COMMUNICATION SERVICES IN CENTRAL AND EASTERN EUROPE: TRENDS AND FORECASTS

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1 RESEARCH FORECAST REPORT COMMUNICATION SERVICES IN CENTRAL AND EASTERN EUROPE: TRENDS AND FORECASTS STEPHEN SALE and GIULIO SINIBALDI analysysmason.com

2 About this report This report provides an outlook on the mobile communication services market in Central and Eastern Europe (CEE). It provides forecasts for voice and messaging services provided by both mobile network operators and over-the-top (OTT) 1 providers. A complete set of forecast results is provided in the accompanying Excel data annex. The forecast is based on several sources: Analysys Mason s internal research, including our regional forecasts, Connected Consumer surveys and various trackers in the Future Comms and Media research programme interviews with stakeholders in the communications market around the world. WHO SHOULD READ THIS REPORT Strategy and planning executives who are responsible for mobile operators communication services strategies and partnerships with OTT players. Executives in mobile operators technology and innovations teams who are responsible for developing communication services. Marketing executives at vendors of communication services equipment and software, as it will help them understand the needs of their operator customers and size the addressable market for their products. GEOGRAPHICAL COVERAGE Regions covered in this report: Worldwide Central and Eastern Europe (CEE) Czech Republic Poland Russia Turkey Forecast results provided in the data annex: Worldwide CEE region Bulgaria Croatia Estonia Hungary Latvia Lithuania Montenegro Romania Serbia Slovakia Slovenia Ukraine Rest of CEE region KEY METRICS Non-operator/OTT services Voice and messaging Active users by device type Outgoing traffic by device type Operator traditional services Handsets Circuit-switched (CS) voice and SMS Outgoing traffic Operator IP-based services Active users by service type VoLTE, Wi-Fi calling, IP messaging Outgoing traffic by service type VoLTE, Wi-Fi calling, IP messaging Retail revenue Voice and messaging Average spend per user 1 The term over-the-top is used throughout this report to refer to services that are made available to the general public via the public Internet. The term is defined from the perspective of network operators and is somewhat controversial for this reason, but is nevertheless widely understood. 2

3 Contents 5. Executive summary 6. Executive summary 7. Worldwide trends 8. Worldwide: IP messaging traffic accounted for more than eight times the volume of SMS traffic in Worldwide: OTT messaging services will be used by 75% of the global population by Worldwide: Facebook is adopting a similar platform proposition to the one pioneered in Asian countries by LINE and WeChat 11. Worldwide: The smartphone will continue to be the dominant communication device 12. Worldwide: Strategic responses from operators vary significantly in different regions 13. Worldwide: Operators are migrating smartphone users to VoLTE services nearly 3.6 billion subscribers are expected by Worldwide: Many operators are rolling out Wi-Fi calling, principally to improve indoor coverage 15. Worldwide: Google s involvement has boosted Rich Communications Services, but usage is likely to remain low 16. Regional trends 17. Central and Eastern Europe: OTT messaging apps are increasing in popularity and will pose challenges to operators 18. Central and Eastern Europe: VoIP has yet to gain significant traction 19. Country-level trends 20. Czech Republic: Operators early moves in IP voice services are aiming to secure future voice revenue 21. Poland: OTT services are not yet a serious substitute for operators communication services 22. Russia: OTT apps are taking over the messaging market; operators have proactively invested in IP based voice services 23. Turkey: WhatsApp has captured the large youth market, but operators are responding with their own initiatives 24. Forecast methodology and assumptions 25. Forecast outputs and definitions 26. Forecast methodology 27. About the authors and Analysys Mason 28. About the authors 29. About Analysys Mason 30. Research from Analysys Mason 31. Consulting from Analysys Mason 3

4 List of figures Figure 1: Messaging traffic, Central and Eastern Europe, Figure 2: Mobile voice traffic, Central and Eastern Europe, Figure 3: Messages sent by message type worldwide, Figure 4: Messages sent by message type and number of OTT messaging active users worldwide, Figure 5: OTT messaging users by device worldwide, Figure 6: OTT voice users by device worldwide, Figure 7: Retail revenue for operator mobile voice services worldwide, Figure 8: Retail revenue for SMS services worldwide, Figure 9: Active users of VoLTE services by region, Figure 10: Wi-Fi calling service users and traffic worldwide, Figure 11: Traffic for all mobile operator messaging services and number of operator-provided IP messaging service users worldwide, Figure 12: Messaging traffic, Central and Eastern Europe, Figure 13: Mobile voice traffic, Central and Eastern Europe, Figure 14: Messaging traffic by message type, Czech Republic, Figure 15: Messaging traffic by message type, Poland, Figure 16: Messaging traffic by message type, Russia, Figure 17: Messaging traffic by message type, Turkey, Figure 18: Overview of the main forecast outputs Figure 19: Overview of the forecast methodology used in this report 4

