© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Research Forecast Report Western Europe.

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Research Forecast Report Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 July 2014 Hilary Bailey, William Hare and Pablo Iacopino

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 About this report  This report for the Global Telecoms Forecasts programme provides:  a 5-year forecast of more than 100 mobile and fixed KPIs for the region as a whole and for 8 countries 1  an in-depth analysis of the trends, drivers and well-documented forecast assumptions for each type of mobile and fixed service, and for key countries  an overview of operator strategies and country-specific topics, in order to highlight similarities and differences by means of a cross-country comparison  a summary of results, key implications and recommendations for mobile and fixed operators.  Our forecasts are informed by on-the-ground regional market experts, as well as external interviews.  In addition to our robust set of historical data, our forecasts draw on a unique and in-house modelling tool, which applies a rigorous methodology (reconciliation of different sources, standard definitions, top-down and bottom-up modelling).  For the data set and series definitions, see the accompanying Excel file at www.analysysmason.com/WEGTF14. Geographical coverage Major KPIs Regions modelled:  Western Europe Countries modelled individually:  France  Germany  Italy  Netherlands  Portugal  Spain  Sweden  UK ConnectionsRevenue Mobile  Handset, mobile broadband 1, M2M 2  Prepaid, contract  2G, 3G, 4G  Smartphone, non-smartphone Fixed  Voice, broadband, IPTV 3, dial-up  Narrowband voice, VoBB  DSL, FTTH/B, cable, BFWA Mobile  Service 3, retail  Prepaid, contract  Handset, mobile broadband 1, M2M 2  Handset voice, messaging, data Fixed  Service 3, retail  Voice, broadband, IPTV, dial-up, BNS  DSL, FTTH/B, cable, BFWA ARPU Voice trafficMobile  SIMs, handset  Prepaid, contract  Handset voice, data Fixed and mobile  Outgoing minutes, MoU 1 Includes USB modem, and mid- and large-screen, but not handset-based data. 2 M2M connections and revenue figures include mobile services only. 3 Service revenue is the sum of retail and wholesale revenue. 1 See Western Europe telecoms market: complete trends and forecasts (16 countries) 2014– 2019 for data on eight additional countries. Available at www.analysysmason.com/WE2014. Figure 1: Summary of report coverage [Source: Analysys Mason, 2014] 2

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Contents 7.Executive summary 8.Telecoms service revenue in Western Europe will continue to decline during 2014–2019 9.The drivers of decline will outweigh the drivers of growth 10.Losses in traditional services are the main contributors to the overall decline in telecoms retail revenue 11.Losses in mobile telecoms retail revenue will be heavier than losses in fixed telecoms retail revenue in most Western European countries 12.We have revised our forecast to reflect a stronger-than-expected decline in mobile voice revenue, and faster growth in handset data revenue 13.Key trends, drivers and assumptions for the mobile market 14.Key trends, drivers and assumptions for the fixed market 15.Key implications and recommendations for telecoms operators 16.Regional forecasts and cross-country comparison 17.Users in Western Europe will continue to migrate to fixed and mobile next-generation networks 18.The Western European telecoms market is showing signs of maturity 19.Core services are saturating in Western Europe, but we expect strong growth in mobile M2M and IPTV connections 20.Population penetration of handsets and mobile broadband SIMs is peaking in many Western European markets 21.The transition to LTE is underway, and most mobile connections will be 4G by 2018 3 22.The take-up of smartphones and LTE is a key driver in preventing further decline in mobile handset ARPU 23.The interplay of market forces and consumer ‘enrichment’ will produce differing rates of decline in mobile ARPU 24.Fixed voice will decline and move from narrowband to VoBB, while fixed broadband connections rise strongly 25.Fixed broadband penetration will continue to grow but the most highly penetrated countries will begin to saturate 26.Revenue and ARPU in Western Europe will continue to decline, although recent heavy losses in mobile will not be sustained beyond 2015 27.Telecoms service revenue will decline, but the share of this revenue held by each major country will not change significantly 28.Mobile revenue will be squeezed a little harder than fixed in the forecast period 29.Individual country forecasts 30.France: The mobile market will begin to stabilise after a period of intense competition 31.France: Key trends, drivers and assumptions 32.France: Handset connections have scope for growth 33.France: The fixed broadband market will begin to saturate 34.Germany: Losses in fixed and mobile voice revenue contribute to an overall decline in telecoms revenue Slide no.

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Contents 35.Germany: Key trends, drivers and assumptions 36.Germany: Total handsets will peak in 2014 but smartphone take-up has considerable room for growth 37.Germany: Fixed broadband will grow more strongly with the advent of PSTN switch-off 38.Italy: Telecoms service revenue will decline because the economic outlook is uncertain and competition is intense 39.Italy: Key trends, drivers and assumptions 40.Italy: Mobile penetration (excluding M2M) will be nearly stable during the next few years, but the handset mix will improve 41.Italy: Fixed broadband ARPU will slightly increase as leading operators are investing to upgrade their networks to FTTC/VDSL 42.Spain: Revenue pressure will ease in the last part of the forecast period because economic recovery may reduce budget constraints 43.Spain: Key trends, drivers and assumptions 44.Spain: We forecast a slight recovery in the number of handsets and mobile broadband connections from 2015 afterwards 45.Spain: Fixed broadband population penetration will reach 29% by 2019, and FTTH/B will take the lead in 2018 4 46.UK: Telecoms revenue stopped growing in 2013 and will begin to decline 47.UK: Key trends, drivers and assumptions 48.UK: Handset penetration and ARPU are both set to decline 49.UK: Fixed broadband growth will eventually slow down, and regulatory measures will curb ASPU 50.About the authors and Analysys Mason 51.About the authors 52.About Analysys Mason 53.Research from Analysys Mason 54.Consulting from Analysys Mason Slide no.

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 List of figures Figure 1: Summary of report coverage Figure 2: Telecoms retail revenue by service type and total service revenue (retail and wholesale), Western Europe, 2009–2019 Figure 3: Telecoms retail revenue growth by service type, Western Europe, 2013–2019 Figure 4: CAGRs for fixed and mobile retail revenue (2013–2019) and market size by total retail revenue (2019), by country, Western Europe Figure 5: Telecoms retail revenue by service type and total service revenue, previous and new forecasts, Western Europe, 2013 and 2018 Figure 6: Summary of key drivers and assumptions for the mobile market, Western Europe Figure 7: Summary of key drivers and assumptions for the fixed market, Western Europe Figure 8: Mobile connections by technology generation and NGA share of fixed broadband connections, by country, 2019 Figure 9: Metrics for the eight countries modelled individually in Western Europe, 2013 Figure 10: Fixed and mobile penetration rates by service type, Western Europe, 2009–2019 Figure 11: Connections by service type, and growth rates, Western Europe, 2013–2019 Figure 12: Active mobile SIM penetration by country (excluding M2M), Western Europe, 2009–2019 Figure 13: Mobile connections by technology generation (excluding M2M), and 3G and 4G’s share of connections, Western Europe, 2009– 2019 5 Figure 14: Smartphones as a percentage of handsets, and LTE’s share of total connections (excluding M2M), Western Europe, 2013 and 2019 Figure 15: Mobile ARPU by country, Western Europe, 2009–2019 Figure 16: Fixed broadband connections by type, and fixed voice, IPTV and mobile broadband connections, Western Europe, 2009–2019 Figure 17: Fixed broadband penetration of households by country, Western Europe, 2009–2019 Figure 18: Telecoms retail revenue by service type, fixed voice and fixed broadband ASPU, and mobile ARPU, Western Europe, 2009– 2019 Figure 19: Telecoms retail revenue by service type, total service revenue and growth rates, Western Europe, 2013–2019 Figure 20: Service revenue by country, Western Europe, 2013 Figure 21: Service revenue by country, Western Europe, 2019 Figure 22: Telecoms retail revenue by service type, and total service revenue (retail and wholesale), by country, Western Europe, 2013 and 2019 Figure 23: Telecoms retail revenue by service type and total service revenue (retail and wholesale), France, 2009–2019 Figure 24: Telecoms retail revenue by service type, total service revenue and growth rates, France, 2013–2019 Figure 25: Connections by type, and growth rates, France, 2013–2019 Figure 26: Summary of key drivers and assumptions, France Figure 27: Mobile, smartphone and 4G penetration rates, France, 2009– 2019 Figure 28: Handset ARPU by service, and mobile broadband and M2M ARPU, France, 2009–2019

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 6 List of figures Figure 29: Fixed penetration rates by service type/technology, France, 2009–2019 Figure 30: Fixed ASPU by service type, France, 2009–2019 Figure 31: Telecoms retail revenue by service type and total service revenue (retail and wholesale), Germany, 2009–2019 Figure 32: Telecoms retail revenue by service type, total service revenue and growth rates, Germany, 2013–2019 Figure 33: Connections by type, and growth rates, Germany, 2013–2019 Figure 34: Summary of key drivers and assumptions, Germany Figure 35: Mobile, smartphone and 4G penetration rates, Germany, 2009– 2019 Figure 36: Handset ARPU by service, and mobile broadband and M2M ARPU, Germany, 2009–2019 Figure 37: Fixed penetration rates by service type/technology, Germany, 2009–2019 Figure 38: Fixed ASPU by service type, Germany, 2009–2019 Figure 39: Telecoms retail revenue by service type and total service revenue (retail and wholesale), Italy, 2009–2019 Figure 40: Telecoms retail revenue by service type, total service revenue and growth rates, Italy, 2013–2019 Figure 41: Connections by type, and growth rates, Italy, 2013–2019 Figure 42: Summary of key drivers and assumptions, Italy Figure 43: Mobile, smartphone and 4G penetration rates, Italy, 2009–2019 Figure 44: Handset ARPU by service, and mobile broadband and M2M ARPU, Italy, 2009–2019 Figure 45: Fixed penetration rates by service type/technology, Italy, 2009– 2019 Figure 46: Fixed ASPU by service type, Italy, 2009–2019 Figure 47: Telecoms retail revenue by service type and total service revenue (retail and wholesale), Spain, 2009–2019 Figure 48: Telecoms retail revenue by service type, total service revenue and growth rates, Spain, 2013–2019 Figure 49: Connections by type, and growth rates, Spain, 2013–2019 Figure 50: Summary of key drivers and assumptions, Spain Figure 51: Mobile, smartphone and 4G penetration rates, Spain, 2009–2019 Figure 52: Handset ARPU by service, and mobile broadband and M2M ARPU, Spain, 2009–2019 Figure 53: Fixed penetration rates by service type/technology, Spain, 2009– 2019 Figure 54: Fixed ASPU by service type, Spain, 2009–2019 Figure 55: Telecoms retail revenue by service type and total service revenue (retail and wholesale), UK, 2009–2019 Figure 56: Telecoms retail revenue by service type, total service revenue and growth rates, UK, 2013–2019 Figure 57: Connections by type, and growth rates, UK, 2013–2019 Figure 58: Summary of key drivers and assumptions, UK Figure 59: Mobile, smartphone and 4G penetration rates, UK, 2009–2019 Figure 60: Handset ARPU by service, and mobile broadband and M2M ARPU, UK, 2009–2019 Figure 61: Fixed penetration rates by service type/technology, UK, 2009– 2019 Figure 62: Fixed ASPU by service type, UK, 2009–2019

