Prospects for European Telcos in the coming years

Europe is eager to take the lead in 5G and industrial transformation, a leadership owned by the United States and China, in the last decade. Moments of strong investment, development and stabilization in prices and profits are approaching, at a global level, which will foster between 1.4% and 1% annual growth in the next five years.

Today, the main Telcos worldwide obtain the largest profit in pay TV and business services (between 10% and 20% of total profit). Worth pointing out that the IoT, now, represents at most 2% of profits, and only in the case of the world’s leading companies. However, with the penetration of 5G, the Internet of Things could experience a real revolution. But to witness this, we will have to see what strategic decisions the big Telcos make in the short term.

The fact is, in the next five years, the growth of Telcos will be based, above all, on the launch of 5G-related services. A technology that allows and requires greater granularity of consumer targeting and commercial objectives. However, it is important to bear in mind that 5G and 4G will coexist for at least 10 years and will complement each other.
Penetration of 5G is expected to be slower than its predecessor, 4G, and therefore investment cycles will also be longer, as well as more expensive. However, the cost/sales ratio is expected to remain stable over the next five years.

The priority for Telcos, in this transition period, will be to balance the investment in infrastructure and the pressure to cut costs, by obtaining relevant benefits from new business areas.

If we focus on Europe, competition is softening and we already have signs that point to a slowdown in the decline of prices, initiating a period of stability with less ups and downs.

Investment in 5G in Europe is expected to accelerate significantly between 2021 and 2023, more than doubling (to around $100 billion). Although, for the time being, the impact of 5G is expected to be low and the related benefits will grow very slowly.
However, 5G trials in Europe got off to a strong start in 2019, with Spain as a leading base of operations. This is the country where 60% of the tests were conducted. And the sector most impacted by these tests was Entertainment, the largest and most diversified business area, worldwide. Although the forecast for the next five years indicates Telcos will find the main source of income in the application of 5G technology in health, industry and smart cities.

As mentioned, the European Commission is keen to take the lead in technology with projects such as Digital Europe or the 5G Action Plan. However, the economic environment remains in low growth mode, coupled with political uncertainty in the UK and punitive regulation of the telecommunications sector.

Furthermore, despite the fact that spectrum allocation for 5G is being accelerated, for the most valuable frequencies, spectrum prices remain too high, which could be a drawback for long-term investments.

However, in Europe alone, by 2025, there will be 81 million more connected smartphones, 14 million more single subscriptions and more than 2% increase in profits. 5G consumption will be a reality in Europe, and the mobile sector will remain very competitive. However, it will require Telcos to carefully balance and target their
investments very well in order to manage the cost/benefit ratio.

At Upify we take a data driven approach, analyzing and sharing all insights with our customers with total transparency, both historically and for forecasting trends. This is the best way we assist Telcos and content providers to adapt to new times, changing consumer environments, improving their content performance.

31 March 2020