Two sources have just published their figures for French TV advertising spending in 2009. Comparing the two is edifying:
- Total investments: EUR 7.1 billion, according to Yacast and EUR 3.7 billion according to FrancePub!
- The explanation for the difference: Yacast estimates gross revenue based on official rates whereas FrancePub estimates net income, in other words revenue earned on negotiated rates.
- First conclusion: companies get an average 50% reduction on official TV advertising rates.
According to Yacast, the amount of time given to advertising on TV increased by 3% in 2009, while ad revenue rose by 11%; a preliminary analysis therefore tells us that advertising rates increased by 8%.
But, according to FrancePub, ad revenue decreased by 11.3% last year. By applying the Yacast growth hypothesis of 3% more time given to TV advertising, the conclusion is that ad rates in fact dropped by 14% in 2009.
What to believe?
The TF1 network's advertising revenue decreased by 13% and the M6 network's by 8% (excluding thematic channels). There are the specialty channels of course, but we doubt that they were able to singlehandedly sustain the sector's growth to the extent indicated by Yacast.
We therefore deduce that:
- published TV advertising rates have nothing to do with market realities;
- we make a big mistake when, in the absence of actual figures, we use estimates based on gross revenue to estimate DTT channels' growth, and so their economic success;
- we have a better understanding of the "vendor" position than some of the DTT channels shareholders, despite the steady increase in viewers, and that we can expect to see a series of mergers and acquisitions in the sector;
- that DTT has contributed to a price war over actual advertising rates which, combined with the portion of companies' ad budgets being lost to sponsored links and, of course, the downturn, creates real concerns that the TV sector will not return to the level of advertising income that it had before the recession.
Gilles Fontaine
Deputy CEO
In 2009, growth in terms of subscribers and Homes/Buildings passed has accelerated in Europe, with respectively 19% and 29% rate between June and December 2009. In EU36 (including Russia), there were nearly 3.5 million FTTH/B subscribers and more than 25 million Homes/Buildings Passed.
Because of its specific demographic characteristics, Russia is the heaviest country in terms of subscribers and Homes/Buildings Passed even if the FTTH/B market is still in its infancy in the country. The potential of the Russian market is huge and might convince new players to get involved in FTTH/B deployments in the near future.
In the Middle East (14 countries covered), UAE are the main FTTH/B market, totalling more than 1 million Homes/Buildings Passed and nearly 63,000 subscribers. In other countries, FTTH/B deployments are very limited, and even municipalities, which initiated most of the FTTH/B projects in Europe, do not seem to get highly involved in deployments.
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Even with new deployments in Eastern and Southern Europe, more mature countries still dominate the global European FTTH/B market. In countries such as Sweden, rollouts are still engaged even if on a smaller scale. The main issue now is really to convince end users to subscribe to services based on FTTH/B networks. At end 2009, 18 European countries are in the Global Ranking, which is the proof that commercial effort is on-going, but still has to be enhanced.
Regarding Middle East, the FTTH/B market is still in its infancy. Several announcements have been made but have to be concretised. Contrary to Northern Europe, where first deployments were engaged by municipalities and/or power companies, rollouts in Middle East will more probably be initiated by incumbents and private players, among which Real Estate Owners which will rapidly find a high interest in Fiber as value-added for their new housing programs.
European FTTH/B market at end 2009
As in previous years, IDATE has been commissioned by the FTTH Council Europe to provide an overview of the status of FTTH rollouts across Europe at the end of 2009. To date, IDATE has identified 249 FTTH/B projects in Europe, of which 136 are new initiatives since June 2005.
Municipalities and utilities are still the main category of players involved in FTTH/B deployments in Europe as they represent 55.7% of total number of projects. Nevertheless, they are still giving ground to alternative players which, even if they only represent 28.7% of total number of projects, reach 74% of FTTH/B Homes/Buildings Passed.
In terms of subscribers, alternative operators still dominate the market. Those which were involved first in FTTH/B deployments represent the most important customer base: all together, FastWeb (Italy), B2 (Sweden), Illiad/Free, Numericable & SFR (France), Orange Slovensko (Slovakia) and T2 (Slovenia) at the end of 2009 totalled 841,500 subscribers, or around 24% of Europe’s FTTH/B subscriber base (including Russia). However, this figure is lower than a year ago. This is mainly due to the involvement of incumbents which have been deploying largely in 2009 after months (and sometimes years) of expectation for regulation clarification.
• New FTTH/B markets, mainly in Eastern Europe, are very dynamic. Countries such as Lithuania, Estonia and Czech Republic are among the most dynamic in terms of new FTTH/B subscribers during second half 2009.
• Sweden, third country in terms of number of new subscribers between June and December 2009, is still a very dynamic market where local and national players continue to convince end users to subscribe to services based on FTTH/B architecture. On the other hand, the coverage is still increasing, and the consequence it a lower penetration rate in the country compared to end 2008.
