Guide to Fixed Public Network Services: Western Europe, Gartner Dataquest Guide

Guide to Fixed Public Network Services: Western Europe, 2003 Gartner Dataquest Guide Publication Date: 4 December 2003

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Guide to Fixed Public Network Services: Western Europe, 2003 Gartner Dataquest Guide Publication Date: 4 December 2003

Authors James Woodcock Lisa Unden Katja Ruud This document has been published to the following Cluster codes: TELC-WW-GU-0014 For More Information... In North America and Latin America: +1-203-316-1111 In Europe, the Middle East and Africa: +44-1784-267770 In Asia/Pacific: +61-7-3405-2582 In Japan: +81-3-3481-3670 Worldwide via gartner.com: www.gartner.com Entire contents 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. 118723

Table of Contents Page 1. Background and Overview... 1 Market Statistics Methodology... 1 Forecasting... 2 Research Metrics... 2 2. Fixed Voice Services... 3 Fixed Voice Service Definitions... 3 Fixed Network Size Data... 3 Domestic Call Revenue... 3 Fixed-to-Mobile Call Revenue... 3 International Call Revenue... 4 Total Call Revenue... 4 Exchange Line Rental and Connection Revenue... 4 Total Circuit-Switched Telephony Service Revenue... 4 Fixed Packetized Voice Service Revenue... 4 Total Fixed Voice Telephony Revenue... 4 Voice Wholesale/Carrier Services... 4 3. Retail Data Services... 7 Data Service Definitions... 7 Data Service Ports... 7 Data Service Revenue... 8 4. Internet Services... 11 Internet Service Definitions... 11 Internet Service Provider Subscribers... 11 Internet Service Provider Access Revenue... 11 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. iii

Chapter 1 Background and Overview Market Statistics Methodology This guide describes the methodology and segmentation scheme used by Gartner Dataquest for its statistics of the Western European telecommunications services market in 2003. Each year, Gartner Dataquest surveys telecommunications services providers to build an estimate of annual revenue and market size. The survey covers all major carriers active in Gartner Dataquest's segments of fixed public network services. We also carry out primary research of consumer and business customers in key markets. This ensures the accuracy of our statistics and trends and helps us to develop more detailed segmentation than can be obtained by interviewing carriers. The information enables us to maintain a database for each segment of the fixed public network market. This rigorous approach, supported by a team of experienced industry analysts, provides our clients with the most up-to-date and accurate picture of market data and trends. Gartner Dataquest's market statistics methodology combines primary and secondary sources. We continually interview major participants within fixed public network services markets in Western Europe to verify market size, line and port totals, and pricing information. Sources of data include: Interviews with carriers Information published by major industry participants Estimates made by reliable representatives Government data or trade association data Published product literature and price lists Relevant economic data Articles in the general and trade press Published company financial reports Information and data from online and CD-ROM data banks End-user surveys Despite the care taken in gathering, analyzing and categorizing data, careful attention must be paid to definitions and assumptions. Various companies, government agencies and trade associations may use slightly different definitions of product categories and regional groupings, or they may include different companies in their summaries. These differences should be kept in mind when making comparisons between data provided by Gartner Dataquest and that from other research organizations. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1

