The Economics of Telecommunications in France 4th Arthur D. Little study for the French Telecom Federation
The French Telecom Federation published on November 27th its fourth study related to the economics of the telecom sector in France undertaken by the consultancy Arthur D. Little. This new edition presents, in a factual way, the changes taking place in the digital value chain.
Due to the digitalization of the economy, the value has been massively and exponentially moving towards digital data running through telecommunication networks via terminals and connected objects.
For telecom players and in particular French operators, the main concern is to adapt to the ongoing digital revolution whilst facing an increasingly intense and globalized competitive context.
Updating the current legal and tax framework evolve is absolutely key to the revival of the sector’s economy, as it would enable operators to maintain a high level of investment by monetizing new uses. This study intends to present concrete propositions at both a European and national level, thus defining an ambitious strategy to deploy a goal-oriented action plan.
ANALYSIS BY ARTHUR D. LITTLE
1- The telecom sector is an essential driving force for the digital change of the economy
- Investment and innovation in the telecom sector not only has a multiplier effect on the economy (1 euro that is invested in the telecoms actually generates 6 euros of GDP, which will bring 3 euros of tax revenue to the State), but also has the advantage of creating a knock-on effect for the ecosystem as a whole.
- The digital industry creates new uses and new markets due to an increase in the number of devices and objects that are connected to telecommunication networks.
- The entire economy is propelling into the digital age. In fact, the Internet of Things, gradually touching all sectors of the “traditional economy”, is turning digital data into “the oil of the 21st century”.
- In spite of ever decreasing revenues, telecommunication operators represent the principal stakeholders of the digital sector, as they account for about 90% of the investment and taxes in France.
2- Europe is the only region in the world that is not taking advantage of the strong growth potential of the digital economy
- The global digital ecosystem grows twice as fast as the economy as a whole. Hence, had Europe succeeded in developing a strong digital industry, it could have benefited from a digital growth of 3% per year.
- Quite on the contrary, the revenues of the European digital ecosystem decreased of 16% between 2007 and 2013, which is a unique case worldwide.
- Although the market for digital services has of course been developing in Europe, this has so far been largely to the benefit of non-European stakeholders that capture the value thanks to their own service platforms and devices.
- The high stock exchange valuation of non-European digital stakeholders and their important cash resources allow them to implement a strategy of intense external growth while keeping them in good position to preempt the next wave of digital innovation to the expense of European stakeholders.
3- Difficulties faced by the telecommunication sector in France are forcing operators to adapt in order to preserve investment over the long term
- An unequalled drop in prices coupled with a high taxation system specific to the sector led to a deterioration in the performances of most French telecom operators, whereas on the contrary, a high margin would be necessary to cope with important investment needs, for example to develop new generation networks – optical fiber for landline service and 4G for mobile internet.
- Operators managed to adapt their cost structures very swiftly to deal with new challenges.
4- An ambitious strategy and a goal-oriented action plan would allow France and Europe to win back the leadership in the digital ecosystem
Three scenarios modelled by Arthur D. Little, namely “Ambition”, “Optimization”, and “Trend”, quantify impacts on infrastructures, uses, on the digital ecosystem, and growth. The consultancy calls for the implementation of the “Ambition” scenario, which would by 2025 bring about 1.5 percentage points of annual economic growth, a five-time stronger growth of the French and European digital ecosystems and on top of that a “digital bonus” of 30 times more quality and uses for the consumer.
For the French Telecom Federation, the « Ambition » scenario should be implemented to the benefit of all parties. Nevertheless this scenario requires the following levers to be simultaneously activated:
- The definition and introduction of a readable and stable framework in Europe to favour investment
- The adaptation of European law to the open digital era
- The establishment of tax fairness among all stakeholders of the digital economy in Europe
- The stimulation of the digital ecosystem in France
4 ACTION LEVERS AND 12 PROPOSITIONS BY THE FRENCH TELECOM FEDERATION
1- Creating a readable and stable framework in Europe to support investment
- Inscribe the telecom / digital legal framework in a ten-year industrial vision
- Deploy a “Smart Europe” plan to stimulate big data, connected objects, and security
- Introduce an EU label for secured data storage
2- Adapting European law to the digital era
- Regulate service platforms to favor transparency, loyalty, and non-discrimination
- Rethink competition law
- Encourage cooperation among and between digital actors
3- Re-establishing tax fairness among all stakeholders of the digital economy in Europe
- Pre-empt the implementation of the measures recommended by the BEPS program of the OECD
- Accelerate the implementation of the VTA directive
- Revive the ACCIS project
4- Stimulating the digital ecosystem in France
- Reduce the telecom-specific taxation in order to unlock investment
- Create a digital tax credit for SMEs
- Stimulate the local offer via Open Innovation and digital training
Pierre Louette, Chair of the French Telecom Federation, stated that “today, about half of the value generated by digital actors in Europe is captured by Internet giants. In spite of this, French operators continue to invest 7 billion euros per year to develop tomorrow’s infrastructures and services.”
Pierre Louette moreover added that “at the European level, the instruments of competition law are not adapted to the digital era. Rethinking the current framework in order to comprehend all players is essential.”
- The Economics of Telecoms ADL Executive summary - December 2014(document : application/pdf 626,00 ko)