity on the markets in the reporting year. However, the activities of the cell tower businesses picked up pace.
Convergent product bundles are now established in our markets and consistently post high growth rates. According to Analysys Mason, the number of FMC customers and revenues continued to grow year-on-year in the first half of 2022. The further development of existing retail offerings will allow specific target groups to be addressed, as well as innovative bundle bonuses to be obtained, such as the Telefónica Relaunch with the inclusion of non-traditional services in Mi Movistar or MagentaOne in our national companies. These integrated bonus packages are enjoying sustained strong growth in our national companies and frequently address the majority of consumers, which is having a positive impact on customer satisfaction, churn rates, and revenue growth.
In the markets of our Europe operating segment, subscription-based streaming services are now also on the rise. In addition to Netflix and Disney+, Warner Bros. Discovery has brought another retail product to market with HBOmax. In addition, SkyShowtime – a joint venture of Paramount Global and Comcast – has also been active in our markets since the end of 2022 or the start of 2023. The substitution potential for traditional pay TV is (still) manageable, although rising, since localization and local content are both on the increase. This trend is being delayed in part by the development of the macroeconomic situation. The unusually high inflation rates have led customers to reallocate or prioritize their disposable income. As a result, consumers are showing restraint in subscribing to additional premium entertainment services. Likewise, the parallel use of multiple on-demand services (stacking) is less widespread in these markets than, for example, in the United States or in Western Europe. Despite this, the appeal of this business model is evidenced by the year-on-year growth: according to Analysys Mason, revenues with streaming services in Europe and the customer base both posted strong growth as of the end of the first half of 2022.
In the reporting year, B2B operations kept pace with changing circumstances as the coronavirus pandemic abated. After an economically strong first half of 2022, Europe has now entered a much more challenging phase. The war in Ukraine and its consequences as well as increased inflationary pressures have had a negative impact on all industries. Owing to their geographic proximity to the war and their heavy dependence on gas imports from Russia, the countries of our segment are among the most heavily affected economies. Given that Europe is on the verge of tackling the challenge of transforming its economic model to a circular economy on the basis of a digital and green transition, the telecommunications sector will become a strategic and important partner to enable Europe to emerge in a stronger position. Since 2021, the European markets have adopted new networks, digital services and applications such as 5G, increasingly competition-centric broadband markets, and cybersecurity as the basis for the digital and green transformation. More reliable 5G connectivity, cloud computing, edge computing, and artificial intelligence have resulted in growing interest from companies in secure multi-access edge computing and private networks in order to strengthen their competitiveness and strategic autonomy.
In the 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 5.6 % in the reporting year to EUR 172 billion. Companies continue to invest in digital solutions.
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). The security market in Western Europe addressed by T‑Systems grew by 10.7 % in 2022. The health sector also developed positively, posting double-digit growth rates in areas including telehealth and the healthcare cloud in Germany. 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 Azure, and Google Cloud. Prices were eroded further by providers of services that are delivered primarily offshore (e.g., Tata Consultancy Services, Infosys, and Wipro). In addition, the effects of the war in Ukraine had an impact on business, for example due to increased raw material prices and high levels of inflation.
The sale of T‑Mobile Netherlands was consummated on March 31, 2022. The environment of our Group Development operating segment is therefore dominated by the markets served by our companies Deutsche Funkturm (DFMG) and Magenta Telekom Infra (MTI) in Austria.
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 the 2022 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 2022, driven by rising demand for mobile data services and the fulfillment of coverage obligations by the network providers.