Étude 2019 Arthur D. Little sur l'économie des Télécoms (EN)

Fédération Française des Télécoms
Economics of telecoms industry in France
2019 Edition

2
Agenda
1 Telecom operators contribution to the digital sector
1.1 Evolution of the global digital ecosystem
1.2 Dynamics of the French digital ecosystem
2 European benchmark
3 The role of telecom operators in the digital economy of 2030

3
Telecom operators are no longer the main contributor to the digital
ecosystem in terms of revenue, by passed by device manufacturers
Source Thomson Reuters, Arthur D. Little
Note 1) Panel of 180 companies corresponding to the top 30 by sector in terms of turnover, 2) Constant euro 2018
Evolution of the global digital ecosystem
Illustrative
companies
890 907 970 986 1 030 1 070 1 168 1 260 1 285 1 317
147 155
149
167 172 178609
766
841
1 012 1 048 1 038
1 122
1 090
1 221
1 364
316
339
376
394
403 430
442
456
472
526
184
185
191
183
179 184
195
214
227
253
78
92
132
167
202
249
303
390
508
650
201820152011
2 667
2010 2016
137135
2012
3 577
2013
139
2014
135
2017
Content
IT and
Software
Services
2 999
Device
2009
Equipment
manufacturers
Internet
Telecom
Operators
2 212
2 436
2 878
3 379
3 111
3 886
4 288+8% per year
+10%
Revenue of the digital ecosystem1
Global, 2009-2018, Billions of euros2
2009-18
(Average)
+4%
+3%
+9%
+6%
+27%
+4%
2017-18
+11%
+3%
+12%
+11%
+28%
+2%
Annual Growth

4
North America and Asia are driving the digital ecosystem’s growth, while
the European ecosystem is not taking off
Note Panel of 180 companies corresponding to the top 30 by sector in terms of turnover 2) Constant euro 2018 3) Includes Top30 players (Oceania, Africa, Middle East, South
America)
462 472 484 445 424 417 463 491 495 503
893
1 035
1 206 1 341 1 411 1 443
1 545 1 641
1 794
2 052
794
863
906
1 019
1 089 1 170
1 285
1 356
1 506
1 643
2013
71
3 577
Asia
2010
65
20142009
73
2011 20182012 2016
75
81
85
63
89
2 667
91
2017
2 436
89
Other3
North America
Europe
3 111
2 212
2 878
2 999
3 379
3 886
4 288
2015
+8% per year
+10%
+9%
+2%
+14%
-2%
+8%
+1%
+10%
+4%
2009-18
(Average)
2017-18
Annual Growth
Digital ecosystem revenue1
Global, 2009-2018, Billions of euros2

5
Globally the digital ecosystem is growing three times faster than the GDP,
excepted in Europe
Source Thomson Reuters, World Bank, Arthur D. Little
Note Panel of 180 companies corresponding to the top 30 by sector in terms of turnover, 2) Constant euro 2018 , based on countries included in the digital ecosystem
(representing 75 of the world GDP, or 70% of the European GDP)
Global GDP2
Global digital
ecosystem2
+8%
+3%130
194
115
109
80
100
120
140
160
180
200
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Digital ecosystem growth1 vs GDP
Global, 2009-2018, base 100 in 2009
European GDP2
European digital
ecosystem2
+2%
+1%
2009-18
(Average)
2017-18
Annual Growth
+10%
+3%
+2%
+2%

6
Over the last 10 years, the market capitalization of European Telcos has
decreased, while other regions has steadily increased
Notes Note 1) Nationality depend on the localization of the head quarter 2) Panel of 180 companies corresponding to the top 30 by sector in terms of turnover, 3) Constant euro
2018 4) Includes Top30 players (Oceania, Africa, Middle East, South America)
310 311 287 250
340 321 351 322 307 255
299 328 352 403
519 557
579
764 762
683
420 402 408 432
523 538
564
558 579
571
110 124 111
121
135
146
143
148 144
140
1 649
20142009
1 138
201620112010 2012
North
America
2013 2015 2017 2018
Other4
Asia
Europe
1 166 1 158 1 205
1 516 1 561
1 637
1 792 1 792
+7% per year
+4% per year
-8%
-1%
-17%
-10%
-3%
Telecom operators’ market capitalization by region1,2
Global, 2009-2018, Billions euro3
Annual growth
2009-13
(Average)
2017-182013-17
(Average)
3%
-3%
10%
2%
6%
2%
15%
5%
Market value loss of European telecom
operators for 10 years

