Étude 2017 Arthur D. Little sur l'économie des Télécoms (EN)

Fédération Française des Télécoms
2017 “Economics of Telecoms” Report
– Update of key economic metrics
December 2017

2
Agenda
1 Global digital ecosystem: what dynamics?
2 French digital ecosystem: what dynamics?

3
The global digital ecosystem pursues its strong growth, mostly driven by
internet players
Source: Thomson Reuters, Arthur D. Little
Note: 1) Panel of 180 companies corresponding to the top 30 by sector in terms of turnover 2) Constant exchange rate 2016
Global digital ecosystem: what dynamics?
Example of
companies
855 910 932 962
761 834 842
969
316
347 335
358
404
434
442
464
478 487
250
266 242
258
263
262
256
250
253 261232
282
335 427
9081
72
1 328
Devices
IT and
software services
Content
Internet
+5%
3 939
2016
Telecom
operators
Telecom
equipment
162
2 617
2007
171179
2 603
2 832
2008 2009
113
180
2 434
1 149
3 076
1 060
148
2010
188
1 080
167
1 169
169
158
2011 2012
1 215
3 301
1 031
188
2015
169
3 635
1 331
2014
3 452
3 847
2013
1 249
1 2801 212
160
1 266
Revenues of the digital ecosystem1
World, 2007-2016, Billions of constant Euros2
CAGR
2007-2016
+0%
0%
+6%
+5%
+22%
+5%

4
Telecom operators, device manufacturers and internet players have driven
~90% of the world ecosystem’s growth over 2007-2016
Note: 1) Panel of 180 companies corresponding to the top 30 by sector in terms of turnover 2) The exchange rate Euros vs local currency 2016 is applied to the
current value of the local currency
354
488
4732 434
171
Ecosystem
2016
Devices Content
8
Ecosystem
2007
Internet
3 939
11
IT and
software
services
Telecom
equipment
Telecom
operators
(31%)
(1%) (32%)
(11%)
(1%) (24%)
(x%) : contribution to the digital ecosystem’s growth
Revenues of the digital ecosystem1
World, 2007-2016, Billions of constant Euros2

5
The global digital ecosystem continues to grow at a higher rate than the
world GDP growth, with a restart reboot in Europe
Source: Thomson Reuters, World Bank, Arthur D. Little
Note: 1) In constant 2016 dollars for the set of countries considered in the digital ecosystem (accounting for 75% of world GDP, or 70% of the European GDP for European data)
World GDP1
Global digital
ecosystem1
CAGR
2007-2016
+5%
+4%
144
162
117
110
90
100
110
120
130
140
150
160
170
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Global digital ecosystem revenues vs world economy
World, 2007-2016, Base 100 in 2007
European GDP1
European digital
ecosystem1
+2%
+1%

6
European operators have witnessed the lowest growth over 2007-2016,
with a rebound in the last two years
Note: 1) Nationality according to the location of the head office 2) Includes top 30 players outside Asia, North America and Europe (only Oceania and South America)
Revenues of network operators by region1
World, 2007-2016, Billions of constant Euros
289 298 299 303 307 305 294 285 307 324
251 263 276 282 315 330 371 407 431 450
285
316 322 333
363 393
432
465
484
493
2009
932
531 031
35
2008
52
910
2011
962
20122010
1 080
44
32
2007
30
855
47
1 149
1 212
2013
55
2014
58
1 328
1 280
61
2015
Other2
Europe
2016
+5%
North America
Asia
+3%
+7%
+5%
+5%
CAGR
2014-2016
+6%
+1%
+7%
+8%
CAGR
2007-2016

7
Agenda
1 Global digital ecosystem: what dynamics?
2 French digital ecosystem: what dynamics?

8
2015 2016 2017
58%
94%92%
65%
93%
73%
The French mobile market remains dynamic in terms of equipement and
data consumption
Source: ARCEP, Operators, AT&T, Arthur D. Little
Note: 1) Total population aged 12 and over 2) Active 3G or 4G internet client
French digital ecosystem: what dynamics?
Average monthly
data consumption2
Mobile phone penetration rate1 4G cards
(Millions of active cards)
27m
Q2 2015
16m
Q2 2017
+53%
37m
Q2 2016
X%
22% 37%
% of SIM card
105%
Q2 2017Q2 2016
1.8 GB
3.7 GB
50%
Connectivity and equipment in France – Mobile
France, 2015-2017
Illustrative:136h of music streaming
or 15h of SD video streaming
Mobile phone
Smartphone