• At end 2009, 4 countries have entered the Global Ranking, meaning that more than 1% of households have subscribed to a FTTH/B service: France, Czech Republic, Portugal and Bulgaria.
• The majority of subscribers (around 67% of FTTH/B subscribers at end 2009) is concentrated in 7 countries in Western and Northern Europe: Sweden, Italy, France, Norway, The Netherlands, Denmark and Germany
Excluding Russia, which leads the FTTH/B market in terms of subscribers and Homes/Buildings Passed due to its specific demography, France is still ahead of all other European countries at the end of 2009. But other countries have shown a strong growth and are now positioned among the 10 leaders in terms of number of Homes/Buildings Passed. This is the case for Portugal, Bulgaria and Lithuania which are respectively n° 4, 5 and 6 at end 2009.
Scandinavian countries, and notably Sweden and Norway, still lead the way in Europe in terms of penetration rate with 41.4% and 64.9%, respectively. However, those rates have slightly decreased between end 2008 and end 2009: this signifies that deployments are still engaged and that the coverage, even in those advanced countries, has not reached maturity yet.
Regarding technology deployed, Ethernet is still the first choice of players and represents 84% of total FTTH/B rollouts at end 2009.
The main change during 2009 concerns the architecture deployed as at end 2009, FTTB represents 58% of rollouts compared to 47% a year ago. This is further proof of the fact that players often opt for FTTB to avoid the issues involved in installing fibre on private properties, and especially MDUs (negotiation with landlords).
Middle East FTTH/B market at end 2009
As part of its inventory, IDATE also examined the status of FTTH in Middle East at the end of 2009. With the exception of UAE, there have been very few FTTH/B deployments in Middle East up until now. Some players have announced and/or have begun FTTH/B rollouts in major cities, but coverage and take-up levels are not yet significant.
The key driver for FTTH/B deployments in the region is massive new housing programs. Alternative operators are more involved in FTTH/B deployments than other categories of players, however, incumbents are dominating the market as they represent more than 60% of FTTH/B Homes/Buildings Passed at end 2009.
Roland Montagne
Telecom Business Unit Director
I can clearly remember a time where objects were just that… inanimate objects, and it was fun to imagine that they might have a soul. Now, among the billions of objects that surround and serve us, a great many are said to be “intelligent”. Thanks to a built-in chip, they have an identity, they record information and can communicate with one another, and especially with us! These properties seem to endow them with infinite possibilities…
The arrival of intelligent objects into our daily lives was a veritable revolution. A quiet and irreversible revolution of our habits, with profound social and economic consequences – comparable to the impact of the washing machine and refrigerator when they first made their way into homes. This morning, as I left the house, my coat immediately adapted to the weather outside, a light rain and biting cold, while its collar, which holds all the basic communication tools, allows me to listen to the morning news on my favourite radio station. A quick glance at my right sleeve lets me see my schedule. And I don’t even need to get out my mobile to take the first call of the day: my collar’s built-in headset allows me to answer the phone directly.
Meanwhile, my mobile has become a veritable universal remote control or, better still, a mouse that allows me to interact with my environment. One click aimed at a poster advertising a concert I’d like to see, and right away I get all the information I need: details on the programme, the latest reviews and what tickets are still available. If I want, I can even order them right away.
And I feel better now because I’ve just received the daily alerts – all good – on my father’s health, thanks to an embedded chip that measures his vital statistics and sends them to his doctors and family. He needs to round-the-clock surveillance because of his health, and it’s good to know that we can come to his aid quickly if we need to.
I am still surprised at times when I get home at night, and my living room adapts instantly to my tastes, from the ambient light casting shapes on the wall to my latest favourite songs in the air.
More than three billion human beings are connected to the Internet today, compared to one billion in 2008. There are 20 billion websites that correspond to virtual places and objects constantly communicating with one another with no human involvement. The Internet is also 200 billion communicating objects, all interacting with their websites: objects built into the walls, taps, door handles, refrigerators, keys, cars, coats, umbrellas, suitcases, purses, pacemakers, mobile phones… To which we can add the billions of specks of smart dust: a galaxy of micro-machines – chipsets equipped with sensors, processors, radios and generators that together form a communicating network, integrated into our environment and regulating our daily lives.
Jean-Dominique Séval
Research Business Unit Manager
Commercial & Marketing Director, IDATE
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IDATE has published several reports on related topics, including: “M2M”: The Machine-to-Machine market” by Samuel Ropert, and “RFID & the Internet of Things” by Vincent Bonneau.
The global equipment market represented a total 284 billion euros in 2009, and IDATE predicts an increase of 1.5% for 2010.