7
Agenda
1.1 Evolution of the global digital ecosystem
1.2 Dynamics of the French digital ecosystem

8
The French mobile market continues its transition to data, with 77% of
users with a smartphone and consuming 8+GB per month
Source ARCEP, Operators, Arthur D. Little
Note 1) Total population aged 12 and over excluding M2M, "Face to face" survey conducted in June 2019 2) Active 3G or 4G internet client
French digital ecosystem dynamics
Average monthly 4G data
consumption
Active 4G Sim Card
(Millions of Sim Card, excluding M2M)
27
37
45
51
T2
2018
T2
2017
T2
2016
T2
2019
+24% per year
X%
50% 60%
% of total Sim Card
1,9 Go
4,6 Go
6,6 Go
8,3 Go
T2 2016 T2 2017 T2 2018 T2 2019
+63% per year
67%
Equipment and connectivity in France – Mobile
France, 2016-2019
As illustrative 305h of streaming
music or 8h of video streaming
37%
2016 2017 2018 2019
93%
65%
94%
73%
94%
75%
95%
77%
Mobile phone penetration rate1
Smartphone
Mobile phone

9
More than 50% of the French population has now access to fixed high
speed broadband
Source ARCEP, Arthur D. Little, data.gouv
Note 1) Downloading Speed> = 30 Mbps, 2) Subscriptions subscribed as part of a "multiplay" subscription that includes internet access or several services in addition to television
are counted 3) HSB High Speed Broadband, VHSB Very high speed Broadband
Fixed High speed Broadband
subscription1 (Millions of subscriptions)
Equipment and connectivity in France - Fixed
France, 2018-2019
+29%
7,8
10,1
T2 2018
20,8
19,3
T2 2019
28,7
29,4
+2%
High Speed Broadband
Very High Speed Broadband
27%
Very High
Speed
Broadband
34%
VHSB
23,6
27,3
T2 2019T2 2018
+16%
Premises eligible for aVery High speed
Broadband offer
(Millions of premises)
3,7mn additional
premises eligible to
Very High Speed
Broadband in 2019
vs 2018
45% 51%
xx% % Eligible premises

10
83%
1%1%
1%
82%
8%2%
4%
74%
5%
5%
3%
51%
15%
11%
19%
3%
Telecom operators are essential to the French digital ecosystem
5 telecom operators
Revenue1,2
77 billion€ (+2,7 Bn€ vs 2017)
Direct Employment
157 000 (-5 700 vs 2017)
Investments3
10 billion€ (+0,2 Bn€ vs 2017)
Taxes4
4 Billion€ (-0,16 Bn€ vs 2017)
Relative size of players in the digital ecosystem and their evolution 2018-2017
France, 2018 (vs. 2017)
Source Diane, annual reports, Arthur D. Little
Note 1) Revenue declared in France or from literature search, 2) Data adjusted to take into account the estimated actual turnover of international players in France, 3) Nokia's
mobile division investments are integrated into Microsoft following the acquisition of the mobile division in 2014, 4) Corporation tax, taxes and similar disbursements
French digital ecosystem dynamics R EI T
y compris filiales
14%
4%
14%
5 content
providers
5 Internet OTT
players
5 Device vendors 5 Equipment
manufacturers

