Fixed line and BB market review: Spain 2009

It’s impressive to see how the Spanish industry has changed in such a short period and, as written before about the net adds battle, it’s amazing to see the huge difficulties that all the operators have to beat the incumbent, Telefónica, and increase their revenues’ share of the market. A market where fixed lines represent the majority of the value although the source of revenue growth lies in broadband. Some interesting figures:

1. Fixed market revenues account for ~3€ Billion, of which Fixed line revenues comprise 55%. Yet the fixed line contribution is declining by -6.7% GAGR from 2007-2009
2. Broadband fuels fixed revenue growth by stimulating line numbers and revenues by over 10% CAGR in the last 3 years
3. Future broadband growth potential remains positive with the possibility of providing BB service to the 3.9 Million PC-equipped Spanish households with only dial-up or no internet access
4. Decreases in Telefónica’s wholesale prices resulting from regulation, has allowed for the faster proliferation of higher speed connections by making them more affordable to end customer. Wholesale price reductions have reached up to 74% in some cases, yet have not fully been translated into customer savings
5. The price decreases have thus allowed operators to capitalize on revenue generation through cheaper offers and better margins from lower costs

We will soon deliver our yearly broker report on the telecommunications situation in Spain, but I wanted to publish an executive summary of it (embed presentation) and highlight some interesting facts and insights with our blog readers so that you can clearly understand the fixed and broadband market situation:

Fact 1. The Spanish fixed market is in decline.  While broadband is the only growth source it still falls behind Fixed-lines as the main contributor of revenues

• The economic downturn appears to have impacted the fixed line market. Previously growing at 10% from ’07-08 then slowing abruptly to 0.2% from `08-´09
• Broadband continues to grow and while the ceiling has not yet been hit, there are initial signs of slowdown
• The Pay TV market has been stagnate for the last 2 years and has suffered a significant revenue erosion of ~30 million € since 2008

Fact 2. Over the last three years, market players have undergone consolidation in an effort to challenge Telefónica’s dominance. Unfortunately for the challengers, Telefónica is far from being even worried.

• Since 2007, Ono acquired Auna, Orange bought Ya.com and Vodafone took over Tele2
• Ono and Jazztel may represent residual opportunities for further buy-outs although current valuations are too high for any player to consider a potential merge or acquisition.

Fact 3. The Spanish market is characterized by an increasing appetite for bundled offers and higher speed Broadband (BB) connections.

• Currently 68% of the BB market includes bundling. While players such as Orange already offer Pay TV in their bundles, others like Vodafone may find it increasingly difficult to compete without a pay TV platform
• The majority of BB connections lie in the 3Mb to 10Mb interval, with the highest concentration of offers at 6Mb. Telefónica consistently has a premium over other competitors offers, Orange has some of the cheapest offers
• The Spanish Telecom Regulator is supporting connection speed increases through wholesale price reductions. Additionally, it is encouraging further price reductions in the market by allowing Telefónica to offer naked DSL

Fact 4. Despite aggressive pricing efforts by competitors Telefónica still enjoys a comfortable leadership position in the fixed-line market

• Orange still holds only a minute market share (1.8%) of active fixed lines. Over the last two years, Orange has  succeeded in growing its share of lines but at the expense of loosing revenue share
• Telefónica has lost more ground in the highly competitive residential than in the business one. Orange has a better position in the residential segment where a strong price war is taking place

Fact 5. Telefónica has managed to hold on to its broadband market share.  Vodafone and Jazztel are capturing market share from Orange and Ono

• Orange´s position may be the weakest of the market, having lost broadband customers (~97,000 in 2008) despite the fact the market is growing.
• Vodafone and Jazztel have been the recent winners in the last years, with increases of a 159% and a 78% (respectively) of net adds as % of their customer base in 2007.

Fact 6. The Pay TV market is stagnate, but Orange has managed to grow its customer base to 2.5% representing a ~155% CAGR from ´07-´09

• Due to the current unavailability of Pay TDT services (e.g., Gol TV  – dedicated football channel), this year may present an opportunity for capturing new Pay TV customers before the Pay TDT threat appears
• Telefonic’a imagenio will end with near 680K subscribers, a number that has been nearly flat in the last 2 years. However, Telefónica reported in its latest investors meeting in October a growth up to 1.2M clients in 2012.

Fact 7. Telefónica’s dominant position has a lot to do with customer satisfaction. Telefónica has the lowest complaint ratios in the fixed market and has managed to remain the leader despite having the most expensive offers.  This is suggests that the quality of its service provisioning is positively valued by customers

• In 2008, Orange and Ya.com had the highest complaint ratios on broadband service provisioning.  Their performance has since worsened during 2009
• Additionally, Orange and Ya.com have the poorest performance rating among competitors for customers service satisfaction
• Vodafone, Jazztel, Ono and rest of regional cable operators have similar customer satisfaction rates, being the first two, the highest rated in terms of incidence calls per 10K customers.

Enjoy the reading. Best, CVA