Telecommunications market
Demand for high-speed broadband – over the fixed and mobile networks – remains high. According to a study by the consulting company Arthur D. Little, in 2023 the average mobile data consumption per user in Europe was 16 GB/month, an increase of 23 % year-on-year. The study estimates this figure will rise to 76 GB/month by 2030. Average household data consumption in Europe over the fixed network was 265 GB/month in 2023, a year-on-year increase of 18 %, and is expected to rise to 912 GB/month by 2030. Video content and social media usage are the primary drivers of data consumption, paired with a growing share of higher-resolution content and the trend for live sports streaming.
The global telecommunications market is set to grow further. According to estimates by the market research company Analysys Mason, global revenue from telecommunications services grew in 2023 by 3.3 % year-on-year. Revenue growth from conventional telecommunications services is mainly driven by higher spending on data services. Analysys Mason expects the build-out of fiber-optic networks and the growing demand for faster broadband lines to drive up average spend per user for fixed-network lines, especially in North America and Western Europe. Analysys Mason also expects revenue growth in the North American mobile market to remain consistently higher than in Europe over the coming years.
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 involved in building out regional and supra-regional fiber-optic networks. In addition, internet companies offering 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.
In view of these developments, the question is whether the intense regulation of telecommunications markets in the EU is still justified. In October 2023, following an exploratory consultation on the future of the telecommunications sector, the European Commission announced its plans for regulation in the form of the Digital Networks Act. The Commission wants to reform the regulatory framework to strengthen competition and investment power in the European telecommunications sector, and plans to publish a white paper containing detailed proposals at the end of February 2024.
Germany
In January 2024, the industry association Bitkom estimated that total revenue in the telecommunications industry in Germany had increased by 1.7 % year-on-year to EUR 72.1 billion in the reporting year. Revenue in the area of telecommunications equipment grew by 4.4 % and in telecommunications services by 1.9 %, while revenues from terminal equipment were set to decline by 0.7 %.
The industry association VATM estimated an increase of 0.5 % year-on-year in the number of broadband lines in Germany by the end of 2023 to 37.0 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, public utility companies, municipalities, and special purpose associations, as well as investor-driven network operators, 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. The trend to use convergent product bundles comprising fixed-network and mobile offerings (FMC) also continued.
According to VATM, service revenue in the German mobile communications market increased slightly by 1.0 % compared with 2022, driven mainly by the uninterrupted upswing in data usage, which grew by 22.1 %. Regulatory effects and sustained price and competitive pressure offset the additional demand for data. Mobile data usage continues to increase strongly on the back of growing use of products such as mobile video apps. Connected devices like smartwatches and fitness trackers (wearables) are growing in popularity. Alongside established apps for IP messaging and social networks, etc., new apps for tracking fitness, vital, and health data or using mobile payment services are also gaining traction and 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.
United States
To meet the ongoing demand for faster networks in 2023, U.S. broadband providers continued to expand their network capacities with further wireless and fiber deployments.
T‑Mobile US announced that at the end of the fourth quarter of 2023 its network now covered more than 300 million Americans with its Ultra Capacity 5G. Competitor Verizon said by mid-2023 more than 200 million people in the United States had access to Verizon 5G Ultra Wideband. And AT&T said its 5G network served nearly 288 million people in the United States.
Fixed Wireless Access (FWA), providing high-speed internet to homes and businesses, remained the primary technology driving fixed broadband growth, putting the United States at the forefront of FWA development. Wireless providers have used FWA to enter the fixed broadband market, while fixed internet service providers with access to 5G spectrum use FWA to complement broadband access in locations where fiber access networks are not present. In the United States, FWA has also been used to help bridge the digital divide in rural locations where laying fiber is not economical. T‑Mobile US and Verizon are leading the FWA expansion, with T‑Mobile US announcing 4.8 million fixed broadband customers at the end of the fourth quarter of 2023 and Verizon featuring around 3 million customers at the end of the same quarter.
Fiber-to-the-home (FTTH) deployments saw a record year, with the number of FTTH homes passed and being marketed to consumers in the United States growing 13 % in 2023 to 78 million homes. Fiber deployments are expected to further expand with the support of the federal Broadband Equity Access and Deployment Program (BEAD). The BEAD program provides USD 42.45 billion to fund primarily fiber-based broadband expansion projects in unserved and underserved areas of the United States. Planning grants have been awarded to states around the country and further distributions are ahead in 2024.
