European Telecoms Bet on Data, Investment in 4G Infrastructure
By Ruth Bender And Simon Zekaria
In a Cold War nuclear bunker in central Paris lies Iliad SA's bet on the future of the European telecommunications industry.
The low-cost French telecoms operator isn't expecting a nuclear strike anytime soon. But to handle the explosion of data use on its networks as more customers watch video on their smartphones, Iliad is converting a 4,921 square foot bunker into a giant server warehouse.
The bunker's location 85 feet below ground, easy-to-secure entrances, and cold atmosphere, provide ideal conditions for data storage.
Iliad's move illustrates the rush by European telecom groups to invest in data-handling capabilities and faster fourth-generation wireless networks, as consumers use their phones less and less to make calls and more as devices for messaging apps and video.
Telecom firms are under pressure to adapt their businesses. With revenues in European wireless markets falling due to tough competition, tight regulation and flagging economic growth, operators are pinning their hopes on making more money from subscribers shifting to mobile phones for data-heavy applications.
Unlike U.S. operators such as AT&T Inc. and Verizon Communications Inc.'s Verizon Wireless, telecom companies in Europe have been slow to adapt pricing schemes to the explosion of data traffic. This stems largely from their belated investment compared with the U.S. in faster network technology such as 4G, which offers up to 10 times faster data speeds compared with older network technology, allowing customers to watch TV series on their mobile phones and tablets without the time-lag known as buffering.
"The reality of the French market is crazy," said Iliad Chief Financial Officer Thomas Reynaud, speaking at an industry conference in Barcelona. "Fourth-generation will be the killer application in the years to come, but today it's still only a tiny portion."
Vodafone Group PLC sees 4G penetration doubling over the next year, and Deutsche Telekom AG reckons the technology should attract premium pricing. Orange SA said average data consumption for its customers in France is 2 1/2 times higher than for customers still using older 3G technology. "4G is not only a popular technology, but [also] creates more usage," said Orange Chief Executive Stéphane Richard.
To help boost the speeds of their networks needed to handle data traffic, operators are ramping up network capacity and speed. They are investing in data facilities, often located in or near big cities, where most of the data traffic flows. Vodafone eases data center facilities in Slough, a town 20 miles from London. Proximity to large cities cuts down network "latency"--the time that content takes to travel over a heavy-traffic network and appear on a device.
In addition, telecom firms are investing in content, like partnering with video-streaming sites, which they hope will get consumers to use more data-heavy services, for which they would then charge more. Morgan Stanley estimates for example that a U.K. subscriber to Vodafone upgrading to 5 gigabytes from 0.5 gigabytes could see his monthly bill increase by around GBP7 ($11).
Many operators say that Apple Inc.'s new iPhone 6, with its larger screen, better camera and improved resolution for video, will drive data usage at an accelerating rate. In a report released this week, Swedish networking giant Ericsson said there was a 60% increase in mobile data traffic from the third quarter of 2013 to the same period in 2014. The amount of calls made on mobile phones stayed flat.
The telecom equipment company predicts mobile video traffic will increase tenfold and constitute 55% of all mobile data traffic by 2020. This bodes well for operators, who can potentially make more money from charging higher amounts for a heavier use of data on mobile phones.
European operators are playing catch-up to U.S. carriers, which are already reaping the benefits of investing into faster connections after they adopted higher-speed wireless technology earlier than their European counterparts. In the U.S., Verizon Wireless has migrated 59% of its mobile customers to 4G since the start of 2011, Morgan Stanley said. Over that same period, revenues excluding handset sales and acquisitions rose by 7% on average a year. In contrast, only 5% of Vodafone's European subscribers are using 4G services.
Some European companies are more ahead of the game. In Sweden, operators are starting to see the benefits of having been the first to invest in higher-speed networks. Swedish operator Tele2 AB last month said earnings before interest, taxes, depreciation, and amortization rose 14% in the third quarter as customers began paying more for using more data.
Reaping the full benefits of data will take more time, many firms say, and eventually looks set to change the definition of telecom companies. Vodafone's CEO Vittorio Colao said the UK-based operator is "moving away from a mobile-metered type of company to a broader data company."
"My son doesn't ever use voice, only messaging apps," said Charlie Bracken, finance chief of cable company Liberty Global PLC. "This big shift in behavior is making us all rethink."
