Market expectations

GERMANY

The market for telecommunications services in Germany, which declined by 0.3 percent in 2017 compared with the prior year, is expected to stabilize in 2018 (source: EITO, European Information Technology Observatory). There are a number of reasons for this: First of all, the regulation-induced decrease in revenue is likely to slow down. Second, the negative trends in traditional fixed-network telephony are expected to be offset by growing demand for mobile data volumes and faster connectivity in the consumer and business customer area. For the wider ICT market, which covers IT services as well as telecommunications, EITO forecasts growth of 1.7 percent for 2018. This forecast is primarily based on growth in the IT market, which is currently 3.0 percent and mainly driven by strong demand in two areas: services for business customers (e.g., outsourcing, project business, consulting) and software-based services (virtualization and cloud business, e.g., in the form of Software as a Service, Platform as a Service, or Infrastructure as a Service).

Innovative integrated products and attractive supplementary services – such as TV and music options, and smart home – are becoming increasingly important for our competitive position with consumers, while cloud services, security applications, and solutions for Industry 4.0 are gaining in significance with business customers. We are also setting ourselves apart from other providers with our download and upload bandwidths, the mobile data volumes we include in our rate plans, and innovations in our rate plans.

The mobile communications market in Germany is dominated by three providers, each with its own network infrastructure, who deploy 4G/LTE technology to ensure that the majority of the population has access to high-speed mobile Internet. By contrast, the fixed-network broadband market hosts a large number of players with differing infrastructures – from national through to regional providers. We are assuming that competition from cable network operators will remain intense and that the number of providers who have their own DSL and fiber-optic networks will increase.

UNITED STATES

The U.S. mobile market continues to be characterized by intense competition among the major mobile carriers. Competitive factors within the U.S. mobile market include dynamic changes in pricing, voice market saturation, service and product offerings, customer experience, network quality, development and deployment of technologies, availability of spectrum licenses, and regulatory changes. The mobile postpaid market in the United States is embracing device financing options, such as T-Mobile US’ equipment installment plans and device leasing through JUMP! On Demand, allowing customers to subscribe for wireless services separately without the purchase of or payment for a bundled device. Additionally, data services and the availability of unlimited data plans, continue to be a growth driver despite the high level of competition, supporting further network investment by the major mobile carriers in the U.S. mobile market.

EUROPE

The positive trend seen in the traditional communications markets in our Europe operating segment in 2017 will continue over the next two years. Analysts have adjusted their forecasts accordingly: For example, Analysys Mason now expects the markets to remain stable overall in 2018 and 2019, with annual growth in fixed-network business of 2 percent in both the broadband and pay TV markets, while the significance of voice services will likely continue to diminish, shrinking by some 7 percent per year. In the mobile markets, data services are expected to grow by approximately 5 to 6 percent per year – driven by massive growth in data traffic, especially from the use of mobile video services. According to analyses by Ovum, by 2019, mobile video services will account for more than 60 percent of data traffic on mobile networks in Eastern Europe and for almost 80 percent in Western Europe. By contrast, the relevance of traditional voice services also continues to wane in mobile communications: analysts forecast a decline of around 5 percent per annum in this area. The trend towards convergent offers comprising fixed-network and mobile services (FMC) also continues unabated in our Europe operating segment. We expect more than 30 percent of all broadband lines to be part of an FMC offer by 2019.

According to Oxford Economics, real GDP will continue to rise in all our countries in 2018 and 2019 by between 2 and 4 percent per annum. This positive economic situation will have a particular impact on the IT markets in our Europe operating segment. EITO forecasts growth of 3 percent for the countries of Central and Eastern Europe for 2018.

SYSTEMS SOLUTIONS

The ICT market is expected to see further growth in the next two years in line with the ongoing improvement of the global economy, while cost pressure and strong competition are expected to persist. At the same time, we expect the digital transformation to stoke demand for solutions for cloud services, big data, smart network services such as Industry 4.0, the Internet of Things, and M2M as well as for the mobilization of business processes and ICT security (cyber security).

We estimate that the ICT markets will develop along divergent paths in the two main market segments:

  • Telecommunications: The highly competitive fixed-network telecommunications market for large business customers remains challenging. Innovative change, intense competition, constant price erosion, and the interventions of national regulators are all likely to diminish total market revenues, even though both mobile data services business and the Internet of Things will continue to grow in the coming years.
  • IT services: The clear growth in the market for IT services in the reporting year is likely to continue in 2018 and 2019. At the same time, this market is undergoing a radical transformation, e.g., due to ongoing standardization and automation, demand for smart services, and the changes being wrought by cloud services in outsourcing business. Further challenges have arisen in the shape of digitalization, the growing importance of ICT security (cyber security), big data, and increasing mobility. Traditional IT business is likely to decline due to price competition, while cloud services, mobility, and cyber security may reach double-digit growth. In view of this, we continue to plan to step up investments in growth markets – especially in digitalization, cloud services, cyber security, and smart network solutions for the healthcare sector, the public sector (smart city), and the automotive industry.

GROUP DEVELOPMENT

Our companies T-Mobile Netherlands and Deutsche Funkturm (DFMG) dominate the development of our Group Development operating segment.

  • The high price and competitive pressure in the Dutch mobile market will continue to intensify over the coming years. One of the main trends contributing toward this is the growing bundling of fixed-network and mobile products into convergence offers (FMC). What is more, both the strong discount segment, comprising mobile providers’ secondary brands, and MVNOs will continue to make for lively competition.
  • With some 28,000 locations, DFMG is the biggest provider of passive wireless infrastructure for mobile communications and broadcasting in Germany. We expect demand for cell sites to rise steadily over the next few years, due to the fact that network operators plan on the one hand to close gaps in coverage, and on the other to increase the density of mobile networks to meet the growing demand for mobile data services.