Study on future trends and business models in communication services : final report.
Date: 2016-10-03
Institutions: Directorate-General for Communications Networks, Content and Technology
Subjects: Internet, Internet access provider, competition, data protection, mobile phone, personal data, protection of privacy, provision of services, regulation of telecommunications, telecommunications industry

Study on future trends and 
business models in 
communication services 

FINAL REPORT 
A study prepared for the European Commission 
DG Communications Networks, Content & Technology 
by: 

Digital 
Single 
Market 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
This study was carried out for the European Commission 
by 

Patrick de Bas (Ecorys; project leader) 

Pieter Nooren (TNO) 

Hans Stokking (TNO) 

Nicolai van Gorp (E-conomics) 

Inge Graef (KU Leuven) 

Peggy Valcke (KU Leuven) 

Kristian Billeskov (Gardner) 

Wolter Lemstra (TU Delft; quality control) 

Internal identification 
Contract number: 30-CE-0693611/00-18  
SMART 2013/0019 

DISCLAIMER 

By  the  European  Commission,  Directorate-General  of  Communications  Networks,  Content  & 

Technology.  

The  information  and  views  set  out  in  this  publication  are  those  of  the  author(s)  and  do  not 

necessarily reflect the official opinion of the Commission. The Commission does not guarantee the 

accuracy of the data included in this study. Neither the Commission nor any person acting on the 

Commission’s behalf may be held responsible for the use which may be made of the information 

contained therein. 

ISBN 978-92-79-58901-0 

doi: 10.2759/829599 

© European Union, 2016. All rights reserved. Certain parts are licensed under conditions to the 

EU.  

Reproduction is authorised provided the source is acknowledged. 

2 

NL202-29496 PdB/OV 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
About Ecorys 

At Ecorys we aim to deliver real benefit to society through the work we do. We offer research, 

consultancy and project management, specialising in economic, social and spatial development. 

Focusing on complex market, policy and management issues we provide our clients in the public, 

private and not-for-profit sectors worldwide with a unique perspective and high-value solutions. 

Ecorys’ remarkable history spans more than 85 years. Our expertise covers economy and 

competitiveness; regions, cities and real estate; energy and water; transport and mobility; social 

policy, education, health and governance. We value our independence, integrity and partnerships. 

Our staff comprises dedicated experts from academia and consultancy, who share best practices 

both within our company and with our partners internationally. 

Ecorys Netherlands has an active CSR policy and is ISO14001 certified (the international standard 

for environmental management systems). Our sustainability goals translate into our company policy 

and practical measures for people, planet and profit, such as using a 100% green electricity tariff, 

purchasing carbon offsets for all our flights, incentivising staff to use public transport and printing on 

FSC or PEFC certified paper. Our actions have reduced our carbon footprint by an estimated 80% 

since 2007. 

ECORYS Nederland B.V. 

Watermanweg 44 

3067 GG Rotterdam 

P.O. Box 4175 

3006 AD Rotterdam 

The Netherlands 

T +31 (0)10 453 88 00 

F +31 (0)10 453 07 68 

E netherlands@ecorys.com 

Registration no. 24316726 

W www.ecorys.nl 

Study on future trends and business models in communication services 

3 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of contents 

Abstract 

Résumé 

Executive Summary 

Note de synthèse 

7 

9 

11 

17 

1 

Introduction 
1.1 
1.2 

Objectives of and reasons for the study 

Introducing terminology: ECS, OTT and OCS 

25 
25 
25 
1.2.1  A technological distinction between telecom and online communication services 26 
28 
1.2.2 
29 
30 
32 

The legal distinction between ECS and OCS 

The structure of the report 

Activities undertaken 

Scope of the study 

1.3 
1.4 
1.5 

2  Trends in usage and pricing of communication services 
Communication needs and services 

2.1 
2.2 

2.3 

2.4 

2.5 

The use of communication services in figures 

2.2.1 
2.2.2 

The use of OCS 

The use of telecom services 

Trends in the marketing of telecom services 

2.3.1  Before 2000 
2.3.2  After 2000 

Substitutability of traditional and online communication services 

Introduction to the methodological approaches for analysing substitutability 

2.4.1 
2.4.2  Results 
Conclusions 

3 

Impact on market performance 
3.1 

Trends in revenues, profits and investment 

3.1.1  Revenue developments in the EU 
3.1.2  Revenue developments outside the EU 
3.1.3  Costs, profits, and investments in the EU 

3.2 

The impact on revenues 
3.2.1  Methodology for analysis 
3.2.2  Regression approach 
3.2.3  Modelling approach 

3.3 

Impact on profits and investments 

3.3.1 
3.3.2 

Impact on costs and profits 

Impact on investments 

3.4 

Summarising conclusions 

4  The regulatory playing field 

4.1 
4.2 
4.3 
4.4 

The EU legal framework 

Situation at national level 

Regulatory / policy situation Non-EU countries 

Comparison between non-EU and EU countries 

35 
35 
37 
37 
42 
46 
46 
47 
51 
51 
54 
57 

59 
59 
59 
61 
63 
65 
65 
67 
72 
73 
73 
74 
77 

79 
79 
85 
87 
96 

Study on future trends and business models in communication services 

5 

 
 
 
 
 
 
5  An analysis of telecom and OCS business models 

5.1 
5.2 

5.3 

5.4 

5.5 
5.6 

Introduction 

Competition and complementarity among telecom providers and OCS providers 

5.2.1  Competition occurs within and between ecosystems 
5.2.2  Competition in different dimensions of end-user experience 

Analysis of revenue models and assets 

5.3.1  A typology of revenue models 
5.3.2  Examples of different revenue models 

Telecom operators’ ability to move to alternative business models 

5.4.1 
5.4.2 

Introducing new services with existing revenue model 

Introducing new revenue model for existing services 

Future outlook: unclear opportunities from new technologies 

Summary 

99 
99 
99 
99 
101 
102 
102 
103 
113 
114 
115 
119 
121 

6 

6.3 

Introduction 

6.2.1 
6.2.2 

Impact on end-users 
6.1 
6.2 

The role of innovation 

Competition and consumer interests 

Freedom of choice and preventing lock-in effects 

123 
123 
123 
124 
126 
127 
127 
6.3.1  Data protection 
131 
6.3.2  Portability 
6.3.3 
134 
6.3.4  Contractual rights, transparency, quality of service, and emergency services  135 
138 
6.3.5  Prices and costs 

Legal safeguards mitigating the risks for end-users 

Interoperability 

7  Summarising conclusions 

Annex I 

Overview of data collected 

Annex II 

 End-user survey 

Annex III 

Interviews 

Annex IV 

Deregulation by the FCC 

Annex V 

List of interviewees 

Annex VI 

Program and participants of the workshop 

Annex VII 

DAMIAN value web methodology 

Annex VIII 

SDN & 5G 

Annex IX 

A basic model 

Annex X 

Methodological note on data collection 

141 

151 

165 

173 

181 

183 

185 

187 

189 

195 

201 

6 

Study on future trends and business models in communication services 

 
 
 
 
 
 
Abstract 

The study investigates competitive pressures telecom operators experience from internet-based 

communication services. Developments in the European market show an accelerating increase in 

usage of online communication services (OCS); end-users increasingly regard OCS as substitutes 

for traditional telecom services ("electronic communication services", ECS). Similar developments 

are also observed in non-EU regions.  

The impact of OCS on ECS is clearly observed in mobile revenues, which have declined due to 

OCS. The study finds no impact of OCS on fixed telecom. 

To face the competition, ECS providers can offer new services or develop new revenue models. 

The introduction of new services is not restricted by legal barriers. New revenue models may have 

more potential, but legal rules restrict the use of user data as a key asset. 

Asymmetric legal protection of end-users appears only justified in case of differences between ECS 

and OCS. As privacy risks are similar when using ECS and OCS, asymmetric privacy and data 

protection seems difficult to justify. 

Study on future trends and business models in communication services 

7 

 
 
 
 
 
 
 
 
 
 
 
Résumé 

L'étude porte sur la pression concurrentielle à laquelle sont soumis les opérateurs, causée par des 

services de communication sur l'Internet. Les évolutions sur le marché européen montrent une 

accélération de l'augmentation de l'utilisation des services de communication en ligne (SCL); les 

utilisateurs finaux considèrent les SCL de plus en plus comme des substituts aux services de 

télécommunication (« services de communication électronique », SCE). 

L'impact des SCL sur les fournisseurs de SCE transparaît clairement dans les recettes de la 

téléphonie mobile qui ont diminué à cause des SCL. L'étude ne montre pas d'effet des SCL sur les 

télécommunications fixes. 

Pour affronter la concurrence, les fournisseurs de SCE peuvent proposer de nouveaux services ou 

mettre au point de nouveaux modèles de recettes. Aucun obstacle juridique ne vient entraver 

l'introduction de nouveaux services. Ces nouveaux modèles de recettes peuvent présenter un plus 

grand potentiel, mais des règles juridiques restreignent l'utilisation des données utilisateur. 

La protection juridique asymétrique des utilisateurs finaux semble uniquement justifiée en cas de 

différences entre les SCE et les SCL. Les risques concernant la confidentialité étant similaires 

lorsque nous utilisons les SCE et les SCL, il semble difficile de justifier une protection asymétrique 

de la confidentialité et des données. 

Study on future trends and business models in communication services 

9 

 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Summary 

European citizens have become increasingly accustomed to using the internet for communication 

services. These communication services via internet (online communication services) are used next 

to or instead of traditional telecommunication services (electronic communication services). This 

situation raises the question to what extent telecom operators experience competitive pressures 

from internet-based communication service providers and whether a level playing field exists. 

To answer this question, this study: 

1.  Investigated the market situation with regard to online communication services (OCS) present in 

electronic communication services (ECS) markets; and 

2.  Compared the market situation in the EU with the market situation outside the EU. 

Taking into account these market developments, the study:  

3.  Analysed the impact of OCS on the providers of ECS. 

In order to obtain more insight in the potential future development of the competition between ECS 

providers and OCS providers, two topics were analysed: 

4.  Potential strategic responses of ECS providers and barriers encountered; 

5.  The sustainability of internet based business models. 

Finally, the study analysed:  

6.  The impact on end-users of using internet based services. 

The findings for each of these topics are presented below. 

1 The current market situation in the EU 

In the EU market, the main trends observed are: 

  An accelerating increase in OCS usage; 

  Less fixed and more mobile telecom services; less voice and more SMS; 

  ECS providers gradually moving away from two-part tariffs (i.e. a fixed monthly subscription fee 

and a per-minute usage charge); 

  End-users increasingly regard OCS as substitutes for traditional telecom services. 

An accelerating increase in OCS usage has been observed during the first half of the 2010s. The 

bulk of today’s OCS were introduced around 2010 and the introduction of the smartphone is 

considered an important driver for the development and take-up of these OCS. As the number of 

OCS users has grown, the number of daily messages sent per person has grown as well. Today, 

the average WhatsApp user sends around 40 messages per day and receives almost twice as 

many messages. For comparison, the daily number of SMSs sent per mobile user in the EU is 

around 4.5. 

A reduction in fixed voice calls and growing mobile calls has been observed. This effect 

already started in the mid-2000s, well before the accelerating increase in OCS usage in the first half 

of the 2010s. Nonetheless, the effect of reduction in fixed voice calls and growing mobile calls 

continued into the 2010s, albeit at a more moderate rate. SMS volumes increased strongly 

throughout the 2000s. During the 2010s, when usage of OCS became more prominent, the growth 

in SMS came to a halt and volumes started to decline. 

Study on future trends and business models in communication services 

11 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
As a result of increased competition in the fixed market, the two-part tariff pricing regimes 

became increasingly under pressure, leading to a decrease in the incremental (per minute) costs 

of making a fixed phone call. Towards the end of the 2000s, fixed services were increasingly sold in 

a bundle, combined with internet access and TV. Within these bundles, telecom operators started 

offering subscriptions with a fixed amount of voice minutes. 

According to a survey among end-users conducted for this study, end-users increasingly regard 

OCS as substitutes for (mobile) telecom services. Price is an important factor for end-users in 

the decision between using ECS and OCS. Users experience no major barriers to using OCS, with 

internet connection being the main requirement to use OCS. Main concerns of end-users related to 

the use of OCS is the protection of privacy. 

End-users indicated that being able to reach everybody with a telephone number is an important 

reason for people to keep a telephony subscription. However, having a fixed telephone line does 

not prevent users from being subscribed to OCS as well. Hence, using OCS does not imply nor 

require people to terminate their telephony subscription.  

2 Comparing the market situation in the EU with the market situation outside the EU 

For the comparison with non-EU countries, the market situation in four countries was investigated: 

South Korea, Japan, Brazil, and the United States. In these countries, this study found: 

  Telecom operators are experiencing competitive pressure from OCS providers; 

  A trend towards deregulation appeared to be present. 

In three non-EU countries (South Korea, Brazil, the US), telecom operators are experiencing 

competitive pressure from OCS providers. This seems to be most prominently the case in South 

Korea and Brazil, where local telecom operators have argued that the rise of OCS has had the 

effect of lowering their overall revenues. In the US, telecom operators have been able to 

compensate the decline in revenues from the provision of traditional telecom services by increased 

revenues from broadband subscriptions and data use. In Japan, there is no evidence of conflicts 

between telecom and OCS providers and level playing field discussions focus instead on regulatory 

asymmetries among distinct classes of telecom operators. 

In all of the non-EU countries, there appeared to be a trend towards deregulation in the telecom 

sector to create a more level playing field between telecom and OCS providers. The US FCC has 

already reacted to the changing developments in the market for communications services by 

reducing the regulatory obligations applicable to incumbent telecom operators. However, some of 

the US telecom obligations have also been imposed on VoIP providers and ISPs. In Brazil, current 

policy discussions particularly deal with taxation issues. While the Brazilian legislator is in the 

process of imposing tax obligations on OCS providers, the NRA ANATEL seems to be in favour of 

reducing regulation in the telecom sector. In Japan, where level playing field discussions mainly 

focus on the asymmetries among different classes of telecom providers, current government policy 

appears to go in the direction of deregulation of facilities-based telecom operators. South Korean 

authorities appear to protect the position of telecom operators considering the government’s 

reluctance to adopt strict net neutrality or traffic management rules. With the launch of a new 

service plan by major South Korean telecom operators, the use of mobile OCS, and in particular 

VoIP services, is expected to decline as consumers will have unlimited access to traditional voice 

and text services. 

12 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
3 The impact of OCS on telecom revenue, costs, profits, and investment. 

To identify the potential impact of the rising popularity of OCS on telecom revenues a top-down 

regression based trend analysis and a bottom-up sector model have been applied. The main 

conclusions are: 

  Revenue: the rise of OCS had no impact on fixed revenues, but did negatively impact mobile 

revenues; 

  Costs and profit: the rise of OCS had no impact on fixed profits nor on the declining costs 

(OPEX); for mobile, the relation between the rise of OCS and development of costs and profit is 

unclear; 

 

Investment: the rise of OCS seems not to have impacted fixed investments, while the impact on 

mobile investments is not clear. 

The regressions show no statistically significant impact of OCS on fixed revenues. Mobile 

revenues are impacted by OCS, with mobile revenues 5.5% (model estimation) to 18% 

(regression estimation) below the level of revenues that might have been expected in the 

absence of OCS competition. This net loss of revenue is the sum of multiple relations between 

OCS on the one hand and ECS revenue levels on the other hand. Next to a possible substitution 

effect between OCS and ECS, there is also a degree of complementarity between OCS and 

internet access services, driving demand for the latter and mitigating a negative effect of OCS 

substitution for telephony and SMS services. 

In the EU, fixed profit (EBITDA) remained constant despite the decline in revenues. This implies 

that fixed operators, which includes not only incumbents, but also altnets and cable, have reduced 

OPEX. The study did not find arguments that directly relate reductions in fixed OPEX to a rising 

popularity of OCS platforms. Mobile profit (EBITDA) declined, implying a relative increase of 

OPEX in comparison to revenue development. Only indirect links between the identified cost 

drivers and OCS competition was found. 

Fixed investment (CAPEX) levels remained fairly constant over the years, offering no ground to 

suspect an impact of OCS on fixed investments. Mobile investment (CAPEX) slightly increased 

from the time OCS competition started having an effect on telecom revenues in 2010. However, the 

impact of OCS on the development of mobile investment levels remains unclear, with the 

analysis not providing evidence supporting such a relation.  

4 Potential strategic responses of ECS providers and barriers encountered 

Each digital business model has various dimensions in which the operator must simultaneously 

make a number of interrelated strategic choices. Because these choices are interrelated, not all 

actors have the same options in choosing among business models. The choices available to an 

actor are very much determined by its legacy assets and the rules to which the actor has to abide. 

In the order to meet the competitive pressure of OCS, ECS providers: 

  Compete by offering bundles that include specific services; 

  Offer OCS type services (with a traditional revenue model); 

  Develop new revenue models (for existing services). 

Telecom providers (as well as OCS providers) have increasingly promoted bundles of services, 

consisting of voice, text, other general services (such as audio-visual, audio, cloud and storage), 

with specific services that are close to the core assets of a service supplier. For telecom 

operators this asset is the internet access service. Bundling strategies are aimed at differentiation 

from competitors to escape competition, and to internalise complementarities between services. As 

Study on future trends and business models in communication services 

13 

 
 
 
 
 
 
 
 
 
 
 
such, competition between ECS and OCS has become competition between ecosystems rather 

than a straightforward head-on competition on communication services only. 

Examples of OCS type services that are currently being operated by telecom providers include 

social network apps such as Libon and Tuenti, owned and operated by Orange and Telefonica 

respectively. These apps have not been able to grow into an OCS of global scale nor have they 

enjoyed similar network effects as the leading OCS. The only OCS-type revenue model that 

shows a good match with the current assets of telecom service providers (notably consumer data) 

is the advertising model. 

Barriers 

While ECS and OCS providers may be in competition with each other, they have different legacies, 

different assets, and they are not in all cases subject to the same rules. Because of these 

differences, telecom providers may not have the same opportunities to compete on the basis of 

developing alternative services and/or business models.  

The main regulatory differences for ECS providers and OCS providers are: 

  For new services with a traditional revenue model: no regulatory differences, but low viability 

and revenue generating potential; 

  For new revenue models for existing services: ECS providers face legal restrictions on use of 

user data. 

There is no relation between the different set of rules that ECS providers are subject to, and the 

lack of success of the OCS type services provided by ECS providers. Rather, the lack of growth 

into an OCS service of global scale is caused by: (i) these new services not being complementary 

to the existing service portfolio (but rather substituting); and (ii) many similar services existing that 

are based on alternative revenue models that do not involve financial payment by the end-users: 

  Unlike OCS providers, ECS providers face restrictions in using key assets (the user data) 

when trying to apply an advertising revenue model. The rules in the area of using and 

processing personal data (Article 5 and 6 of the ePrivacy Directive) and location data (Article 

9 ePrivacy Directive) are stricter for ECS providers than for OCS providers. Moreover, 

Article 13 of the ePrivacy Directive makes the sending of unsolicited marketing communications 

by automated calls, fax and electronic mail (including SMss) subject to user's or subscriber's 

consent, but the same rule does not apply to messages sent through OCS platforms.  

5 The sustainability of internet based business models 

In order for internet based business models to remain sustainable, they need to: 

  Keep innovating; 

  Keep adjusting the business model. 

Digital business models need to continuously innovate in all possible dimensions: new 

techniques, new products, new revenue models, new sales channels, new customers, etc. This 

drive for innovation is the consequence of the constant competition for the market in which the 

services are provided. 

Adjustments to the business models not only relates to revenue models but also to other 

(interrelated) dimensions of the business model (e.g. to how data is used and can be monetised). 

This also included the degree of concentration: on the one hand, there are competitive forces that 

drive market concentration, like network effects and economies of scope. On the other hand, there 

are market forces that mitigate such effects, like multi-homing and easy entry and scale-up through 

cloud technologies.  

14 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
6 The impact on end-users of using internet based services 

Various consumer interests are at stake when using internet based services. These interests 

include: 

1.  Freedom of choice and preventing lock-in effects; 

2.  Quality and affordability;  

3.  Transparency;  

4.  Being able to communicate with everyone  

5.  Access to emergency numbers; and 

6.  Data protection, privacy and security. 

These consumer interests may be safeguarded by either market forces or legal provisions. The 

study has analysed the degree in which this has taken place. Many of the consumer interests 

specified above can be analysed in parallel as they are interrelated (notably the first four). 

Freedom of choice, quality and affordability, transparency and communicating with peers 

End-users are locked-in if there are no alternative services available or if switching to such 

alternative services involves too high search and switching costs. High switching costs are typically 

associated with network effects: the larger the subscription base of a network, the higher the gains 

from joining that network and hence the higher the costs of leaving that network. A consumer that is 

locked-in, faces reduced freedom of choice and may be subject to high prices (monetary or 

otherwise) and low quality.  