5 Worldwide: IP messaging traffic accounted for more than eight times the volume of SMS traffic in 2016 OTT communication apps are, by far, the most-used communication platform worldwide. Major players add tens of millions of users every month. The user communities of the major OTT apps are enormous and continue to grow. For example, Facebook reported 1.3 and 1.2 billion monthly active users (MAU) for WhatsApp and Messenger in 2Q 2017, respectively. WeChat s MAU figure follows closely at 963 million. There are significant overlaps between the apps user bases and we therefore estimate that the total number of unique users of OTT messaging apps was 3 billion at the end of We expect this to grow to 3.6 billion in Figure 3: Messages sent by message type worldwide, User base in billion individual app users 6.6 billion handsets Market fragmentation is in decline because in most countries a single player emerges as the dominant platform. The number of apps per person is decreasing steadily: from 1.9 apps per person in 2015 to 1.8 in 2016; this is expected to decrease to 1.7 in Usage levels associated with OTT apps have dramatically outpaced legacy SMS services. For example, Facebook reported that users on Messenger and WhatsApp were sending about 60 billion messages per day in 1Q Average usage is higher still for some of the Asian platform services. Although the SMS user base is still larger than all the OTT user bases combined, the traffic volumes generated by OTT apps are multiples of SMS traffic. The number of SMS sent per day per mobile connection in 2016 was close to 3, whereas OTT app users sent, on average, over 50 messages. 5

6 Russia: OTT apps are taking over the messaging market; operators have proactively invested in IP based voice services WhatsApp is used by the majority of smartphone users in Russia and Telegram is following closely. Both are well placed to capture increasing demand for messaging services in the country. We estimate that OTT messaging services were used by 84% of smartphone owners at the end of 2016, and this share is forecast to reach 91% at the end of the forecast period. VoIP services are relatively well established in Russia Viber is strong, as is Skype though, as in many other countries, there has been little substitution of domestic mobile voice usage. Average mobile voice MoU was 174 minutes per month in 2015 and Russian operators are relatively well positioned with respect to OTT alternatives, and some are developing their own services. MTS has been active in the RCS community and launched a native service in December Beeline (Veon) launched its integrated communication and selfcare app Veon in July Beeline customers enjoy zero-rated traffic and promotional discounts while using the app. Russian operators are offering HD voice services: Beeline and Tele2 launched VoLTE and Wi-Fi calling; Megafon is offering VoLTE; and MTS is launching Wi-Fi calling services. We expect that by end of 2018 all major operators will provide continuity of HD voice services and we forecast that operator IP will account for 34% of total voice traffic by FORECAST METRICS % 3 90% 50% 116 TRILLION Figure 16: Messaging traffic by message type, Russia, $ $ MILLION 6

7 CONTENTS EXECUTIVE SUMMARY WORLDWIDE TRENDS REGIONAL TRENDS COUNTRY-LEVEL TRENDS CZECH REPUBLIC POLAND RUSSIA TURKEY FORECAST METHODOLOGY AND ASSUMPTIONS ABOUT THE AUTHORS AND ANALYSYS MASON 7

8 About the authors Stephen Sale (Research Director) oversees Analysys Mason's consumer research and is also the lead analyst for the Future Comms research programme. His primary areas of specialisation include next-generation communication services, over-the-top (OTT) player strategies and mobile pricing. He also has extensive experience in analysing operator strategies and forecasting fixed and mobile service markets. Before joining Analysys Mason in 2004, Stephen worked in the industry on areas that include VoIP, next-generation service architecture and broadband access. He has a degree in economics and an interdisciplinary MRes from the University of London. Giulio Sinibaldi (Research Analyst) is a key contributor to Analysys Mason's Consumer Services and Digital Economy research practices. He is interested in mobile strategies, over-the-top (OTT) platforms, Internet regulation and consumer behaviour, and his skillset includes quantitative forecast modelling and big data analytics. Giulio holds a BSc and an MSc in Economics from Bocconi University. 8

9 Analysys Mason s consulting and research are uniquely positioned Analysys Mason s consulting services and research portfolio CONSULTING We deliver tangible benefits to clients across the telecoms industry: communications and digital service providers, vendors, financial and strategic investors, private equity and infrastructure funds, governments, regulators, broadcasters, and service and content providers. Our sector specialists understand the distinct local challenges facing clients, in addition to the wider effects of global forces. We are future-focused and help clients understand the challenges and opportunities that new technology brings. RESEARCH Our dedicated team of analysts track and forecast the different services accessed by consumers and enterprises. We offer detailed insight into the software, infrastructure and technology delivering those services. Clients benefit from regular and timely intelligence, and direct access to analysts. 9

10 Research from Analysys Mason 10

11 Consulting from Analysys Mason 11

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