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 7 Executive summary Regional forecasts and cross-country comparison Individual country forecasts About the authors and Analysys Mason

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Telecoms service revenue in Western Europe will continue to decline during 2014–2019  Telecoms service revenue in Western Europe stood at EUR257 billion in 2013, of which mobile services accounted for 47%. Service revenue will decline at –2.1% CAGR during 2013–2019 (mobile at –2.4% and fixed at –1.7%), to reach EUR227 billion. Telecoms service revenue will represent 1.5% of the region’s nominal GDP in 2019, compared with 2.0% in 2013.  Telecoms retail revenue (excluding wholesale) will reach decline at –1.6% CAGR to EUR196 billion in 2019.  Mobile retail revenue will decline a little faster than fixed because of the effects of intense competition in many countries between operators, MVNOs and OTT players.  Widespread adoption of smartphones and OTT services will result in a shift from traditional revenue to handset data – handset revenue will be split equally between the traditional (voice and messaging) services and handset data by 2019.  Competition and regulation will also have an effect on the fixed telecoms market – voice and wholesale revenue will fall, but revenue in the fixed broadband and IPTV, and business network services markets will slightly increase. Figure 2: Telecoms retail revenue by service type and total service revenue (retail and wholesale), Western Europe, 2009–2019 [Source: Analysys Mason, 2014] 8 Service revenue (retail and wholesale) Business network services Mobile broadband Fixed broadband and IPTV Mobile handset data Fixed voice and narrowbandMobile messaging Mobile M2MMobile voice

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 The drivers of decline will outweigh the drivers of growth 9 Drivers +  ‘Enrichment’ of the handset population: As customers migrate from prepaid to contract subscriptions, and basic phones to smartphones, churn will decline and ARPU will increase. With 4G, higher data usage will lead to higher ARPU, even if there is no specific 4G premium.  Market dynamics: Consolidation among mobile operators will increase the market’s resistance to revenue erosion.  M2M: Strong growth in this sector will partially offset losses in traditional mobile revenue.  Fixed service bundling: Aggressive bundling strategies will drive continued adoption of broadband services. The reduction of the price of pay TV in such packages will boost demand further and lead to modest pay-TV revenue growth.  NGA roll-out: The advancement of the fixed network (DOCSIS3.0, FTTH/B and VDSL) will keep fixed broadband ARPU relatively strong.  PSTN switch-off: This might be a means to accelerate the migration of fixed customers onto a data-only play (with broadband voice) and boost broadband demand. Inhibitors  Smartphone/4G take-up: A strong smartphone base will tend to undermine traditional revenue streams – particularly when combined with unlimited voice/SMS packages. There is also a threat to mobile broadband revenue, as tethering becomes a viable option. The shift from prepaid to contract subscriptions will drive the handset base to decline because some people will give up owning multiple SIMs.  Mobile market dynamics:  increased MVNO activity will tend to reduce ARPU (particularly in the Netherlands, Spain and the UK)  mergers may result in stronger quadruple-play offers, which will hit mobile revenue harder than fixed  OTT services pose a significant threat to mobile revenue in Germany, the Netherlands, the Nordics and Spain.  Low MTRs will create a climate in which smaller players have more ‘financial flexibility’ to drive down retail prices.  Heavy price reductions in mobile voice: This will put pressure on fixed voice revenue. –

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Losses in traditional services are the main contributors to the overall decline in telecoms retail revenue  Annual telecoms retail revenue has been declining since 2009, and the rate of decline has accelerated (–4.2% year- on-year in 2013).  We forecast that a further EUR19.8 billion will be wiped from total telecoms retail revenue by 2019. The services that will contribute positive growth are:  handset data, fuelled by smartphone – particularly 4G – take-up, will add EUR19.2 billion  mobile M2M: accelerated take-up of M2M connections will add EUR2.9 billion  fixed broadband and IPTV revenue will add EUR2.3 billion, as NGA development helps to keep ASPU high and TV services enrich bundle values  business network services will add EUR0.8 billion as post- recession investment improves.  These areas of growth are more than offset by a significant decline in revenue from traditional services.  Mobile voice will lose EUR22.8 billion, and mobile messaging will lose EUR9.7 billion.  Fixed voice will lose EUR12.1 billion because of competition from mobile and wider adoption of VoBB, which has lower ASPU. Figure 3: Telecoms retail revenue growth by service type, Western Europe, 2013–2019 [Source: Analysys Mason, 2014] 10

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Losses in mobile telecoms retail revenue will be heavier than losses in fixed telecoms retail revenue in most Western European countries  Western Europe’s telecoms market is dominated by five big countries: Germany (retail revenue EUR40 billion in 2013), UK (EUR38 billion), France (EUR34 billion), Italy (EUR26 billion) and Spain (EUR21 billion). Together these account for 74% of the region’s retail telecoms revenue.  All the countries in this region will lose revenue in both the fixed and the mobile markets, and the mobile market will lose more than the fixed market in most countries.  The threat from MVNOs is particularly strong in Spain, the Netherlands and the UK, while OTT services pose a further significant threat in Germany, the Netherlands, the Nordics and Spain. However, there is a trade-off between smartphones and 4G providing new revenue streams driven by higher data usage, and the loss of traditional revenue to OTT services.  Mergers in some countries have resulted in stronger quadruple-play propositions, which tend to hit mobile revenue harder than fixed.  The UK will have the strongest fixed market performance, largely because of the regulatory environment, which restricts the scope for naked DSL services, ensuring solid voice revenue performance. Figure 4: CAGRs for fixed and mobile retail revenue (2013–2019) and market size by total retail revenue (2019), by country, Western Europe [Source: Analysys Mason, 2014] 11 FranceGermanyItalyNetherlands PortugalSpainSwedenUK Bubble size and number = retail revenue (EUR billion) in 2019

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 We have revised our forecast to reflect a stronger-than-expected decline in mobile voice revenue, and faster growth in handset data revenue  Our previous forecast predicted total service revenue of EUR260 billion for 2013. The final results were just a little lower than this (EUR257 billion), and the mix of services was slightly different. We have made the following revisions to our forecasts for Western Europe in light of these results and recent market developments.  Mobile voice retail revenue in 2013 was 3.4% lower than our forecast, as tariff rebalancing has continued apace.  Mobile messaging revenue was also a little lower than we forecast, and handset data revenue higher (by 2.7%).  Thus we have accelerated our forecast for the migration of mobile revenue from traditional voice and messaging services to handset data. We now expect traditional revenue to account for 53% of handset retail revenue (down from 58%) in 2018.  Eight countries had double-digit losses in mobile voice retail revenue during 2013, but this was most notable in France (–21% year-on-year).  Mobile broadband retail revenue in 2013 fell 9% short of our estimate. Therefore, we have reduced future growth expectations slightly, but we still expect connected tablet take-up largely to offset losses in large-screen mobile broadband revenue. Figure 5: Telecoms retail revenue by service type and total service revenue, previous and new forecasts, Western Europe, 2013 and 2018 [Source: Analysys Mason, 2014] 12 Mobile voiceMobile M2M Mobile messagingFixed voice and narrowband Mobile handset dataFixed broadband and IPTV Mobile broadbandBusiness network services Service revenue (retail and wholesale)

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Forecast trend (2013–2019)Drivers and assumptions Mobile handset ARPU will decline at –3.1% CAGR   Our models capture the interplay of opposing trends in the mobile markets:  ‘Enrichment’ of the customer base. Contract’s share of handset subscriptions will grow from 54% to 62%, smartphone’s share of handsets from 51% to 79%, and 4G’s share from 4% to 63%. Each transition will boost ARPU.  General market conditions: We take into account new entrants, continued pressure from MVNOs, consolidation through mergers and the threat from quadruple-play offerings.  Competitive intensity will offset the benefits of customer enrichment in all countries, but the balance between the two varies for each country modelled. Voice and messaging revenue will only account for half of handset retail revenue by 2019   The proliferation of bundles with unlimited voice and messaging, along with the threat from OTT services, will place strong downward pressure on traditional voice revenue. This pressure will occur in all Western European countries, but will be strongest in countries with high smartphone penetration. The number of mobile broadband connections will grow at a CAGR of 1.9%, but large-screen’s share will diminish   Large-screen mobile broadband connections are in decline in most Western European countries. Their functionality can be replicated with smartphone tethering, home or public Wi-Fi and (to a lesser extent) substitution by connected tablets. All future growth in mobile broadband connections will come from connected tablets, which will account for 60% of connections by 2019. Mobile M2M revenue will grow from EUR1.5 billion to EUR4.4 billion   The number of mobile M2M connections will grow rapidly during the forecast period – automotive applications will account for most of the connections (security and utility applications will be the next most significant verticals). Mobile M2M ARPU will decline slowly, but revenue will grow at a 20% CAGR. Key trends, drivers and assumptions for the mobile market Figure 6: Summary of key drivers and assumptions for the mobile market, Western Europe [Source: Analysys Mason, 2014] 13