These risks for consumer interests have been mitigated by a number of rules, which do apply to 

ECS, but do not equally apply to OCS. ECS providers face obligation in relation to: 

 

 

(Number) portability; 

Interconnection and Interoperability; 

  Price control; 

  Quality monitoring; 

  Contractual rights. 

End-users do not benefit from a similar level of legal protection when using OCS. However, t the 

digital economy also features an important characteristic that mitigates to some extent the risk of 

lock-in: end-users typically subscribe to multiple providers at the same time (multi-homing) which 

may be mitigating the lock-in effect to the extent the communications partners are also present on 

the alternative service. The responsiveness of digital markets to consumer heterogeneity in 

combination with the ability for end-users to multi-home may support the freedom of choice for 

consumers. 

This difference between ECS and OCS may imply that there is less need for regulation for OCS 

(or different forms of regulation) in order to preserve particular end-users interests in the OCS 

context. In addition, it may be difficult / unnecessary to impose some of the obligations contained in 

the Universal Service Directive on OCS providers. One main exception concerns the access to 

emergency numbers. 

Access to emergency numbers 

With respect to the accessibility of emergency services, the obligation to provide access to 

emergency numbers is only laid on traditional ECS providers in most Member States.  

The access to emergency numbers via OCS is technologically challenging as it is not always 

possible to ensure the correct routing of the call or obtain information on the location of the caller. In 

addition there may be no call-back functionality if the call is dropped. Access to emergency services 

Study on future trends and business models in communication services 

15 

 
 
 
 
 
 
 
 
 
 
 
 
should be mandated on OCS in view of future scenarios where users abandon ECS completely 

purchasing only connectivity services and fulfil all of their communication needs through OCS. In 

particular, when OCS give access to the PSTN and hence to E164 numbers access to emergency 

services should be ensured if reliable routing arrangements are feasible. 

Privacy, data protection, and data security 

Because of the complex technological nature of digital business models, digital markets are not 

transparent and people are not always aware of the risks they run regarding privacy and security 

or do not discount these risks correctly which hinders making rational choices. In addition, OCS 

users do not enjoy equivalent legal safeguards with regard to privacy and data protection as 

compared to ECS users. While both OCS and ECS providers are subject to the horizontal data 

protection rules contained in the current Data Protection Directive and the future General Data 

Protection Regulation, the ePrivacy Directive imposes additional obligations on ECS providers that 

currently do not apply to OCS providers. These rules by which ECS (but not OCS) providers need 

to abide, relate to: 

  Confidentiality of communications; 

  Processing of traffic data; 

  Need for consent of the users to processing location data; 

  Specific rules on unsolicited communications for marketing purposes (which do not apply to 

messages sent via OCS platforms).  

This asymmetry in legal protection seems difficult to justify because users are nowadays not 

only confronted with reading, storing and processing of personal data, including traffic and location 

data, in the context of ECS but also (arguably even more) in the context of OCS. Privacy risks may, 

as a result, be similar in ECS and OCS, calling for a similar protection of end-user rights. 

16 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
Note de synthèse 

Les citoyens européens ont de plus en plus l'habitude d'utiliser l'Internet pour les services de 

communication. Ces services de communication via l'Internet (services de communication en ligne) 

sont utilisés en plus ou au lieu des services de télécommunication classiques (services de 

communication électronique). Cette situation soulève la question de la pression concurrentielle que 

subissent les opérateurs de télécommunications à cause des fournisseurs de services de 

communication sur l'Internet et de l'existence de conditions de concurrence équitables. 

Pour répondre à cette question, cette étude a: 

  Enquêté sur la situation du marché en ce qui concerne les services de communication en ligne 

(SCL) présents sur les marchés des services de communication électronique (SCE); et 

  Comparé la situation du marché dans l'UE avec celle du marché en dehors de l'UE. 

En prenant en compte ces évolutions sur le marché, l'étude a:  

  Analysé l'impact des SCL sur les fournisseurs de SCE. 

Afin d'obtenir plus d'informations sur l'évolution potentielle de la concurrence entre les fournisseurs 

de SCE et ceux de SCL, deux sujets ont été analysés: 

  Les réponses stratégiques potentielles des fournisseurs de SCE et les obstacles rencontrés; 

  La durabilité des modèles commerciaux sur l'Internet. 

Enfin, l'étude a analysé:  

  L'impact de l'utilisation des de plus en plus services sur l'Internet sur les utilisateurs finaux. 

Les conclusions concernant chacun de ces sujets sont présentées ci-dessous. 

La situation actuelle du marché dans l'UE 

Sur le marché de l'UE, les principales tendances observées sont: 

  Une accélération de l'augmentation de l'utilisation des SCL; 

  Des services de télécommunication moins fixes et plus mobiles; moins de services vocaux et 

plus de SMS; 

  L'éloignement progressif des fournisseurs de SCE des tarifs binômes (c.-à-d. des frais 

d'abonnement mensuels fixes et des frais d'utilisation à la minute); 

  Les utilisateurs finaux considèrent les SCL de plus en plus comme des substituts aux services 

de télécommunication classiques. 

Nous avons observé une accélération de l'augmentation de l'utilisation des SCL pendant la 

première moitié des années 2010. La majeure partie des SCL d'aujourd'hui a été introduite vers 

2010 et le lancement du smartphone est considéré comme étant un moteur important du 

développement et de l'adoption de ces SCL. Le nombre d'utilisateurs des SCL ayant augmenté, le 

volume de messages quotidiens envoyés par personne a également connu une hausse. 

Aujourd'hui, un utilisateur de WhatsApp envoie en moyenne 40 messages par jour et reçoit 

presque deux fois plus de messages. À titre de comparaison, l'utilisateur d'un appareil mobile dans 

l'UE envoie environ 4,5 SMS par jour. 

Nous avons observé une diminution des appels vocaux fixes et une hausse des appels 

mobiles. Cette évolution avait déjà commencé au milieu des années 2000, bien avant 

l'accélération de l'augmentation de l'utilisation des SCL au cours de la première moitié des 

Study on future trends and business models in communication services 

17 

 
 
 
 
 
 
 
 
 
 
 
 
 
années 2010. Néanmoins, cette diminution des appels vocaux fixes et cette hausse des appels 

mobiles ont continué pendant les années 2010, bien qu'à un rythme plus modéré. Le volume de 

SMS a fortement augmenté tout au long des années 2000. Pendant les années 2010, alors que 

l'utilisation des SCL devenait plus importante, l'augmentation des SMS s'est arrêtée et le volume a 

commencé à décliner. 

En raison de la concurrence accrue sur le marché de la téléphonie fixe, les régimes de 

tarification avec tarif binôme ont été soumis à une pression croissante, menant à une 

réduction des coûts marginaux (à la minute) d'un appel téléphonique passé depuis un appareil fixe. 

Vers la fin des années 2000, les services de téléphonie fixe étaient de plus en plus vendus dans le 

cadre d'une offre groupée, associés à un accès Internet et à la télévision. Dans ces offres 

groupées, les opérateurs de télécommunications ont commencé à proposer des abonnements 

présentant un volume fixe de minutes d'appels. 

D'après un sondage réalisé auprès d'utilisateurs finaux dans le cadre de cette étude, ceux-ci 

considèrent les SCL de plus en plus comme des substituts aux services de 

télécommunication (mobile). Le prix constitue un facteur important pour les utilisateurs finaux en 

ce qui concerne le choix entre les SCE et les SCL. Les utilisateurs ne rencontrent pas d'obstacles 

majeurs à l'utilisation des SCL, la connexion Internet étant la principale condition pour utiliser les 

SCL. La principale préoccupation des utilisateurs finaux en ce qui concerne l'utilisation des SCL est 

la protection de la vie privée. 

Les utilisateurs finaux ont indiqué qu'ils conservaient un abonnement téléphonique en grande partie 

pour pouvoir joindre tout le monde avec un numéro de téléphone. Toutefois, le fait d'avoir une ligne 

téléphonique fixe n'empêche pas les utilisateurs d'être également abonnés à des SCL. L'utilisation 

des SCL n'implique pas et ne nécessite pas la résiliation de son abonnement téléphonique.  

Comparaison de la situation du marché au sein de l'UE avec celle du marché en dehors de 

l'UE 

Afin de procéder à une comparaison avec les pays ne faisant pas partie de l'UE, la situation du 

marché dans quatre pays a fait l'objet d'une enquête: Corée du Sud, Japon, Brésil et États-Unis. 

Dans ces pays, l'étude a révélé que: 

  Les opérateurs de télécommunications sont soumis à une pression concurrentielle de la part 

des fournisseurs de SCL; 

  Une tendance à la déréglementation semblait se dessiner. 

Dans trois pays qui ne font pas partie de l'UE (Corée du Sud, Brésil, États-Unis), les opérateurs 

de télécommunications sont soumis à une pression concurrentielle de la part des 

fournisseurs de SCL. Ceci semble être particulièrement le cas en Corée du Sud et au Brésil, où 

les opérateurs de télécommunications locaux ont affirmé que la hausse des SCL avait eu pour effet 

de réduire leurs recettes globales. Aux États-Unis, les opérateurs de télécommunications ont pu 

compenser le déclin de leur chiffre d'affaires issu des services de télécommunication classiques 

par une augmentation des recettes provenant des abonnements à large bande et de l'utilisation des 

données. Au Japon, il n'existe aucun signe de conflit entre les fournisseurs de télécommunications 

et de SCL, et les discussions relatives aux conditions de concurrence équitables portent plutôt sur 

les asymétries réglementaires entre les différentes catégories d'opérateurs de télécommunications. 

Dans tous les pays qui ne font pas partie de l'UE, nous avons pu noter une tendance à la 

déréglementation dans le secteur des télécommunications dans l'objectif de créer des conditions 

de concurrence plus équitables entre les fournisseurs de télécommunications et de SCL. La FCC 

(Commission fédérale des communications aux États-Unis) a déjà réagi aux évolutions observées 

18 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
sur le marché, en ce qui concerne les services de communication, en réduisant les obligations 

réglementaires s'appliquant aux opérateurs de télécommunications en place. Cependant, certaines 

des obligations s'appliquant aux télécommunications des États-Unis ont également été imposées 

aux fournisseurs de VoIP et aux FAI. Au Brésil, les discussions autour de la politique actuelle 

portent en particulier sur les questions fiscales. Alors que le législateur brésilien est en passe 

d'imposer des obligations fiscales aux fournisseurs de SCL, l'autorité réglementaire nationale, 

l'ANATEL, semble favorable à une réduction de la réglementation dans le secteur des 

télécommunications. Au Japon, où les discussions relatives aux conditions de concurrence 

équitables portent notamment sur les asymétries entre les différentes catégories de fournisseurs de 

télécommunications, la politique gouvernementale actuelle semble s'orienter vers une 

déréglementation des opérateurs de télécommunications disposant de leurs propres installations. 

Les autorités sud-coréennes semblent protéger la position des opérateurs de télécommunications, 

compte tenu de la réticence du gouvernement à adopter des règles strictes en ce qui concerne la 

neutralité du réseau ou la gestion du trafic. Suite au lancement d'un nouveau plan de service de la 

part des principaux opérateurs de télécommunications sud-coréens, l'utilisation des SCL mobiles, 

et en particulier des services VoIP, devrait décliner, puisque les consommateurs auront un accès 

illimité aux services vocaux et de messagerie classiques. 

L'impact des SCL sur les recettes, les coûts, les bénéfices et l'investissement du secteur 

des télécommunications. 

Afin d'identifier l'impact potentiel de la hausse de la popularité des SCL sur les recettes des 

télécommunications, une analyse descendante des tendances de régression et un modèle 

ascendant du secteur ont été réalisés. En voici les principales conclusions: 

  Recettes: la hausse des SCL n'a eu aucun impact sur les recettes de la téléphonie fixe, mais a 

eu une incidence négative sur les recettes de la téléphonie mobile; 

  Coûts et bénéfices: la hausse des SCL n'a eu aucune incidence sur les bénéfices de la 

téléphonie fixe ni sur les coûts décroissants (dépenses d'exploitation); pour les communications 

mobiles, la relation entre la hausse des SCL et l'évolution des coûts et des bénéfices n'est pas 

claire; 

 

Investissement: la hausse des SCL semble ne pas avoir eu d'impact sur les investissements 

dans le secteur de la téléphonie fixe, tandis que l'incidence sur les investissements pour le 

secteur de la téléphonie mobile n'est pas claire. 

Les régressions ne montrent aucun impact statistiquement significatif des SCL sur les 

recettes de la téléphonie fixe. Les SCL ont une incidence sur les recettes de la téléphonie mobile, 

celles-ci étant 5,5 % (estimation du modèle) à 18 % (estimation de la régression) inférieures 

au niveau de recettes que nous aurions pu espérer en l'absence de concurrence des SCL. Cette 

perte de recettes nette représente la somme des multiples relations entre les SCL d'une part et les 

niveaux de recettes des SCE d'autre part. En plus d'un possible effet de substitution entre les SCL 

et les SCE, il existe également un degré de complémentarité entre les SCL et les services d'accès 

Internet, faisant grimper la demande de ces derniers et réduisant l'effet négatif de la substitution 

des SCL pour les services de téléphonie et de SMS. 

Dans l'UE, les bénéfices (EBE) pour la téléphonie fixe sont restés constants malgré le déclin 

des recettes. Cela signifie que les opérateurs de téléphonie fixe, que ce soient les opérateurs 

historiques, mais également ceux commercialisant des technologies avec fibre et câble, ont réduit 

les dépenses d'exploitation. L'étude n'a pas établi d'argument qui relierait directement les 

réductions des dépenses d'exploitation de la téléphonie fixe à une hausse de la popularité des 

plateformes SCL. Les bénéfices (EBE) de la téléphonie mobile ont baissé, s'accompagnant 

d'une augmentation relative des dépenses d'exploitation par rapport aux recettes. Seuls des 

liens indirects entre les inducteurs de coût et la concurrence des SCL ont été établis. 

Study on future trends and business models in communication services 

19 

 
 
 
 
 
 
 
 
Le niveau des investissements (dépenses en capital) de la téléphonie fixe est resté plutôt 

constant au fil des années, ne laissant aucune raison de soupçonner un impact des SCL sur les 

investissements de la téléphonie fixe. Les investissements (dépenses en capital) de la 

téléphonie mobile ont légèrement augmenté depuis que la concurrence des SCL a commencé, 

ayant une incidence sur les recettes des télécommunications en 2010. Cependant, l'impact des 

SCL sur l'évolution des investissements de la téléphonie mobile reste flou, l'analyse ne 

fournissant aucune preuve de ce type de relation.  

Les réponses stratégiques potentielles des fournisseurs de SCE et les obstacles rencontrés 

Chaque modèle commercial numérique présente plusieurs dimensions pour lesquelles l'opérateur 

doit faire un certain nombre de choix stratégiques corrélés de manière simultanée. Ces choix étant 

corrélés, tous les acteurs ne disposent pas des mêmes options pour choisir entre les modèles 

commerciaux. Les choix dont dispose un acteur sont en très grande partie déterminés par ses 

actifs historiques et les règles que l'acteur doit respecter. 

Afin de résister à la pression concurrentielle des SCL, les fournisseurs de SCE: 

  Sont compétitifs en proposant des offres groupées qui comportent des services spécifiques; 

  Proposent des services de type SCL (avec un modèle de recettes classique); 

  Élaborent de nouveaux modèles de recettes (pour les services existants). 

Les fournisseurs de télécommunications (ainsi que les fournisseurs de SCL) promeuvent de plus 

en plus des offres groupées de services, composées de services vocaux, de messagerie, 

d'autres services généraux (par exemple, audiovisuel, audio, sur le Cloud et de stockage), avec 

des services spécifiques qui sont proches des atouts essentiels d'un fournisseur de services. 

Pour les opérateurs de télécommunications, cet atout est le service d'accès Internet. Les stratégies 

des offres groupées visent à se différencier des concurrents afin d'échapper à la concurrence et à 

internaliser des complémentarités entre les services. Ainsi, la concurrence entre les SCE et les 

SCL est devenue une concurrence entre les écosystèmes plutôt qu'une concurrence frontale 

directe sur les services de communication uniquement. 

Les services de type SCL qui sont actuellement exploités par les fournisseurs de 

télécommunications incluent, par exemple, des applications de réseaux sociaux comme Libon et 

Tuenti, détenues et exploitées par Orange et Telefonica, respectivement. Ces applications n'ont 

pas pu évoluer en un SCL à une échelle mondiale et n'ont pas pu bénéficier d'effets de réseau 

similaires, comme les principaux SCL. Le seul modèle de recettes de type SCL qui se combine 

bien avec les actifs actuels des fournisseurs de services de télécommunications (notamment les 

données des consommateurs) est le modèle publicitaire. 

Obstacles 

Si les fournisseurs de SCE et de SCL peuvent être en concurrence les uns avec les autres, ils 

possèdent différents atouts, historiques et actuels, et ne sont pas toujours soumis aux mêmes 

règles. À cause de ces différences, les fournisseurs de télécommunications sont susceptibles de ne 

pas avoir les mêmes opportunités de concurrence selon le développement de services et/ou de 

modèles commerciaux alternatifs.  

Les principales différences réglementaires pour les fournisseurs de SCE et de SCL sont: 

  Pour de nouveaux services avec un modèle de recettes classique: aucune différence 

réglementaire, mais une faible viabilité et perspective de génération de recettes; 

  Pour de nouveaux modèles de recettes pour les services existants: les fournisseurs de SCE 

sont confrontés à des restrictions juridiques sur l'utilisation des données utilisateur. 

20 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Il n'y a aucune relation entre l'ensemble de règles différent auquel sont soumis les fournisseurs 

de SCE et le manque de succès des services de type SCL fournis par les fournisseurs de SCE. 

L'absence de croissance dans un service SCL à l’échelle mondiale est plutôt causée par: (i) le fait 

que ces nouveaux services ne viennent pas compléter le portefeuille de services existant (mais 

plutôt le remplacer); et (ii) de nombreux services similaires existants qui reposent sur des modèles 

de recettes alternatifs qui n'impliquent pas de participation financière de la part des utilisateurs 

finaux: 

  Contrairement aux fournisseurs de SCL, les fournisseurs de SCE sont confrontés à des 

restrictions concernant l'utilisation des actifs clés (les données utilisateur) lorsqu'ils tentent 

de mettre en place un modèle de recettes publicitaire. Les règles concernant l'utilisation et le 

traitement des données personnelles (articles 5 et 6 de la directive relative à la vie privée et 

aux communications électroniques) et des données de localisation (article 9 de la directive 

relative à la vie privée et aux communications électroniques) sont plus strictes pour les 

fournisseurs de SCE que pour les fournisseurs de SCL. En outre, en vertu de l'article 13 de 

la directive relative à la vie privée et aux communications électroniques, l'envoi de 

communications marketing non sollicitées par appel automatisé, fax et courrier électronique (y 

compris des SMS) est soumis au consentement de l'utilisateur ou de l'abonné, mais cette règle 

ne s'applique pas aux messages envoyés via les plateformes SCL.  

La durabilité des modèles commerciaux sur l'Internet 

Pour que les modèles commerciaux sur l'Internet restent durables, les opérateurs doivent: 

  Rester novateurs; 

  Continuer d'ajuster le modèle commercial. 

Les modèles commerciaux numériques doivent innover en permanence dans toutes les 

dimensions possibles: nouvelles techniques, nouveaux produits, nouveaux modèles de recettes, 

nouveaux canaux de vente, nouveaux clients, etc. Cette quête d'innovation s'explique par la 

concurrence constante à laquelle est confronté le marché sur lequel les services sont fournis. 

Les ajustements des modèles commerciaux ne sont pas uniquement liés aux modèles de 

recettes, mais également aux autres dimensions (corrélées) du modèle commercial (par exemple, 

la manière dont les données sont utilisées et comment elles peuvent être traduites en valeur 

monétaire). Il convient de prendre également en compte le degré de concentration: d'un côté, il y 

a des forces concurrentielles qui orientent la concentration du marché, comme les effets de réseau 

et les économies de gamme. D'un autre côté, il existe des forces du marché qui atténuent ces 

effets, comme le multihoming et la simplicité d'entrée et de progression à travers les technologies 

du Cloud.  

L'impact de l'utilisation de services sur l'Internet sur les utilisateurs finaux 

Plusieurs intérêts des consommateurs sont en jeu lorsqu'ils utilisent les services sur l'Internet. 