As expected, 2009 was a tough year for the telecom equipment market. With the first warning signs of a slowdown in summer 2008, equipment manufacturers were the hardest hit by the recession. The difficulties encountered by the telecom equipment market were due especially to telcos’ reduced spending that was slashed even further as the economy tanked. Dipping more than expected, especially after years of growth, the market is expected to shrink by 2% in 2009.
The mobile phone market has been deeply affected by the global economic crisis that began in 2008. With strong pressure on sales, the mobile handset market has gone from double-digit growth in 2002 to negative growth (-4%) in 2009. In terms of volume, the number of handsets sold dropped by 6% in 2009, down to 1.12 billion units, on the heels of +6% growth in 2008, which was nevertheless below initial predictions. The overall downturn that is currently affecting the cellular market is expected to continue and constrict growth in 2010 (+2.5% YoY).
Operators have been selective in their spending on network infrastructure, confining their investments to IP-based and optical transmission equipment, to be able to satisfy their residential and business customers’ ever-increasing bandwidth requirements. Mobile equipment sales have come under strong pressure, although vendors do see certain regions, especially the Middle East, Africa and Latin America, as future growth areas once 3G auctions have wrapped up. Mobile equipment in fact continues to dominate telecom industry spending around the globe.
The wireline infrastructure market was down again in 2009, and carriers’ transition to NGA networks – and particularly to FTTx infrastructure – was not enough in the grim economic climate to offset the decline of DSL equipment sales (-15% decrease in DSL port shipments in 2009).
On the flipside, the current economy has stepped up demand for services, such as managed solutions, that provide increased efficiency. Carriers’ cost-cutting measures have translated into weakened control over their networks which, in 2009, meant a real upswing in infrastructure outsourcing deals and a growing number of operators turning to infrastructure sharing.
Changes in the equipment market landscape
The gap between vendors' performance widened in 2009, a year that served chiefly to expose their struggles. Nortel was the first victim, and its bankruptcy reshuffled the landscape as the company auctioned off its business, piece by piece. Virtually all infrastructure suppliers have been affected by the downturn, and the market is now populated by five heavyweights, including Ericsson which has managed to strengthen its position by taking over some of Nortel’s assets and expanding its foothold in the North American market.
Meanwhile, some of the smaller manufacturers, such as Motorola, have really felt the squeeze – their lack of critical mass making it hard to withstand intensified price wars. Mega mergers have also resulted in underperforming revenue growth, with both Alcatel-Lucent and Nokia-Siemens posting negative revenue growth for two years running.
Chinese manufacturers continued to enjoy a healthy growth momentum, albeit at a lesser pace than in the five past years. Huawei, which had being boasting a 40% growth rate, is expected to report a 20% increase in income in 2009, which still puts it near the top of the ranks, alongside ZTE.
Nokia remained the top handset manufacturer, with a 36% market share in 2009. However, with sales in emerging markets slowing because of the downturn, pressure from the competition is increasing. The two major Korean, manufacturers Samsung and LG, consolidated their positions and moved into second and third spot in the global rankings – having increased their market share over 2008 through their commitment to high-end and innovative devices. Meanwhile, Motorola continued its struggled to overcome certain difficulties, while Chinese equipment manufacturer ZTE increased its market share, rising through the ranks to become the globe’s 6th largest handset maker.
> dolwload the full paper including figures and ranking
Tiana Ramahandry
Senior Consultant
In 2009, mobile services represented a global market of 785 billion USD, and IDATE predicts a 5% increase for 2010.
IDATE provides regular analyses of the central trends shaping mobile markets around the globe – networks, devices and services. To mark the Mobile World Congress in Barcelona (15-18 February 2010), IDATE is publishing the fourth edition of its special white paper: “Mobile 2010 – Markets & Trends”, which draws on several IDATE market reports.
After a marked decline in 2008 – to +3.8%, or two points less than in 2007 – growth in the telecom services market dropped significantly once again in 2009. After generating revenue of 1,417 billion USD in 2008, sales are expected to reach 1,441 billion USD in 2009, in other words an increase of only 1.7%: the lowest growth rate since 2002.
“This decline is due to structural phenomena, i.e. the maturity of the markets that have driven growth in the past, namely mobile telephony in industrialised countries, combined with competitive and regulatory pressures whose impact has been further aggravated by the economic downturn”, says Carole Manero, Project leader of the “World Telecom Services market” report.
Although based solidly on business models tied to subscriptions and technologies that users in industrialised nations consider essential, the telecom services market is not likely to emerge unscathed from the recession. It does nevertheless have some very strong assets that will help put it back on track, including the fact that consumption volumes continue to rise apace with the growing user base. In fixed markets, the growing Internet services market is no longer fully offsetting the decline in fixed line calling, added to which the growth rate for mobile services revenue continues to shrink – decreasing by two-thirds between 2007 and 2009.
