Quel avenir pour les telcos ? Interview de Dominique Leroy, Proximus – pour DigiWorld Economic Journal

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DW Economic Journal: We talk about a stabilization of the telecommunications services market. How would you characterize the main changes that have taken place in the past 10 years and have contributed to destabilizing this market? Apart from the cost cutting efforts that have been made, what initiatives have helped to restore margins and return to an increase in revenues? In this context of stabilization, what distinguishes Proximus from other European incumbents? How would you characterize competition in telecommunications services in Belgium?

Dominique LEROY: The Belgian market has undergone a deep change over the last 10 years.

About 5 years ago, increasing smartphone subsidization, long forbidden in Belgium, the suppression of fixed-term contracts and the launch of mobile by our main cable competitor increased churn and impacted the Belgian mobile market value. We invested in analytics to react in a smart and targeted way and avoid negative spirals.

We compete a lot on quality with our local competition, which rapidly led to an exceptional ultra-fast broadband coverage and a high mobile network quality compared to other countries.

Besides our traditional competitors, we have, like our peers, been confronted with the rapid emergence of OTT. Our offerings of unlimited SMS early on allowed us to delay the negative impact on messaging that we saw in other countries. OTT players are now on all fronts, among others for video content distribution. Local content producers launch their own offering in OTT mode to react to YouTube, Netflix, etc. In this respect, Proximus, « embracing the future », was the first operator to offer Netflix to its customers with an integrated interface on our own set-top box.

So I think we can say that the right strategic choices were made to avoid the crisis situation that some EU incumbents found themselves in. But we are not complacent at all. We work hard to get our costs down, optimize our investments and build new sources of revenues for the future.

In the United States, but also in Europe, we are seeing the development of unlimited mobile subscriptions. Do you think we’re moving toward the generalization of unlimited in 4G?

Unlimited data offers multiply indeed. More than the number of GB offered, what can be worrying is the price at which they are offered in some countries.

In Belgium, we offer an exceptional mobile network quality. It costs a lot of money, and we want to be able to continue investing in a sustainable way. Having unlimited data if you don’t get a good network coverage is of no interest for consumers. And investment needs will grow further with the deployment of 4.5G, the arrival of 5G, etc.

Average mobile data consumption in Belgium is still low (1.2 GB/month) compared to offers that are increasingly generous in data. Our country is dense and Wi-Fi is omnipresent, which partly explains these low figures. And the smartphone penetration rate still lags a little bit behind other countries, as device subsidy is a recent phenomenon in Belgium and not systematic. Users still underestimate the number of GBs they are entitled to in their subscription and they don’t always know how much their favourite apps consume. So we have chosen to offer our customers generous data bundles and unlimited use of their favourite app, giving them the peace of mind when using data.

How does Proximus differentiate itself from other operators’ customers (quality of service-throughput, coverage, bundles TV or fixed-mobile bundles…)? Do you think that tomorrow a large operator can stay in the game without offering fixed-mobile convergence?

Fixed-mobile convergence is key for Proximus because we want to respond to all of our customers’ telco and ICT needs.

We provide trustworthy solutions on top quality networks, at fair prices. We want to enable our customers to be always close to what and who matters to them. For customers looking for the best prices, we have a 4-play no-frills offer through our Scarlet brand.

Fixed-mobile convergence is the right strategy for Proximus because of our history and the market we are in but some ‘mobile only’ operators are doing very well and answer the needs of millions of consumers around the globe.

Proximus is very involved in providing television services. How do you explain the race for content that seems to impose itself on many operators? How do you evolve your triple-play offer?

We want our customers to be able to access their favorite content effortlessly and enjoy a similar multiscreen convergent experience on any device, anytime, anywhere. So we’re talking more about our 4-play offering than 3-play.

The content offering on the market is so extensive that we deliberately opted for a content aggregation strategy. This strategy allows us to focus on the experience of accessing this content, rather than owning the content like our cable competition is doing. For instance, last year, we concentrated our efforts on improving the TV experience on all screens to ensure the content and apps are always available to our customers and retrievable on any device.

We acquire exclusive content or produce our own content only when it is the only way to fulfill our promise to offer our customers their favorite content. For sport rights as well, we advocate non-exclusive models as much as possible.

Proximus is not part of a multinational operator. Do you think that economies of scale and scope are important for an operator present in several markets? Do you see the consolidation movement continuing in the sector with the prospect of cross-border operations?

I believe that the return profile of a local telecom company is determined by local management actions and is not related to critical mass. Telecom is still very much a local business and characterized by local clients, local content, local regulation and local fixed and mobile networks. In Europe, synergies with cross-border operators are very limited due to the complexity they would generate, such as languages, national regulations, competitive landscapes, etc.

I see much more value in the strategic partnerships we develop with global telco players such as Vodafone or with other operators comparable to us, such as Swisscom, with which we exchange best practices.

In today’s fast evolving and interconnected world, being small allows us to be more agile and react fast on our market, certainly when competing with the internet giants.

The Commission has opened a new round to re-examine the regulatory framework. In your view, what points need to be changed in order to favour investments in ultra-fast broadband while maintaining competition? What is your interest in the PPP or network sharing models driven by the Commission?

I believe that a de-regulation of investments in ultra-fast networks is essential to create a business environment where companies are stimulated to make those investments. This is the best approach for a true competitive market. If you regulate by default, then companies will refrain from making the investments and wait for others to do it. This results in less investment and less competition.