9
France is experiencing strong growth in broadband subscriptions and a
high level of Multiplay2 subscriptions
Source: ARCEP, Arthur D. Little
Note: 1) Bandwidth >= 30 Mbps 2) Subscriptions considered are "multiplay" subscriptions that include Internet access or several services in addition to television
Fixed broadband (BB) and very high speed broadband
(VHSBB) subscriptions1 (Millions of subscriptions)
+21%
Connectivity and equipment in France – Fixed
France, 2016-2017
+35%
1.7
(6%)
+3%
22.6
Q1 2017
27.9
3.7
(13%)
2.1
(8%)
22.1
27.1
2.8
(10%)
Q1 2016
VHSBB >30 et < 100 Mb/s VHSBB >= 100 Mb/sBB
In Q1 2017, 70% of fixed Internet
subscriptions are Multiplay2
subscriptions
4K Movies Telemedicine
Video game
streaming
Connected house

10
1%1%
79%
1%
18%0%
4%
87%
6%4%
3%
76%
13%
4%
16%
16%
12%
3%
53%
Telecom operators are essential to the French digital ecosystem
Source: Diane, annual reports, Arthur D. Little
Note: 1) Revenues declared in France or from literature search 2) Data adjusted to take into account the estimated actual turnover of international players in France 3) Nokia's
mobile division investments are integrated into Microsoft following the acquisition of the mobile division in 2014 4) Corporation tax, taxes and similar disbursements
5 content
providers
5 Internet OTT
players
5 Telecom
operators
5 equipment
vendors
5 device
manufacturers
Revenues1,2
€75 billion
Direct Employment
166 000
Investments3
€10 billion
Taxes4
€3 billion
Relative size of players in the digital ecosystem
France, 2016
3%
R E I T
y compris filiales

11
While the French digital ecosystem has experienced an average annual growth
of 4% over 2013-2016,revenues of telecom operators have stagnated
Source: Diane, annual reports, Arthur D. Little
Note: 1) Revenues declared in France or from literature search 2) Data adjusted to take into account the estimated actual turnover of international players in France
Revenues1,2 of players in the digital ecosystem
France, 2013-2016, Billions of euros
R E I T
12
+4%
9
12
40
73
9
12
2014
+26%
0%
2015
+6%
2
39
67
8
2016
10
10
2
40
2013
+3%
-1%
75
2
68
2
10
6
9
40
8
CAGR
2013-2016
y compris filiales
5 content
providers
5 Internet OTT
players
5 Telecom
operators
5 equipment
vendors
5 device
manufacturers

12
Contrary to other key regulated sectors, telecom services have witnessed
a sharp fall in prices over 2010-2016
Source: INSEE, Arthur D. Little
Consumer price index evolution on selected products
France, 2010-2016, Base 100 in 2010
134
128
114
116
106
63
60
65
70
75
80
85
90
95
100
105
110
115
120
125
130
135
Telecom services
Inflation
Rail
City gas
Electricity
20142011 2016
Postal services
20132012 20152010
R E I T

13
Prices of telecom services in France remain the lowest among large
Western countries
Source: Operators, Arthur D. Little
Note: 1) Triple play offers only; unlimited calls to landline at least; Unlimited broadband internet through xDSL or fibre; television included, excluding additional packs; operators
with market share > 10%, 2) Unlimited calls (whenever possible or else >500 minutes), unlimited SMS/MMS, at least 5 GB Internet; packages without devices, packages without
commitment; operators with market share > 10%
Offer benchmark – Main operators
Selection of countries, November 2017, € incl. taxes/ month
51€
30€30€
23€20€
10€
Fixed (Triple Play)1 Mobile2
78€
41€39€
25€
21€18€
R E I T

14
Operators increased their investments despite lower turnover but could
not maintain employment levels
Source: ARCEP, DARES, Insee, Arthur D. Little
Note: 1) Investment efforts : operators’ investments (excluding frequency acquisition) / revenues of operators 2) Provisional ARCEP figures for 2016
3) ARCEP figures 4) ARCEP figures including part of indirect jobs 5) Provisional ARCEP figures for 2016 corresponding to revenues collected from final client
Employment, revenues and investments of FrenchTelecom operators
France, 2010-2016, base 100 in 2010
R E I T
91
82
138
169
60
70
80
90
100
110
120
130
140
150
160
170
2010 2011 2012 2013 2014 2015 2016
85
Revenues5
Operators direct jobs3
CAGR
2010-2016
- 1,6 %
- 3,2 %
Sector jobs4 - 2,7 %
Operators’ invesments
(excluding frequency acquisition)2
5,6 %
Investment effort1 9,1 %