By Ruth Bender And Simon Zekaria
In a Cold War nuclear bunker in central Paris lies Iliad SA's bet on the future of the European telecommunications industry.
The low-cost French telecoms operator isn't expecting a nuclear strike anytime soon. But to handle the explosion of data use on its networks as more customers watch video on their smartphones, Iliad is converting a 4,921 square foot bunker into a giant server warehouse.
The bunker's location 85 feet below ground, easy-to-secure entrances, and cold atmosphere, provide ideal conditions for data storage.
Iliad's move illustrates the rush by European telecom groups to invest in data-handling capabilities and faster fourth-generation wireless networks, as consumers use their phones less and less to make calls and more as devices for messaging apps and video.
Telecom firms are under pressure to adapt their businesses. With revenues in European wireless markets falling due to tough competition, tight regulation and flagging economic growth, operators are pinning their hopes on making more money from subscribers shifting to mobile phones for data-heavy applications.
Unlike U.S. operators such as AT&T Inc. and Verizon Communications Inc.'s Verizon Wireless, telecom companies in Europe have been slow to adapt pricing schemes to the explosion of data traffic. This stems largely from their belated investment compared with the U.S. in faster network technology such as 4G, which offers up to 10 times faster data speeds compared with older network technology, allowing customers to watch TV series on their mobile phones and tablets without the time-lag known as buffering.
"The reality of the French market is crazy," said Iliad Chief Financial Officer Thomas Reynaud, speaking at an industry conference in Barcelona. "Fourth-generation will be the killer application in the years to come, but today it's still only a tiny portion."
Vodafone Group PLC sees 4G penetration doubling over the next year, and Deutsche Telekom AG reckons the technology should attract premium pricing. Orange SA said average data consumption for its customers in France is 2 1/2 times higher than for customers still using older 3G technology. "4G is not only a popular technology, but [also] creates more usage," said Orange Chief Executive Stéphane Richard.
To help boost the speeds of their networks needed to handle data traffic, operators are ramping up network capacity and speed. They are investing in data facilities, often located in or near big cities, where most of the data traffic flows. Vodafone eases data center facilities in Slough, a town 20 miles from London. Proximity to large cities cuts down network "latency"--the time that content takes to travel over a heavy-traffic network and appear on a device.
In addition, telecom firms are investing in content, like partnering with video-streaming sites, which they hope will get consumers to use more data-heavy services, for which they would then charge more. Morgan Stanley estimates for example that a U.K. subscriber to Vodafone upgrading to 5 gigabytes from 0.5 gigabytes could see his monthly bill increase by around GBP7 ($11).
Many operators say that Apple Inc.'s new iPhone 6, with its larger screen, better camera and improved resolution for video, will drive data usage at an accelerating rate. In a report released this week, Swedish networking giant Ericsson said there was a 60% increase in mobile data traffic from the third quarter of 2013 to the same period in 2014. The amount of calls made on mobile phones stayed flat.
The telecom equipment company predicts mobile video traffic will increase tenfold and constitute 55% of all mobile data traffic by 2020. This bodes well for operators, who can potentially make more money from charging higher amounts for a heavier use of data on mobile phones.
European operators are playing catch-up to U.S. carriers, which are already reaping the benefits of investing into faster connections after they adopted higher-speed wireless technology earlier than their European counterparts. In the U.S., Verizon Wireless has migrated 59% of its mobile customers to 4G since the start of 2011, Morgan Stanley said. Over that same period, revenues excluding handset sales and acquisitions rose by 7% on average a year. In contrast, only 5% of Vodafone's European subscribers are using 4G services.
Some European companies are more ahead of the game. In Sweden, operators are starting to see the benefits of having been the first to invest in higher-speed networks. Swedish operator Tele2 AB last month said earnings before interest, taxes, depreciation, and amortization rose 14% in the third quarter as customers began paying more for using more data.
Reaping the full benefits of data will take more time, many firms say, and eventually looks set to change the definition of telecom companies. Vodafone's CEO Vittorio Colao said the UK-based operator is "moving away from a mobile-metered type of company to a broader data company."
"My son doesn't ever use voice, only messaging apps," said Charlie Bracken, finance chief of cable company Liberty Global PLC. "This big shift in behavior is making us all rethink."
