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The European mobile industry has been accustomed to being at the forefront of developing and deploying mobile technologies, but the recent realization that operators in the United States have established themselves as the leaders in terms of LTE deployments has raised concerns in Europe. The question is whether these concerns represent an aftershock of regional shifts that have already occurred, or an early warning of further upheaval as plans for “5G” begin to emerge.
Europe’s mobile industry has been at the forefront of innovation, but the dynamic is changing
European governments and industry worked together to lead the world in developing the GSM and W-CDMA standards and, as a result, Europe stood at the epicentre of a technology that today accounts for almost 90% of mobile subscribers worldwide. European operators have led in the deployment of a succession of technologies – from the first-generation analogue through GSM to the first LTE deployment in the Nordic countries, which marked the first true mobile broadband service. European network vendors such as Ericsson and Nokia Siemens Networks powered mobile networks around the world, and Nokia provided the iconic ringtone signalling the mobile revolution.
This not only created jobs and revenue from technology and device exports, but demonstrated how the modern Europe could act in a united fashion. Recent evidence of Europe ceding the lead in mobile technologies is unwelcome – particularly given that the foundations of the European Union are facing unprecedented pressure. Europe had been seen as the leader and source of mobile innovation, but the success of Apple and Android’s devices, operating systems and apps moves the center of innovation to the United States, while Asian companies continue to grow (see Figure 1).
Figure 1: Annual revenue of selected telecoms equipment vendors and device manufacturers, 2005–2012. [Source: Analysys Mason, 2013]
Europe’s lead in GSM and 3G provided ideal opportunities for European operators to expand outside Europe: Deutsche Telekom, Telefónica and Vodafone now derive more than 50% of their operating profits from outside the EU – primarily from the United States and Latin America, with contributions from Africa, India and Asia. By contrast, none of AT&T, China Mobile, NTT DoCoMo or Verizon Communications generates material profits outside their domestic markets.
There are reasons to believe that Europe could regain its leadership status
Much of the discussion in Europe focuses on a perceived decline of mobile technology leadership in Europe compared with the United States, but this must be put in a worldwide context. It is true that almost 19% of mobile connections in the United States were LTE at the end of 2012, compared with 1.7% in Europe despite European countries such as Norway and Sweden having nearly a one-year head start over the U.S. operators.
It is helpful to consider that the recent surge in LTE in the United States is not a direct response to Europe’s earlier success with 3G. U.S. operators have supported an assortment of standards, including AMPS, CDMA iDEN and WiMAX, in addition to GSM. The U.S. operators – particularly CDMA stalwart Verizon Wireless – have seized on LTE early as a way to establish market leadership and move back into the mainstream for future growth, thereby pulling along the rest of the U.S. mobile industry in their wake. Verizon Wireless was faced with a widening gap in the performance of its CDMA-based 3G network compared with the HSPA-plus networks of AT&T Mobility and T-Mobile US (which also offered seamless international roaming – something CDMA generally does not) and LTE represented an opportunity for the operator to re-establish performance leadership.
The number of LTE connections in developed Asia–Pacific is also significantly higher than that in Europe – particularly in South Korea, where the top-three network operators (SK Telecom, KT and LG Uplus) are competing aggressively for LTE leadership and have achieved almost 100% coverage. LTE represented a competitive opportunity that these leaders seized, resulting in rapid roll-outs of voice over LTE and early deployments of LTE-Advanced. Something similar could happen in the United Kingdom, where five operators now hold 4G spectrum following the conclusion of auctions earlier this year. However, given the current state of European LTE, the outlook is somewhat bleak at this point. Our forecast of LTE connections (see Fig. 2) indicates that, for the first time, Europe will lag behind the rest of the world in new mobile technology deployment, innovation and experience. This will lead to lower gross domestic product growth, less employment and fewer successful European companies.
Figure 2: LTE connections as a percentage of mobile connections, selected regions, 2010–2017 [Source: Analysys Mason, 2013]
European operators are behind in LTE because they deployed more-advanced 3G networks than operators in the United States. The capabilities of these “3G-plus” networks did not result in the same competitive pressure in Europe to upgrade to LTE as existed in the United States. As a result, it is tempting to conclude that Europe is due to leapfrog ahead in the next few years leading into “5G.” However comforting such a view may be in Europe, right now Europe is not well positioned to lead the discussion.
European regulators and operators need to act now if Europe is to have a leading role in developing ‘5G’ systems
The current discussion about “5G” serves to highlight two overlapping weaknesses that, if not addressed, could hinder Europe’s ability to lead the move into “5G” technology and networks.
–Delays in allocating and assigning spectrum in European countries for 4G deployments have curbed the ability of operators to pursue plans in LTE and beyond. The recent U.K. 4G spectrum auction attracted five successful bidders, which signals a willingness on the part of operators to move to LTE when spectrum is available. However, the battle for 4G leadership is likely lost at this point: the United States is the leader in various LTE business models, while Asia is leading in technology deployments (of VoLTE, LTE-A and TD/FD LTE interworking). The next step is “5G.”
–Samsung recently announced (in conjunction with U.K.’s University of Surrey) that it has developed technology that could be “at the core of 5G.” This contrasts with the development of GSM and 3G, in which the major European players were publically seen to be leading research and standardization.
Europe will continue to lose its lead in the mobile technology market if complacency, over-regulation and delays are allowed to persist. Major players in the European mobile network market – including operators, vendors, regulators and device manufacturers – must step in now and participate in the “5G” definition discussion that is currently being driven by Samsung and a consortium of Wi-Fi vendors. “5G” should be a truly global standard, and Europe should play an integral role in developing the standard, providing the technology and deploying the networks. Identifying and remedying the fundamental problems in Europe’s approach to LTE is essential to positioning Europe for the next generation of technology leadership.
Bram Moerman has been advising on strategic, regulatory and operational matters within the telecommunications industry for more than 20 years. In addition to advising regulators worldwide he has also acted as due diligence advisor on many financial transactions. Moerman has a degree in Econometrics from Rotterdam University.
Tim Harriban spent eight years in telecoms consulting at PA Technology and Analysys prior to making a successful transition into industry, where he was appointed Marketing Director for Talkland, and then Strategy and Commercial Director for Vodafone UK. In these roles, he gained 10 years’ commercial operating experience in businesses undergoing major structural change in a highly dynamic environment, and was recognized for masterminding Vodafone Group’s data strategy and UK 3G auction. After helping to deliver the bold acquisitions of Airtouch and Mannesmann, which transformed Vodafone into a global market leader in 2000, Harriban shifted his focus internationally – first to Europe and then to emerging markets, where he shaped the strategic agenda for Vodafone Group’s successful M&A-led diversification into India and Africa and drove its implementation. He was responsible for building Safaricom in Kenya from start-up to an internationally admired operator with the world’s leading mobile money transfer service (M-PESA), and for transforming the state-owned Ghana Telecom into Vodafone’s fastest-growing business. He returned to Analysys Mason in 2013 as Senior Advisor, supporting the partners in building their global business with telecoms operators.