15
Telecom operators’ investments have peaked in 2015 and 2016 – €71
billion were invested over the period
Source: ARCEP, Arthur D. Little
Note: 1) Investments excluding frequency acquisition
Investments of network operators1
3.8 4.3 3.7 4.4 5.0 4.9 4.7 4.7 5.5 6.2
2.4 2.2
2.2
2.1
2.3 2.5 2.6 2.4
2.3
2.7
7.4
2011 20162015
Mobile
investments
2013
7.3
7.8
2012
Fixed
investissements
2014
7.3 7.1
8.9
2007
6.2
201020092008
5.9
6.5 6.5
% of
revenue
15% 15% 14% 15% 17% 18% 19% 19% 22%
R E I T
€71 billion
(excluding frequency acquisition)
BeforeVery
High Speed
Investment phase including
Very High Speed
25%
+ €7.2 billion of
frequency
acquisition over
the period
0.9 en 2010
0.9 en 2011
2.6 en 2012
2.8 en 2015

16
The 7.2 billion euros invested every year by telecom operators represent
a significant economic activity
Source: Companies, literature search, Arthur D. Little
Note: 1) Telecom: ARCEP figures (excluding frequency acquisition); Electricity: RTE (2009 to 2016) and ERDF; RFF; Highways: ASFA (Sanef, SAPN, ASF….)
Investments1 inTelecom vs. other sectors
France, 2008-2016, Billions of euros (annual average over 9 years)
7.2
5.1
4.7
1.7
Railways Tr. / distrib.
of electricity
Highways Telecom
equivalent to the
following
investments, each
year…
ou
208 TGV trains
ou
ou
ou
536 high schools
R E I T
20 « Stade de France »
1100 km of highways
(i.e. Paris - Berlin)
5 nuclear power plants

17
Despite the decline in telecom operators’ revenues, specific taxation
remained stable in France
Source: Operators, FFT, Arthur D. Little
Note: 1) Perimeter: corporate tax on top 5 companies (set reconfigured in 2012 with corporate tax corresponding to Numéricable + SFR) & FFT members specific taxes 2) VOD &
private copy
Telecom operators’ taxation
France, 2012 and 2016, Millions of euros and % of total taxes
R E I T
2016
2 5941 219
(38%)
1 258
(49%)
2 021
(62%)
3 240
1 336
(51%)
2012
Specific
tax
2016
Corporate
tax
+3%
-34%
Variation
12-16
225
(9%)
1 336
(51%)
192
(7%)
410
(16%)
205
(8%)
105
(4%)121
(5%)
TOCE (France TV)
IFER copper
Corporate tax1
IFER antenna
COSIP (CNC)
Frequencies + FH
Other2

18
Telecom operators suffer from an asymmetric taxation, which puts them
in a disadvantageous position in the digital ecosystem
Source: Greenwich Consulting, Conseil National du Numérique, PPL Marini, literature search, Arthur D. Little analysis
Note: 1) Forecast figures, 2) Google, Apple, Facebook, Amazon, 3) as % of revenues
 €600 million ofVAT loss on
electronic services in France
en 20141
Fiscal optimization mechanism in Europe of the GAFA
Country of final
consumption
Establishment country
Place of fiscal
registration
Ireland
Luxembourg
Exemples
VAT Corporate tax
 €26 million of corporate tax
paid by « GAFA2 » in France in
2016
x133
Internet
players
Telecom
operators
Corporate tax paid in
France in 2016
R E I T

19
Telecom operators’ margins are used to finance strong investments
Source: Companies, literature search, Arthur D. Little analysis
Note: 1) Figures for top 5 French Telecom operators including Orange, SFR, Bouygues Telecom, Free and EI Telecom
Comparison between KPIs of theTelecom sector1 and CAC40
2016, Base 100 on Revenues
Telecom operators
2
3
22
31
100
R E I T
3
2
6
14
100CA
EBITDA
CAPEX
Corporate tax
Dividend
CAC 40 average

20
Increased investment is leading to lower cash flow despite productivity
efforts
Source: Companies, literature search, ARCEP, Arthur D. Little
Note: 1) Top 5 French Telecom operators including Orange, SFR, Bouygues Telecom, Free and EI Telecom 2) Estimated operational FCF
(EBITDA – CAPEX) 3) ARCEP figures representing sector investments, excluding frequency acquisition
Economic performance of major FrenchTelecom operators1
Revenues EBITDA Operational FCF2
2016
-1%
39.8
2013
40.3
20162013
+1%
12.0 12.2
-30%
3.3
2013
4.7
2016
30% 31% 12% 8%
x% % of revenues
+22%
20162013
7.33
8.93
18% 22%
Capex
+€200 million
of EBITDA
+€1.6 billion
of investments
vs

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Étude 2017 Arthur D. Little sur l'économie des Télécoms (EN)

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