Mobile services nevertheless remain the chief driving force
With total sales estimated at 755 billion USD in 2008 and at 785 billion USD in 2009, mobile services nevertheless remain the chief driving force behind growth as a whole. They have accounted for more than half of all telecom services revenue worldwide for four years running (representing an estimated 55% in 2009), and generate more than twice as much income as landline calling. The mobile market’s growth is being sustained by a massive rise in customer numbers which grew by 14% worldwide in 2009: up to 4.5 billion (or by more than 46 million customers a month!), whereas the market’s value has been declining year after year.
Fixed telephony continues its decline which began in 2002, and at an ever increasing pace. In 2009, the number of fixed lines shrank again, and average revenue per line has decreased by around 2% annually for the past two years. Fixed telephony has decreased in value by 11% in three years and, at the end of 2009, it accounted for only 26% of the telecom services market worldwide, compared to around 33% in 2006.
Generating an estimated 275 billion USD in 2009, data and especially Internet services continue to increase their weight in the equation, which has risen slowly but steadily: by 0.5 to 0.7 points annually since 2006. Their share of the total market reached 19% in 2009, up from 17% in 2006 and less than 15% in 2001, although their contribution to growth is no longer offsetting the decline in fixed telephony revenue: 19.3 billion USD in losses for fixed voice, compared to 14.1 billion USD in gains for fixed data services. Excluding Internet, the data services market remained unchanged in Europe and North America in 2008 compared to 2007, and is thought to have suffered a decline in 2009.
The growth of Internet and data services revenue has been spurred by the remarkable rise of the Internet, and especially of broadband access. In terms of volume, the number of broadband subscribers grew by close to 63.3 million, which translates into 5.3 million new subscribers a month worldwide. At this pace, we predict that the 500 million mark will be reached some time in 2010. At the end of 2009, broadband access accounted for three quarters of all Internet connections around the globe.
LTE: the right answer?
IDATE predicts that, by 2015, a total of 380 million subscribers in the US, the EU-5, Scandinavia, China, Japan and South Korea will have access to mobile data services over LTE networks.
• The cost of an LTE rollout for an MNO operating both GSM and UMTS/HSDPA networks amounts to 2.1 billion EUR to cover the urban and suburban population. This figure applies to a nation of 50 million inhabitants with the population density/distribution properties of a Western European country.
• Innovative services and business models, such as VoLTE which can bring benefits to both operators and subscribers, need to be deployed if operators are to maximise the potential of LTE deployments, maintain ARPU levels and continue to be a smart pipe.
Carole Manero, Senior Consultant
Frédéric Pujol, Head of the Mobile Broadband Practice
Connected devices will constitute a market of 149 billion EUR in 2013 in Europe, Japan & USA
ISPs are no longer the only service providers supplying access to the Internet. Mobile operators also provide connection to the Web thanks to third-generation access which is now widely available: in France, for instance, over 70% of the population is covered for 3G. Although generally acquired when away from home, content is usually consumed in the convenience and comfort of the home.So bringing content into the digital home is no longer a problem, as connected devices meet consumers’ needs and behaviour patterns. The problem that consumers do face is how to transfer the content between the devices that make up the digital home in a fast, easy and intuitive way. IDATE believes that no single view of the digital home will prevail monumentally over the others, and that each has its own advantages and drawbacks. The market share captured by each configuration will ultimately evolve according to the progress made by the solutions involved, and as consumers become more savvy. We have therefore distinguished the following stages of market development:
• market opens up via solutions that combine devices, service offerings and proprietary content (“silos” scenario)
• the parallel development of technical solutions that improve interoperability inside the home, either thanks to interoperable devices (“seamless” scenario) or through a central multimedia server (“home servers” scenario);
• the gradual rise of services and content integrated into the devices (“store” scenario);
• the eventual switch to online solutions ("Home-in-the-cloud" scenario).
Progress made in home networks
The biggest issue that currently faces the smooth circulation of content within the home is the amount of bandwidth available indoors. Thanks to ADSL and optical fibre access, bringing content into the home is no longer a problem. Connectivity between the devices is making strides thanks to three technologies that are now widely available: Wi-Fi, cables and powerline carrier systems, all of which continue to make progress.
• To overcome bandwidth problems, American firm Zeevee markets a solution based on the use of coaxial cables that make it possible to distribute content at high speeds to all rooms in the house that are equipped with these cables.
• Several consortia are promoting very high-speed wireless solutions, including Wi-Fi Direct, providing direct connection between devices, independent of the router; the WiGig Alliance, offering Wi-Fi connection in the 60 GHz band, and the WHDI (wireless high-definition video interface) alliance.
DNLA Connectivity
Moving content around within a complex environment made up of disparate devices, all of which have different purposes (storage, control, viewing, listening, etc.) remains a complicated affair. To remedy the outstanding issues, a number of consortia have been formed over the past few years, their purpose being to establish norms and standards for the communication process between devices to make them directly interoperable ("plug and connect"). A prime example is the DLNA, or Digital Living Network Association.