2 Guide to Fixed Public Network Services: Western Europe, 2003 Forecasting Gartner Dataquest aims to provide clients with forecasts that are useful, credible and as accurate as possible. Because it is impossible to always be right, it is important to provide clients with details of the assumptions that built the forecast. We realize that clients evaluate our credibility by evaluating the historical accuracy and the quality of written forecast assumptions. This is not to imply that a conservative approach is called for. Where we fail to forecast a completely new market, we have failed to inform clients of the opportunity. Research Metrics The time and effort that go into a forecast vary from period to period and are also heavily dependent in the technology area being forecast. Generally, forecasts produced after the release of annual data are the most time-consuming and require the most attention. Also, unexpected economic developments can affect the complexity and duration of the forecasting process. ThefollowingdescribestheresearchmetricsGartnerDataquestusesforreporting market revenue, market size and market share: End user This is the final user of a public network service or the final purchaser of a public network service or a managed network. The final purchaser may or may not be the actual end user, but the outflow of the product stops at the end user. Carrier Thisisanycompanythatprovidestelecommunicationsservicesto either end users or to other carriers (including resellers). Revenue Thisisthegrossincomegeneratedbyamanufacturer,vendoror carrier, measured in unit currency. Installed base This is the total number of lines, ports, circuits or channels in active use. Business user This is a person or company that pays for a service that is intended to be used primarily for commercial purposes. This includes governments, educational establishments, small office/home office (SOHO) as well as the traditional enterprise market. A teleworker whose company pays the rental fee for a telecommunications service, such as ISDN or DSL, would be considered a business user. Consumer user This is someone who pays for a service that is intended to be primarily for leisure or social purposes. Compound annual growth rate (CAGR) This is the annualized rate of revenue or unit shipment growth between two given years, assuming growth takes place at an exponentially compounded rate. The CAGR between years X and Z, where Z - X = N (the number of years between the two given years), is calculated as: CAGR Year X to Year Z = [(Value in Year Z/Value in Year X) ^ (1/N) -1] For example, the CAGR for 2002 to 2007 is calculated as follows: CAGR 2002 to 2007 = [(Value in 2007/Value in 2002) ^ (1/5) -1] 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 4 December 2003

Chapter 2 Fixed Voice Services Fixed Voice Service Definitions Voice service revenue includes the provision of services related to voice and enhanced voice services. Voice service revenue has two principal components: revenue from calls and revenue from retail telephone rental and connection. The latter includes switched exchange line rental and connection fees charged to business and residential customers. Income from the provision of equipment and activities such as software licenses and consulting is excluded. Income from the overseas activities of operators is also excluded. Fixed Network Size Data Business lines in service These are exchange lines connecting business customers to the public network, including PSTN (including basic business lines, PBX trunks and Centrex lines) and ISDN B-channels. Residential lines in service These are exchange lines connecting residential customers to the public network, including PSTN (primary and additional residential access lines) and ISDN B-channels. Total lines in service This refers to the number of lines in operation at calendar year-end that connect customer premises to the public network. The aggregate number includes ISDN B-channel equivalents. Domestic Call Revenue Domestic call revenue This is circuit-switched call revenue paid by residential and business customers to operators for PSTN, ISDN and cable telephony calls to a location in a different area code, but without an international prefix. Business domestic call revenue Thisiscircuit-switchedoutgoingcallrevenuepaidbybusinesscustomerstoserviceproviders. Residential domestic call revenue This is circuit-switched outgoing call revenue paid by residential end users to service providers. Domestic value-added services revenue This is the sum of revenue derived from prepaid and postpaid calling cards, Custom Local Area Signaling Services, VPN voice services and number translation services such as local rate and toll-free services. Total domestic call revenue This is the sum of domestic call revenue and value-added services revenue. Fixed-to-Mobile Call Revenue Fixed-to-mobile calls These are calls originating on a fixed network and terminating on a mobile network. Business fixed-to-mobile call revenue This is outgoing call revenue paid by business customers to service providers. Residential fixed-to-mobile call revenue Thisisoutgoingcallrevenuepaid by residential end users to service providers. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 3