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Forecast trend (2013–2019)Drivers and assumptions VoBB’s share of fixed voice lines will grow from 24% to 40%   VoBB is increasingly being included in bundles of fixed broadband services, and so we expect to see a strong migration from narrowband to VoBB solutions in nearly all countries. (The UK is an exception because of its regulatory conditions.)  PSTN switch-off will drive a handful of countries towards retail VoBB solutions. Residential fixed broadband penetration of households will increase, from 74% to 83%   The rate of growth in the number of fixed broadband connections is slowing down in many Western European countries, but further growth is still possible. We expect the strongest growth in countries where retail VoBB is to be part of the solution for PSTN switch-off (for example, Norway). Growth is also likely to be stronger in the countries where consolidation has taken place, because the merged operators will be able to take a unified approach to marketing. NGA will account for 68% of fixed broadband connections in 2019   We define NGA as cable (which we assume to be entirely high-speed during the forecast period), VDSL and FTTH/B. The rate of NGA roll-out is extremely country-specific, and depends on the capex plans of the telcos and utility companies in each country. Where NGA penetration is high, we expect the fixed broadband market to be more resilient to ARPU erosion. Fixed broadband access revenue will barely grow (from EUR32.7 billion to EUR33.2 billion)   Fixed broadband access revenue is the product of two opposing forces – increased competition, which will drive down ASPU, and the improvements to network quality from the NGA roll-out, which will help to keep ASPU relatively strong. Fixed broadband access ASPU will decline at the regional level at a CAGR of –2.26%, but connections will grow at a 2.35% CAGR, leading to slight overall revenue growth. Pay-TV revenue will grow to EUR31.1 billion, and IPTV will account for 17% of the total   Pay-TV revenue will continue to grow during the forecast period but IPTV’s share of this total will increase significantly. Operators are using IPTV to enhance the value of fixed broadband bundles. IPTV accounted for 12% of total pay-TV revenue in 2013, but this will rise to 17% by 2019. Key trends, drivers and assumptions for the fixed market Figure 7: Summary of key drivers and assumptions for the fixed market, Western Europe [Source: Analysys Mason, 2014] 14

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Key implications and recommendations for telecoms operators  Mobile operators must continue to encourage enrichment of their customer base, managing the migration of customers from prepaid to contract plans, and from basic to smartphones. This strategy will reduce churn, and present opportunities to encourage the take-up of data-centric plans. These are urgently needed for two main reasons: to encourage handset mobile data usage, weaning customers off heavy reliance on Wi-Fi; and to reduce the severity of the deflationary effect on the value of voice (still 61% of handset retail revenue) that has already shrunk the value of SMS.  Fixed operators have opportunities to increase ARPU further by pushing more service bundles, making full use of quadruple-play and pay-TV opportunities.  High-frequency 4G spectrum will allow fixed and cable operators to move away from relying on classic MVNO models and develop low-cost mobile services based on hybrid private femtocells, public small cells and Wi-Fi.  Cable operators and new-entrant FTTH operators will drive the consumer broadband market and oblige incumbent operators to accelerate their NGA roll-out.  In the context of declining revenue, mobile operators should seek out opportunities to cut costs. Approaches include consolidation through M&A activity, network sharing agreements and making the most of potential cost savings from network virtualisation and cloud technologies.  Integrated fixed–mobile operations also save costs, and a structural move towards quadruple-play is inevitable. This will threaten second or third mobile operators without a fixed network and fixed operators without spectrum or MVNO agreements.  Operators should look to partner with a small number of selected OTT players in high-value segments such as video content and music. The primary objective is competitive differentiation and churn reduction rather than significant new revenue streams. In communication services, operators need to evolve their voice and video services (rather than competing head-to-head in messaging apps) and retain control of the native user interface in the Android ecosystem.  Mobile operators need to capitalise on the growth opportunities presented by M2M (looking beyond connectivity into device supply) and the digital economy. 15

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Users in Western Europe will continue to migrate to fixed and mobile next- generation networks Figure 8: Mobile connections by technology generation and NGA share of fixed broadband connections, by country, 2019 [Source: Analysys Mason, 2014] 1 1 For a full dataset on the countries modelled as part of the Western Europe region, please see the accompanying data annex. Mobile connections exclude M2M connections. NGA share of fixed broadband is calculated as cable, VDSL and FTTH connections (that provide access speeds of 30Mbps or more) divided by the total number of fixed broadband connections. 17 UK Spain Germany Mobile connections by technology generation NGA share of fixed broadband connections 2G 3G 4G Year of LTE launch Key Countries modelled individually Countries modelled as part of the region Sweden France Portugal Netherlands Italy

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 The Western European telecoms market is showing signs of maturity Figure 9: Metrics for the eight countries modelled individually in Western Europe, 2013 [Source: Analysys Mason, 2014]  The Western European telecoms market is highly developed. Mobile SIM penetration of the population exceeds 100%, and is set to fall during the forecast period as multiple-SIM adoption declines. Fixed broadband penetration is also relatively high, and we expect it to approach saturation in some markets by the end of the forecast period. Telecoms service revenue as a share of GDP has declined in recent years, and this trend will continue throughout the forecast period.  The ‘big-five’ countries (France, Germany, Italy, Spain and the UK) account for 77% of the region’s population, 72% of GDP and 74% of telecoms retail revenue. The eight countries included in this report account for 84% of the region’s telecoms service revenue. 18 Population (million) GDP (EUR billion) GDP per capita (EUR thousand) Telecoms revenuePopulation penetration Total service revenue (EUR billion) Share of GDP Total retail revenue (EUR billion) Retail spend per capita (EUR per month) Mobile SIMs 1 Fixed broadband France 64 2 060 32 422.0% 34 44113%38% Germany 81 2 742 34 491.8% 40 41139%35% Italy 61 1 560 26 301.9% 26 35163%23% Netherlands 17 603 36 132.2% 11 54124%41% Portugal 11 166 16 53.0% 4 34154%24% Spain 47 1 023 22 252.4% 21 37123%26% Sweden 10 420 44 71.8% 6 56204%33% UK 64 1 910 30 462.4% 38 50141%36% Western Europe 413 12 844 31 2572.0% 216 44138%32% 1 Includes M2M, which inflates the figures for countries that are advanced in this area, such as Sweden.

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Core services are saturating in Western Europe, but we expect strong growth in mobile M2M and IPTV connections Figure 11: Connections by service type, and growth rates, Western Europe, 2013–2019 [Source: Analysys Mason, 2014]  Termination rate reductions will result in the consolidation of mobile SIMs, and a slight overall reduction in handsets.  Mobile broadband connections are set to grow by 4.2 million, but the mix of tablets and USB modems will change.  Mobile M2M connections will grow strongly, from 10% population penetration in 2013 to 31% in 2019.  Fixed voice penetration of the population will continue its steady decline as some customers abandon fixed-line connections in favour of mobile.  Fixed broadband penetration will continue to grow, but at a declining rate as the market approaches saturation.  IPTV population penetration will grow to reach 9% by 2019. 19 Figure 10: Fixed and mobile penetration rates by service type, Western Europe, 2009–2019 [Source: Analysys Mason, 2014] Connection type Connections (million)CAGR 201320192009–20132013–2019 Mobile handsets 493.0 491.91.4%–0.0% Mobile broadband 36.5 40.711.6%1.9% Mobile M2M 40.5 132.138.9%21.8% Fixed voice 211.5 188.9–1.5%–1.9% Fixed broadband 134.2 154.24.7%2.3% IPTV 25.3 35.916.7%6.0%

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Population penetration of handsets and mobile broadband SIMs is peaking in many Western European markets  Population penetration of non-M2M SIMs in Western Europe will fall by slightly from 128% in 2013 to 127% in 2019.  The EU’s termination rate reductions will diminish the need for users to have multiple handsets to save on off-net calling. This trend is reinforced by customers who become loyal to one particular smartphone, as well as the fact that multiple- SIM ownership is a feature of the prepaid cohort and we expect contract’s share of handset plans to increase from 64% in 2013 to 72% in 2019.  Population penetration of mobile SIMs (excluding M2M) will be lower in 2019 than 2013 in most Western European markets. France and Spain are the exceptions shown here. France has the lowest handset penetration in Western Europe, and therefore has scope for further growth. Spain’s handset penetration will fall, but overall mobile penetration will be boosted by an increase in mobile broadband SIMs (driven by the take-up of connected tablets).  Italy’s penetration is particularly high because it has an unusually high proportion of prepaid handsets (81% in 2013, falling to 75% in 2019).  Non-handset mobile broadband SIMs account for 7–8% of Western Europe’s non-M2M SIMs, but is about twice that in Sweden, which accounts for its high penetration rate. Figure 12: Active mobile SIM penetration by country (excluding M2M), Western Europe, 2009–2019 [Source: Analysys Mason, 2014] 20

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 The transition to LTE is underway, and most mobile connections will be 4G by 2018  Operators in Western Europe were busy launching 4G services during 2013 and early 2014. Notable launches since our last report include those by Tele2 in Norway (May 2014), Mobistar in Belgium and E-Plus in Germany (March 2014), Hutchison 3G Ireland (February 2014), Free in France and Hutchison 3G UK (December 2013).  Western Europe had 25 million 4G connections at the end of 2013, representing nearly 5% of total non-M2M mobile SIMs. Three-quarters of these were handsets and the rest were mobile broadband. In most Western European countries, only a mobile broadband service was offered when 4G was first launched, but now 4G handset launches have become widespread.  We forecast that 63% of connections will be 4G by 2019, and that 4G will overtake 3G in 2017, becoming the dominant technology in 2018 (with 55% of all connections). At this stage, 92% of 4G connections will be handsets.  Some mobile network operators (MNOs) are beginning to disclose plans for 2G switch-off, which will be done on an operator-by-operator basis rather than at a country or regional level. We still expect 11% of mobile connections to be 2G at the end of the forecast period. Figure 13: Mobile connections by technology generation (excluding M2M), and 3G and 4G’s share of connections, Western Europe, 2009–2019 [Source: Analysys Mason, 2014] 21