Laurent MICHAUD, Head Consumer Electronics Practice
please visit also our website: "Digital Home"
The World Television Market in 2009 will represent a total amount of 268.9 billion EUR, declining 1.2% compared to 2008.
Industry did not escape the consequences of the global economic crisis; the crisis particularly affected television advertising revenue. Nevertheless, IDATE predicts that the market will exceed its 2008 level in 2010.
• The United States remains the largest television market in the world with turnover of more than 100 billion EUR in 2009, declining 2% in a year. The importance of the North American region in the worldwide market is trending downward, going from 39% in 2006 to 38.7% in 2009; it should continue to lose a few tenths of percent in the years to come.
• The second largest regional market, Europe had a turnover of 82 billion EUR in 2009, a decrease of 2.4% compared to 2008. The importance of the European market in the worldwide market also showed slow erosion, going from 31.7% in 2006 to 30.5% in 2009. The United Kingdom, Germany and France attracted the most market growth and between them account for 44% of the region’s revenues.
• Asia/Pacific recorded growth in its TV market on the order of 0.3%. Its market share grew by 0.3 points and regained its 2007 level, at 20.8%. The heavyweights in the region, Japan, India and China experienced varied results. As a mature market, Japan showed a decrease of more than 5% while the Chinese and Indian emerging markets grew 6.2% and 9.5% respectively.
• Latin America displayed the greatest growth in its TV market, with an increase of nearly 5%. Its market share in the worldwide market is still small (7.9%), but it is growing consistently (6% in 2006). Brazil is the largest market in Latin American TV and alone makes up more than 45% of the market.
• The smallest regional market, Africa/Middle East declined by more than 6%. Its market share has stagnated at 2.1%.
The worldwide television market was, in 2009, primarily affected by the decline in advertising revenue of 9.2%, which could not be compensated for by paid television or public funding; these two sources of revenue increased 7.2% and 3.5% respectively. Up until 2008, advertising was by far the primary means of funding for the industry, generating about 50% of the sector's revenue, compared to 40% for paid television and 10% for public funding. In 2009, the weight of advertising and subscriptions each accounted for about 45% of the sector’s revenue. By 2010, revenue from paid television should exceed overall advertising revenue worldwide, reaching a ratio of approximately 47%/44% by 2013.
Florence LE BORGNE
Television & Digital Content Business Unit Director
Artcile already published in the Newsletter "Edition Multimédia"
Really? People still read newspapers? Well, yes, although it is true that I only recently rediscovered the pleasure of reading the news in the morning. I read my last newspaper three years ago, having succumbed to the dying efforts of print media conglomerates to satisfy our needs, by taking out a subscription to my favourite daily paper, delivered each morning before sunrise. But the latest industry restructuring, combined with pressure from the new European directives on sustainable development – the mix of raw material, printing, transportation and shipping is really no longer tenable – helped reduce print media’s share of the pie even further. I now read the morning news on my e-paper screen, a dedicated reader that lets me have by own selection of articles (local, economic, political) automatically uploaded as soon as they are published, well before I get up. I like this unobtrusive screen that follows me everywhere, even to the breakfast table, bathed in morning sunlight.
After the bitter battles of 2009 – where, one after the other, we saw reporters laid off in the United States, voting on the strange Hadopi Act in France and the creation of the position of online editor – which almost managed to do away with print media as we once knew it, even if the biggest papers have maintained their status and a readership. But it is true that, even before 2010, students had already stopped reading the daily paper, aside from a free one grabbed hastily for the morning subway ride. My access to the news has been streamlined, in fact, since I bundled everything together into my online subscription: my two favourite magazines, and my newspapers in electronic format for in-depth reporting and the analysis of certain journalists. So there will always be a place of prominence given to investigation and analysis. But I have to confess that it is my favourite search engine that provides me with access to information on the most regular basis, and throughout the day: my customised and continually refreshed review of the press. I have therefore learned to tame and master the sources that suit me: I use a dozen or so sites that are core destinations for me, and that I browse more or less regularly: local and international politics, cinema, travel, city life…
And it’s especially easy nowadays, as we make almost no distinction between what were once very separate media: the conglomerates have reorganised themselves around production departments that have the means to produce programmes distributed in different versions for radio, TV, the Web and magazines. I am now mesmerized by my radio: it is no longer some little black box, bur rather a very thin screen that tells me what I’m listening to and lets me access certain shows being broadcast live.
Live broadcasts are what continue attract me, and many others, to the TV screen. TV networks have finally begun their revolution. It was a long time coming, but it is a real pleasure for us news junkies to see the new Albert Londres travelling the globe, their cameras now embedded in their sunglasses.