Parmi eux, nous trouvons: 

1.  La liberté de choix et la prévention contre les effets de verrouillage technologique; 

2.  La qualité et l'accessibilité des prix;  

3.  La transparence;  

4.  La possibilité de communiquer avec tout le monde; 

5.  L'accès aux numéros d'urgence; et 

6.  La protection des données, la confidentialité et la sécurité. 

Ces intérêts des consommateurs peuvent être protégés par des forces du marché ou des 

dispositions juridiques. L'étude a analysé dans quelle mesure cela se produit. Un grand nombre 

Study on future trends and business models in communication services 

21 

 
 
 
 
 
 
 
 
 
 
 
des intérêts des consommateurs indiqués ci-dessus peuvent être analysés en parallèle, car ils sont 

corrélés (notamment les quatre premiers). 

La liberté de choix, la qualité et l'accessibilité des prix, la transparence et la communication avec 

les pairs 

Les utilisateurs finaux sont soumis à un verrouillage technologique s'il n'existe pas de 

services alternatifs disponibles ou si la transition vers ces services alternatifs implique des frais 

de recherche et de changement de fournisseur trop élevés. Des frais de changement de 

fournisseur élevés sont généralement associés à des effets de réseau: plus la base d'abonnés d'un 

réseau est grande, plus les bénéfices apportés par l'adhésion à ce réseau sont grands, ce qui 

explique les frais plus élevés pour quitter ce réseau. Un consommateur qui est soumis à un 

verrouillage technologique est confronté à une liberté de choix réduite et peut subir des prix 

(monétaires ou autres) élevés et une moins bonne qualité.  

Ces risques liés aux intérêts des consommateurs ont été atténués par un certain nombre de règles 

qui s'appliquent bien aux SCE, mais qui ne s'appliquent pas aux SCL de manière égale. Les 

fournisseurs de SCE font face à des obligations en lien avec: 

  La portabilité (des numéros);  

  L'interconnexion et l'interopérabilité; 

  Le contrôle des prix; 

  Le contrôle de la qualité; 

  Les droits contractuels.  

Les utilisateurs finaux ne bénéficient pas d'un niveau de protection juridique similaire lorsqu'ils 

utilisent les SCL. Cependant, l'économie numérique présente également une caractéristique 

importante qui atténue dans une certaine mesure le risque de verrouillage technologique: les 

utilisateurs finaux s'abonnent généralement à plusieurs fournisseurs à la fois (multihoming 

), 

ce qui peut réduire l'effet de verrouillage technologique dans la mesure où les partenaires de 

communication sont également présents sur le service alternatif. La réactivité des marchés 

numériques à l'hétérogénéité des consommateurs, associée à la possibilité pour les utilisateurs 

finaux de pratiquer le multihoming, peut permettre aux consommateurs de bénéficier d'une liberté 

de choix. 

Cette différence entre les SCE et les SCL peut signifier qu'il y a un besoin moins important de 

réglementation pour les SCL (ou différentes formes de réglementation) afin de préserver les 

intérêts particuliers des utilisateurs finaux dans le contexte des SCL. En outre, il peut s'avérer 

difficile, voire inutile, d'imposer certaines des obligations figurant dans la directive « service 

universel » aux fournisseurs de SCL. Une des principales exceptions concerne l'accès aux 

numéros d'urgence. 

L'accès aux numéros d'urgence 

En ce qui concerne l'accessibilité des services d'urgence, seuls les fournisseurs de SCE 

classiques ont l'obligation de fournir un accès aux numéros d'urgence dans la plupart des 

États membres.  

L'accès aux numéros d'urgence via les SCL représente un défi technologique, car il n'est pas 

toujours possible de garantir le bon acheminement de l'appel ou d'obtenir des informations sur 

l'emplacement de l'appelant. De plus, il est possible qu'il n'y ait aucune fonctionnalité de rappel si la 

communication est coupée. L'obligation d'accès aux services d'urgence doit s'appliquer aux SCL au 

vu des scénarios futurs envisagés selon lesquels les utilisateurs abandonneront totalement les 

SCE, achetant uniquement des services de connectivité et utilisant les SCL pour tous leurs besoins 

22 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
en matière de communication. Plus particulièrement, lorsque les SCL donnent accès au RTCP, et 

donc aux numéros E164, l'accès aux services d'urgence doit être garanti s'il est possible de mettre 

en place des modèles d'acheminement fiables. 

Confidentialité, protection des données et sécurité des données 

En raison de la nature technologique complexe des modèles commerciaux numériques, les 

marchés numériques ne sont pas transparents et nous ne sommes pas toujours conscients des 

risques que nous courons en ce qui concerne la confidentialité et la sécurité ou nous n'écartons 

pas correctement ces risques, ce qui empêche de faire des choix rationnels. En outre, les 

utilisateurs de SCL ne bénéficient pas de protections juridiques équivalentes à celles des 

utilisateurs des SCE en ce qui concerne la confidentialité et la protection des données. Si les 

fournisseurs de SCL et de SCE sont tous deux soumis aux règles de protection des données 

horizontales figurant dans la directive sur la protection des données actuelle et dans le futur 

règlement général sur la protection des données, la directive relative à la vie privée et aux 

communications électroniques impose des obligations supplémentaires aux fournisseurs de SCE 

auxquelles les fournisseurs de SCL ne sont pas soumis. Ces règles auxquelles doivent se 

soumettre les fournisseurs de SCE (mais non de SCL) concernent: 

  La confidentialité des communications; 

  Le traitement des données de trafic; 

  La nécessité d'obtenir le consentement des utilisateurs pour traiter les données de localisation; 

  Les règles spécifiques relatives aux communications non sollicitées à des fins de marketing (qui 

ne s'appliquent pas aux messages envoyés via les plateformes SCL).  

Cette asymétrie de la protection juridique semble difficile à justifier, car les utilisateurs sont 

aujourd'hui confrontés à la lecture, à l'enregistrement et au traitement de données personnelles, y 

compris des données de trafic et de localisation, non seulement dans le contexte des SCE, mais 

également (et sans doute encore plus) dans le contexte des SCL. Les risques liés à la 

confidentialité peuvent, par conséquent, être les mêmes avec les SCE et les SCL, ce qui demande 

une protection similaire des droits des utilisateurs finaux. 

Study on future trends and business models in communication services 

23 

 
 
 
 
 
 
 
 
 
 
1 

Introduction 

1.1  Objectives of and reasons for the study 

European citizens have become increasingly accustomed to using the internet for communication 

services next to or instead of traditional telecommunication services. This raises the question 

whether and to what degree end-users regard online communication services as a substitute for 

traditional telecom services and, as a consequence, whether and to what extent telecom operators 

experience competitive pressures from internet-based communication service providers. When the 

latter is the case, the question becomes relevant to what extent these services are subjected to 

similar rules. This question is relevant in relation to safeguarding a level playing field as well as in 

safeguarding end-user rights. 

In order to answer these questions, this report provides an assessment of substitutability from an 

end-user's perspective as well as an assessment of consequences of different rules applicable to 

similar services and services used for similar purposes on: (a) the protection of end-users; and (b) 

the conditions of competition between these similar services. More specifically, the study covers the 

following: 

7.  An analysis of the legal and technological distinctions between telecommunications services 

provision and internet-based communications services provision;  

8.  A description and analysis of the current market situation in the EU with regard to the presence 

of internet-based communication services and an assessment of the degree of substitutability 

between traditional telecom services and internet-based communication services;  

9.  A comparison of the market situation in the EU with that in relevant third countries and an 

assessment of the related reactions of regulators in these countries to the emergence of 

internet-based communication services; 

10. An analysis of the impact of the rise of internet based communication services on telecom 

operator KPIs, including revenue, costs, profits, and investment; 

11. An assessment of the impact on end-users of using internet-based services in terms of: data 

protection; portability; contractual rights; transparency of the service provision; quality of the 

service; prices; and costs; 

12. An analysis of barriers telecom providers face in the competition with the internet-based 

communication services and an analysis whether all competitors face the same barriers or 

telecom providers face additional barriers to entry; 

13. An assessment of the strategic response by telecom providers to the new challenges resulting 

from the application of internet-based business models; and 

14. An assessment of the sustainability of internet based business models within the scope of the 

next five years; taking account of potential disruptive technologies or changing user behaviour 

as well as the possible limitations of the business models and strategies applied.  

1.2 

Introducing terminology: ECS, OTT and OCS 

In this study, we use the term Electronic Communication Service (ECS), which is the legal term 

embedded in the Framework Directive (Art. 2(c)), defining the service and thereby the scope of the 

Regulatory Framework. Practically all telecom services, such as voice telephony (fixed and mobile), 

SMS, Internet Access, etc., qualify as an ECS, because telecom service providers are able to 

control and hence bear responsibility for the conveyance of the related signals. When the signals 

Study on future trends and business models in communication services 

25 

 
 
 
 
 
 
 
 
are transmitted over so-called managed parts of access networks, telecom operators have a range 

of possibilities to manage the quality of the communication services provided. 

Another term used is Over-The-Top (OTT) services, which are services that are provided over the 

internet. These include social media, instant messaging, video-on-demand, e-commerce, music 

streaming, etc. Whether or not a particular OTT service qualifies as an ECS is not always 

straightforward, as OTT service providers are not always able to control the conveyance of signals. 

Notably, when the signal travels over access networks, online service providers and end-users 

have to rely on ‘best effort’ for the quality of the communication service. This means that end-users 

and suppliers obtain a variable bit rate and delivery time, depending on the current traffic load. This 

does not imply that OTT providers have no means to control the conveyance of signals and thereby 

to manage the quality of their services. Many OTT providers have extensive infrastructure, with 

servers in many countries, forming a core network to carry their own traffic (Content Distribution 

Network – CDN). Also, OTT providers have client software on client terminals (smartphones, 

tablets, PCs, etc.) that allows them to manage the service quality. Moreover, an increasing number 

of (access) networks have more than enough bandwidth to provide high quality service levels, 

despite the fact that the signals are subjected to a best-effort regime when originating and 

terminating on these access networks.  

The BEREC Report on OTT services (January 2016)1 distinguishes between OTT-0, OTT-1, and 
OTT-2 services. OTT-0 and OTT-1 refer to OTT services that compete with traditional telecom 

services. The difference between OTT-0 and OTT-1 is that the first is be classified as an ECS and 

the latter is not (depending on the interpretation of Art 2(c) Framework Directive). OTT-2 refers to 

OTT services that do not compete with ECS. 

In this study we introduce the term OCS, denoting Online Communication Service. OCS refers to 

OTT services that primarily facilitate communication between two or more persons. For example, 

OCS refers to email, messenger apps (such as WhatsApp), online voice communication apps (such 

as Skype), etc. OCS does not refer to e-commerce services, online video streaming services, 

search engines, online market places, etc. There is an analogy with the typology of BEREC, 

whereby OTT-0 and OTT-1 can be seen as a further sub-division of OCS. However, this assumes 

that all OCS compete with traditional telecom services, which cannot be assumed beforehand. A 

first step in the study is to analyse this issue.  

1.2.1  A technological distinction between telecom and online communication services 

There are a number of core differences between telecom services and OCS. Table 1.1 presents 

these differences using a three-layer model, developed by TNO for the purpose of this study. 

The first layer is the service layer. This refers to the actual services offered to end users. The 

middle layer is called the ecosystem layer. This layer describes how the end-users of the network 

are able to identify and interconnect using the network. The third layer, the infrastructure layer, 

refers to the infrastructure that is used by the providers to offer their services. 

Table 1.1 An overview of the service, ecosystem and infrastructure layer for both telecom services and 

OCS  

Telecom services  

Online communication services 

Service layer 

  Telephony, fixed and mobile; 

  Voice & video communication 

“services usable by end 

  SMS. 

services, e.g. Skype, FaceTime, 

1  

BoR (16) 35. 

26 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
users” 

Telecom services  

Online communication services 

Google Hangouts, etc.; 

  Messaging, e.g. WhatsApp, iMessage, 

Twitter, etc.; 

  Social media services, e.g. Facebook, 

LinkedIn. 

Ecosystem layer 

  E.164 numbering plan; 

  Social graph, i.e. connections between 

“supporting session layer 

 

Interconnection agreements; 

users on a platform; 

to provide inter-user 

  Number portability. 

  Contact-lists of users, shareable 

connectivity” 

between services. 

Infrastructure layer 

  Fixed and mobile network 

  Cloud infrastructure, incl. both storage 

“basic building blocks 

infrastructure; 

and processing; 

such as connectivity, 

  Data (IP) network infrastructure. 

  CDN infrastructure; 

storage, processing” 

Source: Developed by TNO for the purpose of his study. 

  Core network infrastructure; 

  Public Internet access. 

Telecom service providers offer a mix (or bundle) of services consisting of internet access 

services, content services such as IPTV services, and communication services. These 

communication services range from voice communication (i.e. telephony) to various forms of text 

communication (SMS and MMS) and possibly video communications. All these services come with 

various value added or add-on services such as voicemail, call forwarding, etc. The main element 

of the telecom services ecosystem is the interconnection between the various telecom service 

providers that is based on the telephone numbering system (the E.164 numbering plan) and the 

interoperability of the services. Interoperability and interconnection enable users of various telecom 

providers to reach each other. Finally, many telecom providers own infrastructure, including the 

access network that is used for delivering the service (other telecom providers rent the 

infrastructure or partly outsource the operating of the network). One specific technological 

difference between OCS and traditional telecom services is the greater ability of the latter to control 

and manage the conveyance of electronic signals passing through the physical network. 

Among OCS a similar mix of communication services can be observed: voice, text and video based 

communication services, both synchronous (and real-time) and asynchronous. In addition, the 

service portfolio for communication is extended with various other possibilities, such as one-to-

many and many-to-many types of communication, as well as file sharing (profiles, photos, and 

videos) and even sharing of environments (such as gaming, office collaboration, content viewing, 

etc.). All these services are offered to groups of users who choose to subscribe to a specific social 

network (or ecosystem). OCS ecosystems are typically owned by a single entity and there is 

generally no interconnection or interoperability between different OCS ecosystems. As such one 

cannot send a message from WhatsApp to Google Hangouts or send an email to a Facebook 

Messenger account. This is not written in stone. 

For example, the e-mail ecosystem is not owned by a single entity2, and (smaller) OCS networks 
may engage in interoperability agreements in order to boost network effects3. But (so far) the major 
OCS platforms, that have realised a large scale, keep the ecosystems closed. The study identified 

some large OCS providers offering an interface to the social graph of their users, i.e. to the users 

profile and connections to other users. This allows third-parties to offer additional services on top of 

2  

3  

The email system is more like a public good (such as the Internet) owned by no-one enabled by many and governed by 
interconnection or interoperability standards.  
See https://sameroom.io/blog/announcing-support-for-google-hangouts/. 

Study on future trends and business models in communication services 

27 

 
 
 
 
 
 
 
 
 
                                                           
the ecosystem of the (large) OCS provider. OCS providers arrange for (own/lease/rent/etc.) the 

required core infrastructure, but rely on OCS users to arrange for their own Internet access.  

1.2.2  The legal distinction between ECS and OCS 

As observed above, ECS is a legal term contained in the Framework Directive (Art. 2(c)) defining 

the scope of the Regulatory Framework. Under the interpretation offered by the European Court of 

Justice, ECS covers communication services of providers that bear the responsibility for the 
conveyance of signals over the underlying electronic communication network vis-à-vis end-users.4 
Being responsible implies that the service provider must have a certain degree of control over the 

conveyance of signals, however, the Framework Directive does not indicate how much control is 

required. 

Telecom service providers collectively provide the end-to-end connectivity through their networks 

and are therefore considered to have full control over the conveyance of signals and are also 

considered responsible. Their services qualify as an ECS. OCS providers cannot fully control the 

signal when it is carried over the ‘best-effort’ access network. OCS providers can to certain degree 

control the conveyance of their signals with a combination of CDN servers and client software on 

client terminals. But the actual degree of control depends on the degree of congestion in the ‘best 

effort’ access networks. As such, OCS providers cannot (always) be held responsible for the 

conveyance of signals. 

The definition of ECS as provided by the Regulatory Framework leaves room for interpretation as to 

how much control a service provider should have in order to be held responsible. This room for 

interpretation is also reflected in BEREC’s typology of OTT services, whereby BEREC distinguishes 

between OTT services that (may) compete with traditional telecom services (OTT-0 and OTT-1) 

and those that do not compete (OTT-2). The difference between OTT-0 and OTT-1 is that the 

former can be classified as an ECS and the latter cannot. However, BEREC is not conclusive on 

when an OTT service can be classified as an ECS. 

BEREC indicates that an OTT service may qualify as an ECS service if it interconnects using the 

numbering plan. This example is based on an interpretation of the term ECS that has evolved from 

the ERG guidelines relating to VoIP. These guidelines use the telephone numbering plan as a way 

to distinguish between ECS and OCS: services providing interconnection using the global 

telephony numbering plan are part of the ECS, whereas services that do not use it, are not qualified 

as ECS.  

The application of the ECS definition is complicated when analysing whether OCS providers are 

actually entering the ECS domain. OCS providers do control the conveyance of signals when they 

carry the signals over their own CDN networks. However, it is not clear whether OCS providers can 

be held responsible for the conveyance of signals when these are carried over the ‘best effort’ 

access networks owned by other providers. The current practice of most NRAs is that OCS 

providers are not held responsible and online communication services fall outside the scope of the 

regulatory framework. Within this line of reasoning it appears that for OCS to be qualified as ECS, 

the OCS provider will have to become a network operator or otherwise interconnect with the 

managed section of existing access networks. The interconnection with the managed section can 

partly be made by interconnecting using the numbering regime. A call from an OCS app to a 

person’s telephone number carries the signal over the managed termination section of an ECS 

network. However, this still does not realise a managed end-to-end connection because that would 

require the signal to originate from a managed access connection as well. It follows that, when 

4  

Case C-475/12, UPC v. Nemzeti Média, judgment of 30 April 2014, par. 43. 

28 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
applying the current interpretation of the legal ECS definition strictly, OCS providers can only enter 

the ECS domain if they become a network operator. Under the interpretation provided by the ERG 

guidelines, an OCS enters into the ECS domain when it interconnects using the numbering regime, 

whether or not the signal is managed from end-to-end. This definition is, however, merely a 

guideline and need not to be applied by NRAs. 

In a judgment of 11 November 2015, the German Administrative Court of Cologne adopted a broad 

interpretation of the conveyance of signals criterion. The case involved a dispute between Google 

and the Bundesnetzagentur which had required Google to notify its web-based email service Gmail 

as a telecommunication service under the German Telecommunication Act. The Administrative 

Court of Cologne followed the view of the Bundesnetzagentur and qualified Gmail as a 

telecommunication service under German law. The Court argued that even though Google does not 

convey the signals between the servers involved in email delivery over the open Internet, the 
transmission of these signals is still attributable to Google.5 In this regard, the German Court 
referred to the judgment of the European Court of Justice in UPC v. Nemzeti Média in which the 

latter made clear that the relevant criterion for classifying a service as an ECS is whether the 
provider of the service is responsible for the transmission of signals vis-à-vis end-users.6 The 
Administrative Court of Cologne argued that the term ‘responsibility’ used by the European Court of 

Justice should be understood in such a way that a company offering a communication service has 

to be held responsible for the transmission of signals by a third party if this transmission takes place 

for the purpose of enabling that company to provide its communication service to customers. When 

applying this reasoning to the factual circumstances of the case, the German Court attached 

importance to the fact that the transmission of signals was initiated by Gmail users by hitting the 
‘send’ button and was facilitated by Google’s email servers.7  

Even though the judgment only relates to the German Telecommunication Act, it may have a wider 

impact considering that the German definition of a telecommunication service is based on the 

harmonized definition of ECS in the EU regulatory framework for electronic communications. Under 

the broad interpretation of ECS put forward by the German Court, many other online 

communication services can be considered to fall within the scope of the EU regulatory framework. 

However, it remains to be seen whether this interpretation will be upheld by higher German Courts 

on appeal. 

1.3  Scope of the study 

The study aims to describe a general picture of the situation in the European Union with respect to 

the impact of OCS on end-users as well as on the business models (including revenues and profits) 

of telecom operators. The study recognises that there may be a degree of heterogeneity among 

Member States with respect to this impact. However it falls outside of the scope of this study to 

individually analyse each of the EU28 Member States. Therefore, the study focusses on a selection 

of Member States that is representative for the heterogeneity in Europe and thereby allows for 

drawing general conclusions for the EU as a whole. The selection of Member States is described 

below. 