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 The take-up of smartphones and LTE is a key driver in preventing further decline in mobile handset ARPU  Smartphone adoption was well established at 51% of active handsets by the end of 2013. The Netherlands led the field with 64% smartphone penetration of handsets, and Italy among the lowest, at 35%. Smartphones will account for 79% of handsets in Western Europe by 2019. Sweden’s penetration will be highest at 92%, and Germany will trail at 73%.  Our recent smartphone survey has convinced us that the extent of smartphone ownership is limited in some countries: a significant sub-set of respondents showed no interest in owning such a device.  Sweden had the highest 4G share of connections in 2013 at 11%, and this will rise to 81% by 2019. Italy was trailing at 1% in 2013, but this will rise to 46%.  The smartphone and LTE smartphone ownership will generally bolster handset ARPU, and to counter the downward pressure on revenue from market competitiveness. An LTE smartphone will generate much higher data volumes than a basic phone, but this will not be charged for in proportion to volumes, and comes along with a strong threat to traditional services, because voice and messaging can be successfully carried on OTT alternatives. Figure 14: Smartphones as a percentage of handsets, and LTE’s share of total connections (excluding M2M), Western Europe, 2013 and 2019 [Source: Analysys Mason, 2014] 22 2013 2019 Smartphones: 2013 2019 LTE:

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 The interplay of market forces and consumer ‘enrichment’ will produce differing rates of decline in mobile ARPU  Our forecast model explicitly takes into account:  the transition from prepaid to contract tariff plans  the rate of adoption of smartphones  the transition from 3G to 4G smartphones (with attendant higher data usage).  We account for the ARPU uplift associated with each stage of the above increases in value (but we note that an explicit 4G premium is short-lived). We set these ‘enrichment’ trends against the following general market trends:  MVNOs’ growing share of connections in some markets  possible new entrants or consolidation prospects  the strength of the OTT threat  the predominance of unlimited bundles and threat from quadruple-play packages.  We expect ARPU to decline in all countries during the forecast period, but the speed of decline varies according to the strengths of each of these factors. Figure 15: Mobile ARPU by country, Western Europe, 2009–2019 [Source: Analysys Mason, 2014] 1 1 Mobile ARPU is calculated as total mobile service revenue (retail and wholesale), excluding M2M, divided by total average mobile connections, excluding M2M. 23

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Fixed voice will decline and move from narrowband to VoBB, while fixed broadband connections rise strongly  The total number of fixed voice connections will fall at a CAGR of –1.9% between 2013 and 2019, and the VoBB share of the total will climb from 24% to 40%. VoBB’s share will increase more quickly in some countries, such as Germany and Norway, because of a VoBB-only PSTN switch-off strategy.  The loss in voice lines is primarily caused by fixed–mobile substitution, but also has to do with the consolidation of multiple narrowband channels.  Fixed broadband connections will continue to grow strongly, (at a CAGR of 2.3%) and DSL will continue to be the dominant technology by 2019, accounting for 63% of all connections (with cable 21%, FTTH/B 15%).  Competition from mobile broadband will be minimal, apart from in a few rural areas where fixed broadband coverage is inadequate. Most mobile broadband connections will be tablets, which do not pose a serious substitutive threat to fixed broadband.  IPTV connections will reach 36 million, accounting for 23% of fixed broadband connections. Figure 16: Fixed broadband connections by type, and fixed voice, IPTV and mobile broadband connections, Western Europe, 2009–2019 [Source: Analysys Mason, 2014] 24

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Fixed broadband penetration will continue to grow but the most highly penetrated countries will begin to saturate  Fixed broadband penetration of households will grow from 74% to 83% during 2013–2019, but this will vary by country.  The demand for fixed broadband services will be a function of demographic trends (household size, the average age of the population) and operators’ coverage plans, including NGA. We forecast that fixed broadband services have substantial scope for take-up, unless:  a market is already well penetrated (such as in France and the UK)  NGA roll-out plans are not ambitious (such as in France, Greece and Italy)  there is cultural resistance to broadband (such as in Italy)  mobile services are strong and the fixed network is generally not well adopted (such as in Finland).  PSTN switch-off plans in Germany and Norway are to be implemented using a full or partial retail VoBB solution, so we expect continued strong growth in fixed broadband in these countries. In countries where fixed broadband players have consolidated (such as in Germany and the Netherlands), we expect a more unified approach to marketing, and other synergies, to boost demand for fixed broadband services. Figure 17: Fixed broadband penetration of households by country, Western Europe, 2009–2019 [Source: Analysys Mason, 2014] 1 1 Fixed broadband penetration is calculated as total fixed broadband connections (residential and business) divided by the number of households. 25

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Business network services Mobile broadband Fixed broadband and IPTV Mobile handset data Fixed voice and narrowband Mobile messaging Mobile M2M Mobile voice Mobile ARPU Fixed voice ASPU Fixed broadband ASPU Revenue and ARPU in Western Europe will continue to decline, although recent heavy losses in mobile will not be sustained beyond 2015 2 Includes USB modem, and mid- and large-screen, but not handset-based data. 3 Includes narrowband, VoBB and dial-up Internet access. 4 Includes retail and wholesale revenue. Figure 19: Telecoms retail revenue by service type, total service revenue and growth rates, Western Europe, 2013–2019 [Source: Analysys Mason, 2014] Figure 18: Telecoms retail revenue by service type, fixed voice and fixed broadband ASPU, and mobile ARPU, Western Europe, 2009–2019 [Source: Analysys Mason, 2014] 1 26 1 Mobile ARPU is calculated as total mobile service revenue (retail and wholesale), excluding M2M, divided by total average mobile connections, excluding M2M.  Mobile ARPU has declined by 9% in 2013 as result of intense market competition. We expect the effects of consolidation and customer enrichment to steady this decline in future.  Fixed voice and fixed broadband access ASPUs will also decline, but for broadband this is offset by an take-up in demand resulting in overall revenue growth of 1% CAGR. Service type Revenue (EUR billion)CAGR 201320192009–20132013–2019 Mobile voice61.939.1–7.6%–7.4% Mobile messaging15.15.4–3.1%–15.7% Mobile handset data25.144.326.3%9.9% Mobile broadband 2 6.96.38.3%–1.4% M2M1.54.431.8%20.0% Fixed voice and narrowband 3 48.536.4–7.0%–4.7% Fixed broadband and IPTV36.238.53.1%1.0% Business network services20.521.3–0.2%0.7% Total retail revenue215.6195.7–2.1%–1.6% Total service revenue 4 256.6226.5–3.3%–2.1%

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Telecoms service revenue will decline, but the share of this revenue held by each major country will not change significantly Figure 20: Service revenue by country, Western Europe, 2013 [Source: Analysys Mason, 2014] Figure 21: Service revenue by country, Western Europe, 2019 [Source: Analysys Mason, 2014] 27  Total service revenue in Western Europe will shrink from EUR257 billion in 2013 to EUR227 billion in 2019 at a CAGR of –2.1%.  Five countries dominate Western Europe’s telecoms market: Germany, the UK, France, Italy and Spain. Together these account for 74% of the region’s service telecoms revenue, and this will be largely unchanged in 2019.

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Mobile revenue will be squeezed a little harder than fixed in the forecast period Figure 22: Telecoms retail revenue by service type, and total service revenue (retail and wholesale), by country, Western Europe, 2013 and 2019 [Source: Analysys Mason, 2014]  Mobile accounted for 51.2% of total retail revenue in Western Europe in 2013, and this will fall to 50.8% by 2019. Some countries are more mobile-focused than others – the Netherlands was the least mobile-focused of these eight countries in 2013 (mobile accounted for 46.9% of telecoms retail revenue), and Spain was the most mobile-focused (mobile accounted for 57.1% of telecoms retail revenue).  All the countries in this region will lose revenue in the fixed and the mobile markets, and mobile will be the bigger loser in most countries. 28

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 France: The mobile market will begin to stabilise after a period of intense competition Service type Revenue (EUR million)CAGR 201320192009–20132013–2019 Mobile voice9.05.3–11.1%–8.5% Mobile messaging3.81.24.5%–17.1% Mobile handset data3.27.224.8%14.6% Mobile broadband 1 0.80.910.8%1.1% Mobile M2M0.30.935.1%20.6% Fixed voice and narrowband 2 7.15.6–9.7%–3.9% Fixed broadband and IPTV7.17.07.0%–0.1% Business network services3.03.1–0.8%0.3% Total retail revenue34.331.2–3.0%–1.6% Total service revenue 3 41.836.9–3.3%–2.1% 1 Includes USB modem, and mid- and large-screen, but not handset-based data. 2 Includes narrowband, VoBB and dial-up Internet access. 3 Includes retail and wholesale revenue. Figure 24: Telecoms retail revenue by service type, total service revenue and growth rates, France, 2013–2019 [Source: Analysys Mason, 2014] Figure 23: Telecoms retail revenue by service type and total service revenue (retail and wholesale), France, 2009–2019 [Source: Analysys Mason, 2014] Figure 25: Connections by type, and growth rates, France, 2013–2019 [Source: Analysys Mason, 2014] 30 4 Not available. Connection type Connections (million)CAGR 201320192009–20132013–2019 Mobile handsets 62.2 69.12.9%1.8% Mobile broadband 3.6 5.014.7%5.7% Mobile M2M 6.9 23.644.9%22.8% Fixed voice 39.5 36.6–1.0%–1.2% Fixed broadband 24.7 27.35.8%1.7% IPTV 13.2 16.212.7%3.6% Service revenue (retail and wholesale) Business network services Mobile broadband Fixed broadband and IPTV Mobile handset data Fixed voice and narrowbandMobile messaging Mobile M2MMobile voice

