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08/12/2016

Fast broadband lifts revenue growth for Europe’s cable operators

Digital

Fast broadband lifts revenue growth for Europe’s cable operators

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Investments in high-speed broadband networks helped Europe’s cable operators such as Liberty Global and Altice accelerate revenue growth in 2014 to 4.6%, industry group Cable Europe said on Wednesday (11 March).

That comes in sharp contrast to the five-year decline in sales for Europe’s telecom operators, hurt by fierce competition from new entrants and strict regulation from Brussels.

Cable operators in the 28-nation European Union made 21.5 billion euros in revenues last year, with half from broadband and telephony.

Cable companies have been competing with traditional telecom operators such as Deutsche Telekom and Orange with their ability to provide faster Internet access over their cable network.

That, in turn, has made them takeover targets for companies such as Vodafone – which bought cable operators in Spain and Germany – trying to get into fixed-line services.

But cable’s growth has slowed over the past five years as telecom firms caught up by rolling out super-fast fibre broadband and consolidating across Europe to cut debt and focus on key markets.

Sales in the cable sector grew by 6.6% back in 2010, the data showed.

“Yes, they (incumbent telecoms firms) are coming back, but their coming back does not slow down our growth,” Lutz Schueler, CEO of Liberty Global’s German unit Unitymedia KabelBW , said in an interview with Reuters.

Netflix not an enemy

Cable and telecoms firms alike are under pressure from so-called “over-the-top” providers such as Google and Netflix whose content competes with their pay-TV services.

“Cable is growing because of broadband, the number of broadband cable customers is growing 200% every year,” said Manuel Cubero, CEO of Kabel Deutschland, at a cable summit in Brussels. “The traditional TV business … is under pressure precisely because of this over-the-top world.”

The number of net cable TV subscribers dropped in 2014, although TV revenues grew 2% thanks to the growth of digital TV services, the Cable Europe data showed.

“People would like to say ‘oh Netflix is an enemy’,” said Mike Fries, CEO of Europe’s largest cable group Liberty Global. “Not really. They drive broadband consumption.”

Cable companies such as Liberty Global and Unitymedia are increasingly moving into mobile services which they see as the next area of growth for them after fixed broadband.

Both firms offer so-called “quad play” packages where they bundle Internet, TV, fixed phone and mobile services together.

“The quad play… is here to stay,” Fries said.

Background

As the Internet becomes an essential service for everyday activities such as shopping, banking and entertainment, those with low-speed connections or no connections at all risk being left behind.

To counter this new form of inequality, the European Commission in March 2014 proposed making it easier and cheaper to deploy new networks.

>> Read: EU moves to speed up fibre networks

Works to dig new lines and connect them to homes can be highly costly however. Returns push operators to invest, but not in areas with a low population density where costs are likely to exceed gains.

As a consequence, many European regions are left without proper coverage.

Standard broadband covered 96.1% of total EU households in 2013, but the percentage goes down to 83.2% for rural homes, according to the European Commission.

Moreover, standard connections are usually low-speed. Only 14.8% of European fixed broadband lines provide a headline download speed of at least 30 Megabyte per second (Mbps), which is the minimum required to access certain services online, such as streaming. Some of them go as low as 2 Mbps.

Often, the headline speed is not even provided. The average speed is 75% lower than promised, says the European Commission. In the UK and in France the actual speed "can be as low as 45% of advertised speed,” according to the EU executive.

Optical fibre networks, also known as Next Generation Access networks (NGA), are instead able to provide Internet at a speed of at least 30 Mbps.

NGAs already connect over half of EU households, which is still far behind the official target of having all citizens covered by high-speed Internet of at least 30 Mbps by 2020.

Further Reading

European Commission

Cable Europe