11
French telecom operators have faced a sharp increase in their tax rates,
as opposed to equipment manufacturers and internet players
Source Diane, Annual Reports, Arthur D. Little
Note 1) Corporate income tax, taxes and similar payments, 2) Sales reported in France or documentary research, 3) Adjusted data to take into account the estimated effective
turnover of international players in France
Telecom operators Equipment manufacturers Device manufacturers Internet OTT players
7,6%
6,2%
2,0%
1,4%
0,2% 0,2%
6,9%
5,8%
0,5% 0,3%
Content providers
+1,4 pp
-0,6 pp
+0 pp
-1,1 pp
-0,2 pp
2013
2018
Tax level as % of income
for the major players of the digital ecosystem in France, 2013 vs 2018
R EI T
With subsidiaries

12
The share of telecom services in the budget of French household has
decreased over the last years, contrary to other expense items
Source INSEE, Arthur D. Little
Note 1) Leisure including digital entertainment 2) Telecommunication Telecommunication services 3) Other Education, miscellaneous goods and services, postal services, telephony
equipment and facsimile
Share of telecom services in French households’ total spending
France, 2009-2018, % of total spending
Housing ClothingFoodTransportation
13,6%
Leisure
15,5%
Health Telcom
Services
Others
25,3%
26,3%
14,1%
16,5% 16,8%
15,2%
4,1% 4,0%
9,4%
8,4%
2,9%
1,9%
13,0% 13,2%
2009 2018
R EI T
1
2
3

13
Contrary to other regulated sectors in France, telecom services have
witnessed a sharp fall in prices over 2009–2018
Source INSEE, Arthur D. Little
Consumer price index evolution on selected products
France, 2009–2018, Base 100 in 2009
139
143
135
118
110
58
50
60
70
80
90
100
110
120
130
140
150
2010 201620112009 20142012 2013 2015 2017 2018
Electricity
Postal services
City Gaz
Rail
Inflation
Telecom Services
R EI T

14
The telecom sector brings the largest investments in infrastructure in France
which gives it a considerable economic weight
French digital ecosystem dynamics R EI T
Source Companies, Documentary Research, Arthur D. Little
Note 1) Telecom ARCEP figures (excluding purchase of frequencies); Electricity RTE (2009 to 2018) and ERDF; RFF; Highways ASFA (Sanef, SAPN, ASF ....)
Investments of network operators1 vs. other sectors
France, 2014 – 2018, billions of euros, average over 5 years
1,4
5,1
5,7
8,6
Highways Rail Transportation
& distribution
of Electricty
Telecoms
2018 investments
are equivalent
to…
ou
ou
ou
ou
577 High Schools
95 Hospitals
86 Airbus A320 Neo
1 969 Wind turbines x2 vs. today
224 TGV trains (high speed trains)

15
French telecom operators have increased significantly increased their
investments despite lower turnover, but could not maintain employment
Source ARCEP, DARES, INSEE, Arthur D. Little
Note 1) Investment effort operator investments (excluding frequency purchases) / operator revenue, 2) Provisional ARCEP figures for 2018
3) ARCEP figure 4) ARCEP figure including part of the indirect jobs, 5) Provisional ARCEP figures for the year 2017 corresponding to the income received from the end customer
Employment, revenue and investments of French telecom operators
France, 2010-2018, base 100 in 2010
R EI T
86
81
82
153
186
60
70
80
90
100
110
120
130
140
150
160
170
180
190
2010 2011 2012 2013 2014 2015 2016 2017 2018
100
Revenue5
Operators’ direct jobs3
TCAM
2010-2018
- 1,9 %
- 2,4 %
Sector Job4
- 2,5 %
Operators’ investments
(excluding frequency acquisition)2 5,4 %
Investment effort1 8,1 %

16
Thanks to the new technologies, the telecom sector reduces its energy
footprint
Source FFT, ARCEP
Note 1) ARCEP estimate of average consumption over one year based on the observation of consumption operators per GB of their users 2) Public switched telephone network
19 kWh
16 kWh
5 kWh
PSTN 2 ADSL FTTH
/3
2016 2017 2018
6
0
2
4
8
1,35
6,69
7,93
1,49
# new mobile phones put on the market
# mobile collected (recycling, reuse)
-16%
+10%
Mobile phone Broadband
New mobile phones put on the market
and mobile recycling by FFT operators
France – 2016 / 2018, in millions
Annual consumption of a user
according to his telecom connection 1
France