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Forecast trend (2013–2019)Drivers and assumptions Mobile retail revenue Retail revenue will fall at a CAGR of –1.6% during 2013–2019 – it will fall steeply during the first years of the forecast but will return to growth in 2018 and 2019   Mobile retail revenue fell by 10% in 2013 as fierce competition continued. We expect changes in the market dynamics to have opposing impacts on revenue streams.  Numericable’s take over of SFR will produce a converged competitor to France Telecom, with a strong quadruple-play offering (including an LTE offer for fibre subscribers), which will depress mobile ARPU in the short term.  Some further consolidation is likely (all mobile operators and the French Minister of Economy have expressed support for a three-player mobile market), which will limit ARPU losses.  SIM penetration is relatively low in France so we expect further growth, which combined with stabilising ARPU will produce overall revenue growth in the long term. Mobile handset data revenue Handset data ARPU will grow from EUR4.3 in 2013 to EUR8.7 in 2019   Smartphone and 4G handset adoption will drive up handset spend. We forecast smartphones to be a higher share handsets than in our previous forecasts: actuals for 2013 were higher than expected, and the new leasing strategy introduced by Free will accelerate take-up further. All operators are quickly expanding their LTE networks, and MVNOs are offering 4G plans, which will accelerate 4G take-up. Traditional mobile (voice and messaging) retail revenue Only 45% of handset revenue will be from traditional services by 2019   Mobile voice retail revenue fell by 21% in 2013, the sharpest fall in Europe. We expect traffic volumes to begin to decline by the end of the forecast period as users substitute email and messaging applications. SMS revenue has remained strong, despite smartphone penetration of 61% in 2013, but this is unlikely to be sustainable, because demand for OTT apps is beginning to have an impact. We forecast a decline in SMS volumes per handset from 2014 onwards. Fixed broadband access revenue Total fixed broadband revenue will decline (CAGR –1.7% )   Price competition in the DSL market has been intense (Bouygues recently cut prices in response to Free’s aggressive pricing policy). Downward pressure on ASPU along with limited scope for further connection growth will result in access revenue declining in the forecast period, although modest growth in IPTV revenue will offset this decline. France: Key trends, drivers and assumptions Figure 26: Summary of key drivers and assumptions, France [Source: Analysys Mason, 2014] 31

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 France: Handset connections have scope for growth  France had the lowest handset penetration rates in Western Europe in 2013, at 96% of the population. The number of handset connections increased significantly following the arrival of Free in the market (handset penetration was only 91% in 2011). This indicates that new subscribers will join the market if the price is right.  We therefore expect continued mobile handset penetration to reaching 104% of the population by 2019. The smartphone share of handsets will grow rapidly to reach 81% by 2019. We expect it to level off at this point, because some users will not be interested in the more-advanced devices. 4G expansion will continue strongly, with 4G accounting for 72% of non-M2M SIMs by 2019.  The increasing proportion of 4G smartphones will transform the mix of service elements within handset ARPU. Data services will account for 49% of handset ARPU, as the share of traditional services declines. We expect to OTT services to have a significant impact on messaging revenue from 2014 onwards.  Termination ARPU will fall from EUR3.2 in 2013 to EUR1.3 in 2019 as MTRs are cut due to regulatory pressure.  M2M ARPU will fall slightly, but strong growth in SIMs will yield a threefold increase in M2M retail revenue by 2019. Figure 27: Mobile, smartphone and 4G penetration rates, France, 2009–2019 [Source: Analysys Mason, 2014] Figure 28: Handset ARPU by service, and mobile broadband and M2M ARPU, France, 2009–2019 [Source: Analysys Mason, 2014] 32 Including M2MExcluding M2M Smartphone share of handsets4G share of SIMs (excluding M2M) Mobile penetration of population: Mobile broadbandM2M VoiceMessagingHandset data Termination Handset ARPU:

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 France: The fixed broadband market will begin to saturate  Total fixed voice connections (business and residential) will continue their steady decline, falling at a CAGR of –1.2% during 2013–2019.  The fixed broadband market in France is nearing saturation – 38% of the population had a fixed broadband connection in 2013 – and grows more slowly each year. We expect the market to saturate when connections exceed 41% of population.  IPTV is quite established in France, and further take-up will be steady – penetration will increase from 20% of the population to 24% during the forecast period.  NGA roll-out has been slow, although FTTH/B will account for 19% of total connections by 2019. Recent consolidation activity in the cable market will result in a stronger cable proposition in the future. We forecast that cable subscriber numbers will grow at a 6.1% CAGR during 2013–2019.  Fixed broadband ASPU has been affected by intense price competition in the DSL market (Bouygues recently cut prices in response to Free’s aggressive pricing policy). NGA development will ease this downward pressure a little.  Fixed voice ASPU will continue to decline steadily, due to competition from the highly competitive mobile segment and further dilution due to the transition to VoBB. Figure 29: Fixed penetration rates by service type/technology, France, 2009– 2019 [Source: Analysys Mason, 2014] Figure 30: Fixed ASPU by service type, France, 2009–2019 [Source: Analysys Mason, 2014] 33 Fixed voiceIPTV DSLCableFTTH/B OtherFixed broadband:

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Germany: Losses in fixed and mobile voice revenue contribute to an overall decline in telecoms revenue Service type Revenue (EUR million)CAGR 201320192009–20132013–2019 Mobile voice10.76.3–2.1%–8.5% Mobile messaging2.30.5–2.8%–21.8% Mobile handset data5.29.031.1%9.6% Mobile broadband 1 1.20.910.2%–4.6% Mobile M2M0.20.860.3%30.3% Fixed voice and narrowband 2 8.54.7–8.6%–9.5% Fixed broadband and IPTV7.78.52.1%1.7% Business network services4.44.60.7% Total retail revenue40.135.3–0.1%–2.1% Total service revenue 3 48.541.1–1.5%–2.7% 1 Includes USB modem, and mid- and large-screen, but not handset-based data. 2 Includes narrowband, VoBB and dial-up Internet access. 3 Includes retail and wholesale revenue. Figure 32: Telecoms retail revenue by service type, total service revenue and growth rates, Germany, 2013–2019 [Source: Analysys Mason, 2014] Figure 31: Telecoms retail revenue by service type and total service revenue (retail and wholesale), Germany, 2009–2019 [Source: Analysys Mason, 2014] Figure 33: Connections by type, and growth rates, Germany, 2013–2019 [Source: Analysys Mason, 2014] 34 4 Not available. Connection type Connections (million)CAGR 201320192009–20132013–2019 Mobile handsets 102.3 97.81.5%–0.7% Mobile broadband 5.3 5.212.7%–0.3% Mobile M2M 4.6 22.475.5%30.2% Fixed voice 51.6 43.2–1.3%–2.9% Fixed broadband 28.6 34.23.7%3.1% IPTV 2.2 4.025.4%11.0% Service revenue (retail and wholesale) Business network services Mobile broadband Fixed broadband and IPTV Mobile handset data Fixed voice and narrowbandMobile messaging Mobile M2MMobile voice

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Forecast trend (2013–2019)Drivers and assumptions Mobile handset ARPU Mobile ARPU will fall from EUR16.4 in 2013 to EUR14.0 in 2019   The probable merger between Telefónica and E-Plus may lend resilience to market pressures in the mobile sector, but this in the context of a market that has Europe’s highest share of MVNO subscribers (25% in 2013). Operators are also competing hard for LTE subscribers, and consolidation in the fixed market will increase the likelihood of value destruction because of quadruple-play bundles. Mobile messaging Mobile messaging revenue will fall from EUR2.3 billion to EUR0.5 billion   2013 was also a pivotal year for SMS messaging. By 4Q 2013, SMS volumes had dropped by half year- on-year. OTT apps have become very popular – our recent smartphone survey indicated that 90% of smartphone owners use WhatsApp Messenger, so we expect strong reductions in future revenue. Mobile voice retail revenue Mobile voice retail revenue will decline at a CAGR of –8.5%   The mobile voice market declined during 2013 – traffic volumes stagnated, and the price per minute had fallen to 10% year-on-year by 4Q 2013. Therefore, we expect voice revenue in the forecast period to decline more quickly than previously. Fixed voice Fixed voice connections will fall at a CAGR of –2.9%, and revenue at a CAGR of –9.5%   Fixed voice volumes have declined since 2010, and total fixed voice subscriber numbers have fallen steadily. The transition from narrowband to VoBB has been steady, which we expect to continue particularly because Deutsche Telekom’s PSTN switch-off (scheduled for 2018) will be a part MSAN, part retail VoBB solution. We expect voice revenue to continue to dilute because VoBB generally commands lower ASPU. Fixed broadband Fixed broadband and IPTV retail revenue will grow at a CAGR of 1.7%   The fixed market in Germany has been consolidating. Kabel Deutschland and Vodafone have begun to integrate and cable players Unitymedia and KabelBW merged in 2012. As a result, ASPU will remain relatively buoyant, and we expect to see an increase in take-up of fixed broadband as a consequence of unified marketing campaigns. Germany: Key trends, drivers and assumptions Figure 34: Summary of key drivers and assumptions, Germany [Source: Analysys Mason, 2014] 35