Equally important to support new investments is the regulation linked to services. Because what really matters to people is the services offered by or on top of the networks enabling them to live better and work smarter. But the service regulation in our sector is quite outdated and very complicated compared to the rules that apply to services provided over the Internet. This creates different sets of rules for customers and for companies providing those services. Europe struggles today with getting to a real framework ensuring rules are independent from who is providing the services. This weakens our industrial tissue in Europe since European players are overregulated and US companies providing services over the Internet are not. To my mind, if the EU does not address this issue, long term welfare for Europe will be jeopardized and economic growth will happen elsewhere.

Finally, my point of view on network sharing and PPP models is quite straightforward. An industry should have the flexibility to find its best way to do business. In some situations, collaboration makes sense. In others, companies taking investment risks on their own should be encouraged. This freedom leads to the best market dynamics.

Proximus recently presented a plan to deploy FTTH, whereas the operator has so far relied on VDSL to improve the speeds offered. Can you remind us of the main features of this plan and explain why you will ultimately invest in all-optical?

Fibre is the ultimate fixed connection technology. This is not only with respect to download speed, but also the reaction speed of the network (latency) and upload speeds.

In the professional segment, the needs for these superior and faster specs are growing with more and more applications moving to the cloud. And businesses are welcoming fibre and its new possibilities. That’s why we have the ambition to connect 85% of all businesses in the coming years.

On the residential market, our strategy is to stay ahead of our customers’ needs. Thanks to our past investments in VDSL and vectoring technology, today we can offer ample speed for the whole family to stream HD TV and surf simultaneously.

Of course we want to prepare our infrastructure for future needs. For that reason we combine the deployment of FTTB in dense city areas with bringing fibre inside existing homes and apartments, as it allows the roll-out of FTTH to be done at an acceptable cost in these areas.

However, as we won’t connect all the homes to our fibre network in the short and even the mid-term, we will still rely on next generation copper technologies to keep offering the enjoyment speeds for the decades to come. Thanks to ROP densification, bringing the fibre already closer to our customers, and ultra-vectoring on the last remaining hundreds of metres of copper, we will be able to offer hundreds of Mbps.

5G is the other investment that will impose itself on all operators. Do you, like some operators and vendors, hope to see a move to accelerate standardization? How soon do you see the first full-scale commercial deployments?

I certainly confirm that the standardization of 5G is only at the initial stage today and that the challenges for 5G are much broader than standardization only. First, we need a stable regulatory framework. Industry needs long term stability for the use of spectrum. If operators are forced to pay high prices, they will invest less. On top of that, the roll out of the fibre is essential to the deployment of 5G. If investments in fibre are regulated, they will slow down. And the regulation on services will be key as well.

I believe that the objective set by the European Commission to launch 5G in at least 1 city per country in 2020 is very challenging. It relies on a close cooperation with other industries to build business models that justify 5G. I rather think that 4G and its evolution will continue for a long time to serve mobile broadband services.

Additionally, I am not so positive on the way the discussions at European level are evolving. They really need to focus again on stimulating the investments in new networks through framed de-regulation. This will benefit all European citizens and the European economy.

We hear a lot about virtualisation, SDN/NFV implementation. What are your expectations of this? Where do you plan to start?

The advantages of SDN/NFV are increased stability, faster and more agile development and lower run cost. This is by standardizing the hardware, virtualizing the telco and network functions and implementing end-to-end orchestration. This technology not only facilitates new developments, but also helps dealing with the need for more capacity e.g. driven by the exponential data growth, in a cost efficient way.

While the concept is not new, we see that the technology has become mature. More and more telcos are coming out of a trial-phase and developing a concrete roadmap.

Of course this roadmap will take many years to be implemented. As Proximus is mainly driven by life cycle management, in the next 12 months, we will deploy SDN in our datacenters, put the TELCO cloud in production and launch the vEPC as first major application.

Finally, where are the growth drivers for operators: in differentiation by networks? In the race for content? In IoT, Cloud and the value-added services of verticals? In…?

As mentioned before, I don’t believe that our future growth will come from spending huge amounts on exclusive content.

Our Fit for Growth strategy has the ambition to transform Proximus from a Telco and ICT company into a digital services provider. We leverage the Internet of Things, Big Data, Cloud and Security to develop solutions with a positive impact on people and society. We do this by building strong ‘partnership ecosystems’ and co-creating with our customers. Smart Cities, Smart Mobility, Smart Retail and Smart Advertising are some of the domains we are investing in.

Alongside the verticals in which we want to offer end-to-end solutions, I believe Proximus has a major role to play to enable the digital transformation of our B2B customers and their own ecosystems.

End of April we announced the acquisition of U.S.-based cloud communications platform TeleSign through our BICS subsidiary, giving BICS a new growth area beyond network services, providing authentication and mobile identity services to internet service providers and strengthening BICS geographic coverage. All of those initiatives will require a renewed effort in transformation of the way we work and think. The success of our Fit for Growth strategy is intrinsically linked to the cultural transformation of our company which started 4 years ago to instill a growth mindset, remove internal silos, develop more agile ways of working, being more data-driven, etc. The quest for growth starts in our own minds. And there is no doubt in my mind that the future is bright.