Because of the focus on OCS, the study analyses trends and developments during the period 2005 

- 2015. This is the period during which OCS achieved a critical mass. In order to understand the 

5  

6  

7  

Administrative Court of Cologne, 11 November 2015, case 21 K 450/15, par. 54, available at 
http://www.justiz.nrw.de/nrwe/ovgs/vg_koeln/j2015/21_K_450_15_Urteil_20151111.html. 
Case C-475/12, UPC v. Nemzeti Média, judgment of 30 April 2014, par. 43 as quoted in Administrative Court of Cologne, 
11 November 2015, case 21 K 450/15, par. 55-56. 
Administrative Court of Cologne, 11 November 2015, case 21 K 450/15, par. 59-61. 

Study on future trends and business models in communication services 

29 

 
 
 
 
 
 
 
 
 
 
                                                           
reactions by and the impact on telecom operators, the study will analyse previous periods for 

particular topics when required (e.g. for understanding pricing strategies).  

With the focus on the relation between OCS and traditional telecom services, the study is limited to 

analysing services that relate to voice and text based communication. As such, the role of 

broadcasting, Video on Demand, Cloud computing, etc. is not covered in this study.  

Country coverage 

This report analysis the developments in a selection of 7 Member States. The selection is made to 

support the following two objectives: (1) the analysis should allow for drawing conclusions for the 

EU as a whole; and (2) The analysis should allow for drawing conclusions on a forward looking 

basis. 

To meet the first objective we based the selection of Member States on the following criteria: 

  Large vs Small; 

  East vs West; 

  North vs South. 

To meet the second objective we based the selection of the Member States on the percentage of 

the population that used the Internet on a daily basis.  

This resulted in the following selection of Member States: 

Member State 

Size 

Geo 

% of population making daily use of the Internet 

DE (Germany) 

EE (Estonia) 

ES (Spain) 

FI (Finland)  

FR (France)  

PL (Poland) 

Large 

Small 

Large 

Small 

Large 

Large 

Middle / West 

North / East 

South / West 

North / West 

South / West 

Middle / East 

UK (United Kingdom) 
* Source = Digital Agenda Scoreboard8 (note EU average = 67%). 

Middle / West 

Large 

* 

75 

77 

64 

85 

68 

52 

83 

Furthermore, the study provides a comparison with the developments in non-EU countries from 

different parts of the world. These countries are: South Korea, Japan, Brazil, and the United States.  

1.4  Activities undertaken  

For this study we collected market data, organised a survey among 1750 end-users, interviewed 

several stakeholders, and organised a stakeholder workshop. Below we briefly elaborate on these 

activities. 

Market data collection 

We collected market data describing the developments in the communications market. For each of 

the respective Member States and non-EU countries, data on volumes of use of telecom services 

8  

http://digital-agenda-data.eu/charts/analyse-one-indicator-and-compare-countries#chart={"indicator-group":"internet-
usage","indicator":"i_iday","breakdown":"IND_TOTAL","unit-measure":"pc_ind","ref-
area":["EE","EU27","FI","FR","DE","PL","ES","UK"]}. 

30 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
(fixed and mobile), on relevant KPIs of telecom operators (revenues, costs profits and investments), 

as well as on the popularity and intensity of use of OCS was collected. 

Sources 

The data was provided by Gartner. Gartner's market statistics methodology combines primary 

sources (Gartner end-user surveys) and secondary sources to verify market size and spending 

information. Each quarter Gartner researches several hundred telecom providers to supplement its 

statistical data base. De facto, Gartner researches all major participants in the mobile 

communications services market in the following regions: Africa, Asia/Pacific, Latin America, North 

America, Eastern Europe, Western Europe, Japan and the Middle East.  

The secondary data sources feeding into Gartner’s database include, but are not limited to: 

  Governments, regulators and trade associations; 

  Relevant economic and demographic data; 

  Relevant news articles; 

  Published company financial reports; 

  Reports from financial analysts; 

  Third-party consumer surveys. 

Additional data was gathered specifically for this study. The following sources were used: 

  Eurostat; 

  Eurobarometer; 

  European Commission Digital Agenda Scoreboard; 

  Statista; 

 

Industry associations (GSMA, ETNO, ECTA); 

  Third-party publications (by academics, market research organisations, and public websites). 

Challenges  

There were two challenges regarding the data collection for the purpose of this study. First the data 

gathering exercise was challenging because there appeared to be a discrepancy between the data 

required for the analysis and the way the data is reported by the various sources. In this particular 

study, it was a challenge to separate reported revenue figures into different revenue streams (such 

as fixed, mobile, subscription, traffic and data). Another challenge was to produce forecasts in a 

dynamic setting, such as today’s communication markets. Annex IX presents a brief overview of 

Gartner’s methodology in dealing with these challenges. 

Survey among end-users 

The purpose of the survey among end-users was to obtain a better understanding of the degree to 

which end-users (consumers and businesses) perceive OCS as a substitute for telecom services. 

The particular emphasis applied in the survey was the ‘willingness to switch’ and the ‘ability to 

switch’ from ECS to OTT services. We distributed an online questionnaire to end-users to retrieve 

data on usage of telecom services and OCS. The questions covered by the survey are included as 

Annex II to this report. 

The survey involved 1750 end-users, evenly distributed over the seven Member States selected for 

this study (250 users per country). The sampling strategy took into account the main characteristics 

of the target populations. It was aimed at determining the main drivers for the use of and the choice 

between OCS and telecom services.  

The influence of age on OCS usage can directly be observed from the Eurostat data: the use of 

OCS is skewed towards younger generations. Our sample is purposefully biased towards the 

Study on future trends and business models in communication services 

31 

 
 
 
 
 
 
 
 
 
 
 
 
younger generations. While the results may not be representative for the current population as a 

whole, the results are more likely to be representative of future population because the behaviour of 

today’s teenagers is indicative for the behaviour of tomorrow’s young adults.  

The total sample size of 1750 respondents is more than sufficient to provide statistically significant 

results at the European level. On Member State level, the samples size of 250 respondents offers a 
fair level of statistical significance9.  

As a bias in age exists in the composition of the respondents compared to the total population, this 

means that the survey results slightly over-estimate the current use of OCS. On the other hand, the 

over-representation of younger respondents means that the survey results provide a better 

estimation of the expected future use of OCS. In fact, Annex I shows that the representativeness of 

the current sample for the population in the dimension of age increases considerably in the next 5 

to 10 years as people grow older: by 2025 the current sample is representative for the total 

population. 

Interviews with stakeholders 

Interviews with stakeholders and experts were conducted for multiple purposes. First of all, to 

complete the overview of regulation in the seven selected Member States. This overview assisted 

in identifying the regulated services in those Member States and provided insight into the rules to 

which ECS services are subjected. Secondly, the interviews were used to identify exogenous 

events, including policy and regulatory initiatives that took place in the Member States in the period 

considered. These events may have influenced the conditions in the market and thus should be 

taken into account when analysing firm performance. Finally, we used the interviews to obtain the 

NRAs’ assessment of the impact of these exogenous events on market and firm performance. 

In total, 20 interviews were conducted with telecom operators, industry organisations, OCS 

providers, NRA’s and industry experts. The list of interviewees is included in Annex V. 

Stakeholder workshop 

The aim of the stakeholder workshop was to inform stakeholders and experts about the preliminary 

findings of the study and to validate these findings. In addition, we collected stakeholders’ and 

experts’ views on current and future developments in the area of the study. 

The workshop included a plenary session used for the presentation and validation of the draft 

findings of the study; and interactive group sessions to discuss the research teams’ assessment on 

specific research questions. 

The workshop was attended by a wide range of stakeholders. In total, 37 persons attended the 

workshop, including representatives of the European Commission and representatives of the 

project team. The program of the workshop and the list of participants at the workshop is presented 

in Annex VI. 

1.5  The structure of the report 

Following the introductory chapter, Chapter 2 describes the trends in the usage and marketing of 

communication services. The chapter provides a description of the current market situation in the 

9  

The sample size of 250 respondents is just slightly below the 267 respondents required for a 90% confidence at 5% 
margin of error.  

32 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
EU with regard to the presence of internet based communication services and assesses the degree 

of substitutability between traditional telecom services and internet-based communication services.  

Chapter 3 describes the trends in key performance indicators (KPIs) of the telecom operators, such 

as revenues, costs, profits and investments. Next, the chapter provides an analysis of what has 

been the impact of the rising popularity of OCS on these KPIs. This analysis is based on a 

regression analysis and economic modelling. 

Chapter 4 describes the regulatory playing field. It analyses to what extent ECS providers and OCS 

providers are subject to different sets of rules. The chapter also compares the EU with jurisdictions 

outside the EU. 

Chapter 5 provides an in-depth analysis of the telecom and OCS business models in terms of 

assets and revenue models. It analyses what assets are needed for applying particular revenue 

models and to what extent current regulation may affect this relationship or even hinder access to 

necessary assets. 

Chapter 6 analyses how end-users are affected by using internet-based services in terms of: data 

protection; portability; contractual rights; transparency of the service provision; prices; costs; and 

quality of the service.  

Study on future trends and business models in communication services 

33 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
2  Trends in usage and pricing of 

communication services 

This chapter describes and analyses the trends in the marketing and usage of communication 

services. The chapter provides a description of the current market situation in the EU with regard to 

the presence of internet-based communication services and assesses the degree of substitutability 

between traditional telecom services and internet-based communication services.  

A substitutability analysis is typically based on an analysis of relative prices and volumes of two 

products or services. If the relative price of the two services changes with x% and this causes a 

significant change of y% in the relative usage of the services, the respective services are 

considered substitutes. The ability to perform such an empirical analysis depends on the availability 

and quality of information. Data on prices may not be available (or be of low quality), possibly as a 

result of services typically being marketed in a package with other services. Next to data availability 

issues, there are also some methodological limitations, which become relevant when products are 

offered for free (because then it is impossible to analyse relative prices or percentage changes). 

Because today’s telecom services are typically sold in bundles of services and because online 

communication services (and increasingly also telecom services) are offered for a (marginal) price 

of zero an empirical substitution analysis based on prices and volumes will not be possible. Hence, 

we have complemented the analysis of market data with a targeted analysis of the consumer 

perspective on substitution. This analysis is based on the survey among end-users in the seven 

Member States. The survey provides the inputs necessary for analysing whether consumers regard 

OCS a substitute for telecom services. 

2.1  Communication needs and services 

A typology of communication needs, services and platforms 

There are many different forms of communication needs that can be fulfilled by a variety of 

communication services. A first distinction is whether or not there is a need for instantaneous or 

synchronous social interactions; sometimes it is enough to ‘leave a message’. A second distinction 

is whether or not there is a need for non-verbal interactions. The need for non-verbal interactions 

generally increases with the complexity of the conversation either in an abstract or emotional 
sense10. When considering the services that can fulfil these needs, there is a certain degree of 
overlap: as complexity of a message increases, synchronous voice- and vision-based 

communication services become more efficient than (asynchronous) text-based communication 
services11 12. A third dimension in which one can differentiate the various forms of communication is 
the difference between one-to-one, one-to-many, and many-to-many forms of communication.  

10   See:  A Feenberg (1987) “Computer conferencing and the Humanities“, Instructional Science 16: 169-186 (1987) Martinus 

Nijhoff Publishers (Kluwer), Dordrecht. 
A Feenberg (1989)” The Written World: On the theory and practice of computer conferencing”, Chapter 2 in n R. Mason & 
A. Kaye (Eds.) (1989) Mindweave: communication, computers and distance education. Oxford: Pergamon Press, pp. 22-
39. 
Manabu Ueda, (1998) "Toward Dialogue Documents as Creative Conversational Tools," Working Paper Series 206, MIT 
Center for Coordination Science. 
Doris U. Bolliger (2009), "Use patterns of visual cues in computer-mediated communication" Quarterly Review of Distance 
Education: Volume 10, No. 2, pp 95-108. 

11   See references in footnote 10. 
12   On the other hand, when a conversation is complex in a legal sense, the preference for voice and text based forms of 

communication may be different. 

Study on future trends and business models in communication services 

35 

 
 
 
 
 
 
 
 
 
                                                           
Researchers have tried to capture these differences in a taxonomy of different communication 
needs and services. For example Helles et al (2015)13 have developed the following taxonomy: 

Table 2.1 Taxonomy of needs and services 

Asynchronous 

Synchronous 

One-to-one 

One-to-many 

E-mail, text messages 

Voice calls, instant messaging 

Audio and video recording, Web 

Broadcast radio and television 

Many-to-many 

Web 2.0/wiki, blog, social media  

teleconferencing 

1.0/webpage, download, Twitter  

Communication platforms and social networks 

Classifications as the one by Helles help to understand the differences between communication 

needs of end-users and the functionalities that communication services should provide to fulfil these 

needs. Such classifications provide a starting point for the analysis of substitutability of 

communication services. However, they should not be seen as a static representation of reality. A 

reality in which there are many different communication services, each being used for fulfilling one 

specific need. Moreover, the digital economy is far from static and over time services/platforms are 

merging and stacking as a consequence of innovations, leading to hybrid communication portals or 

platforms that offer multiple functionalities in order to fulfil diverse needs.  

The prime purpose of these many different communication platforms is to fulfil the general need for 

‘social interaction (i.e. communication) with peers in groups of friends, family, colleagues, 

neighbours, etc. Such groups are also being referred to as social networks, but also the platforms 
that facilitate the social interactions are referred to as a social network14 15. However, the term 
social network should not be confused with social media. Social media is a particular 

communication service fulfilling particular asynchronous many-to-many communication needs of 

people within a social network.  

In order to assure that people communicate using a particular network (and not another network), 

service providers constantly innovate in order to supply an integrated package of communication 
services, such as social media, instant messaging, voice services, file sharing, etc.16. The more 
communication needs can be fulfilled, the more attractive it is to join a particular social network. 

Moreover, the more people make use of the social network for fulfilling their communication needs, 

the more attractive it is to join that social network. In other words, the ability to fulfil different 

communication needs drives network effects which enable social networks to grow. 

13   Rasmus  Helles,  Jacob  Ørmen,  Casper  Radil,  Klaus  Bruhn  Jensen,  The  media  landscape  of  European  audiences, 

International Journal of Communication, ed. 9 (2015), pp 299-320. 
http://www.oxforddictionaries.com/definition/english/social-network. 

14  
15   As such, the traditional telephony network can also be seen as a social network. The telephony network comprises of 

multiple networks that are interconnected and interoperable on the basis of the numbering plan. 

16   For example, in 2003 people used chat websites, email and SMS for one-to-one online text communication; weblogs were 
typically used for one-to-many communication; and social media websites became popular for many-to-many forms of 
communications. Today, social media platforms like Facebook have integrated all these functions (and are constantly 
adding more) into a single portal, aiming to become the end-user’s starting point for accessing the Internet. Instant 
messaging apps are following a similar strategy. WeChat is used in China to stay connected with friends via text 
messages and voice calls, but also allows for posting photos, play games, pay bills, order food, transfer money, hire 
taxies, etc. KIK is a Canadian communication platform that has copied the business model of WeChat. Tencent, the maker 
of WeChat, has invested in KIK in order to export WeChat’s business model to the North American and European Market 
(http://fortune.com/2015/08/18/kik-funding-tencent/). 
Also the telephony platform developed over time, allowing it to be used for fulfilling a growing number of communication 
needs. At first, the telephony network provided the possibility for one-to-one synchronous voice communication and later 
asynchronous text communication trough fax machines. The penetration of fax machines among the members of the 
network was not high, hence people tended to use the network primarily for synchronous voice communication. Following 
the introduction of mobile, the invention of SMS made the network much more attractive for one-to-one (a)synchronous 
text communication. Moreover, the introduction of answering machines and voicemail allowed the network to be used for 
asynchronous voice communication, and the telecom operators developed technological solutions for setting up 
conference calls (i.e. many-to-many voice communication). 

36 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
2.2  The use of communication services in figures  

2.2.1  The use of OCS  

In this section, we observe the following trends in the use of telecom services: 

 

the popularity of early OCS (like Skype, Facebook, LinkedIn and Twitter) was growing 

throughout the 2000s and the introduction of instant messaging apps (around 2010 + 1 year) 

marked a second growth wave in the number of subscribers to OCS;  

 

the volume of OCS messages sent per persons grew exponentially to levels equal to 10-times 

the volumes of SMS messages sent. 

Current usage in the seven Member States 

The internet has led to the development of alternative communication networks that can fulfil similar 

communication needs (and sometimes even more needs) at lower costs, compared to the classical 

telephone services. Over time, more and more social network and other communication initiatives 

surfaced. While there is a large variety of social networks, there are only a few (very) large ones 

(see Figure 2.1).  

Figure 2.1 The % of respondents making use of social networks (2015) 

49%  49%  48% 

80%

75% 

60%

40%

20%

0%

23% 

15%  15%  12% 

7% 

7% 

3% 

3% 

3% 

Source: Survey among 1750 end-users in 7 Member States; weighted average. 

The most popular networks are Facebook, Skype, Facebook Messenger (FBM), and WhatsApp. 

Less popular are Twitter, Google+, Instagram and LinkedIn, and there is a long tail of networks with 

a relatively small user base (<10%). 

There is a significant number of people who ‘multi-home’; i.e. they simultaneously use more than 

one online social network (see Figure 2.2).  

Study on future trends and business models in communication services 

37 

 
 
 
 
 
 
 
 
 
 
 
Figure 2.2 The % of respondents using multiple online social networks  

Multi-homing 
% of people using multiple online social networks 

54% 

52% 

51% 

50% 

41% 

38% 

38% 

60%

50%

40%

30%

20%

10%

0%

16% 

12% 

16% 

14% 

10% 

11% 

7% 

2008

2015

Spain

Estonia

Finland

Germany

Poland

UK

France

Source: Ecorys Survey. 

The size/popularity of the networks differ from country to country (see Figure 2.3 and Figure 2.4 

below). Notably the popularity of WhatsApp differs: it is highly popular in Finland, Spain, and 

Germany; somewhat less popular in the UK, while it is far less popular In France, Poland and 

Estonia. 

Figure 2.3 The % of respondents making use of messenger/voice apps (by Member State in 2015) 

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

FBM

Skype WhatsApp  Hangouts

Viber

Telegram

Line

BBM

Other

Finland

France

Poland

Estonia

Spain

UK

Germany

Source: Ecorys Survey. 

38 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
Figure 2.4 The % of respondents making use of social media platforms (per Member State in 2015) 

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

FB

Twitter

G+

Instagram

Linkedin

Finland

France

Poland

Estonia

Spain

UK

Germany

Source: Ecorys Survey. 

Development of OCS usage over time 

From Table 2.2, we note that the bulk of the social networks (9 out of 14) were introduced around 

the year 2010 (+ 1 year), while two of the largest social networks (Skype and Facebook) were 

launched before that date, respectively in 2003 and 2004.  

Table 2.2 Launch dates of social networks  

Type of service 

Active users 

Date launched**** 

(% of pop)* 

Name 

Skype  

Instant Message / Voice calls 

WhatsApp  

Instant Message / Voice calls 

Facebook Messenger 

Instant Message / Voice calls 

Google Hangouts 

Instant Message / Voice calls 

Viber 

LINE 

Instant Message / Voice calls 

Instant Message / Voice calls 

Snapchat 

Instant Message / Voice calls 

BlackBerry Messenger 

Instant Message / Voice calls 

Facebook  

Google+ 

Twitter 

Instagram 

Pinterest 

LinkedIn 

Social Media 

Social Media 

Social Media 

Social Media 

Social Media 

Social Media 

49% 

48% 

49% 

7% 

7% 

3% 

1.5% 

2% 

75% 

15% 

23% 

15% 

1.5% 

12% 

2003 

2009** 

2011 

2013*** 

2010 

2011 

2011 

2007 

2004 

2011 

2006 

2010 

2010 

2003 

*  
** 

*** 

**** 

% of the respondents to the survey indicating that they made use of the social network in 2015 (see also Figure 2.1). 
WhatsApp was introduced for Apple iPhone in 2009, a BETA release for Android in 2010, fully stable operational 
since 2011. 
In 2013 Google merged its previously separated communication apps into a single app ‘Hangouts’. These previous 
apps were ‘Google talk’ (introduced in 2005) and Google’s social media and messenger platform Google+ 
(introduced in 2011).  
Sources for launch dates: 
http://www.allaboutphones.nl/blogs/26961/whatsapp-zette-telecomwereld-op-zijn-kop.html. 
https://www.facebook.com/notes/facebook/a-faster-way-to-message-on-mobile/10150249543542131. 
https://www.google.com/about/company/history/. 
https://www.linkedin.com/company/viber-media-inc-?trk=company_logo. 
https://www.linkedin.com/company/line-?trk=company_logo. 
http://www.forbes.com/sites/jjcolao/2012/11/27/snapchat-the-biggest-no-revenue-mobile-app-since-instagram. 
http://www.blackberry.com/select/get_the_facts/pdfs/rim/rim_history.pdf. 