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Germany: Total handsets will peak in 2014 but smartphone take-up has considerable room for growth  Handset penetration in Germany reached 127% of the population in 2013, and contract plans accounted for half. Smartphone share of handsets stood at 44%. We expect the contract share of handset subscribers to increase to 59% by 2019, fuelled by the take-up of smartphones. As customers upgrade from prepaid to contract plans, they will be likely to get rid of duplicate prepaid SIMs, and so the total number of handsets will begin to decline.  We expect smartphones to account for 73% of handsets by 2019. Germany has lagged behind its neighbours in the take- up of smartphones, and we expect it to begin to catch up in the forecast period.  Handset ARPU fell by 3.8% in 2013 – declining MTRs was a major contributor, but the potential for future ASPU disruption from quadruple-play bundles is strong. Therefore, we expect ASPU to fall from EUR16.3 in 2013 to EUR14.0 in 2019.  Handset data ARPU will rise to EUR7.6 by 2019 (55% of handset ARPU), as traditional services become a secondary element of the data-centric bundled package.  Mobile broadband ASPU will decline due to dilution from tablets (which command a lower ASPU). A relatively stable M2M ARPU and strong growth in connections will yield retail revenue growth at a 30% CAGR for M2M during 2013–2019. Figure 35: Mobile, smartphone and 4G penetration rates, Germany, 2009– 2019 [Source: Analysys Mason, 2014] Figure 36: Handset ARPU by service, and mobile broadband and M2M ARPU, Germany, 2009–2019 [Source: Analysys Mason, 2014] 36 Including M2MExcluding M2M Smartphone share of handsets4G share of SIMs (excluding M2M) Mobile penetration of population: Mobile broadbandM2M VoiceMessagingHandset data Termination Handset ARPU:

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Germany: Fixed broadband will grow more strongly with the advent of PSTN switch-off  Total fixed voice connections will decline in the forecast period because ISDN will be phased out as part of the PSTN switch-off (and redundant channels will be removed). Fixed voice penetration of the population will fall from 64% to 53%.  Fixed broadband penetration of the population has increased steadily, but at 35% in 2013 still has room for growth. The following three factors are accelerating fixed broadband take- up.  Expansion of VDSL enhancing the product proposition  Consolidation in the cable market, yielding growth with intensive marketing  The move towards PSTN switch-off – Deutsche Telekom may encourage take-up of retail VoBB to supplement its MSAN strategy.  We expect fixed broadband penetration to increase to 42% of the population by 2019, but ASPU will continue to fall a little, because pricing will need to be competitive to lure new subscribers to market.  Fixed voice ASPU will decline much more steeply, because the transition to VoBB will dilute ASPU. Figure 37: Fixed penetration rates by service type/technology, Germany, 2009–2019 [Source: Analysys Mason, 2014] Figure 38: Fixed ASPU by service type, Germany, 2009–2019 [Source: Analysys Mason, 2014] 37 Fixed voiceIPTV DSLCableFTTH/B OtherFixed broadband:

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Italy: Telecoms service revenue will decline because the economic outlook is uncertain and competition is intense Service type Revenue (EUR million)CAGR 201320192009–20132013–2019 Mobile voice7.85.0–10.2%–7.2% Mobile messaging2.01.1–4.4%–9.7% Mobile handset data2.34.16.7%10.3% Mobile broadband 1 1.1 21.5%0.5% Mobile M2M0.30.744.7%14.3% Fixed voice and narrowband 2 7.25.6–5.7%–4.3% Fixed broadband and IPTV3.03.5–0.0%2.9% Business network services2.1 –2.3%0.3% Total retail revenue25.823.2–4.6%–1.8% Total service revenue 3 30.426.9–6.0%–2.0% 1 Includes USB modem, and mid- and large-screen, but not handset-based data. 2 Includes narrowband, VoBB and dial-up Internet access. 3 Includes retail and wholesale revenue. Figure 40: Telecoms retail revenue by service type, total service revenue and growth rates, Italy, 2013–2019 [Source: Analysys Mason, 2014] Figure 39: Telecoms retail revenue by service type and total service revenue (retail and wholesale), Italy, 2009–2019 [Source: Analysys Mason, 2014] Figure 41: Connections by type, and growth rates, Italy, 2013–2019 [Source: Analysys Mason, 2014] 38 4 Not available. Connection type Connections (million)CAGR 201320192009–20132013–2019 Mobile handsets 84.1 82.81.3%–0.3% Mobile broadband 8.0 9.018.3%1.9% Mobile M2M 7.4 20.346.5%18.2% Fixed voice 23.8 21.6–2.2%–1.6% Fixed broadband 13.9 16.13.6%2.5% IPTV 0.1 0.5–32.8%24.3% Service revenue (retail and wholesale) Business network services Mobile broadband Fixed broadband and IPTV Mobile handset data Fixed voice and narrowbandMobile messaging Mobile M2MMobile voice

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Forecast trend (2013–2019)Drivers and assumptions Mobile voice and messaging  We forecast a EUR3.8 billion revenue loss  OTT services will have a significant impact on messaging revenue   2013 was the worst year ever in terms of mobile voice revenue in Italy (–17% compared with 2012) because the MTR cuts (from EUR0.06 per minute in 2009 to EUR0.01 in 2013) created an opportunity for small players to reduce retail prices by transferring to final users the benefit of paying lower rates.  Voice and messaging will continue to decline (CAGR –7.2% and –9.7%) because the economic environment is uncertain, OTT alternatives will become more established, consumers and enterprises are trying to optimise costs, and voice/messaging are likely to become commoditised within bundles. Mobile handset data and broadband  Smartphones will drive handset data revenue (CAGR 10.3%), but will slow mobile broadband revenue (CAGR 0.5%)  LTE take-up will be slow and the 4G premium very low   Smartphones will account for 79% of handsets in 2019, up from 35% in 2013, but will have an impact on the mobile broadband market as they replace USB modems (mobile broadband population penetration will grow slowly from 13% in 2013 to 15% in 2019).  LTE has had a slow take-up. TIM has the largest 4G network (50% of the population at the end of 2013, to reach 70% by 2015), but it claimed 650 000 LTE users in April 2014, 18 months after launch. We forecast LTE connections to reach 44% of handsets by 2019, compared to a Western European average of 63%. We do not assume a big LTE ARPU premium because H3G (3) has launched LTE at no premium and TIM does not explicitly promote content to 4G smartphone users. Fixed voice and broadband  Voice household penetration will fall to 61% in 2019  Broadband growth will be solid, mainly driven by FTTC/VDSL. The IPTV market will remain niche because satellite and digital terrestrial dominate   Fixed voice penetration will decline because mobile prices are quite cheap, and mobile operators are being more dynamic in driving voice usage. Fixed voice will be increasingly seen as a commodity to include in fixed bundles with broadband and pay TV (fixed voice ARPU will decline at a –2.5% CAGR).  Fixed broadband penetration will continue to grow in terms of volume (the service is underpenetrated and competition stimulates demand), and value (operators are increasingly investing in FTTC/VDSL).  FTTC/VDSL is likely to become the leading technology in 2019, while FTTH/B penetration will be slow (9% of total fixed broadband connections in 2019). Based on current level of demand and planned investments, the EU objective of more than 50% of households subscribed to ultrafast broadband (over 100Mbps) by 2020 may not be met. Italy: Key trends, drivers and assumptions Figure 42: Summary of key drivers and assumptions, Italy [Source: Analysys Mason, 2014] 39

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Italy: Mobile penetration (excluding M2M) will be nearly stable during the next few years, but the handset mix will improve  Handset population penetration will decline from 138% in 2013 (the second-highest in Western Europe after Portugal) to 135% in 2019 because the number of prepaid SIMs will continue to fall. Operators are selling SIMs for a monthly fee with bundles of minutes and data (causing a switch-off of some multiple prepaid SIMs), and MTRs are now too low to justify different on-net and off-net tariffs (reducing the need for multiple-SIM ownership to optimise the cost of calls).  Mobile broadband population penetration stalled in 2013 at 13% as smartphones replace USB modems, and Wi-Fi-only tablets grow. We forecast slow penetration growth (15% in 2019), but Italy will maintain one of the highest penetration levels in Europe because fixed–mobile substitution has been strong in areas with limited ultrafast broadband fixed infrastructure, and mobile broadband is cheap.  The handset mix will improve because consumers will continue to upgrade their devices to smartphones (79% of handsets will be smartphones in 2019, up from 35% in 2013) and LTE will gain momentum after a slow start.  Pressure on mobile handset ARPU will diminish compared to the last 4 years as bundles of services become more common (thus stabilising part of operator’s revenue), and data spend will increase (handset data ARPU will account for 37% of total handset ARPU by 2019). Figure 43: Mobile, smartphone and 4G penetration rates, Italy, 2009–2019 [Source: Analysys Mason, 2014] Figure 44: Handset ARPU by service, and mobile broadband and M2M ARPU, Italy, 2009–2019 [Source: Analysys Mason, 2014] 40 Including M2MExcluding M2M Smartphone share of handsets4G share of SIMs (excluding M2M) Mobile penetration of population: Mobile broadbandM2M VoiceMessagingHandset data Termination Handset ARPU:

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Italy: Fixed broadband ARPU will slightly increase as leading operators are investing to upgrade their networks to FTTC/VDSL  Fixed voice penetration will decline from 39% of the population in 2013 to 35% in 2019, mainly because of fixed– mobile voice substitution, but fixed voice will remain the largest source of telecoms revenue (EUR5.6 billion in 2019).  Fixed broadband penetration will reach 26% of the population in 2019, up from 23% in 2013 because the service is underpenetrated, and the leading fixed operators are investing in FTTC/VDSL to boost value and market share.  Telecom Italia aims to cover about 50% of households with FTTC/VDSL by 2016. FASTWEB is building its own FTTC/VDSL network, using TI’s copper sub-loops, and aims to offer ultrafast broadband services to 20% of the market by the end of 2014. Vodafone’s Project Spring plan aims to cover 25% of the Italian population by 2016.  However, Italy will continue to lag behind Western Europe, mainly because of low levels of ICT literacy and the lack of NGA infrastructure competition. Italy is the only Western European country without a high-speed broadband network over cable (DOCSIS), and FTTH coverage is mainly limited to Milan.  Fixed voice ARPU will continue to decline because the service will be sold as a commodity within bundles, while broadband ARPU will slightly increase because upgrades to higher-capacity networks will lead to a better price mix. Figure 45: Fixed penetration rates by service type/technology, Italy, 2009– 2019 [Source: Analysys Mason, 2014] Figure 46: Fixed ASPU by service type, Italy, 2009–2019 [Source: Analysys Mason, 2014] 41 Fixed voiceIPTV DSLCableFTTH/B OtherFixed broadband:

