Interpreting a farrago of financial analysis on how the mobile-communications sector is trading in Europe is like trying to herd cats. Directions, objectives, and conclusions constantly change. Despite having the world’s highest unique subscriber penetration rate at 79%, a GroupeSpéciale Mobile Association (GSMA) report suggests that Europe is the only region to see its revenues diminish—from €162 billion in 2010 to €151 billion in 2012. This decline has occurred while Europe has been making substantial progress in the deployment of Long Term Evolution (LTE) networks, with its spectrum harmonized around the 800-MHz, 1800-MHz and 2600-MHz bands.
Another ingredient in the European mobile-market financial melting pot is Vodafone’s sale of its 45% stake in Verizon Wireless for £84 billion ($130 billion). How will this deal influence its European investment strategies for the next few years? The sale is expected to leave the UK-based company with a £20-billion surplus once shareholders have been paid. Analysts are predicting that the company will spend half of the cash in a bid to accelerate fourth-generation (4G) deployment with the aim of reaching 90% population coverage in the group’s five main European markets by 2017: Germany, Italy, Spain, the Netherlands, and the UK.
Straggling On LTE Implementations
So why is the GSMA downbeat about Europe’s mobile sector? The association maintains that Europe has fallen behind many other parts of the world in the deployment of LTE technology. At the end of 2012, LTE accounted for a miniscule 0.3% of total cellular/wireless devices in Europe compared to 11% in the US and a vigorous 28% in South Korea. This reinforces research issued by the GSMA and Navigant Economics earlier this year, which indicated that growth in US investment is translating into faster data connections. In fact, US speeds are now estimated to be 75% faster than the EU—and that gap is expected to widen.
This trend could engender serious financial ramifications for Europe. Its mobile ecosystem creates 2% of the region’s gross domestic product (GDP) including contributions to public funding of €53 billion. It also supports nearly 400,000 jobs in the region.
In contrast to Europe’s position, LTE on a global scale is a different story. There are now approximately 200 LTE networks operating worldwide, which run on 12 different frequency-division-duplexing (FDD)/time-division-duplexing (TDD) bands. About 30% of global LTE deployments are supported by the 1800-MHz band, while the 2600-MHz band makes up 25% of deployments and the digital dividend bands comprise 21%. But the dominance of these existing LTE bands is likely to fade as more countries allocate LTE spectrum and additional bands are introduced.
Not All Doom And Gloom
Some industry pundits, however, are upbeat about Europe’s mobile-sector prospects. The number of connected wireless devices in Europe is expected to grow to nearly 6 billion by 2020, which represents close to 25% of the global total. Total market value is expected to reach €234 billion. If those figures become a reality, the mobile sector’s contribution to Europe’s GDP could rise by 6%.
Don’t Forget 2G
With all of this excitement focused on 4G, let’s not be too hasty about writing off second-generation (2G) networks. Almost 70% of global mobile systems operate via 2G networks. This is mainly due to how mobile networks are growing in developing regions of the world, where more than 80% of connections are made through 2G networks. Although 2G connections have naturally declined in the more developed regions, they still account for a respectable 30% of connections.
What The EU Commission Wants
Of course, it wouldn’t be Europe if the European Commission didn’t have something to say about all of this. It recently announced proposals for the development of a single telecommunications market for Europe. In a statement, EU Commission President Jose Manuel Barroso said, “Further substantial progress toward a European single market for telecoms is essential for Europe’s strategic interests and economic progress, for the telecoms sector itself, and for citizens who are frustrated that they do not have full and fair access to Internet and mobile services.”
Such a move would involve the following: formation of a single authorizing body for all 28 EU countries; simplification of EU rules for telecommunications operators; a reduction in roaming charges; and, most importantly, coordinated spectrum assignment (with the latter aimed at ensuring users get more 4G mobile access and Wi-Fi). Under such plans, the EU Commission believes that mobile operators will be able to develop more efficient and cross-border investment plans, thanks to stronger coordination of timing, duration, and other conditions regarding spectrum assignment.