Study on future trends and business models in communication services 

39 

 
 
 
 
 
 
 
https://about.twitter.com/company/press/milestones. 
https://www.instagram.com/press/. 
https://about.pinterest.com/en/press/press. 
https://ourstory.linkedin.com/. 

There is a vast amount of literature confirming that during the first years the development of the 

number of subscribers to a network (characterised by network effects) typically follows an 

exponential growth path with an acceleration of growth kicking in when a particular critical mass of 
users has been reached17. Growth of the networks slows down as markets saturate, transforming 
the development path into an S-shaped curve18. This theoretical growth path seems to be 
confirmed by data on the number of users of individual instant messaging apps (see Figure 2.5). 

Figure 2.5 Monthly Active Users (global and in millions) 

Source: Bi-intelligence on the basis of company data and own calculations19. 

Table 2.2 and and Figure 2.5 above suggest that it takes a few years (+ 2 years after launch) until a 

messenger platform reaches its critical mass, after which its growth (in terms of numbers of users) 

accelerates. At the global level, WhatsApp and WeChat had their momentum in 2012; at country 

level they have had a different momentums as is shown by the comparison of WhatsApp users in 

the Netherlands and Germany in Figure 2.6 below.  

Figure 2.6 Daily WhatsApp users (million) 

10

8

6

4

2

s
r
e
s
u
h
c
t
u
D

60

50

40

30

20

10

s
r
e
s
u
n
a
m
r
e
G

0
0
Feb-08 Jul-09 Nov-10Apr-12Aug-13Dec-14May-16Sep-17

NL

DE

trend NL

Trend DE

Sources: http://www.buzzcapture.com/2015/06/aantal-nederlandse-whatsapp-gebruikers-van-2009-2015 
https://de.wikipedia.org/wiki/WhatsApp20. 

17   Grajek, Michał, and Tobias Kretschmer. "Identifying critical mass in the global cellular telephony market." International 

Journal of Industrial Organization 30.6 (2012): 496-507. 

18   Swann, GM Peter. "The functional form of network effects." Information Economics and Policy 14.3 (2002): 417-429. 
19   Statista (Statista.com) presents data on the global number of users of WhatsApp since April 2013 that confirms the data 

from Bi-Intelligence. The source of Statista is WhatsApp.  

20   Referring to Dr. Holger Schmidt: 20 Millionen WhatsApp-Nutzer in Deutschland. In: Focus. 7. August 2013, archiviert vom 

Original am 20. Oktober 2013, abgerufen am 9. Dezember 2015. 

40 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
 
 
At a more aggregate level (see Figure 2.7), we observed that the popularity of the early OCS 

platforms (Skype, Facebook, Blackberry Ping, Twitter and LinkedIn) was growing throughout the 

2000s and it appears that the birth of instant messaging apps (around 2009 + 2 year) marked a 

second growth wave in the number of subscribers to OCS. While there is no evidence from 

research on a causal relationship with the introduction of the smartphone (2006-2009), we may 

assume that the smartphone was in important driver for the development of OCS apps, as OCS 

platforms had then found a proper place on a user-friendly handset which people carry around all 
day21. Given that it takes a few years for innovators to develop new applications on the basis of 
new technologies22 and for people to adopt new technologies23, it is logical that it took a few years 
following the introduction of the smartphone (2007 + 1 year) until fully developed apps were 

introduced in the market (2010 + 1 years) and subsequently it took a while until these apps were 

adopted by a critical mass of end-users (2011 + 1 year). 

Figure 2.7 Use of OCS platforms in selected Member States 

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0

2
0
0
5

2
0
0
6

2
0
0
7

DE

2
0
0
8

2
0
0
9

2
0
1
0

EE

ES

2
0
1
1

FI

2
0
1
2

2
0
1
3

2
0
1
4

2
0
1
5

UK

Source: see Annex I. 

The rising popularity of new OCS apps as of 2010 is not evident in all Member States. Figure 2.8 

shows that in Poland and France the popularity of OCS was hardly affected by the introduction of 

instant messaging apps. Instead the growth in subscription rates declined and the market seems to 

have hit a point of saturation with less than 50% of the population having subscribed to an OCS 

Platform. 

21   Contrary to a desktop computer or laptop. 
22   Perez, Carlota. "Structural change and assimilation of new technologies in the economic and social systems." Futures 15.5 

(1983): 357-375. 
Perez, Carlota. "Microelectronics, long waves and world structural change: New perspectives for developing countries." 
World development 13.3 (1985): 441-463. 

23   Rogers, Everett M. Diffusion of innovations. Simon and Schuster, 2010. 

Cabral, Luis MB. "On the adoption of innovations with ‘network ’externalities." Mathematical Social Sciences 19.3 (1990): 
299-308. 
Kapur, Sandeep. "Technological diffusion with social learning." Journal of Industrial Economics 43.2 (1995): 173-195. 
Attewell, Paul. "Technology diffusion and organizational learning: The case of business computing." Organization Science 
3.1 (1992): 1-19. 

Study on future trends and business models in communication services 

41 

 
 
 
 
 
 
 
 
                                                           
Figure 2.8 Use of OCS in Poland and France 

 0.70

 0.60

 0.50

 0.40

 0.30

 0.20

 0.10

 -

2
0
0
5

2
0
0
6

2
0
0
7

2
0
0
8

2
0
0
9

2
0
1
0

2
0
1
1

2
0
1
2

2
0
1
3

2
0
1
4

2
0
1
5

Source: see Annex I. 

FR

PL

As the number of users has grown exponentially, the number of daily messages sent per person 

has grown as well. Today the average WhatsApp users sends around 40 messages per day and 
receives almost twice as many messages24. In comparison, the daily number of SMSs sent per 
mobile user in the EU is around 4.525. In other words, the average WhatsApp user sends almost ten 
times more messages than the number of SMSs sent by mobile phone users. Note that this 

comparison only concerns the messages sent via WhatsApp; there is a considerable number of 

people that ‘multi-home’, i.e. they simultaneously use Facebook Messenger, Viber, Telegram, etc. 

This implies that many of these users send even more instant messages.  

2.2.2  The use of telecom services 

In this section, we observe the following trends in the use of telecom services: 

  Throughout the second half of the 2000s less fixed calls and more mobile calls are made, this 

trend continued throughout the first half of the 2010s;  

 

In most Member States, SMS volumes grew throughout the second half of the 2000s; this 

growth stagnated (or even became negative) during the first half of the 2010s; 

 

In some Member States (e.g. Spain), the decline in SMS had already started much earlier and 

the decline accelerated throughout the 2010s.  

Less fixed calls and more mobile calls  

Since the mid 2000s, the European telecom markets are characterised by a reduction in fixed voice 

calls going hand in hand with growing mobile calls. This trend continued at a more moderate rate 

into the 2010s (see Figure 2.9). This trend was already signalled in the European Commission’s 
15th Progress report on the single European electronic communications market (2010) and 
reconfirmed in later reports26.  

24   See http://www.statista.com/chart/1938/monthly-whatsapp-usage-per-user/. 
25   Based on Gartner’s data we calculated that the average number of SMS sent per SIM is equal to 3.64. This amounts to 4.5 
SMS per person per day, considering that there are 1.2 to 1.3 SIMs per active European user, according to Ericson’s 
European Mobility Report of June 2014 – see http://www.ericsson.com/res/docs/2014/emr-june2014-regional-appendices-
europe.pdf. 
Including the latest report on the Implementation of the EU regulatory framework for electronic communications of 2015. 

26  

42 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Figure 2.9 Total fixed and mobile traffic in the EU  

Million Minutes 

1400

1200

1000

800

600

400

200

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mobile

Fixed

Source: EC 15th progress report and Gartner27. 

This fixed-mobile trend has been observed in practically all Member States, but there are some 

notable differences (see Figure 2.10 below). In Estonia and Finland the share of fixed calls was 

already low in 2006, and has further decreased over time. In Germany, Spain, France, and the UK, 

fixed calls formed a considerable share of total calls in 2006, but this share has been decreasing 

over time. In Poland, the share of fixed and mobile calls was about equal in 2006. Since then, fixed 

calls have decreased slightly, while mobile calls have more than doubled.  

Figure 2.10 Developments in minutes of fixed and mobile voice in Member States (x million) 

DE 

EE 

400

300

200

100

4

3

2

1

0
2006 2007 2008 2009 2010 2011 2012 2013 2014

0
2006 2007 2008 2009 2010 2011 2012 2013 2014

mobile

fixed

mobile

fixed

ES 

FIN 

150

100

50

20

15

10

5

0
2006 2007 2008 2009 2010 2011 2012 2013 2014

0
2006 2007 2008 2009 2010 2011 2012 2013 2014

mobile

fixed

mobile

fixed

27   The report on the Implementation of the EU regulatory framework for electronic communications (European Commission 

2015) presents a similar picture in terms of but percentage of traffic that confirms the trend. 

Study on future trends and business models in communication services 

43 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
FR 

PL 

300

200

100

100

80

60

40

20

0
2006 2007 2008 2009 2010 2011 2012 2013 2014

0
2006 2007 2008 2009 2010 2011 2012 2013 2014

mobile

fixed

mobile

fixed

UK 

250

200

150

100

50

0
2006 2007 2008 2009 2010 2011 2012 2013 2014

mobile

fixed

Source: Gartner. 

The same data is presented in Table 2.3 and Table 2.4 below in terms of year on year percentage 

change for mobile minutes respectively fixed minutes. 

Table 2.3 YoY % change in Mobile Minutes 

2006 

2007 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

DE 

EE 

ES 

FI 

FR 

PL 

UK 

EU27 

32% 

23% 

23% 

36% 

16% 

5% 

20% 

15% 

13% 

15% 

9% 

9% 

8% 

2% 

9% 

1% 

5% 

4% 

-1% 

9% 

9% 

-1% 

6% 

2% 

5% 

7% 

5% 

1% 

2% 

13% 

1% 

0% 

1% 

3% 

-3% 

1% 

3% 

1% 

-2% 

-3% 

-2% 

19% 

9% 

60% 

30% 

23% 

16% 

17% 

10% 

20% 

21% 

11% 

45% 

18% 

12% 

7% 

6% 

5% 

6% 

5% 

4% 

8% 

1% 

5% 

11% 

1% 

3% 

7% 

0% 

2% 

3% 

Table 2.4 YoY % change in Fixed Minutes 

DE 

EE 

ES 

FI 

FR 

PL 

UK 

2006 

2007 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

2% 

1% 

-1% 

-1% 

-2% 

-5% 

-3% 

-5% 

-7% 

-10% 

-11% 

-5% 

-10% 

-4% 

-11% 

-8% 

-19% 

-14% 

-4% 

1% 

-1% 

-1% 

-1% 

-0% 

-5% 

-12% 

-31% 

-25% 

-23% 

-25% 

-19% 

-17% 

-20% 

-10% 

-17% 

1% 

-1% 

4% 

2% 

2% 

-0% 

2% 

-8% 

-4% 

-14% 

-12% 

-10% 

-11% 

-9% 

-9% 

-10% 

-12% 

-10% 

-4% 

-8% 

-3% 

-4% 

-1% 

-15% 

-8% 

-12% 

8% 

EU27 

-1% 

-3% 

-1% 

-2% 

-1% 

-6% 

-3% 

-8% 

-4% 

44 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
An increase in SMS volumes during the 2000s coming to a halt in the 2010s 

Throughout the 2000s the volume of SMS has increased strongly. Since 2010/11, the growth in 

SMS has come to a halt and SMS volumes declined in some parts of the world (notably the EU and 

the US). Figure 2.11 shows these global trends. 

Figure 2.11 Global development of SMS volumes 2004-2011 (billion messages)  

4000

3500

3000

2500

2000

1500

1000

500

0

900

800

700

600

500

400

300

200

100

0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Asia

US

EU*

S-America*

* Right Axis. 
Source Asia and S-America: e-Marketer referring to data from Portio Research28. 
Source EU and US: Gartner. 

At the level of the Member States the picture is more heterogeneous. The increase in SMS volumes 

during the second half of the 2000s cannot be observed in all Member States (see Figure 2.12). In 

some Member States SMS volumes have hardly grown during this timeframe (e.g. in Estonia and 

Finland) or even declined (as in Spain). The largest Member States (France, Germany, UK and 

Poland) have experienced (high) positive growth during the second half of the 2000s.  

The global trend of decreasing and even negative growth during the first half of the 2010s can be 

observed in almost all Member States: in Spain the decline in SMS volumes accelerated; in France 

the growth in SMS slowed down; in Finland, Germany and the UK, SMS volumes declined strongly 

(in Germany and Finland, SMS levels dropped to the level of 2006). Only in Poland SMS volumes 
remained rather stable. In Estonia SMS volumes increased remarkably since 201129. 

http://www.emarketer.com/Article/Watching-Death-of-SMS/1012124. 

28  
29   Note that the number SMS sent per person in Estonia was among the lowest of European Member States. 

Study on future trends and business models in communication services 

45 

 
 
 
 
 
 
 
 
 
 
                                                           
Figure 2.12 Development of SMS volumes in selected Member States (2006=1) 

4

3.5

3

2.5

2

1.5

1

0.5

0

14

12

10

8

6

4

2

0

2006 2007 2008 2009 2010 2011 2012 2013 2014

DE

EE

ES

FI

PL

UK

FR*

* Right Axis. 
Source: Gartner.  

2.3  Trends in the marketing of telecom services 

In this section below we observe that:  

  During the first half of the 2000s, fixed per-minute prices were declining, presumably as a result 

of carrier pre-select (CPS) competition. This decline stagnated during the second half of the 

2000s. This was the period when bundled VoIP services started to replace the CPS model and 

flat-rate and bucket pricing schemes were increasingly applied in various forms; 

  During the second half of the 2000s, also mobile telecom operators started to experiment with 

flat-rate and bucket pricing schemes, but the widespread marketing of such schemes took off a 

few years later (2012) and was potentially driven by OTT developments. 

2.3.1  Before 2000  

1980s: Two-part monopoly pricing 

Initially, when each operator was a national monopolist offering voice communication services only, 

the optimal pricing strategy was to apply a two-part tariff comprising of a (low) fixed monthly 

subscription fee and a (high) per-minute usage charge. It also allowed telecom operators to 

discriminate on price between heavy users (with a high willingness to pay for being connected to 

the network) and light users (with a low willingness to pay for being connected). This principle has 
been described by De Bijl & Peitz (2003)30 and Oi (1976)31; the latter author also explains it in the 
context of amusement parks where people are lured inside the gates with low access fees, but are 

subsequently charged with high prices for taking rides.  

In the US, local calls within a defined local area32 have always been part of the flat subscription 
fee33. The strategy was to get people to subscribe and to encourage use. Long distance calls were 
priced and metered by distance, duration and time-of-day (peak/off-peak)34. 

30   De Bijl, Paul, and Martin Peitz. Regulation and entry into telecommunications markets. Cambridge University Press, 2003. 
31   Oi, Walter Y. "A Disneyland dilemma: Two-part tariffs for a Mickey Mouse monopoly." The Quarterly Journal of Economics 

(1971): 77-96. 

32   Usually a city or town, the biggest cities were divided into several localities. 
33   This information was obtained directly from former FCC chief economist Prof. William H. Melody, as part of reviewing a 

draft version of this report (7-2-2016). 
Ibid. 

34  

46 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
1990s Carrier Select competition 

The traditional pricing scheme was first challenged by the introduction of regulated access for 

Carrier Select (CS) operators, which only competed on the per-minute price. Moreover, Wide area 

or Extended area service (WATS, EAS) was introduced where one could obtain flat rates for larger 
geographical areas35. During the 1990s flat rate pricing schemes for long distance calls were 
introduced for long distance calls as well36. 

In Europe, CS competition was introduced during the 1990s and led to lower per minute prices 

(notably for international calls). Towards the end of the 1990s, additional competitive pressures 

from mobile network operators imposed pressure on the two-part pricing scheme and by the end of 
the 1990s the first flat-rate pricing schemes were introduced in Europe37. Although increased 
competition put pressure on the traditional two-part tariff pricing schemes, it did not lead to a 

significant overall shift towards flat-rate pricing. This was due to capacity constraints in the network 

(see Brouwer 2001) and due to relatively high termination rates (see Marcus 2004 and OECD 
2012)38.  

2.3.2  After 2000 

Developments in fixed 

During the 1990s, Internet access or data services were seen as an add-on service and during the 

dial-up era they were priced per minute. By the end of the 1990s, DSL technology was introduced 

providing for ‘always on’ internet access. Some years later local loop unbundling (LLU) was 

introduced in the European telecom markets and competition among internet service providers 
(ISPs) gradually increased39. Technological developments such as ADSL2 and DOCSIS 2.0 
allowed for the provision of Voice over IP (VoIP), leading to a decrease in the incremental (per 
minute) costs of making a phone call40. However, the incentives for operators to invest in a 
migration from PSTN to VoIP differed between Member States and were mainly stemming from the 
intensity of competition in the broadband market (Pernet 2006)41 42. The increased competition in 
the broadband market during the first half of the 2000s eventually also affected the market for fixed 

telephony services. Figure 2.13 shows the development in the take-up of VoIP services in the EU.  

35   Former FCC chief economist Prof. William H. Melody (see Footnote 33). 
36  

In 1998, AT&T Wireless introduced the AT&T Digital One-Rate plan. This was a monthly bucket of minutes for a fixed 
price. According to Odlyzko this plan proved to be wildly popular and led other carriers to respond with their bucket pricing 
plans, which led to rising usage – see: Odlyzko, Andrew. "Internet pricing and the history of communications." Computer 
networks 36.5 (2001): 493-517. 
In 2000, the Dutch provider ‘Ilse’ offered flat fee pricing schemes for calling and Internet - 
http://tweakers.net/nieuws/10868/flat-fee-bellen-en-internetten-met-ilse.html. 

37  

38   Marcus, J. Scott. "Call termination fees: The US in global perspective." 4th ZEW Conference on the Economics of 

Information and Communication Technologies, Mannheim, Germany. 2004. 
OECD (2012), “Developments in Mobile Termination”, OECD Digital Economy Papers, No. 193, OECD Publishing. 

39   See Lemstra and Van Gorp (2013). 
40   See “The Business of Broadband: Access and Applications” a report by the International Engineering Consortium - 2003  
41   Pernet, S. (2006), "Bundles and Range Strategies: The Case of Telecom Operators" communications & strategies, no. 63, 

3rd quarter 2006.  

42   The explanation for this causality is that the barriers for entering into the voice market significantly decrease once the 

potential entrant already has a position in the broadband market on the basis of WBA/LLU or DOCSIS. 

Study on future trends and business models in communication services 

47 

 
 
 
 
 
 
 
 
 
                                                           
 
Figure 2.13 Take-up of VoIP subscriptions as % of total fixed lines in the EU25 

30%

25%

20%

15%

10%

5%

0%

Source: Idate. 

Per-minute-prices for telephony were mostly declining during the first half of the 2000s (see Figure 

2.14) but flat rate pricing schemes in Europe did not yet become widespread (contrary to the US – 
see above). Next to a difference in the level of termination rates43, the difference between the EU 
and the US can be explained by the fact that the fixed market in the US has been more competitive 
which resulted in (very) low fixed per-minute-prices44; it is a small step from very low per-minute 
prices to a flat fee.  

Figure 2.14 Prices for a 10 minute fixed line call in the EU25  

1.20

1.00

0.80

0.60

0.40

3.00

2.50

2.00

1.50

1.00

2001

2003

2005

2007

2009

international calls

National calls (right axis)

Source: Eurostat. 

One would expect that the increase in VoIP competition would lead to a negative impact on the per-
minute-price of phone calls45. However, Figure 2.14 shows a different picture. During the second 
half of the 2000s, while VoIP grew towards a take-up of 25%, the decline in per-minute prices 

stagnated. This can be explained by the fact that (contrary to CPS competitors) VoIP competitors 
had to market a bundle of services rather than just minutes of voice calls46. Having a broadband 
subscription is a pre-condition for having a VoIP subscription. By the end of the 2000s, about 38% 

of European households purchased a bundle of broadband services with voice telephony and/or TV 

(see Figure 2.15). Within these bundles, telecom operators started offering subscriptions with a 

fixed amount of minutes. During the second half of the 2000s, bundles were offered varying in 

terms of the number of minutes included in the bundles, distinguishing between on-net and off-net, 

43   See footnote 38. 
44   Note that the US had experience with CPS competition since the 1970s. For 2001, Eurostat reports US per-minute prices 
of 0.9 eurocents for state wide calls; in the EU the average per minute price for local (city wide) call was 3.8 eurocents and 
nation-wide calls were priced at almost 10 eurocents p.m.  

45   As a result of lower incremental costs of VoIP (compared to PSTN) in combination with lower profit margins due to 

increased competition. 
https://www.telegeography.com/press/press-releases/2008/09/22/european-voipthe-revolution-is-underway/. 