4 Guide to Fixed Public Network Services: Western Europe, 2003 International Call Revenue International call revenue Thisisrevenuefromcallsoriginatinginone country and terminating in another. It does not include international settlement payments made between carriers. Business international call revenue This is outgoing call revenue paid by business customers to service providers. Residential international call revenue This is outgoing call revenue paid by residential end users to service providers. Total Call Revenue Total business call revenue This is the sum of business domestic call revenue, the business portion of value-added services revenue, business fixed-tomobile revenue and business international call revenue. Total residential call revenue This is the sum of residential domestic call revenue, the residential portion of value-added services revenue, residential fixed-to-mobile revenue and residential international call revenue. Total call revenue This is the sum of all domestic call revenue, value-added services revenue, fixed-to-mobile call revenue and international call revenue. Exchange Line Rental and Connection Revenue This derives from the rental and connection of PSTN, ISDN or cable telephony lines. It is paid by end users to service providers. Business exchange line rental and connection revenue This refers to revenue derived from business customers for the rental and connection of PSTN, ISDN or cable telephony lines. Residential exchange line rental and connection revenue Thisisrevenue derived from residential customers for the rental and connection of PSTN, ISDN or cable telephony lines. Total Circuit-Switched Telephony Service Revenue This is the sum of total call revenue and total exchange line rental and connection revenue. Fixed Packetized Voice Service Revenue This is revenue from end users' specific payments for voice services over the public Internet and voice over private or carrier Internet Protocol (IP) services. It includes IP calling-card revenue. Total Fixed Voice Telephony Revenue This is the sum of total circuit-switched telephony service revenue and fixed packetized voice service revenue. Voice Wholesale/Carrier Services Domestic circuit-switched revenue This refers to carrier-to-carrier revenue, including interconnection payments and other services, such as number translation services like toll-free and "voice in a box" solutions. International circuit-switched revenue This refers to carrier-to-carrier revenue, including settlement payments paid to carriers for the termination of international calls and for international transit services. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 4 December 2003

Fixed Voice Services 5 VoIP revenue This is carrier-to-carrier revenue derived from voice-over-ip (VoIP) carriers or the divisions of operators selling VoIP minutes (by route) to other carriers, operators or Internet service providers (ISPs). These sales may be to expand the coverage or products offered by a service provider or they may be a straightforward wholesale transaction on existing routes. This revenue includes both domestic and international wholesale VoIP revenue. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 4 December 2003

Chapter 3 Retail Data Services Data Service Definitions Gartner Dataquest's estimates of domestic and international data service revenue cover dedicated and private line, packet-switched and circuit-switched services that are managed end-to-end by public telecommunications operators or other carriers. The term "data services" refers to a specific set of facilities-based services that are offered by telecommunications providers and resellers to end users. It does not imply that the traffic that is carried by these services is necessarily "data." In fact, all types of transmission voice, images, video, fax, interactive services and other nonvoice traffic can be carried by these services, regardless of whether the source format is analog or digital or whether it is transmitted as analog or digital information. No differentiation is made between the types of traffic that are carried by these services. Port A port is the termination of a point-to-point or point-to-multipoint circuit at a public network interface, such as a carrier's central office or other point of presence. The data represents the cumulative number of ports in service with customers at the calendar year-end, rather than the installed capacity of a carrier's network. Revenue This is payment from users to service providers for a telecommunications service. Rental, connection and usage charges are included. Our data reflects facilities-based service provider retail revenue generated from business and residential end users of the service, unless otherwise stated. Data line This is a direct path between two termination points. Effectively, one end of these lines terminates in the public switched network, but is not necessarily directly associated with a specific terminating location. Data Service Ports ISDN ISDN service forecasts include basic-rate interface (BRI) and primary-rate interface (PRI) circuits installed with subscribers and total installed ISDN B-channels in use. BRI circuits in use Each ISDN BRI circuit has two B-channels of 64 Kbps and one D-channel of 16 Kbps, used mainly for signaling. PRI circuits in use Each ISDN PRI circuit has up to a maximum of 30 B-channels and one D-channel of 16 Kbps. Total B-channels This is the sum of all BRI and PRI B-channels. Broadband Access Ports ADSL ports Our statistics include standardized asymmetric DSL (ADSL) and G.Lite ports. They refer to the termination of ADSL service at end-user premises. It should be noted that each ADSL line has a modem attached at the enduser and carrier premises. Our data relates to the number of ports in use. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 7