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Spain: Revenue pressure will ease in the last part of the forecast period because economic recovery may reduce budget constraints Service type Revenue (EUR million)CAGR 201320192009–20132013–2019 Mobile voice7.65.0–11.0%–6.8% Mobile messaging0.40.2–22.3%–14.4% Mobile handset data3.04.338.3%6.5% Mobile broadband 1 0.70.6–1.3%–3.7% Mobile M2M0.10.37.7%19.7% Fixed voice and narrowband 2 4.23.1–8.5%–4.8% Fixed broadband and IPTV3.33.6–1.2%1.3% Business network services1.4 –1.0%0.1% Total retail revenue20.818.5–5.4%–1.9% Total service revenue 3 24.621.7–5.6%–2.0% 1 Includes USB modem, and mid- and large-screen, but not handset-based data. 2 Includes narrowband, VoBB and dial-up Internet access. 3 Includes retail and wholesale revenue. Figure 48: Telecoms retail revenue by service type, total service revenue and growth rates, Spain, 2013–2019 [Source: Analysys Mason, 2014] Figure 47: Telecoms retail revenue by service type and total service revenue (retail and wholesale), Spain, 2009–2019 [Source: Analysys Mason, 2014] Figure 49: Connections by type, and growth rates, Spain, 2013–2019 [Source: Analysys Mason, 2014] 42 4 Not available. Connection type Connections (million)CAGR 201320192009–20132013–2019 Mobile handsets 52.5 53.70.5%0.4% Mobile broadband 2.0 2.4–0.0%3.6% Mobile M2M 3.1 10.913.9%23.3% Fixed voice 21.4 18.20.4%–2.7% Fixed broadband 12.1 14.05.7%2.5% IPTV 0.7 1.1–1.7%5.9% Service revenue (retail and wholesale) Business network services Mobile broadband Fixed broadband and IPTV Mobile handset data Fixed voice and narrowbandMobile messaging Mobile M2MMobile voice

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Forecast trend (2013–2019)Drivers and assumptions Mobile voice and messaging  Price competition will drive down voice revenue at a 6.8% CAGR  The messaging market is small and will continue to decline   We assume that price competition will continue during the next 6 years because of the growing presence of low-price operators such as Yoigo and MVNOs, which are winning market share.  Mobile voice prices are high compared with those in other large Western European countries and with fixed prices in Spain, and are therefore vulnerable to competition.  We forecast that volumes of text messages and revenue in the SMS market will decline because of OTT substitution. The messaging market will account for only 2% of total mobile retail revenue by 2019. Mobile handset data  Handset data will become the second-largest source of revenue (EUR4.3 billion in 2019)   Handset data and M2M revenue will increase, but the M2M market will remain a niche (EUR0.3 billion in 2019) while handset data will grow strongly, driven by volume (76% of handsets will be smartphones in 2019) and value (data ARPU will grow from EUR4.7 in 2013 to EUR6.7 in 2019).  All operators in Spain launched LTE in 2013, and take-up is strong so far. We estimate 1.2 million LTE connections at the end of 2013, which will become 37 million at the end of 2019. Mobile broadband  The mobile broadband market will recover in 2015, driven by tablets   The number of mobile broadband connections is in decline because of relatively high prices compared to fixed broadband and a shift from large-screen mobile broadband devices to smartphones. However, we forecast a recovery from 2015 afterwards, driven by connected tablets. Fixed services and IPTV  Quadruple play will bolster fixed voice penetration  FTTH/B will become the dominant technology in 2018 and will drive IPTV take-up   Fixed voice penetration will be quite resilient as fixed prices are cheaper than mobile, and take-up of quadruple-play bundles is accelerating.  The fixed broadband market will continue to grow in terms of volumes (connections at a CAGR of 2.5%) and value (NGA will account for about 70% of fixed broadband connections by 2019).  FTTH/B will become the dominant technology in 2018, mainly driven by the incumbent, and will drive IPTV connections to 1 million in 2019 (26% of the total pay-TV customer base). Spain: Key trends, drivers and assumptions Figure 50: Summary of key drivers and assumptions, Spain [Source: Analysys Mason, 2014] 43

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Spain: We forecast a slight recovery in the number of handsets and mobile broadband connections from 2015 afterwards  Handset connections will return to low growth in 2015, after 3 years of decline, mainly driven by an expected economic recovery, which will drive the number of business SIMs. The prepaid market will continue to decline as operators move customers to contract subscriptions. MNP activity is growing, so market shares are more likely to be driven by churn rather than new SIMs.  Smartphone penetration (76% of handsets in 2019) and LTE take-up will improve the handset mix. LTE take-up was strong in the first year of launch (2013) and we forecast LTE handsets to account for 65% of total handsets by 2018.  The mobile broadband market is under pressure because the service is expensive and smartphones are replacing USB modems. The number of mobile broadband connections declined to 2 million at the end of 2013, down from a 3.4 million peak in 2011. We forecast a recovery starting from 2015, driven by connected tablets, but population penetration will remain low at 5%, compared to a Western European average of 10%.  Mobile handset ARPU will decline at a slower rate because data usage growth will offset most of the OTT and price competition pressure on voice and messaging. Handset ARPU will be EUR15.2 per month in 2019, of which handsets will account for EUR6.7. Figure 51: Mobile, smartphone and 4G penetration rates, Spain, 2009–2019 [Source: Analysys Mason, 2014] Figure 52: Handset ARPU by service, and mobile broadband and M2M ARPU, Spain, 2009–2019 [Source: Analysys Mason, 2014] 44 Including M2MExcluding M2M Smartphone share of handsets4G share of SIMs (excluding M2M) Mobile penetration of population: Mobile broadbandM2M VoiceMessagingHandset data Termination Handset ARPU:

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Spain: Fixed broadband population penetration will reach 29% by 2019, and FTTH/B will take the lead in 2018  Fixed voice penetration will decline from 46% of the population in 2013 to 38% in 2019, mainly driven by business line losses and the transition to VoBB, which will eradicate redundant channels. Residential penetration will decline at a slower rate than business as bundles with broadband and pay TV will become more common.  Take-up of quadruple-play bundles is accelerating: Telefónica’s Movistar Fusión had 3.2 million subscribers at March 2014, doubling the number as of March 2013. Yoigo launched fixed–mobile packages in October 2013, after signing an LTE network-sharing agreement with Telefónica.  Fixed broadband population penetration will reach 29% in 2019, up from 26% in 2013. Growth looks strong, driven by Orange, and Telefónica’s FTTH/B. Vodafone’s acquisition of ONO is likely to boost competition and demand. FTTH/B will become the leading technology in 2018, and DOCSIS3.0 connections will reach 2.3 million in 2019.  Fixed voice ARPU will decline at a CAGR of 2.5% during the forecast period, because of increased competition between fixed players and from mobile players, and volumes will continue to fall. We expect some fixed broadband ARPU erosion (at a CAGR of –1.7%) as well because the most urbanised areas have overcapacity of 50% and competition is likely to erode the price premium on FTTH. Figure 53: Fixed penetration rates by service type/technology, Spain, 2009– 2019 [Source: Analysys Mason, 2014] Figure 54: Fixed ASPU by service type, Spain, 2009–2019 [Source: Analysys Mason, 2014] 45 Fixed voiceIPTV DSLCableFTTH/B OtherFixed broadband:

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 UK: Telecoms revenue stopped growing in 2013 and will begin to decline Service type Revenue (GBP million)CAGR 201320192009–20132013–2019 Mobile voice7.85.3–5.1%–6.2% Mobile messaging3.00.9–0.7%–19.0% Mobile handset data4.47.628.5%9.8% Mobile broadband 1 0.6 1.9%0.4% Mobile M2M0.20.752.3%20.3% Fixed voice and narrowband 2 8.47.8–2.8%–1.3% Fixed broadband and IPTV4.44.76.8%1.2% Business network services3.53.81.5%1.3% Total retail revenue32.331.41.0%–0.5% Total service revenue 3 38.736.3–1.3%–1.1% 1 Includes USB modem, and mid- and large-screen, but not handset-based data. 2 Includes narrowband, VoBB and dial-up Internet access. 3 Includes retail and wholesale revenue. Figure 56: Telecoms retail revenue by service type, total service revenue and growth rates, UK, 2013–2019 [Source: Analysys Mason, 2014] Figure 55: Telecoms retail revenue by service type and total service revenue (retail and wholesale), UK, 2009–2019 [Source: Analysys Mason, 2014] Figure 57: Connections by type, and growth rates, UK, 2013–2019 [Source: Analysys Mason, 2014] 46 4 Not available. Connection type Connections (million)CAGR 201320192009–20132013–2019 Mobile handsets 78.5 75.61.8%–0.6% Mobile broadband 4.7 6.13.6%4.4% Mobile M2M 6.8 23.759.9%23.2% Fixed voice 34.2 32.4–0.6%–0.9% Fixed broadband 23.0 26.35.7%2.3% IPTV 1.7 4.236.4%16.5% Service revenue (retail and wholesale) Business network services Mobile broadband Fixed broadband and IPTV Mobile handset data Fixed voice and narrowbandMobile messaging Mobile M2MMobile voice