46  

48 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
between ‘only in the weekend and evenings’ and 24/7, and between ‘only to fixed’ and ‘also to 
mobile’47.  

Figure 2.15 Evolution of penetration of European households by type of bundle (% of households) 

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

46% 

38% 

26% 

25% 

16% 

11% 

at least one bundled
service

Bundle double play

Bundle triple play

2010

2011

2012

2013

2014

2% 

4% 

bundle quadruple
play

Source: European Commission Special Eurobarometer 414, EU-27, based on all households. 

While competitors were focussing on bundled offers, the competition for ‘unbundled’ minutes was 

likely less intense, which may explain the stagnation in the decline of per minute prices that telecom 

operators reported to Eurostat. Hence, these per-minute prices may not be entirely comparable with 

the per-minute prices that were reported during the first half of the 2000s.  

Developments in mobile 

During the first half of the 2000s the supply and demand for mobile broadband were limited. 

Demand was limited because feature phones were ill equipped to serve the Internet. Supply was 

limited because technologies to provide higher bitrates were still in development. During the first 

half of the 2000s, voice telephony and SMS were the main services offered by mobile operators. 

There were little incentives for mobile operators to change the two-part tariff regime (amongst 
others) because of high termination rates (see Marcus 2004 and OECD 2012)48 and because of 
limited competition in an oligopolistic market setting that did not experience strong competition from 
CS-type competitors49. Also potential competition from alternative MVNO operators (following the 
2003 Recommendation on Relevant Markets) did not materialise in most of the EU countries50. 

During the second half of the 2000s, the first flat-rate mobile broadband offers entered the market51, 
as well as mobile subscriptions with an unlimited amount of voice calls. ‘Fully flat’ subscriptions (i.e. 

allowing unlimited calls to fixed and mobile numbers, unlimited SMS and unlimited data) were rare. 
Therefore, most ‘unlimited deals’ often applied to on-net calls52 and mobile-to-fixed calls only53 54.  

47   See e.g. the following link referencing to a 2006 offer by BT http://www.frequencycast.co.uk/voip.html#bbt, and the 

following link referencing to a 2005 offer by France Telecom http://telephonie.over-blog.com/article-718874.html, and the 
following link referring to 2005 offers by Tele2 and KPN in the Netherlands https://www.bellen.com/nieuws/tele2-met-
goedkoop-onbeperkt-bellen. 

48   See footnote 38. 
49   See Ecorys (2013,.p 159), “Future electronic communications markets subject to ex-ante regulation”. 
50   See Ecorys et al (2013, p. 161) “MVNOs with a market share of more than 5% are uncommon. On average only one 
MVNO per five countries has a significant market share. This makes them virtually non-existent in the Representative 
Member State”. Future electronic communications markets subject to ex-ante regulation, Report Commissioned by the 
European Commission. 
http://mobileopportunity.blogspot.nl/2006/12/will-flat-rate-pricing-make-mobile-data.html. 

51  
52   Thereby operators were running the risk of being accused of abuse of a dominant position 

http://www.fiercewireless.com/europe/story/orange-sfr-hit-183m-fine-anticompetitive-practices/2012-12-14. 

Study on future trends and business models in communication services 

49 

 
 
 
 
 
 
  
 
 
 
                                                           
Since 2008, the major US mobile carriers have been offering fully unlimited calling plans55 56. Also 
some European operators experimented with such plans57 58, but the widespread marketing of fully 
unlimited plans across Europe only occurred around 2012/2013: Rewheel (2013)59 observed that 
“In the fourth quarter of 2012 and during the first half of 2013 a number of European MNOs 
launched a wave of new smartphone tariffs with unlimited voice and SMS allowances.”60 61. The 
French operators were frontrunners and the experience in France learned that consumers 
benefitted considerably. The OECD (2014) concluded “The introduction of unlimited offers as the 
base offer enabled consumers to achieve savings over their previous plans. The effect has been 
such that the index of telecom prices in France dropped by 11 points from 2011 to 2012”62. 

Although the decline in termination rates facilitated the switch over to flat rate pricing of voice, the 

main drivers seem to be other market forces. Some researchers have argued that the switch-over 
was mainly due to the rise of OCS and of OTT services in general63. The rise of OCS, it is argued, 
imposed additional competitive pressures on the per-minute/message-priced services and the rise 

of OTT in general (including non-communication services) implied a growing importance of mobile 
broadband in the marketing mix64. In some countries the change towards this new pricing regime 
was initiated relatively early, in other countries the regime was introduced much later65. As a 
consequence, today’s take-up rate of unlimited subscriptions differs significantly from country to 

country (see Figure 2.16 below). 

53   See the following link to a 2005 tarif scheme by Orange 

http://mobile.orange.fr/images/ge/high/themege/pdf/orange_click/fiche_tarifaire.pdf and the following link referring to a 
2005 offer by the Polish operator ‘Plus GSM’ http://gsmonline.pl/artykuly/plus-nieskonczonosc-nielimitowane-rozmowy-w-
sieci-plus-gsm-oficjalny-komunikat. 

54   See also http://www.fiercewireless.com/europe/story/analysys-mason-mtr-cuts-france-have-led-quadrupled-voice-over-

55  
56  

broadband-tra/2012-06-13. 
http://intug.org/2008/02/us-mobile-operators-adopt-flat-rate-calling-plans/. 
“In  February  2008,  Verizon  broke  with  industry  pricing  norms  by  offering  a  $99  unlimited  calling  plan.  Soon  after  AT&T 
followed  suit,  and  T-Mobile  went  even  further  by  including  unlimited  text  messaging  along  with  unlimited  voice  in  its 
unlimited plan. Sprint then unveiled a $99 plan that featured unlimited voice, text messages, email, web surfing, video, and 
other  premium  services”  Oren  Bar-Gill  and  Rebecca  Stone  (2009)  Mobile  misperceptions,  Harvard  Journal  of  Law  & 
Technology Volume 23, Number 1 Fall 2009. 
http://commsbusiness.co.uk/features/orange-revises-price-plans/. 

57  
58   E.g. The Polish operator P4 launched flat rates in 2009, which was quickly followed by others. 
59   Rewheel (2013) EU27 mobile data cost competitiveness report – May 2013. 
60   This observations is confirmed by the GSMA: “[A] prominent example of data-centric tariffing is Vodafone, which launched 
Vodafone ‘Red’ in September 2012. Red tariffs incorporate unlimited voice minutes and SMS, with prices scaling based on 
incremental data allowances” GSMA (2014), The Mobile Economy 2014 – Europe. 

61   The observation is also confirmed by a chronological order of news articles from Fiercewireless.com referencing to 

‘unlimited calls’ (see overview below): 
<2009 
2009 

2012 

2013 

2014 

- 
http://www.fiercewireless.com/europe/story/bouygues-telecom-maps-out-french-iphone-offer/2009-03-11.  
http://www.fiercewireless.com/europe/story/3-sweden-pull-low-cost-unlimited-offer-amid-fears-price-
war/2012-03-21. 
http://www.fiercewireless.com/europe/story/operators-reacting-ott-messaging-services-time-act-now/2013-
05-03. 
http://www.fiercewireless.com/europe/special-reports/how-operators-are-fighting-against-falling-arpu.  
http://www.fiercewireless.com/europe/story/mallinson-its-time-flip-pricing-models-voice-and-data/2013-04-25.  
http://www.fiercewireless.com/europe/press-releases/vodafone-uk-reveals-pricing-iphone-6-and-iphone-6-
plus. 
http://www.fiercewireless.com/europe/story/bouygues-telecom-overhauls-its-mobile-plans-new-competitive-
drive/2014-11-17. 
http://www.fiercewireless.com/europe/story/swisscom-launches-lte-advanced-services/2014-06-16. 
http://www.fiercewireless.com/europe/special-reports/can-giffgaff-wifog-and-other-new-mvnos-become-next-
virgin-mobile. 

62   OECD (2014), “Wireless Market Structures and Network Sharing”, OECD Digital Economy Papers, No. 243, OECD 

63  

Publishing. 
http://www.fiercewireless.com/europe/story/mallinson-its-time-flip-pricing-models-voice-and-data/2013-04-25. 
http://www.fiercewireless.com/europe/special-reports/how-operators-are-fighting-against-falling-arpu. 

64   Aee footnote 63. 
65   As in Spain where Vodafone introduced its flat rate pricing scheme ‘Red’ in 2015. 

50 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
                                                                                                                                                               
 
 
 
 
 
 
Figure 2.16 Percentage of subscribers with unlimited SMS tariffs, 2015 

Source: GSMA Intelligence (2015) “The future of SMS in the evolving messaging market”, p. 9. 

2.4  Substitutability of traditional and online communication services  

The previous sections described trends in volumes and in pricing. We observed that: 

 

the popularity of early OCS (like Skype, Facebook, LinkedIn and Twitter) was growing 

throughout the 2000s and the introduction of instant messaging apps (around 2010 + 1 year) 

marked a second growth wave in the number of subscribers to OCS;  

 

the volume of OCS messages sent per persons grew exponentially to levels equal to 10 times 

the volumes of SMS messages sent; 

 

the trend of making less fixed calls and more mobile calls characterised the use of voice 

telephony throughout the second half of the 2000s and this trend continued throughout the first 

half of the 2010s;  

 

in most Member States, SMS volumes grew throughout the second half of the 2000s and that 

growth stagnated (or even became negative) during the first half of the 2010s; 

  during the first half of the 2000s, fixed per-minute prices were declining (presumably as a result 

of CPS competition) and the decline in fixed-per-minute prices stagnated during the second half 

of the 2000s when bundled VoIP services started to replace the CPS model; and flat-rate and 

bucket pricing schemes were increasingly applied (in various forms); 

  during the second half of the 2000s, mobile telecom operators started to experiment with flat-

rate and bucket pricing schemes, but the widespread marketing of such schemes took off a few 

years later (2012) and was potentially driven by OTT developments. 

Considering the trends above one may be tempted to draw conclusions on the substitutability 

between ECS and OCS. However, in order to conclude substitutability one needs to analyse 

whether there is a causal link between a change in the use of ECS and a change in the use of 

OCS.  

2.4.1 

Introduction to the methodological approaches for analysing substitutability  

In order to proof causality, competition economists have developed the hypothetical monopoly test 
or the so-called SSNIP test (Significant Structural Non-transitory Increase in Price)66. Such a test 

66  

see: Bishop, S., Walker, M., ‘The economics of EC competition law ’, Sweet & Maxwell, London, 1999; and Hildebrand, D. 
‘The role of economic analysis in the EC competition rules ’, Kluwer Law international, The Hague, 1998; as well as 
Haffner, Robert C.G., ‘De relevante markt ’, in: Tijdschrift voor politieke economie, 1997, page 211-231. 

Study on future trends and business models in communication services 

51 

 
 
 
 
 
 
 
 
 
 
 
                                                           
analyses whether end-users substitute one product for the other in case of a 5% to 10% increase in 
price67. There are basically two approaches for the analysis: 
1.  Using econometrics to analyse the percentage change in demand of two services as a result of 

a percentage change in the relative price of both services; 

2.  Analyse qualitatively and on the basis of a survey whether end-users regard the two categories 

of services functionally comparable and that they: 

a)  can switch (i.e. experience no barriers for switching); and 

b)  will switch in the event of a (hypothetical) price increase (of 5%-10%). 

The first approach is based on actual observations of volumes and prices. This approach is often 

very challenging as information on volumes and prices is not always available or may be of bad 

quality. Moreover, the first approach is not feasible when products or services are sold in bundles, 

whereby the prices for the individual components are not known, or are given away for free, i.e., the 
price is zero68.  

The second approach is often more practical, as it can be based on a survey among end-users and 

an analysis of strategic reactions among (potential) competitors. Such a qualitative approach 

(investigating qualitatively whether end-users can and will switch when prices changes significantly) 
is regarded as an appropriate second best alternative to the quantitative/formal SSNIP test69. 

However, survey based approaches may not always lead to robust results when responses to the 

survey are biased. Biases in a survey can result from the sampling methods, the design of the 

survey questions, and the interpretation of the answers. One bias that is particularly relevant is the 
hypothetical bias70. The hypothetical bias means that in the case of a hypothetical question, people 
are often overestimating, as they do not consider all the relevant costs and barriers involved. If the 

event were to take place, people will take more time to consider all these costs and barriers and 
likely act in a different way71. A common way to correct for this bias is to apply a Likert scale for the 
responses and only count the ‘agree answers’ for those respondents that answered with absolute 
certainty, all other responses are counted as ‘disagree’72. The survey based approach will only 
provide reliable results if the number of dimensions in which the respondent needs to hypothesize 

remains limited. In the case of a bundled sale of telecom services the qualitative survey approach 

suffers from similar problems as the quantitative approach. Respondents often do not know the 

prices for individual components in the bundle and hence they will have to make certain 

67   The SSNIP test assumes the market being served by a hypothetical monopolist. The market is initially considered ‘small’. 

68  

Next, a SSNIP test quantitatively and/or qualitatively assesses whether a Small but Significant and Non-transitory Increase 
in Price (SSNIP) would be profitable for a hypothetical monopolist. If this is not the case, because end-users ‘escape’ the 
price increase (of 5% to 10%) by switching to products or regions that they regard as substitutes, the relevant market 
should be enlarged accordingly. A new SSNIP test follows and this iterative process goes on until a group of products and 
regions has been determined for which Significant and Non-transitory Increase in Price would be profitable for the 
hypothetical monopolist. The SSNIP test is an artificial approach that can serve as a reference point for the extent of 
substitutability. The test can rarely be done on an empirical basis only because of lacking or flawed data. Never the less, 
the test serves as proper legal point of reference. See Ecorys (2013). 
In 2010 the European Commission published a consultation document (“Best practices for the submission of economic 
evidence and data collection in cases concerning the application of articles 101 and 102 TFEU and in merger cases”, DG 
Competition, 2010) that can be considered an update on the use of economic methods and techniques as already 
established in the Commission’s notice on guidelines for the definition of relevant markets for the purpose of Community 
competition law (See the “Commission notice on the definition of relevant market for the purpose of Community 
competition law” (1997). These guidelines were adopted in the Regulatory Framework for telecommunications in 2002 
(See the Notice on relevant markets 2002/C 165/03.). From these documents it is clear that the use of economic methods 
and techniques has its limitations and is therefore often criticized. The European Commission recognises this in the 2010 
consultation paper. The Commission stresses that the economic models should support views that are based on 
competition law, but that these models will always remain simple representations of the reality. Economic and econometric 
analyses therefore require accuracy and one may need to accept that they are sometimes not possible. 

69   Geradin, D., A. Layne-Farrar, and N. Petit (2012), EU Competition Law and Economics, Oxford University Press, 2012, p. 

185-186. 

70   See Loomis, 2011 Murphy, 2005; Murphy & Stevens, 2004 and Venkatachalam, 2004 for a review. 
71   See Cummings, Brookshire, & Schulze, 1986; Loomis, 2011, and Trope & Liberman, 2003; 2010. 
72   See Blomquist, Blumenschein, and Johannesson, 2009. 

52 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
                                                           
assumptions. Moreover, when services are sold for a flat fee, the marginal price per 

minute/message is de facto zero. In that case, respondents not only have to hypothesize a price 

increase of 5% to 10%, but also a situation in which the price is not zero.  

On the basis of the previous arguments we conclude that an econometric approach is not feasible 

when analysing the substitutability between OCS and telecom services: firstly, telecom services are 

often marketed as part of a bundle, and secondly, OCS are typically offered for free. In the case at 

hand, the survey based approach also faces limitations when analysing the question whether 

people will switch, but it does offer insights in the functional substitutability and thus in whether 

people can switch. Hence, we decided to focus the survey questions on whether end-users regard 

OCS and telecom services as functional substitutes and by asking a fairly open question on the 

extent to which price plays an important role in choosing between OCS and telecom services. The 

analysis may not lead to a market definition lege artis, but it provides indications as to user 

behaviour. Moreover, the analysis of the impact of the rising popularity of OCS on telecom 

revenues and profits may provide further evidence on whether or not OCS and telecom services 

are substitutable. 

Introduction of the survey questions 

As an important part of our research we asked consumers how the entry of OCS influenced their 

day-to-day life. Part of the survey aimed at providing insights in the substitutability between OCS 

and telecom services as perceived by end-users (can they switch? and will they switch? - in the 

case of a 10% price increase). The questions were aimed at obtaining the following information: 

Background information  

We asked for information about age, household size, type of broadband connection(s), and type of 

contract with their telecom operator. We asked also for information on the current use of telecom 
services and OCS73. 

Reasons for (not) using OTT services (can end-users switch?) 

We asked for reasons for (not) using the Internet when calling or sending messages. Note that this 

question (indirectly) asks what prevents/withholds an end-user from switching (i.e. can they 

switch?). 

73   When you make a call, what do you use? (X% Mobile, Y% fixed and Z% internet, where (x+y+z=100);  

When you call via the internet, what app do you use? (Skype, WhatsApp, Facebook messenger, Google Hangouts, Viber, 
WeChat, or other);  
When you call via the internet, who do you call? (National internet callers, international internet callers, national telephone 
numbers, and international telephone numbers);  
When you send a message, what do you use? (X% sms, Y% email, Z% online app, where x+y+z=100);  
When you send a message via the internet, what app do you use? (Skype, WhatsApp, Facebook messenger, Google 
Hangouts, Viber, Telegram, Line, Blackberry messenger, Twitter, Facebook, Google+, Instagram). 

Study on future trends and business models in communication services 

53 

 
 
 
 
 
 
 
 
 
 
                                                           
Reason For 

Low prices 

Good quality 

Convenient 

Sharing files during conversation 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

Easy to communicate with multiple people   1 - 5 

Other 

1 - 5 

Voice  

text  

Reason Against 

Voice  

text  

1 - 5 

1 - 5 

Bad quality 

Too much hassle 

1 - 5 

1 - 5 

1 - 5 

I am not everywhere connected to the Internet 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

I have concerns about my privacy 

The price of traditional services is very low  

My bundle is large enough 

I don’t know how it works 

I never tried it 

I am not interested 

Too little of my friends use it 

I am happy with my traditional services 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

1 - 5 

2.4.2  Results 

From the analysis discussed below, we conclude that users can switch from using telecom services 

to using OCS (i.e. they do not experience too many barriers). However, this depends to a large 

extent on the context, i.e., who they want to communicate with. An important reason for people not 

to rely only on OCS voice services is that not everyone can be reached via OCS voice, including 

firms and public entities. We note that switching from one service to the other does not imply ending 

a subscription. After all, having a telephony subscription does not prevent people from being 

subscribed to OCS as well. Moreover, an increasing number of people ‘multi-home’ (as can also be 

seen in Figure 2.2 in section 2.2.1). 

Furthermore, respondents indicated that the low price is the most important argument for using 

OCS services. At the same time, many people indicate that a reason for not using OCS is that their 

bundle of minutes/messages is large enough. It follows that price is an important factor in choosing 

between OCS and telecom services. 

Voice  

Currently, half of the respondents predominantly use traditional voice services for making a voice 

call. 20% to 30% make an equal use of OCS voice services and 10% to 20% make predominant 

use of the Internet for making voice calls (see Figure 2.17). Not visible from the figure is that about 

half of these predominant users (around 9% of total respondents) indicates that it exclusively uses 
Internet voice services, yet, only 2% of the respondents has no telephony subscription74. 

Figure 2.17 When you make a call, what do you use today and what did you use in 2008? 

2008 

2015 

Germany

UK

Spain

Estonia

Poland

France

Finland

Germany

UK

Spain

Estonia

Poland

France

Finland

0%

20%

40%

60%

80% 100%

0%

20%

40%

60%

80% 100%

Always (mostly) the internet 

Equally use internet and 

Always (mostly) the phone 

Source: ECORYS survey. 

phone 

74   This figure of 2% corresponds with data from the special Eurobarometer 414 (p. 18). 

54 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
Arguments against using OCS voice services 

On the basis of data on the current usage of OCS, the presence of switching barriers cannot be 

excluded. Figure 2.18 shows the respondents' arguments for not using OCS. Not all of these are a 

barrier that hinder people from using OCS. For example, many people (around 40%) are happy with 

the traditional voice service and do not really feel the need to switch because their bundle of 

minutes is abundant and/or they perceive prices of traditional voice calls as being low. A 

considerable share of the respondents (20% to 30%) is myopic, and is simply not interested or has 

not tried OCS. 

Other reasons that can be regarded as major barriers are, e.g., not knowing how it works or that it 

is too much hassle, or that the quality is bad. However, only a relatively small share of respondents 

(20%) indicates that these are reasons for not using OCS. 37% of the respondents indicate as a 

reason that they have privacy concerns. This can be considered as a major barrier.  