17
Agenda

18
Prices of telecom services in France remain the lowest among large
Western countries
Source Operators, Arthur D. Little
Note 1) Triple play offers only; unlimited calls to landline at least; unlimited broadband internet through xDSL or FTTH; television included, excluding additional packs; operators
with market share > 10%, 2) Unlimited calls (whenever possible or else >500 minutes), unlimited SMS/MMS, at least 50 GB Internet; packages without devices, packages without
commitment;, without a mobile phone, operators with market share > 10%
French digital ecosystem European benchmark
12€ 12€ 13€
27€
41€
45€
65€
24€
16€
28€ 32€ 35€
50€
108€
Offer benchmark – Main operators
Selection of countries, November 2019, € incl. taxes per month
Fixe (Triple Play)1 Mobile2
Benchmark
Mobile 50 Go
Excluding promotions, excluding connection fees
By country, selection of the most competitive package in terms of price among operators with> 10% of Market share

19
Despite a highly competitive environment, French operators manage to
provide an infrastructure that connects homes, people and objects
Source Global Data, European Commission, Arthur D. Little
4G Coverage
Coverage in terms of % of household
2018
98,87%99,87%99,95% 99,53% 97,50%99,34%
High speed Broadband
subscriptions as% of Internet
subscriptions
(>10 Mbps) - 2018
98% 96% 95%
86%
78% 74%
M2M base
(millions of Sim cards) - 2018
23,1
21,1
18,2
8,1
5,9
3,4

20
The investment effort of French operators is superior to all other major
European markets
Source Arthur D. Little annual report
Note Turnover, CAPEX and EBITDA of telecom operators with a fixed or mobile market share> 10%
Investment effort rate by country (CAPEX /Turnover)
United Kingdom, France, Spain, Germany, Italy, 2018
15%
23%
16% 16%
18%
Capex/Turnover
81€88€83€130€139€
x€ Capex/Inhabitant

21
The investment effort of French Telcos is especially remarkable as their
margin levels are lower than in any other European markets
Source Arthur D. Little annual report
Note Turnover, CAPEX and EBITDA of telecom operators with a fixed or mobile market share> 10%
Investment Effort (CAPEX /Turnover) and Margin Level (EBITDA / Turnover) by Country
United Kingdom, France, Spain, Germany, Italy 2018
15%
23%
16% 16% 18%
28% 31% 33%
36% 38%
Capex/Turnover
EBITDA/Turnover
ppts Difference (Free cash Flow)
𝟏𝟑𝐩𝐭𝐬∆
𝟖𝐩𝐭𝐬
𝟏𝟕𝐩𝐭𝐬 𝟐𝟎𝐩𝐭𝐬
𝟐𝟎𝐩𝐭𝐬

22
Agenda

23
The digital economy is driven by three strong trends
Source Arthur D. Little
The digital economy in 2030 in France the role of telecom operators
Processing Power
Moore’s law
Processing power doubles
every
24 months
Data Storage
Kryder’s Law
Storage capacity doubles
every
18 months
Connection speed
Nielsen’s Law
The average connection
speed doubles every
21 months
The law of digital

24
The implications for French users : more powerful digital tools allowing
massive data consumption
Source Apple, Akamai, ARCEP, Arthur D. Little analyzes
Notes Some performance and usage data are estimated; (1) expressed in GFlops "billions of floating-point operations per second "
Today In 2030In 2009
iPhone 3GS iPhone 11 Pro Next Generation?
iPhone’s example
Processing
Power1
Storage x16032 Go 512 Go >80To ?
(cloud)
x16
Connection
speed (avg)
x781,321 Mbps 45 Mbps 3,5 Gbps ?x34
Data
Monthly data consumption per
Sim Card
x7819 Mo 7 Go 550 Go ?x368
x451,6 Gflops 40,2 Gflops 1800 Gflops ?x25

