Telecommunications market yesterday and tomorrow – main forecasts for the coming year

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In 2020, the telecommunications market in Poland was dominated by such topics as the COVID-19 crisis and the cancellation of 5G auction, the commercialization of the first 5G services or the first visible effects of mobile service price rises in the results of mobile telephony operators. The current year is full of other key trends and events, including those directly affecting the market situation. The key issue will be the reduction of the MTR rate or further increase of the ISP market.

Telecommunications market situation in 2020

The telecommunications market in Poland is a mature and highly saturated market, which is why its value has been moving in a lateral trend for a long time. In the last edition of PMR’s report “Telecommunications market in Poland 2020” of December last year, the value of the market (including operator services, as well as production and sales of telecommunications equipment and installation services related to the construction of telecommunications networks) in 2020 was projected at PLN 44.6bn. This is practically the same value as in 2019. In turn, at the level of telecommunications services alone, the market value forecast for 2020 is PLN 34.4bn, which also means a similar result as in 2019.

According to PMR, the most important events and trends that had a greater or lesser impact on the market situation in 2020 were: the first visible effects of mobile service price rises in mobile telephony operators’ results, the outbreak of the COVID-19 pandemic (which entailed the postponement of 5G auctions), the increasing migration of mobile users of pre-paid offers to subscription offers, or the ISP market becoming more expensive due to higher bandwidth Internet offers, mainly focused on the fiber-optic model, but also the turn of operators towards the “more for more” strategy. A new key trend in the ISP market, increasing the level of FTTx service penetration, is the strategy of selected fixed operators (mainly Orange, INEA, Nexera, Vectra) to open their fiber-optic networks in the wholesale model in favour of other telecommunication operators (including T-Mobile, P4, UPC).

Forecasts for the mobile telephony market for 2021

According to PMR, the value of the telecommunications market in Poland in the years 2020-2025 will grow by 0.4% on average annually. As for the operator services market itself, the average annual growth rate is expected to be -0.4% over the forecast period.

According to PMR’s forecasting model, the value of the telecommunications market in 2021 will fall, visible mainly at the level of telecommunications services (about -2%). The forecasted market situation is mainly due to the expected situation in the mobile segment (revenues not only from the sale of services, but also revenues from the distribution of equipment, mainly smartphones) – 75% of the market value. PMR forecasts that total revenues of mobile operators between 2021 and 2024 (mainly in 2021) will be negatively impacted by the wholesale segment due to the gradual reduction of the MTR wholesale rate, regulated by the EU regulation on the uniform wholesale charge rates (euroMTR and euroFTR) for call termination on mobile and fixed networks in the EU. At the same time, one should be aware that this is one of the possible scenarios. The MTR rate and the path to reach it in the EU, including Poland, may be changed through possible verification of the rates adopted in the European Commission regulation published on 18 December 2020. At the same time, the mobile retail market itself is forecasting a positive economic situation over the next five years (CAGR 2021-2025: 2.1%). This will be greatly influenced by the price increases of mobile services in post-paid tariffs and the growing stabilization of ARPU.

In the perspective of next year, PMR does not expect the Iliad Group’s entry into the Polish telecommunications market to be reflected in any price pressure on the mobile market. The topic of price rises from 2019 and operators’ focus on value-building strategy and revenue and profitability growth are still relevant. In 2020 alone, the operators made further changes in the price lists for post-paid services. P4, which concluded the transaction with Iliad, packs mainly mobile services. Although since last year Play has also become a convergent operator, with access to fixed-line Internet. However, the additional demand for fixed lines with high bandwidth caused by the pandemic is not necessarily a reason for operators to fight for the customers using service price, also at the packet level of telecommunications packages. All the more so because telecoms strongly support the “more for more” strategy, mainly in the context of further technological investments, including 5G networks. In 2021.  PMR also forecasts GDP growth for Poland, after a fall in value in 2020. – This will have a positive impact on the purchasing power of Poles.

Forecasts for the ISP market for 2021

Between 2021 and 2025 CAGR for the value of the ISP market in Poland is forecast by PMR at 1.2%. The forecasts for the ISP market, including 2021, include investments in network development, including, above all, continuation of investments in last mile infrastructure, both from fixed and cable operators. This will be reflected in the growing market volume, mainly FTTx subscriptions, and stable ARPU per user due to the increasing parameterization of the access service. Additional demand for fixed lines with higher parameters caused by the COVID-19 pandemic will also translate into higher ARPU from the service. The growing rate of development of fiber-optic networks will be positively influenced by the trend of their opening in the wholesale model in favour of other operators, mainly those without similar infrastructure of their own.

A very real scenario on the Polish ISP market in 2021 is that telecoms will use the demand for high speed fixed lines caused by the epidemic situation to increase prices for these services. This is part of the “more for more” strategy, around which operators have been focusing their activities over the last two years. Already in mid-2019, Orange itself changed the price lists of its fiber-optic offer in exchange for higher line speeds. Further technological investments of telecommunication operators and the projected GDP rebound on the Polish market are additional factors in favour of possible price movements on the market.

Other trends and forecasts

Other trends and events that will dominate the telecommunications market in Poland in 2021 include: resumption of 5G auction and first 5G services based on full-value frequency bands, further market consolidation (including the transaction of Netia’s remaining shares by Cyfrowy Polsat Group) and strengthening of the trend of passive mast infrastructure sales by MNOs to third parties.

Taking a closer look at the development of the 5G network in Poland, in 2021. PMR does not yet envisage significant monetization of 5G services on the side of mobile operators. The relatively low availability of devices supporting this technology on the market will still be a significant limitation. Moreover, customers do not yet fully feel the need for such a technological change. They are satisfied with speeds within the 4G (LTE/LTE-Advanced) network, which de facto coincide with those offered within the 5G network. The difference in speed between LTE and 5G will be practically invisible for the average Kowalski, but it will certainly be noticed by selected groups of heavy users of the Internet, including computer game players. What is more, the concept of 5G network is based on a wide spectrum of services and telecommunication capabilities designed for the B2B segment. And it is primarily this segment that will benefit from the implementation of the fifth generation network. However, measurable revenues of operators from additional telecommunications services in business (Internet of Things, smart city, telemedicine, e-commerce), for which space is created by 5G technology, are certainly expected only after 2021.

It is also worth noting that for MNOs the sale of mast infrastructure is an operation aimed primarily at cost optimization. The “disposal” of capital-intensive infrastructure by mobile operators is also connected with achieving greater effectiveness of provided services in the era of growing needs of subscribers with concentration on only one area of activity – in this case on the retail market. On the other hand, the direct inflow of cash from sales of masts may strongly contribute to the financing of selected operator’s development strategies. Undoubtedly, the release of cash frozen in the infrastructure additionally secures investments in the 5G network development. The example of Cyfrowy Polsat also includes the strategy of development through acquisitions.