An important reason for people not to rely on only OCS voice services, is that they are not always 

and everywhere online (48%) and that not everyone can be reached via OCS voice, including firms 

and public entities. These arguments only form a barrier for using OCS in a particular context, in 

terms of where they are and who they want to reach. As such, the fact that everybody can be 

reached using the telephone numbering plan and the fact that coverage of the (mobile) telephony 

network in Europe is nearly ubiquitous are important reasons for people to keep a telephony 

subscription.  

Figure 2.18 What are arguments against using the Internet for calling (rather than the phone)? 

Happy with traditional services
Too little of my friends use it
I am not interested
I never tried it
I don't know how it works
My bundle is large enough
Traditional services have a low price
Concerns about privacy
Not everywhere online
Too much hassle
Bad quality

Source: ECORYS survey. 

30% 

12% 

23% 

10% 

22% 
21% 

12% 
8% 

22% 

11% 

18% 

10% 

42% 

26% 

34% 

17% 
14% 

5% 

15% 

16% 

8% 
10% 

7% 
29% 

11% 

25% 

19% 
22% 

12% 

15% 

29% 

25% 

54% 
54% 

9% 

12% 

12% 

26% 
28% 
26% 

32% 

14% 
14% 

13% 
12% 

16% 
23% 
25% 

22% 

13% 
13% 

9% 

21% 

37% 
36% 

We conclude that for some people privacy concerns should first be taken away before they can 

switch to OCS voice serves. And for other people it depends very much on the context (in terms of 

where they are and who they want to call) whether or not they can switch to OCS. As social 

networks grow (and an increasing amount of people are to be reached via OCS) and as mobile 

broadband coverage increases (and Internet access is available on more locations, the relevance 

of the above mentioned context related barriers may become less important. We note that the 

reduction of data roaming costs is a precondition in an international context. Moreover, there may 

remain use cases for traditional voice and SMS which OCS cannot supply; this depends on the rate 

of take-up of OCS by businesses and public authorities, as well as the rate at which OCS platforms 

manage to provide add on services like premium services, micropayments, etc. 

Arguments for using OCS voice services 

Figure 2.19 shows that most people (72% of the respondents) are interested in making a call via 

the internet because it is low (zero) priced. Also additional functionalities such as conference calling 

(58%) and file sharing (50%) are often given as arguments for using OCS voice services. Around 

80% of the people indicate that convenience and quality are good (enough).  

Study on future trends and business models in communication services 

55 

 
 
 
 
 
 
 
 
 
 
 
 
Figure 2.19 What are arguments for using the Internet for calling (rather than the phone)? 

Communicion with multiple people
Sharing files during conversation
Convenient
Good quality
 Low / zero price

Source: ECORYS survey. 

42% 

33% 

43% 

16% 

23% 

8% 

17% 

26% 

9% 

12% 
14% 

17% 

23% 

29% 

21% 

29% 

64% 

9% 

14% 

3% 

8% 
10% 

10% 
11% 
10% 

These answers indicate that if price differences are large enough, most people find this a reason to 

switch from telephony to OCS voice. From Figure 2.18 we learn that around 40% of the people do 

not experience such great price difference.  

Text messaging 

Evidenced by the exponential growth in the use of OCS messaging (see section 2.2), there are few 

barriers for making use of these services. The results of the survey largely confirm the trend in the 

market data. Figure 2.20 shows that the use of online text messaging has increased considerably 

while the use of SMS is decreasing. The effect is most prominent in Spain, followed by Germany 

and it is least prominent in France and Poland. We note that for the UK, the survey results indicate 

that SMS is still highly popular, whereas the market data in section 2.2 indicates that the popularity 

of SMS in the UK is decreasing. 

Figure 2.20 When you send a message, what do you use today and what did you use in 2008? 

2008 

2015 

Germany
UK
Spain
Estonia
Poland
France
Finland

Germany
UK
Spain
Estonia
Poland
France
Finland

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

sms

App

Social Media

sms

App

Social Media

Source: ECORYS survey. 

Arguments against using OCS text messaging 

Figure 2.21 shows respondents’ score for not using OCS messaging services. The picture is nearly 

identical as for voice. Again we conclude that whether people can switch to OCS messaging, 

depends very much on the context in terms of where they are and who they want to reach.  

Figure 2.21 What are arguments for not using the Internet for sending messages? 

Happy with traditional services
Too little of my friends use it
I am not interested
I never tried it
I don't know how it works
My bundle is large enough
Traditional services have a low price
Concerns about privacy
Not everywhere online
Too much hassle
Bad quality

26% 

11% 

25% 

10% 

27% 

20% 
23% 
21% 

9% 

9% 

7% 

22% 
19% 

18% 

15% 

8% 

20% 

25% 

11% 

9% 
8% 

7% 

9% 
28% 

17% 
20% 

11% 

13% 

31% 

25% 

26% 

13% 
10% 

9% 

7% 

14% 
25% 

28% 

25% 
12% 
13% 

40% 
42% 

46% 
48% 

9% 

10% 
13% 

11% 

27% 
30% 
28% 
25% 

42% 
42% 

Source: ECORYS survey. 

Arguments for using OCS text messaging 

Figure 2.22 shows that most people (62% of the respondents) send messages via the Internet 

because it is low (zero) priced. Also additional functionalities such as group chats (53%) and file 

56 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
sharing (49%) are arguments for using OCS text services. Most people (+ 80%) find the 

convenience and quality good (enough).  

Figure 2.22 What are arguments for using the Internet for sending messages? 

Communicion with multiple people
Sharing files during conversation
Convenient
Good quality
 Low / zero price

Source: ECORYS survey. 

41% 

36% 

46% 

38% 

12% 

13% 

25% 

28% 

13% 

15% 

22% 

26% 

6% 
6% 

5% 
6% 

54% 

8% 

21% 

3% 

16% 
17% 
14% 
14% 
13% 

Similar to voice, these answers indicate that if price differences are large enough, most people find 

this a reason to switch from SMS to OCS messaging. From Figure 2.21 we learn that 30% to 40% 

of the people do not experience such great price difference.  

2.5  Conclusions 

From the analysis in the previous sections we conclude that end-users regard OCS voice and text 

services as a substitute for voice and SMS services offered by telecom operators. We base this 

conclusion on the outcomes of the survey among end-users in combination with trends observed in 

the market regarding the use and marketing of communication services. 

Observed trends in usage 

When looking at the volumes of voice and SMS services, the impact of the take-up of OCS is not 

always evident. The developments observed in fixed and mobile voice are probably (in part) the 

result of a gradual shift in consumer preference from fixed to mobile voice. Furthermore, in some 

Member States end-users show a shift in preferences from voice to text based communication, 

leading to a shift from mobile voice to SMS. These concurrent shifts in end-users preferences make 

it difficult to isolate the impact (in terms of volumes of use) of OCS voice services on fixed and 

mobile voice services offered by telecom operators.  

Regarding SMS usage, there are stronger indications that the rise of OCS has had a negative 

impact, although this effect is not equally clear in all Member States. The shifts in consumer 

preferences from voice to text should have an upward effect on the use of SMS services. This trend 

is observed in most Member States during the second half of the 2000s. In some Member States 

(e.g. the UK, Germany, and Finland) SMS volumes have declined during the first half of the 2010s, 

while the use of OCS messaging increased. In other Member States (e.g. Spain) the decline in 

SMS had already started well before Instant Messaging networks started to become of significant 

size, yet the introduction of OCS seems to have accelerated this decline. In other Member States 

(e.g. Poland, France and Estonia) the impact of OCS on the development of SMS volumes is less 

clear.  

Observed trends in relation to marketing  

The fact that the impact of OCS on telecom volumes and traffic is not equal among Member States 

may have resulted from differences in the marketing of voice and SMS services between Member 

States: France and Poland were front runners with bundling and flat fee pricing of mobile services, 

whereas Spain was late in this respect.  

Testing for substitutability  

The gradual change in marketing of telecom services hinders the analysis of substitution. The 

change from two-part tariff based pricing to flat fee pricing de facto means that the communication 

Study on future trends and business models in communication services 

57 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
services is increasingly free of charge (at the expense of a higher subscription fee). This means 

that a SSNIP test cannot be performed on the basis of econometrics. Moreover, the fact that 

telecom services are increasingly bundled with internet access services and TV services raises 

similar issues. 

A survey based approach suffers, in a lesser degree, from similar limitations as the econometric 

approach and may therefore not lead to a market definition lege artis. Nonetheless, a survey 

probing for reasons for using or not using OCS rather than telecom services can provide (strong) 

indications as to functional substitutability and of user behaviour. 

The main conclusions regarding substitutability of OCS and telecom services are: 

  The fact that everybody can be reached using the telephone numbering plan is an important 

reason for people to keep a telephony subscription, but that does not prevent them from being 

subscribed to OCS as well. Hence, using OCS does not imply or require people to terminate 

their telephony subscription; 

  People experience little to no major barriers to using OCS, besides being concerned about 

privacy. An important reason for people not to rely only on OCS voice services is (i) they are not 

always and everywhere online, and (ii) not everyone can be reached via OCS voice. This barrier 

is very much context related and becomes less important as social networks grow and mobile 

broadband coverage increases; 

  Price is an important factor determining the choice between using traditional telecom services 

and OCS; 

  Other factors determining the choice are: (i) OCS offer more functionality in terms of group 

calls/messages; and (ii) file sharing; 

  Online communication services are considered a substitute for traditional communication 

services in the perspective of end-users.  

58 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
3 

Impact on market performance 

This chapter first provides a description and analysis of the trends in the key performance indicators 

(KPIs) of telecom operators, such as: revenues; costs; profits; and investments. Secondly, the 

chapter provides an analysis of the impact of the rising popularity of OCS on these KPIs. This 

analysis is based on a regression analysis as well as economic modelling. 

3.1  Trends in revenues, profits and investment 

3.1.1  Revenue developments in the EU 

Between 2008 and 2014 fixed and mobile revenues have been declining in the EU, each with 
19%75. In both markets, the decline is mainly driven by a decline in traffic related revenues. Mobile 
voice related revenues declined 46% and fixed voice related revenues declined 34%76. The decline 
in mobile voice revenues has been mitigated by a strong increase in data revenues of 76%, while 
fixed subscription revenues increased only 9%77 78. 

The description above applies to the EU as a whole as well as to most Member States that we have 

examined. However, in some Member States, we observe a few exceptions: 

 

 

 

In Germany, fixed subscription revenues have increased with 40%79, thereby mitigating the 
effect of a 40%80 reduction in voice related revenues; 
In France, mobile data revenues have more than doubled between 2008 and 201281, thereby 
more than compensating the 18%82 decline in mobile voice revenues. However, after 2012, the 
growth in mobile data revenues stagnated and the decline in mobile voice related revenues 
accelerated and dropped another 30%83 between 2012 and 2014; 
In Poland, mobile voice related revenues experienced only a short term dip in 2008 and 

remained rather constant during the following years.  

The trends described above can be observed in Figure 3.1 and Figure 3.2. 

75   Mobile revenues declined from 164 billion euros in 2008 and to around 132 billion euros in 2014. Fixed revenues declined 

from 78 billion euros in 2008 to around 63 billion euros in 2014. 

76   Mobile voice revenues From 125 billion euros in 2008 to 65 billion euros in 2014. Fixed voice revenues declined from 50 

billion euros in 2008 to 33 billion euros in 2014. 

77   Mobile data revenues increased from 35 billion euros to 65 billion euros and fixed subscription revenues increased from 27 

billion euros to 30 billion euros. 

78   Note that fixed subscription revenues include revenues for broadband and voice subscriptions, they do not include 

revenues from other services like line rental, linear TV, Video-on-Demand, or B2B services like cloud computing, etc. 

79   From 5 billion euros in 2008 to 7 billion euros in 2014. 
80   From 10 to 6 billion euros. 
81   From 4.5 billion euros in 2008 to around 10 billion euros in 2012. 
82   From 19 billion euros in 2008 to 15.5 billion euros in 2012. 
83   To 11 billion euros in 2014. 

Study on future trends and business models in communication services 

59 

 
 
 
 
 
 
 
 
 
 
                                                           
Figure 3.1 Mobile and Fixed revenues in the EU (x million Euros) 

EU mobile 

EU fixed 

100000

80000

60000

40000

20000

0

Mobile voice

Mobile data

Voice revenues

Subscriptions

200000

150000

100000

50000

0

Source: Gartner. 

Figure 3.2 Mobile and Fixed revenues in Member States (x million Euros) 

DE mobile 

DE fixed 

25000

20000

15000

10000

5000

0

20000

15000

10000

5000

0

2500

2000

1500

1000

500

0

20000

15000

10000

5000

0

Mobile voice

Mobile data

Voice revenues

Subscriptions

ES mobile 

ES fixed 

8000

6000

4000

2000

0

Mobile voice

Mobile data

Voice revenues

Subscriptions

FI mobile 

FI fixed 

1000

800

600

400

200

0

Mobile voice

Mobile data

Voice revenues

Subscriptions

60 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
FR mobile 

FR fixed 

12000
10000
8000
6000
4000
2000
0

Mobile voice

Mobile data

Voice revenues

Subscriptions

PL mobile 

PL fixed 

4000

3000

2000

1000

0

Mobile voice

Mobile data

Voice revenues

Subscriptions

UK mobile 

UK fixed 

15000

10000

5000

0

30000
25000
20000
15000
10000
5000
0

8000

6000

4000

2000

0

40000

30000

20000

10000

0

Mobile voice

Mobile data

Voice revenues

Subscriptions

Source: Gartner. 

3.1.2  Revenue developments outside the EU 

Fixed revenues in the United States have developed similar to the developments in the EU. Overall 

revenues declined 13% as a result of 44% decline in traffic related revenues which was 
compensated by a 27% increase in subscription related revenues84. Mobile revenues in the US 
developed notably differently. Mobile revenues increased with 57% as a result of 16% decline in 
traffic related revenues and a 312% increase in data related revenues85. See also Figure 3.3 
through Figure 3.5. 

84   Between 2008 and 2014, overall fixed revenues declined from 63 billion euros to 55 billion euros; traffic related revenues 
declined from 36 billion to 20 billion euros; and subscription revenues increased from 27 billion to 35 billion euros.  

85   Between 2008 and 2014, overall mobile revenues increased from 108 billion euros to 171 billion euros; voice related 

revenues decreased from 85 billion to 72 billion euros; and subscription revenues increased from 24 billion to 99 billion 
euros. 

Study on future trends and business models in communication services 

61 

 
 
 
 
 
 
 
 
 
 
 
                                                           
Figure 3.3 Mobile and Fixed revenues in the United States (x million Euros) 

US mobile 

US fixed 

150000

100000

50000

0

Mobile voice

Mobile data

Fixed voice revenues

Fixed subscriptions

200000

150000

100000

50000

0

Source: Gartner. 

Similarly, in South-Korea and Japan mobile revenues have increased between 2008 and 2014 as a 

result of growing data/subscription revenues, respectively 27% and 7%. Also fixed revenues 

increased: with 18% in South Korea and 14% in Japan. In South-Korea mobile data revenues 

doubled while mobile voice revenues declined only slightly (5%). South-Korean fixed subscription 

revenues grew with 31%, while traffic related revenues remained constant. In Japan, voice related 

revenues declined in both markets (53% in mobile and 20% in fixed) while data and subscription 

related revenues grew strongly in both markets (100% in mobile and 50% in fixed). In Japan, as of 

2012, the growth in data and subscription related revenues stagnated, having a negative effect on 

overall revenues in the fixed and mobile market. 

Figure 3.4 Mobile and Fixed revenues in South Korea and Japan (x million Euros) 

S-K mobile 

S-K fixed 

20000

15000

10000

5000

0

80000

60000

40000

20000

0

10000

8000

6000

4000

2000

0

Mobile voice

Mobile data

Fixed voice revenues

Fixed subscriptions

JP mobile 

JP fixed 

50000

40000

30000

20000

10000

0

Mobile voice

Mobile data

Fixed voice revenues

Fixed subscriptions

Source: Gartner. 

In Brazil, mobile telecom revenues have developed notably different than in the other countries that 

we examined. Between 2008 and 2012, mobile voice related revenues increased strongly with 

79%, as well as mobile data with 313%. An important driver behind this trend may have been the 

fact that Brazil has been lagging in terms of mobile penetration compared to the other countries and 

62 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
has been catching up extremely fast.86. Between 2012 and 2014 mobile voice related revenues 
declined 20% while data revenues further increased with 7%. 

Figure 3.5 Mobile and Fixed revenues in Brazil (x million Euros) 

BR mobile 

BR fixed 

30000
25000
20000
15000
10000
5000
0

Mobile voice

Mobile data

Fixed voice revenues

Fixed subscriptions

40000

30000

20000

10000

0

Source: Gartner. 

3.1.3  Costs, profits, and investments in the EU 

According to Eurostat, between 2008 and 2013, fixed EBITDA margins have gone slightly up: from 

30% to 33%; resulting in stable EBITDA levels of around 23 billion euros. Together with the decline 

in revenues, this implies a decrease in fixed operating expenditures (OPEX) of 17%. According to 

ETNO, the level of annual fixed investments (CAPEX) has not significantly changed.  

According to Eurostat, between 2008 and 2012, mobile EBITDA margins have gone down: from 

36% to 26%. Mobile EBITDA levels declined with 32%, from 58 billion to 40 billion. While mobile 
revenues only declined by 8% during this period87, this implies an increase in mobile operating 
expenditures of 6%. From 2012 to 2013, mobile OPEX follows the decline in revenues. According 

to ETNO, for the period, mobile operators have maintained their annual investment level fairly 

constant.  

The above trends can be observed in Figure 3.6. 

86   Note that in 2006 only half of the population had a mobile phone, whereas in 2008 mobile penetration reached 100% 

http://blog.euromonitor.com/2012/06/brazil-aims-to-reach-one-billion-mobile-telephone-subscriptions-by-2022.html For 
comparison, already by 2000 the mobile penetration rate in most EU countries was between 60 to 90 (see Ecorys et al 
(2011) Steps towards a truly internal market for e-communications”. 

87   From 163 billion to 150 billion euros. 

Study on future trends and business models in communication services 

63 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Figure 3.6 Key Performance Indicators (EU27)  

Fixed 

Mobile 

90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0

180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0

(F)revenues*

(F)Capex**

(M)revenues*

(M)Capex**

(F)Ebitda***

(F)Opex****

(M)Ebitda***

(M)Opex****

Source: *Gartner, **ETNO88, *** Eurostat89, ****Derived from Eurostat (opex = revenue - ebitda). 
Note that Eurostat does not provide data for 2013 on the values for EBITDA. For fixed we have been estimated the 2013 
EBITDA levels on the basis of the counter factual analysis in section 3.2. For mobile we have estimated the value on the basis 
of data on EBITDA margins provided by GSMA (2014)90. For the years before 2013, the GSMA data is consistent with the data 
from Eurostat.  

A KPI that shareholders and investors are following closely is EBITDA91. As such, a reduction in 
fixed OPEX is a logical reaction of telecom operators to the decline in revenues and most operators 
defined ‘limiting costs’ as a strategic objective in their annual reports92. However, most operators 
did not specify in their annual reports how they intended to realise this objective. Liberty Global is 
most specific in its annual report of 201493 on identifying (in retrospect) drivers of fixed OPEX: 
  A decrease in network-related expenses; 

  An increase in programming and copyright costs; 

  A decrease in outsourced labour and professional fees; 

  An increase in installation and other direct costs associated with B2B services (in the UK); 

  A decrease in bad debt and collections expenses; 

  And a decrease in personnel costs. 

An analysis of annual reports of a selection of mobile operators94 has provided some explanation 
for the observed trend in mobile operating expenses. Additional information on cost drivers has 

been found on the basis of a literature review: 

  First, several operators mention in their annual reports that operating expenses have 

experienced upward pressures from selling and distribution expenses. According to Capgemini 
(2009)95 these costs form the single largest OPEX element for most mobile operators (over a 
third of total mobile operating expenses). The majority of these costs (69%) are made up of 

handset subsidies and dealer commissions (15%). Notably the rising handset replacement rates 
(replacing feature phones for smartphones) have pushed phone subsidies upward since 200896 
and since 2012 mobile operators have targeted to reduce these costs97; 

88   ETNO Annual Economic Reports (2012 – 2014). 
89   Annual detailed enterprise statistics for services (sbs_na_1a_se_r2_1). 
90   GMA (2014), The Mobile Economy – 2014. 
91   See HSBC (2015a), “Supersonic - European telecoms mergers will boost capex, driving prices lower and speeds higher”, 

HSBC Global Resarch, Telecoms, Media & Technology, April 2015. 