25
The digital ecosystem will be at the heart of the French society by 2030
– Remote enhanced training
– Network coverage handled by Drone
– New Smart Telecommunication Networks (Software
Defined Network)
Augmented
Discovery
Automated
Living
Virtual
Telepresence
2030
Use cases from Arthur D. Little's sector studies, especially the study "Unlocking the GigaWorld innovation"
Industry 4.0
Smart Cities
– Smart Tractors and autonomous agricultural robot thanks to AI
– Drones and IoT sensors to monitor, water and protect crops
– Predictive solutions for seedlings based on Advanced Analytics
– Remote surgery enhanced by robots
– Home hospitalization
– Predictive and personalized medicine
– Smart Glasses for intervention units
– Autonomous machines and smart robots
– Advanced Predictive Maintenance Solutions
– Exoskeletons
Environmental Care
– Mastery of resource consumption
– Smart power generation systems
– Ocean cleaning drones
– Fire prevention drones
– Autonomous urban service vehicles
– Smart and automated lighting by IoT
– Advanced urban safety solutions via AI
Agriculture 4.0
Augmented communication
Smart Health
A throng of digital use cases

26
These future digital use cases will be essential to address the main
societal challenges for France over the next 10 years
2030
The digital
ecosystem Demographic and
societal challenges
Aging of the population
Individualization
Territorial
dynamics
Rural desertification
(attractiveness of territories)
Urbanization
and urban sprawl
Ecological
transition
Durability
(mobility, consumption, etc.)
New energies
(and impacts on the environment)

27
Facing this digital transformation, two models are possible for the Telecom
sector in France
Today’s model A shif of paragdim model
Operators’
Role in 2030
"Connectors" Operators
◼ Sector’s underperformance (Cash Flow)
◼ Constrained investment capabilities
◼ Infrastructure-oriented investments
◼ Role of telecom services limited to “Commodities"
Digital
environment
◼ High taxation regime for Telecom Operators
compared to GAFA and other digital ecosystem Players
◼ Over regulation of the Telecom sector
◼ Tax and regulatory unpredictability
◼ Purely consumer-focused orientation
◼ Fair taxation with alignment of the different actors
of the ecosystem on the telecom operators regime
◼ Adapted regulation with no-discrimination
between Internet players and telecom operators
◼ Stable and predictable fiscal and regulatory
framework
◼ Industrial ambition
“Mastermind” Operators
◼ Government support to the industrial vision
◼ Development of investment capacities in digital
services
◼ Telecom operators are innovations'’ actors and
promote new uses

28
The decision in the industrial model for the next decade is essential to
create European champions for the future digital ecosystem
Note 1) Scenario 1 similar 2019-2030 growth rates in different areas to 2009-2018
2) Scenario 2 Europe retains its market share in 2018, and in other regions, distribution according to their growth rates observed over 2009-2018 3) Scenario 3 Europe returns to a
level comparable to ecosystem of 2009, other regions splitting remaining value created based on their growth over 2009-2018
Value
distribution
of the digital
ecosystem
Digital revenue captured by non-european players
◼ “Outsourced" digital ecosystem to non-europeans
champions
◼ Loss over data control to the detriment of European
citizens and Governments
Digital revenue captured by European champions
◼ Europe is positioned as a leading region of the digital
economy
◼ The innovation ecosystem is stimulated by telecoms
21%
57%
36%
3%
40%
2009
2%
38%
48%
12%
Asia
2018
1%
37%
5%
20301
Others3
North
America
Europe Europe
2%
21%
3%
20182009
36%
40%
38%
North
America
31%
48%
12%
1%
20%
34%
53%
12%
2030 2
1%
48%
2030 3
Others3
Asia
?
or
Cruising Model Paradigm shift Model
Revenue of the digital ecosystem
Global, 2009-2030 Market Share
Revenue of the digital ecosystem
Global, 2009-2030 market share

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Contact
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Global Chief Executive Officer
garciaalves.ignacio@adlittle.com
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Étude 2019 Arthur D. Little sur l'économie des Télécoms (EN)

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Étude 2019 Arthur D. Little sur l'économie des Télécoms (EN)