Oh, and I almost forgot… but in the evenings, we have also learned to do away with the 8 o’clock news, which died a natural death – going to drink at multiple wells instead. This evening, for instance, I’m checking in with my social network, getting news from family and friends, brought together by the magic of the Web, and the first producers of the news that matters to me.
Jean-Dominique Séval
Research Business Unit Manager
Commercial & Marketing Director, IDATE
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IDATE has published several reports on the same topic, including “The Future of the Press: Online Strategies”, by Gilles Fontaine and Marc Leiba, and “e-Paper” by Vincent Bonneau.
France has nothing to be ashamed of when it comes to broadband equipment levels. But the steady increase in Internet traffic has created the need for new approaches: bringing ADSL equipment closer to homes and businesses, stimulating increased high-speed mobile coverage and making use of satellite access, gradual deployment of optical fibre access networks…
Stimulating investment in fibre…
Optical fibre network rollouts are the main topic of debate. We will confine ourselves here to underscoring two sources of concern.
First, the legitimate push for a solution that ensures broader nationwide coverage can disregard the savings that result from a reasonable learning curve. We need to encourage operators to take risks rather than anticipate a lack of funding ex ante that justifies public financing and, to a certain extent, a monopoly at the infrastructure level. Is it reasonable to systematically defend a separation between infrastructure management and the supply of services in this era of increasing fixed-mobile convergence? Are we not running the risk of balkanizing the telecom services industry in certain well-developed systems, especially now that we expect to see telcos consolidate at the European level in the not too distant future? It goes without saying that raising these questions does not detract from the skills and experience that local authorities have acquired, nor prevent them from taking part in joint efforts.
Furthermore, we are seeing a reluctance amongst telcos to invest in large-scale fibre rollouts. This is particularly true in France where the increase in ADSL access speeds was accompanied by a decrease in prices, making it more complicated to apply pricing schemes based on access rates or consumption levels. From a broader perspective, operators in Europe cannot really hope to enjoy a bigger bite of households’ already sizeable TV budget, in the same way that Verizon is hoping to do in the United States by taking on the cable monopoly. And then there are Google, Microsoft and Apple, and perhaps even Facebook and Twitter down the road, all hoping to benefit from the shift in ad spending in Europe to the Web. So the risks are unfortunately rather clear when we consider the possibility of building optical highways in Europe, both fixed and mobile, without being able to dispute the hegemony of the globe’s top Internet companies…
…and Europe’s capacity to create leading Internet players
It is always telcos that we find among the top 10 ICT companies in Europe, even though the sector’s consolidation is, by and large, still to come. But we remain somewhat sceptical of any claims that we can automatically remedy the weaknesses of Europe’s entertainment industry, or the commoditisation of bandwidth, by having Europe’s giant telecom carriers invest massively and directly in content.
And what of television channels? The increasing speed of the “open” Internet (i.e. excluding the IPTV networks managed by telcos), combined with the major innovation that is the Internet-ready TV set, is paving the way for the direct distribution of video content by the top American studios. In the short term, the on-demand services marketed by European broadcasters will be competing with Amazon and iTunes stores incorporated into the new TV sets’ homepage, while the already fragile specialty channels will find their appeal with viewers lessened by free back-catalogue offerings online. All this before copyright holders perhaps opt to distribute their premium programmes themselves.
Unfortunately, TV channels in Europe suffer from two handicaps. First, they are essentially national. They do not have the critical mass needed to finance new programmes by amortising them in the European market. Second, TV channels are often tied down by regulation that severely limits the production of the works they broadcast. As a result, they do not have control over the rights that some of the big, integrated media companies in the US do. The regulatory provisions put into place in France helped independent production but not the emergence of any powerful production companies. This fact cannot be overlooked indefinitely.
Stepping up the adoption of new innovation models
Given the present situation, it seems that the deployment of new fixed and mobile networks in Europe needs to be viewed as an opportunity to step up the adoption of new innovation models, in particular those that build on the concept of open innovation by implementing platform-based strategies.
We prefer the two-sided market model to classic vertical integration strategies, in other words the model that Apple used to break into the mobile market: while focusing on the smartphone buyer, Apple devoted its efforts to a second target as well, namely developers – supplying them with a toolkit that would allow them to make their applications available to iPhone users, along with a back-office so that they could possibly earn some money doing it. It is this complex ecosystem that incorporates the ergonomics of the end user and an environment optimised for content and application providers, which seems to offer the most fertile ground for telcos in Europe seeking to capitalise on their new networks and on the prospects opened up by the Internet of the future.
Gilles Fontaine
Deputy CEO, IDATE
Yves Gassot
CEO, IDATE
Opening address to the DigiWorld Summit 2009
Lessons from a recession
I’d like to start with a quick look back on what we’ve learned from the recession.
First observation: the financial bubble that has formed over the past 10 to 12 years, and the artificial prosperity that went with it, masked the declining efficiency of our Western economies. The aging population, the growing awareness of ecological imperatives, the precautionary principle and bureaucratic complexities are just some of the causes.