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Forecast trend (2013–2019)Drivers and assumptions Mobile ARPU Mobile handset revenue will decline at a CAGR of –2.5%   The trajectory for mobile ARPU is a function of two opposing trends.  Competition in the UK mobile market will intensify. BT has signed an MVNO agreement with EE, but plans to launch its own 4G network during 2014. MVNOs account for 14% of subscribers in 2013 and we expect this to increase. Quadruple-play offerings will wipe more value from the mobile market.  Enrichment of the customer base will bolster handset ARPU. Further take-up of smartphones, and the transition from prepaid to contract plans (especially 4G handset with high-value unlimited data packages) will inflate handset ARPU with higher data volumes. Vodafone reported that 4G users generate twice the data volume of 3G users, with a 119% uplift in revenue. However, the premium associated with 4G handsets has already begun to disappear – Tesco announced that it dropped the additional charge in January 2014. Mobile termination revenue will fall from GBP1.4 billion in 2013 to GBP0.5 billion in 2019   Termination revenue declined at a CAGR of –25% between 2009 and 2013, and further downward movement is inevitable as EU guidelines are adhered to. We have applied Ofcom’s recently published MTR glidepaths to our forecasts of terminated minutes. Fixed broadband access revenue Fixed broadband ASPU will fall from GBP15.8 in 2013 to GBP13.5 in 2019   Ofcom’s guidelines on wholesale unbundling is likely to depress DSL ASPU in the forecast period. Total connections will grow at a CAGR of 2.3%, but access revenue will fall at a CAGR of –0.2%. However, adding IPTV revenue shows a story of growth – broadband access and IPTV will grow at CAGR of 1.2% during the forecast period, from GBP5.2 billion to in 2013 to GBP5.6 billion in 2019. IPTV connections will grow to 4.2 million by 2019   TalkTalk had considerable success with IPTV during 2013, and we expect this to continue – IPTV subscriber numbers will grow at a CAGR of 17% between 2013 and 2019. However, IPTV will still be a relatively small contributor to the pay-TV market. Pay TV is becoming standard in most bundled offerings, albeit with a relatively small additional fee. UK: Key trends, drivers and assumptions Figure 58: Summary of key drivers and assumptions, UK [Source: Analysys Mason, 2014] 47

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 UK: Handset penetration and ARPU are both set to decline  Mobile connections (excluding M2M) peaked in 2012, and fell by 0.4 million during 2013 to reach 83.2 million. We forecast that this decline will continue, and connections will decrease to 81.7 million by 2019. Handset SIMs are consolidating because of the following.  Reduced MTRs are negating the need for duplicate SIMs.  Operators are successfully migrating customers onto contract plans (multiple-SIM ownership is much more prevalent among prepaid subscribers). Contract share of handsets grew from 53% to 57% during 2013, and we forecast that this trend will continue to reach 65% by 2019.  Smartphone share of handsets will grow from 59% in 2013 to 82% in 2019, when the 4G share of non-M2M SIMs will reach 65%.  M2M penetration will grow to 36% by 2009 and stable ARPU will ensure strong revenue growth for this service.  Handset ARPU has steadily declined in recent years, although 2013 is the first year in which ASPU also fell. (Before that, the main losses were due to termination cuts.) Traditional (voice and messaging) ASPU declined by 8.6% in 2013, and the threat from OTT services will compound this decline in future. Handset data ARPU will be GBP8.4 in 2019, and account for 53% of total handset ARPU. Figure 59: Mobile, smartphone and 4G penetration rates, UK, 2009–2019 [Source: Analysys Mason, 2014] Figure 60: Handset ARPU by service, and mobile broadband and M2M ARPU, UK, 2009–2019 [Source: Analysys Mason, 2014] 48 Including M2MExcluding M2M Smartphone share of handsets4G share of SIMs (excluding M2M) Mobile penetration of population: Mobile broadbandM2M VoiceMessagingHandset data Termination Handset ARPU:

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 UK: Fixed broadband growth will eventually slow down, and regulatory measures will curb ASPU  Total fixed voice connections will decline steadily in the UK, although this is largely due to the consolidation of multiple lines. The regulatory environment dictates that customers must buy a fixed broadband line with voice, so mobile-only voice with fixed broadband is not an option.  Fixed broadband penetration was at 36% of the population in 2013, and we forecast that it will continue to grow, albeit at a slower rate, reaching 40% in 2019.  BT has focused on rolling out VDSL – 12% of DSL lines were VDSL in 2013, and this will grow to 78% in 2019. Suppliers will advance FTTH/B – CityFibre announced plans in June 2014 to supply a gigabit service to 20 cities by the end of 2016. Cable operators will have to work to maintain market share by offering high-speed connections, such as Virgin Media’s campaign to offer double the speed offered by BT.  IPTV connections grew quickly during 2013 because TalkTalk’s offering gained traction, and will expand to 6% of the population by 2019, but will never become mainstream.  Ofcom proposals in May 2014 will cap wholesale unbundling charges, and this is likely to lead to significant decline in fixed broadband ASPU. The impact on the voice market will not be so marked because nDSL is not mandated and line rental accounts for an increasing share of fixed voice ASPU. Figure 61: Fixed penetration rates by service type/technology, UK, 2009– 2019 [Source: Analysys Mason, 2014] Figure 62: Fixed ASPU by service type, UK, 2009–2019 [Source: Analysys Mason, 2014] 49 Fixed voiceIPTV DSLCableFTTH/B OtherFixed broadband:

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 About the authors Hilary Bailey (Senior Analyst) has worked for Analysys Mason for more than 20 years. She specialises in quantitative forecast modelling: she manages and is a key contributor to Analysys Mason’s European Core Forecasts research programme, and helped to develop and implement our converged core forecast methodology. She is also one of the key contributors to Analysys Mason’s Telecoms Market Matrix, which tracks and compares telecoms metrics and market shares for all the major fixed and mobile operators in Europe. She has previously specialised in telecoms price comparison studies encompassing fixed, mobile and the converged fixed/mobile markets. Hilary has a degree in Economics from the University of Bristol, and an MPhil in Economics from the University of Cambridge. William Hare (Analyst) is the leader of Analysys Mason’s Telecoms Market Matrix research programme, which tracks and compares telecoms metrics and market shares for all the major fixed and mobile operators in Europe. He joined Analysys Mason’s Consulting division in 2007, before transferring to the Research division in 2010. William's primary specialisations include business and market modelling and data analysis, for both the mobile and fixed telecoms markets. He read mathematics at the University of Cambridge. Pablo Iacopino (Senior Analyst) focuses on forecasting and analysing telecoms markets in Europe and Latin America. He leads Analysys Mason’s Global Telecoms Forecasts and European Country Reports research programmes, and is the lead analyst for research on the Latin America region. Pablo is also a key contributor to our European Core Forecasts and Telecoms Market Matrix. Pablo joined Analysys Mason in 2012, after 8 years in the telecoms industry. He worked for 5 years in Strategy and Investor Relations at Telecom Italia, where he was responsible for European telecoms benchmarking, followed by 3 years in investment banking as a senior equity research analyst covering telecoms stocks. Pablo specialises in industry analysis, benchmarking, modelling, forecasts and valuation. He holds a Master's degree in business administration and a postgraduate Master's degree in statistics and economics from Università degli Studi di Roma ‘La Sapienza’. 51

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 About Analysys Mason Knowing what’s going on is one thing. Understanding how to take advantage of events is quite another. Our ability to understand the complex workings of telecoms, media and technology (TMT) industries and draw practical conclusions, based on the specialist knowledge of our people, is what sets Analysys Mason apart. We deliver our key services via two channels: consulting and research. Consulting  Our focus is exclusively on TMT.  We support multi-billion dollar investments, advise clients on regulatory matters, provide spectrum valuation and auction support, and advise on operational performance, business planning and strategy.  We have developed rigorous methodologies that deliver tangible results for clients around the world. For more information, please visit www.analysysmason.com/consulting. Research  We analyse, track and forecast the different services accessed by consumers and enterprises, as well as the software, infrastructure and technology delivering those services.  Research clients benefit from regular and timely intelligence in addition to direct access to our team of expert analysts.  Our dedicated Custom Research team undertakes specialised and bespoke projects for clients. For more information, please visit www.analysysmason.com/research. 52

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Research from Analysys Mason We provide dedicated coverage of developments in the telecoms, media and technology (TMT) sectors, through a range of research programmes that focus on different services and regions of the world. 53 Alongside our standardised suite of research programmes, our Custom Research team undertakes specialised, bespoke research projects for clients. The dedicated team offers tailored investigations and answers complex questions on markets, competitors and services with customised industry intelligence and insights. To find out more, please visit www.analysysmason.com/research.

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Consulting from Analysys Mason For more than 25 years, our consultants have been bringing the benefits of applied intelligence to enable clients around the world to make the most of their opportunities. 54 Our clients in the telecoms, media and technology (TMT) sectors operate in dynamic markets where change is constant. We help shape their understanding of the future so they can thrive in these demanding conditions. To do that, we have developed rigorous methodologies that deliver real results for clients around the world. Our focus is exclusively on TMT. We advise clients on regulatory matters, help shape spectrum policy and develop spectrum strategy, support multi-billion dollar investments, advise on operational performance and develop new business strategies. Such projects result in a depth of knowledge and a range of expertise that sets us apart. We help clients solve their most pressing problems, enabling them to go farther, faster and achieve their commercial objectives. To find out more, please visit www.analysysmason.com/consulting.

© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Published by Analysys Mason Limited Bush House North West Wing Aldwych London WC2B 4PJ UK Tel: +44 (0)20 7395 9000 Fax: +44 (0)20 7395 9001 Email: research@analysysmason.com www.analysysmason.com/research Registered in England No. 5177472 © Analysys Mason Limited 2014. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying, recording or otherwise – without the prior written permission of the publisher. Figures and projections contained in this report are based on publicly available information only and are produced by the Research Division of Analysys Mason Limited independently of any client- specific work within Analysys Mason Limited. The opinions expressed are those of the stated authors only. Analysys Mason Limited recognises that many terms appearing in this report are proprietary; all such trademarks are acknowledged and every effort has been made to indicate them by the normal UK publishing practice of capitalisation. However, the presence of a term, in whatever form, does not affect its legal status as a trademark. Analysys Mason Limited maintains that all reasonable care and skill have been used in the compilation of this publication. However, Analysys Mason Limited shall not be under any liability for loss or damage (including consequential loss) whatsoever or howsoever arising as a result of the use of this publication by the customer, his servants, agents or any third party.

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© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Research Forecast Report Western Europe.

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Presentation on theme: "© Analysys Mason Limited 2014 Western Europe telecoms market: concise trends and forecasts (8 countries) 2014–2019 Research Forecast Report Western Europe."— Presentation transcript:

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