Carriers in the United States are continuing to evaluate options for a shift in communications network architecture from closed proprietary interfaces toward Open Radio Access Network (Open RAN) deployment. AT&T on December 4, 2023, announced it plans to lead the United States in commercial scale Open RAN deployment through a collaboration with Swedish vendor Ericsson. AT&T said its spend could approach roughly USD 14 billion over the 5-year term with Ericsson. The news was seen as a potentially big boost for Open RAN technology.
The U.S. regulator for the telecommunications sector, the Federal Communications Commission (FCC), in 2023 began a proceeding to reintroduce net neutrality regulations along the lines of the 2015 regulations. The agency is expected to issue final regulations in 2024, following a public consultation.
Europe
In the reporting year, the telecommunications markets in our segment continued to feel the adverse effects of world events, and in particular geopolitical tensions. Inflation drove up energy and producer prices in early 2023, while financing conditions for private households and businesses deteriorated on the back of higher interest rates, putting overall economic demand under further pressure. The inflation-induced changes in consumer prices lost momentum in the countries of our segment over the course of the year, but remain at a comparatively high level. This resulted in numerous telecommunications companies adapting their rate plans in agreement with the local regulatory authority to offset rising costs, 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 2023: the business grew, driven in particular by the sharp increase in broadband business, by around 4 %. This offset the decline in revenues from voice telephony. TV and 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 countries such as Greece and Poland, the integration continued to progress during the reporting year. One year after the respective takeovers of Nova and Wind in Greece and Play and UPC in Poland, legal mergers took place in both countries and the brands were streamlined (leaving just the Nova brand in Greece and Play in Poland). In Hungary, following a slew of acquisitions, the ICT group 4iG shifted its focus to the operational and brand-specific integration of the entire portfolio. The acquisitions in the prior year are causing the competitive situation to intensify in many countries, but especially Greece. 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 continued to grow year-on-year in the first half of 2023 by around 6 % and revenues by around 7 %. At the end of 2023, year-on-year growth in this area had reached double digits in our national companies. Integrated convenience packages such as MagentaOne remained one of the most popular options among our customers, which had a positive impact on customer satisfaction and reduced churn rates significantly compared to individual products. In the reporting year, competitors increasingly moved towards value- and customer-oriented FMC offerings. In Hungary, the ICT group 4iG became a fully-fledged convergent provider due to the acquisition of Vodafone Hungary and UPC Hungary, and plans to launch its new FMC offering “One” in 2024. In Greece, the United Group completed its takeover of Wind Hellas, and bundled Wind and Nova services to create a convergent operator. This made the company the second largest competitor for fixed-network and pay-TV services.
Subscription-based streaming services continue to gain in relevance in the markets of our segment. For example, SkyShowtime – a joint venture of Paramount Global and Comcast – completed its roll-out in our markets in 2023. This international portfolio comprises Netflix, Disney+, HBOmax, and SkyShowtime, and is competing against local services with varying positions of strength, depending on the market. Services providing local content, such as Voyo in Slovakia and the Czech Republic, reported strong customer growth, while other services, like RTL+ in Hungary, have struggled to gain traction. Most of these local providers deliver a broader mix of content combining local and international TV movies and series with sports programming, etc. While this type of portfolio composition fundamentally poses a higher risk of substituting traditional pay-TV business, the risk is (still) at a manageable level. 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 further strong growth as of the end of the first half of 2023.
In 2023, the European telecommunications market was dominated by technological advances, regulatory changes, cybersecurity concerns, competition, remote working requirements, a focus on sustainability and green initiatives, supply chain challenges, and increased inflationary pressure. Over the course of the year, the B2B business adapted to these changing economic circumstances. Influenced by the European Commission’s Green Deal, the telecommunications sector will take on a central role as strategic partner and bolster Europe’s ability to build towards greater resilience. In 2023, the European markets continued their rapid adoption of technologies such as 5G, competitive broadband networks, and digital services like software defined networks, cybersecurity, and cloud computing, laying the foundation for the digital and green transformation. As 5G connectivity, edge computing, artificial intelligence, and data-driven processes become ever more reliable, businesses of all sizes are being spurred to deploy secure multi-access edge computing and secure private networks to enhance their competitiveness on the market and strengthen their strategic independence.
Systems Solutions
In the IT industry, the revenue volume that can be addressed by our Systems Solutions operating segment in our core market of Western Europe under the T‑Systems brand increased by 4.6 % in the reporting year to EUR 187 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 10.4 % in 2023. The health sector also developed positively, posting double-digit growth rates in areas including electronic patient files, digital health innovations, and the healthcare cloud in Germany. By contrast, growth slowed in the market segments for traditional IT infrastructure 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, Wipro).