As a counterpoint to this trend, the growth momentum of so-called emerging economies has triggered a shift in the centre of gravity of the creation of real wealth. Remember that China’s GDP increased fourfold in a matter of 10 years, from 1999 to 2008 – a period during which the United States’ GDP grew by only 55%.
At the same time, the status quo that governs our markets, a certain hedonism and our collective greed, led us to prefer short-term outcomes rather than prepare for the future. In too many instances, we also chose to protect our acquired status at the expense of innovation and the questions that went with it. We find proof of this in the decrease in industrial investments, the lagging pace of changes in higher education and Europe’s inability to meet the research and development objectives it set for itself 10 years ago in Lisbon.
These few lessons from the recession help underscore the fact that the regulation we talk so much about is treating the symptoms rather than the problem itself. And it will no doubt prove useful. But the real subject, more than ever before, is innovation. By inventing new growth models, it is through innovation that we will escape the slow descent into mere tourist destinations. It is what will allow us to differentiate ourselves, to create wealth and to develop intelligence in how we consume energy and in our relationship with the environment.
At the heart of innovative processes are networks, the Internet and information technologies in general.
Technologies and value creation
These are the areas that undoubtedly contain the greatest number of opportunities to rejuvenate our sagging economies. The greatest shifts foreseen some ten years ago are coming to pass and are leading to deep-seated changes in the way we think and act, and in how value is created.
Two combinations seem particularly promising to me here: one combines cloud computing, the mobile Internet and the Internet of things, the other being embodied by the success of Google, the iPhone, Facebook and Twitter.
Cloud computing puts the unlimited processing power and storage capacity of millions of servers and unlimited memory within everybody’s reach at all times. It is causing an upheaval in software economics by enabling access to an ever-growing selection of free or pay-as-you-go software.
Spurred by increasing bitrates and the intelligence of smartphones, the mobile Internet makes all information available to anyone, anywhere, anytime.
Though still in early days, the Internet of things is paving the way for permanent tracking and optimisation of our energy consumption and our health and of major ecological balances.
Meanwhile, the innovations introduced by Google, the iPhone, Facebook and Twitter are enacting a shift from a world of causality to one of statistical correlations, from an analytical to an oral, tactile and emotional world, from a sequential to an instantaneous world, from a world of hierarchies to one of tribes.
Perhaps we haven’t yet fully measured the scope of the changes brought by the growing ubiquity of IT, and the revival of right-brain over left-brain thinking. But I am convinced that Internet-native and iPhone-native generations will be able to draw a positive outcome from the upheavals in our collective and individual “operating systems”.
So new rules are now governing the creation of wealth.
It is agility rather than size that matters, judging from the speed with which Amazon and eBay and, closer to home, Price Minister and Ventes Privées.com, have managed to forge themselves a stronghold in the newly-formed realm of e-commerce. On the flipside is the search for ever more users, expressed in a site’s unique visitor stats, which favour quantity over quality in a bid to meet advertising agency demands.
Offering everything for free has become the norm since anything that’s been digitised doesn’t cost a thing to reproduce. But companies still need to earn a return on their investments in the R&D and infrastructure that underpin the digital momentum. Rather than attack collective behaviour, the smartest online players are working to devise different ways to generate revenue that take account of the appetite for free content: ad-based funding, paid links, freemium etc...
Consumers have taken on a new dimension in this digital space. They are not only equipped with the means to compare all available offers instantaneously, but can also enter into direct trade or even swaps with their peers. Individualised analysis of their profiles and their behaviour patterns makes it possible to better serve and better control them. They are changing from passive consumers to active players and even collaborators for content providers and creators.
The glut of information and competition for consumers’ attention are endowing all types of mediation and intermediation with increasing significance. Search engines, buyer’s guides and social networks are evolving constantly in a bid to help users find relevant information, reassure us and guide us through the confusion, structure the way we perceive reality and help us weave new types of social fabric. And it only took just over 10 years for Google to reach $26 billion in revenue, four years for Facebook to attract 300 million registered users and two years for Twitter to build a community of 55 million twitterers.
Open innovation, a new paradigm?
This world structured by networks and the Web is translating into a host of opportunities to for those who want and those who know how to capitalise on the resources, for those who have understood that the constant innovation that is central to value creation processes does not obey traditional patterns of logic. And it is this realisation that has led us to gather here today to explore the topic of open innovation.
Indeed, most these upheavals that I’ve just touched on briefly are no longer rooted in the research that has come to fruition in the secrecy of a few multinationals’ R&D labs. The hierarchy has been flipped on its head: it is now consumer-driven. It is consumers’ need for mobility, their preference for the visual and the tactile, their need for social ties that have made the success of Apple, YouTube and Meetic. It is consumers, now become active participants, who are contributing to the development of most popular online shops and to the ongoing enhancement of Wikipedia.