8 Guide to Fixed Public Network Services: Western Europe, 2003 Cable modem ports This relates to high-speed bi-directional transmission of data traffic over a designated frequency channel on a hybrid fiber-coaxial cable network. It provides Internet, remote LAN and branch-office access, using a cable modem at each of the channel. Our statistics refer to the termination of the cable line at the end-user premises. SDSL ports This refers to the termination of symmetric DSL (SDSL) service at end-user premises. It should be noted that each SDSL line has a modem attached at the end-user and carrier premises. Our statistics relate to the number of ports in use. Other This category includes fixed wireless access, broadband satellite services and Ethernet-based services. Public Data Ports Frame relay ports This covers access ports for frame relay services, including frame relay encapsulated over X.25, IP and over asynchronous transfer mode (ATM). It includes permanent and switched virtual circuits. Native ATM ports Thisincludesallaccessspeedsandclassesofservice(for example, near real-time variable bit rate) from unbundled ATM ports, including ports encapsulated over IP. Includes permanent and switched virtual circuits. IP VPN connections This is the total number of virtual private network (VPN) connections installed: the sum of IPsec and Multiprotocol Label Switching (MPLS) connections. Total data ports in use Thisisthesumofportsfromtheframerelay,ATM and VPN services listed above. Digital Leased Lines These are also known as dedicated access, point-to-point or multipoint circuits. Digital leased lines include lines leased from carriers and those not switched within a public network. Digital leased lines are divided into the following categories: Above 34 Mbps Above 2 Mbps, including 34 Mbps Above 64 Kbps, including 2 Mbps 64 Kbps and below The last category is termed "narrowband"; the rest are broadband. Total digital leased lines This is the sum of all digital leased lines with the speeds listed above. Data Service Revenue Broadband Access Revenue ADSL access revenue This is based on the yearly revenue paid by end users to carriers for services provided over ADSL. This does not include any rental or purchase costs for ADSL modems. It is calculated using average monthly revenue per port. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 4 December 2003

Retail Data Services 9 Cable modem access revenue This relates to the monthly subscription paid by customers for a cable modem service. It excludes the rental or purchase of a cable modem. SDSL service revenue This is based on the yearly revenue paid by customers to carriers for services provided over SDSL. It does not include any rental or purchase costs for SDSL modems or routers. It is calculated using average monthly revenue per port. Other broadband access revenue This relates to the monthly subscription end users pay for broadband services like fixed wireless access, satellite and Ethernet. It excludes the purchase of the modem. Frame Relay Service Revenue This includes revenue from all speeds of native frame relay services, including frame relay encapsulated over X.25 and over ATM. It includes revenue from permanent and switched virtual circuits. Managed frame relay service revenue relates to the ports that are bundled with a carrier-managed router or other access device. These offer additional features to the basic native or unbundled service. Managed services may include systems administration, security, performance monitoring, router management, technical diagnostics and troubleshooting, configuration management, system repair management and generation of management reports. Managed frame relay revenue includes management and transport revenue. ATM Service Revenue This includes revenue from all access speeds and classes of service (for example, near-real-time variable bit rate) from unbundled ATM ports. It includes revenue from permanent and switched virtual circuits. Managed ATM service revenue relates to the ports that are bundled with a carrier-managed router or other access device. These offer additional features to the unbundled service. Services may include systems administration, security, performance monitoring, router management, technical diagnostics and troubleshooting, configuration management, system repair management and generation of management reports. Managed ATM revenue includes management and transport revenue. IP VPN Service Revenue This is revenue associated with the provision and management of VPNs using IP,includingusingIPsec.ThiscoversremoteaccessIPVPNsthatusethepublic Internet and provide a full range of WAN networking functionality using IP backbone transport technology. IP VPNs are divided into two types: IP VPNs (IPsec) These can be single or multiple ISP type. They are managed by service providers such as ISPs or a third party. They sometimes have end-toend service-level agreements, but usually only one class of service. IP VPNs (MPLS) These are managed by service providers at the customer premises These VPNs are fully meshed network-based solutions using Layer 3 routing, with a mix of vendor-specific and standard-based protocols, and multiple classes of service. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 4 December 2003