At the same time, access to innovation, be it technological, marketing or economic, has become much more commonplace. The Internet distributes and shares innovation instantaneously. It allows everyone to draw from a universal font of knowledge, experience and ideas. It enables the creation of skills networks independent of any economic or government structure. It enables the emergence of innumerable paths for young entrepreneurs.
Taking this one step further, sharing intelligence can lead to the organised chaos that appears to constitute the development of open source. According to Ohloh, close to 250,000 people around the globe contribute to tens of thousands of open source projects, most of them only for pleasure or the appreciation of their peers – and so are continually enhancing a software environment whose use escapes market laws.
Meanwhile, industry leaders have understood what can be gained from this creative momentum. Beyond the already long-standing trend of systematically acquiring start-ups to flesh out their portfolio of technologies and innovations, they are learning to cooperate with open source libertarians and user communities to develop their products. Above all, they are continually investing in creating ecosystems that ensure that their offers continue to evolve, thanks to innumerable professional and amateur developers. From Microsoft to social networking, by way of Google and the App Store, there are many variations on this model, but all share the trait of being based on a collaborative network.
External growth, organised chaos and ecosystems are responding to consumer demands for proximity, instant reactivity and creative freedom, which are the keys to success in the digital world. How to promote them and how to ensure their coexistence with more traditional models that are crucial to the development of more fundamental research work and how to reconcile openness and industrial property, are just some of the questions that will be examined in debates over the next two days.
The challenge for Europe
It is this remarkable potential for innovation around networks, the Internet and information technologies in general that no doubt constitutes the most promising path for emerging from the recession which is not just a return to old ways of thinking. We have the means to invent a different future. Will we, as Europeans, manage to seize this opportunity?
The results of the last ten years in this area appear rather uneven. Europeans have certainly managed to play a major role on the global innovation front thanks to their historic agreements over GSM. Our countries were among the frontrunners in broadband rollouts. And it was a European, Linus Thorvald, who created Linux. There are many other examples of our ability to be pioneers, but with only 1.7% of our GDP devoted to research and development, we are far from the goal of 3% established in Lisbon. None of the global digital intermediation platforms are European. France invented the Minitel and Hadopi: one inspired the app store and we are waiting to see what becomes of the other.
But let’s turn the page and ask ourselves about how to transform this emergence from the recession into a revival of our ability to invent new growth outlets and new growth models.
First, there are the urgent matters. And, given the central topic of the Summit, I’ll put openness at the top of the list. We need to lift barriers and work together. This is true on a European scale: GSM provided an excellent illustration of the virtues of a common approach. But it also applies to dealings between big corporations and start-ups, between businesses and universities. Fantastic initiatives were taken in this direction in France with its technology hubs. But we still need to concentrate public resources of all kinds as much as possible on the finest aspects of these hubs.
The second priority is seedlings or gazelles: it is they, through their creativity and their agility, who have the greatest chance of conquering new technological and economic frontiers. They are the ones who run the greatest risk of suffering the impact of increasingly cautionary regulation of the financial system. And it looks like France’s venture capital and development capital industry, which was remarkably dynamic in the late 1990s, will put forth only half of the capital in 2009 that it did in 2008.
The third priority is telecommunications infrastructure. We are having to contend with both the exponential growth of fixed and mobile Internet use, and the need to guarantee the quality of service required by increasingly demanding business and residential applications, such as high definition video and healthcare. This means considerable investments that will no doubt involve some form of partnership between public authorities and telcos.
But the truly essential matters go beyond these short-term priorities.
First is strengthening the performance of higher education. The ability to create value through innovation depends a great deal on the quality and quantity of university graduates in a few fields. And even if the academic rankings established by the University of Shanghai are highly debatable, it nevertheless remains that Europe, and especially France, have fallen behind in this area. Brave measures have been taken over the pat two years, but considerable financial, cultural and political efforts need to be made to hoist us up in the global ranks.
Last is the “Internet of the future”. We need to make the Internet the nervous system of the major infrastructures that shape our living environment and our economic performance: healthcare, transportation, environmental protection, energy management. This infrastructure can be made intelligent, i.e. more robust and effective, through a complete overhaul of the way it operates and through optimisation based on the Internet and its software environment.
But the Internet itself also needs to evolve. In no time, its incremental growth will not be enough to satisfy demand. The complexity of an architecture that was designed more than 30 years ago and which has evolved by successive additions, demands for more than a “best-effort” quality of service, along with trust and security levels, are all critical issues that are decisive for the future of the Web and beyond, for all our societies. This is the major undertaking that lies ahead, and one which could become the centrepiece of a major European objective. Applying the collaborative principles that govern open innovation would be central to achieving it.
Francis Lorentz
Chairman