10 Guide to Fixed Public Network Services: Western Europe, 2003 Leased Line Revenue Digital leased line revenue This includes metropolitan, national and international digital leased lines split into the following speed classifications: Above 34 Mbps Above 2 Mbps, including 34 Mbps Above 64 Kbps, including 2 Mbps 64 Kbps and below Our statistics are based on a revenue-per-line basis, including basic connection and monthly rental of the line. When fractional services are provided, these are included in the next-higher bandwidth level. For example, 256 Kbps of continuous bandwidth would be included in the greater-than-2-mbps category. Revenue is from the provision of digital leased lines to end users and other operators. Analog leased line revenue This category includes all metropolitan, national and international analog leased lines at all speeds. Revenue is stated per line, including basic connection and monthly rental of the line. Revenue is from the provision of analog leased lines to end users and other operators. Managed bandwidth service revenue Leased lines are bundled with a carrier-managed router or other access device, which offers additional features to the unbundled private-line service. Management of the service may include systems administration, security, performance monitoring, router management, technical diagnostics and troubleshooting, configuration management, system repair management and generation of management reports. Wholesale/Carrier Data Service Revenue Leased line/private line revenue Also known as dedicated access or pointto-point or multipoint circuits, these lines are provided by one carrier to another carrier. They are used in the customer carriers' own network or resold to end users. IP transit revenue Carriers provide this service to customers with a global, international or regional need for bulk IP connectivity to multiple Internet network access points and peering points. Traffic is routed on the carrier's backbone under contractual agreements. Typical customers for IP transit are ISPs, alternative operators or multinational corporations. IP transit revenue does not include the revenue generated from the access bandwidth used to transport the packets between customers' sites and the IP transit network port. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 4 December 2003

Chapter 4 Internet Services Internet Service Definitions Gartner Dataquest estimates the number of subscribers and revenue for Internet and public IP services, including usage charges or subscription fees for Internet access. Internet Service Provider Subscribers ISP business subscribers This is the number of business subscribers (including other organizations) that access services provided by an ISP at calendar year-end. These subscribers may pay for subscriptions, or the subscriptions maybefreeorpartofapackageofotherservices(suchasamanageddataservice). Customers may subscribe to more than one ISP. Often, multiple business subscribers work for the same business that has a common account relationship with an ISP; only those individuals that use the access regularly are included. Only retail (end-user) subscribers who use a PC for access are included in our figures. ISP consumer subscribers This is the number of consumer subscribers that access services provided by an ISP at calendar year-end. These subscribers may pay for subscriptions, or the subscriptions may be free or part of a package of other services (such as cable telephony). Each consumer may subscribe to more than one ISP. Typically, there will be just one consumer subscriber for each account relationship with an ISP. Only retail (end-user) subscribers who use a PC for access are included in our figures. ISP consumer broadband subscribers This is the number of consumer subscribers that use high-speed access to services provided by an ISP at calendar year-end. Broadband technologies are DSL, cable, satellite and others methods with a connection speed of at least 256 Kbps. Only retail (end-user) subscribers who use a PC for access are included in our figures. Total ISP subscribers The sum of ISP consumer and business subscribers. Internet Service Provider Access Revenue ISP business access revenue This category refers to an ISP's revenue paid by businesses (including other organizations) for access to the Internet. Access revenue includes subscriptions and retained shares of call and traffic charges. Only retail (end-user) access via a PC is covered. ISP consumer access revenue This category refers to an ISP's total revenue paid by consumers for access to the Internet. Access revenue includes subscriptions and retained shares of call and traffic charges. Only retail (end-user) access via a PC is covered. Total ISP access revenue This is the sum of ISP business and consumer access revenue. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 11