92   See annual reports of BT, Liberty Global, Deutsche Telekom, and Telefonica. 
93  
94  
95   CapGemini (2009), “Quest for Margins: Operational Cost Strategies for Mobile Operators in Europe”, Telecom & Media 

http://www.libertyglobal.com/pdf/ar/annual-report-2014.pdf. 
Including Tele2, Vodafone, DT and Telefonica. 

96  

97  

Insights Issue 42. 
http://www.fiercewireless.com/europe/story/smartphone-costs-wipe-out-arpu-gains and Ericson’s Annual Report 2009 
(section on market trends). 
https://gsmaintelligence.com/research/2012/03/european-operators-look-to-cut-smartphone-subsidies-to-preserve-data-
gains/327/. 

64 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
                                                           
  Second, rising data traffic and increasing network complexity have an upward effect on 

operator’s OPEX98. For example, in order to meet demand for higher data rates, networks are 
built with smaller cells. As such, the number of cell sites increases, as well as the maintenance 

and rental costs for these sites. According Capgemini (2009), a large share of network related 

OPEX (36%) is related to Site Maintenance and & Rental. Other sources have estimated these 
costs to amount to over 50% of network related OPEX99. In addition, the expenses related to the 
lease of backhaul (9% of network OPEX) are growing as fibre-based backhaul (which is 

typically leased) is replacing microwave backhaul (which is typically owned) in order to realise 
the growing demand for mobile data100. Network OPEX accounted for over 26% of overall 
mobile OPEX101. 

3.2  The impact on revenues  

3.2.1  Methodology for analysis 

Top-down and bottom-up analysis 

We use a top-down regression based trend analysis and a bottom-up sector model to identify the 

impact of the rising popularity of OCS on telecom revenues. A similar ‘double strategy’ was followed 
by Ellerman and Feilhauer (2008)102. The basic idea of the analysis is to identify indications of 
causality that allow for making claims such as “If A had not occurred, C would not have happened”; 
such analysis is also referred to as a counterfactual analysis103. A counterfactual may serve to 
analyse the impact (C) of an event (A) on the development of a particular metric. The impact (C) 

caused by the event (A) can be expressed in terms of the difference between the factually observed 

development in the metric (the factual) and the development of the metric had the event (A) not 

occurred (the counterfactual). Visually, this analysis looks like Figure 3.7, where the blue shaded 

area indicates the size of the impact. 

Figure 3.7 Visual presentation of a counterfactual analyses  

 25,000

 20,000

 15,000

 10,000

 5,000

 -

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Pre 200X

post 200X

counterfactual

Note: the data points in this figure are for illustrative purposes. 

The regression based top-down approach and the bottom-up sector model are complementary. The 

first identifies correlations between variables. When two variables are strongly correlated, this may 

http://delayus.net/2015/07/02/top-ten-pain-points-for-mobile-operators/. 
http://alphaantennas.com/wp-content/uploads/2015/02/White-Paper-Antenna-quality-.pdf. 

98  
99  
100   See Capgemini (2009). 
101  
102   While analysing the impact of the European emissions trading system (ETS) on emission abatements in Germany. 
103   http://plato.stanford.edu/entries/causation-counterfactual/. 

Ibid. 

Study on future trends and business models in communication services 

65 

 
 
 
 
 
 
 
 
 
 
                                                           
serve as an indication of causality. But correlation does not say anything about cause and effect. In 

order to proof causality, additional qualitative or formal (mathematical) analysis is needed to 

describe the mechanisms behind the cause and its effects, and to exclude the possibility that 
correlation occurred merely by chance104.  

The complementarity also works the other way around. Regression analyses are typically based on 

hypotheses that have been developed on the basis of some theory of causality. If such theory is 
lacking, the risk of finding a correlation by chance increases105. A first step in the analysis is thus to 
develop a theory of causality to answer the question: what drives telecom revenues? 

Towards a theory of causality 

The previous chapter already provided a number of useful insights for answering what may drive 

revenues. We concluded that: 

  Fixed and mobile revenues from voice and SMS traffic are declining; 

  Traffic is either decreasing (SMS and fixed voice) or the growth is stagnating (mobile voice). 

When telecom operators apply a two-part tariff system and charge by the minute/message, this 

development in traffic will have a negative impact on revenues (all else being equal); 

  OCS are becoming increasingly popular and are becoming substitutes for traditional telecom 

services in the perspective of end-users. The rising popularity of OCS may be a driver of the 

negative / stagnating growth in voice and SMS traffic; 

  Telecom operators were typically used to market their services with a two-part tariff pricing 

strategy, which then evolved into a flat fee pricing strategy. Under the above circumstances, this 

change in strategy may mitigate the negative impact of declining/stagnating traffic on revenues 

through higher subscription rates; 

  Telecom operators have gradually increased the importance of bundling in their marketing 

strategy. Bundling may serve to ‘capture’ end-users by raising search and switching costs (see 
Voogt 2012)106 and at the same time mitigating the effect of flat-fee pricing by preventing end-
users from unsubscribing.  

It is tempting to conclude from these observations that the loss in revenues and the strategic 

choices made by telecom operators regarding pricing and bundling are all caused by the rising 

popularity of OCS. Indeed, there is a number of studies that have forecasted a (further) decline in 
telecom revenues as a result of OCS/OTT competition107 108. However, when taking other market 
conditions into consideration as well, it is not immediately clear whether a loss in revenues (or the 

change in marketing) is either due to the rise of OCS or due to increased competition among 
telecom operators. For example, the European Commission (2015)109 reports that “[a]ccording to 
the French regulator, the mobile telephony sector’s recent fierce competition following the entry of a 

104   http://www.fastcodesign.com/3030529/infographic-of-the-day/hilarious-graphs-prove-that-correlation-isnt-causation. 
105  

"If you torture the data long enough, it will confess to anything." (Varian, Hal R. 2010. "Computer Mediated Transactions." 
American Economic Review, 100(2): 1-10) http://people.ischool.berkeley.edu/~hal/Papers/2010/cmt.pdf. 

106   Voogt, B. (2012): Essays on Consumer Search and Dynamic Committees, Book no. 536, Tinbergen Institute Research 

107  

Series. Ph.D. thesis, Erasmus Universiteit Rotterdam. 
Informa’s World Cellular Revenue Forecasts 2013-2018 concluded that global annual SMS revenues would fall by 20% 
between 2013 and 2018, and that “the decline in global SMS revenues will largely be caused by the continuing adoption 
and use of over-the-top (OTT) messaging applications in both developed and emerging markets”. See Informa’s World 
Cellular Revenue Forecasts 2018; 2013. Available from: http://www.telecoms.com/197721/ott-app-use-undermining-sms-
revenue/. 

108   Similarly, Ovum’s Consumer OTT VoIP Outlook 2013 to 2018 forecasts a global annual loss of 5% of total revenues: “The 
telecommunications industry will lose a combined $386 billion between 2012 and 2018, the firm predicts, from customers 
using over-the-top (OTT) voice applications” $386 billion is about 5% of total forecasted revenues for this period (7500 
billion euros) as reported by Statista (see http://www.statista.com/statistics/268628/worldwide-revenue-from-
telecommunications-services-since-2005/). 
Consumer OTT VoIP Outlook: 2013 to 2018 [2013] by Ovum. Available from: http://fortune.com/2014/06/23/telecom-
companies-count-386-billion-in-lost-revenue-to-skype-whatsapp-others. 

109   European Commission (2015), Implementation of the EU regulatory framework for electronic communication - 2015, 

Commission staff working document, SWD(2015) 126 final, Brussels, 19.6.2015. 

66 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
                                                           
 
new operator three years ago, led to a price decrease of 27 % between 2012 and 2013.” Another 

example is Fiercewireless (2013) reporting that Spanish MNOs have adopted the multi-play 
strategy as a response to fierce MVNO competition.110  

The causality between the rising popularity of OCS and a reduction in telecom revenues is likely 

more subtle. Some researchers have stressed that besides a substitution effect there is also a 

degree of complementarity between OTT services and internet access services, driving demand for 
the latter and mitigating a negative effect of OCS substitution for telephony and SMS services111. 
However, the ability of telecom operators to monetise an increased willingness to pay for Internet 

access may be mitigated by the fact that OTT competition tends to commoditise the value 
proposition of telecom operators vis-à-vis end-users112, which increases the intensity of price-
competition among operators113 and may trigger a bundling strategy to reduce churn114. Hence, the 
above observations with regards to increased competition in the French and the Spanish market 

may have resulted from the increased popularity of OCS after all. But then again, increased 

competition between operators may also result from regulatory Art. 7 interventions by the NRA’s, by 

the entry of new competitors following a radio frequency spectrum auction, or in response to events 

that facilitated switching behaviour of end-users (e.g. the introduction of a website for comparing 

service offerings). 

Moreover, a decline in revenues may also stem from regulatory changes. For instance, the 

European Commission (2015) reports for Poland that “with regard to mobile, the decrease in 

revenues was mostly attributed to the decrease in MTRs as of 1 July 2013.” In addition we note that 

the European Commission’s roaming regulation has likely resulted in decreased revenues for 

telecom operators. As such, any correlation between the rising popularity of OCS and declining 

telecom revenues may (partially) be coincidental. 

Last, but not least, the popularity of OCS has increased during a period of economic downturn. It 
has been argued that the global economic downturn has also affected telecom revenues115. 

3.2.2  Regression approach 

Hypotheses 

From the previous arguments we position the following hypotheses that have been tested on the 

basis of regression analysis: 

H 1.  The rising popularity of OCS has negatively affected telecom revenues; 

H 2.  Macroeconomic developments (GDP/capita) have affected telecom revenues; 

H 3.  Regulation of roaming has negatively affected telecom revenues; 

H 4.  Regulation of termination rates have negatively affected telecom revenues. 

A fifth hypothesis could be positioned claiming that increasing competition has caused the decline 

in telecom revenues. However, as explained above, an increase in competition among telecom 

operators may have resulted from an increasing popularity of OCS. Therefore, a one-way causality 

110   http://www.fiercewireless.com/europe/special-reports/how-operators-are-fighting-against-falling-arpu. 
111   Peitz, M., H. Schweitzer and T. Valletti (2014). Market Definition, Market Power and Regulatory Interaction in Electronic 

Communications Markets. CERRE study. Centre on Regulation in Europe (29 October 2014) 
http://www.cerre.eu/sites/cerre/files/141029_CERRE_MktDefMktPwrRegInt_ECMs_Final.pdf. 
Peitz, M. and T. Valletti (2014). Reassessing Competition Concerns in Electronic Communications Markets, ZEW 
Discussion Paper No. 14-101 http://ftp.zew.de/pub/zew-docs/dp/dp14101.pdf. 

112   http://www.lightreading.com/cable-video/ott/report-iptv-competitors-are-over-the-top/d/d-id/643815. 
113   Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer (2013), “Competition for Attention”, Working Paper, 

http://isites.harvard.edu/fs/docs/icb.topic1201888.files/Shleifer_Competition_Attention_Feb3.pdf. 

114   See Ecorys, Idate and KULeuven (2013),“ Future electronic communications markets subject to ex-ante regulation”, a 

study commissioned by the European Commission, DG Connect. 

115   http://www.itu.int/osg/csd/emerging_trends/crisis/fc12.html. 

Study on future trends and business models in communication services 

67 

 
 
 
 
 
 
 
 
 
 
 
                                                           
 
may be running from the first to the fifth hypothesis, causing a correlation between the first and the 

fifth hypothesis. This makes it difficult to test the fifth hypothesis on the basis of regression 
analysis116.  

Hence, we take the first four hypotheses for analysing the extent to which the factors positioned 

have had an impact on revenues. The impact from a possible increase in competition among 

telecom operators that has resulted from hypothesis 1 will be captured in the regression analysis. A 

possible impact from other causes of increased competition among telecom operators are ignored 

by the regression analysis. The impact of these other causes can be taken into account in the 

bottom-up modelling approach. 

Data 

For the analysis we used aggregate EU data rather than Member State panel data. The reason is 

twofold. First, revenues at country level are influenced by country specific exogenous shocks (such 

as an Art. 7 decision, a radio spectrum auction, or other events facilitating switching by end-users). 

If not accounted for in the regression (e.g. by the use of year dummies) these shocks may ‘pollute’ 
the outcomes117. However, such events have taken place in all Member States, be it at different 
times and with different frequencies. Hence, when looking at the market at the EU level, these 

shocks average out and have resulted in a more gradual trend towards more competitive markets. 

When a trend is not captured properly (as opposed to a shock), this only affects the residual of the 
model, but not so much the explanatory power of the variables that have been captured118. A 
second argument is that the data on the prime variable which we want to test (i.e. the popularity of 

OCS, either in terms of number of users or in terms of messages sent) is reported by the OCS 

companies themselves at a global level. The availability and quality of the country level data on the 
popularity of OCS is inadequate119.  

The data used for the analysis is presented in Figure 3.8. It includes: total EU mobile revenues; EU 

roaming revenues; the level of mobile termination rates; average GDP per capita; and data on the 

global number of annual messages sent per person on WhatsApp, as a proxy of the overall use of 
OCS120.  

116   Moreover, there is a practical problem in that it is difficult to obtain a single EU wide indicator of competition among 

117  

telecom operators as we have to do the analysis with aggregate EU level data for revenues, termination rates and roaming 
rates. 
In a regression that makes use of panel data one needs to identify these shocks for each country and account for such 
shocks with country specific year dummies. This is a very time consuming exercise with the risk of being useless when as 
a consequence of the use of many year dummies, the degrees of freedom deteriorate. 

118   While not capturing a shock may destroy the results all together. 
119   Moreover, we are aware that ideally we should use data at the European level. But such data was not available to us. 
120   WhatsApp is chosen for practical reasons of availability of data. 

68 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
                                                           
Figure 3.8 data used for regression analysis 

2500

2000

1500

1000

500

0

0
0
0
0
0
0
x

s
e
u
n
e
v
e
R
g
n
m
a
o
R

i

14000

12000

10000

8000

6000

4000

2000

0

0
0
0
x

s
e
t
a
R
n
o
i
t
a
n
m
r
e
T

i

1
x
p
a
c
P
D
G
/
p
p
M

I

l

a
u
n
n
a

30000

25000

20000

15000

10000

5000

0

180000
160000
140000
120000
100000
80000
60000
40000
20000
0

0
0
0
0
0
0
x

s
e
u
n
e
v
e
r

l

a
t
o
T

Roaming Revenues

MTR (x 1000)

FTRx1000

GDP/c

OCST

TMR

FVR

Source: MTR/FTR = BEREC Annual Report 2014 (p. 79 and p. 81) and the Digital Scoreboard 2011 (Pillar 4 Fast and ultra-fast 
internet access, p. 48). 
Source: Roaming= ERG and BEREC annual reports on roaming, calculated on the basis of roaming charges x roaming minutes. 
Source: GDP/cap= Eurostat. 
Source: OCS T = Statista reports figures on annual message sent per person by WhatsApp users since 2011 (data pre-2011 is 
estimated assuming an S-shaped development)121.  
Source: TMR/FVR = Total Mobile Revenues and Fixed Voice Revenues are taken from Gartner. 

We followed a structured approach to running the regressions, starting with testing H1 only, and 

when found significant, exploring if we could improve the model by adding a next variable to the 

equation. Next we followed a reverse approach, starting with H4 only and gradually extending the 

set of variables. In order to account for a potential shock effects from the introduction of OCS we 

also included year dummies.  

Results 

In total we ran 8 regressions for the fixed and for the mobile market. None of the regressions for the 

fixed market resulted in statistically significant results indicating an impact from the rising popularity 

of OCS. For the mobile market, Table 3.1 shows the results of the 5 statistically significant 
regressions122. 

Table 3.1 Regression results  

Model  

1  

2  

3  

4 

5 

Hypothesis 

H1 only 

H1 and H2 

H1, H2 and H3 

H1 to H4 

H1, H2 and H4 

value 

p 

value 

p 

value 

p 

value 

p 

value 

p 

OCST 

-1.987 

0.000 

-2.665 

0.000 

-1.939 

0.001 

-2.010 

0.017 

-2.133 

0.013 

GDP/cap 

MTR 

RR 

5.313 

0.022 

4.326 

0.01 

5.092 

0.044 

3.946 

0.083 

1.229 

0.025 

2.682 

-8.022 

n.s. 

n.s. 

3.747 

n.s. 

Constant 

160,121 

0.000 

25,435 

n.s. 

40,923 

n.s. 

25,177 

n.s. 

52,668 

n.s. 

prob > F 

0.0001 

0.0001 

0.0001 

0.0072 

0.0026 

Note: n.s. = not significant. 

Models 1 to 3 provide for a very good fit with p values considerably below 5%. Model 4 (adding 

Roaming Revenues as an explanatory variable) appears to deteriorate the model’s fit. This may be 

caused by multicollinearity. Multicollinearity occurs if two or more explanatory variables in a multiple 

regression model are highly correlated. In this case, roaming revenues are correlated with 

121   We are aware that WhatsApp did not exist before 2009, but there were other apps in use such as the BlackBerry 

messenger.  

122   The other models were all statistically insignificant. 

Study on future trends and business models in communication services 

69 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
termination rates - this can easily be observed in the left panel of Figure 3.8. Because of 

multicollinearity, the coefficient estimates for the correlated variables become unreliable (but the 

predictive power or reliability of the model as a whole may not be affected). Model 5 shows that the 

use of roaming revenues instead of termination rates does not improve the fit of the model.  

Counterfactual 

Model 3 provides the best overall fit. It follows that the significant variables are the use of instant 

messaging, the development of GDP per capita, and the regulated termination rates. Also the signs 

of the variables are as expected. Figure 3.9 below shows the observed values for mobile revenues 

(thick blue line) and plots the values as predicted by model 3 (thin orange line). There is nearly a 

perfect match. When setting the values for the use of instant messaging at zero, the model predicts 

that mobile revenues would have increased as of 2010, driven by an increase in nominal GDP per 

capita (see the dashed line ‘model 3 CFA’).  

Figure 3.9 Regression outputs for model 3 

s
o
r
u
e
n
o

i
l
l
i

m

170000

160000

150000

140000

130000

120000

110000

100000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 

Total Mobile revenues

Model 3

Model 3 CFA

For the year 2014, the difference between the counterfactual (model 3 CFA) and the actual 

observations is around 28 billion euros or 18% of the counterfactual revenues.  

Forecast 

On the basis of forecasts of how dependent variables will progress during the next say 10 years, 

and in combination with regression model 3 above, we develop a forecast about future mobile 

revenues, all else being equal.  

We assume that between now and 2025, GDP/capita will grow with an average of 1.5%. This 
assumption is based on the European Commission’s Ageing Report 2015123. On the use of OCS 
we assume that the trend will progress in an S-shape. As mentioned above, the S-shaped 

development is characteristic for the take-up of technology as well as the growth of social 
networks124. With respect to the level of termination rates, the revenue forecasts are not sensitive 
since termination rates are already at a (very) low level compared to the levels in 2005. We assume 

that termination rates will be gradually regulated further downward as telecom operators will 
gradually migrate to Voice over LTE, which provides costs savings125 and thereby lowers BULRIC 
levels. See also Figure 3.10. 

123   http://europa.eu/epc/pdf/ageing_report_2015_en.pdf. 
124   See footnotes 17 and 18. 
125   http://www.gsma.com/network2020/volte/. 

70 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
Figure 3.10 Forecast of the future development of identified dependent variables 

)
o
r
u
e
(
p
a
c
P
D
G
/
p
p
M

I

l

a
u
n
n
a

35000

30000

25000

20000

15000

10000

5000

0

14000

12000

10000

8000

6000

4000

2000

0

0
0
0
1
x
R
T
M

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

9
0
0
2

0
1
0
2

1
1
0
2

2
1
0
2

3
1
0
2

4
1
0
2

5
1
0
2

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

0
2
0
2

1
2
0
2

2
2
0
2

3
2
0
2

4
2
0
2

5
2
0
2

OCST

OCT-F

GDP/c

GPD/c-F

MTR x 1000

MTR-F

Source: MTR  
Source: GDP/cap  
Source: OCS T  

= BEREC Annual Reports 2014 and the Digital Scoreboard 2011.  
= Eurostat. 
= Statista reports figures on annual message sent per person by WhatsApp users since 2011 (data pre-

2011 is estimated assuming an S-shaped development)126. 

Source: TR  
Source: Forecasts 

= Gartner. 
= see text above the figure. 

Applying the forecasted values of the dependent variables, model 3 of the regression results in a 

forecast of revenues as shown in Figure 3.11. 

Figure 3.11 Forecasted regression outputs for model 3 

200000
180000
160000
140000
120000
100000
80000
60000
40000
20000
0

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

9
0
0
2

0
1
0
2

1
1
0
2

2
1
0
2

3
1
0
2

4
1
0
2

5
1
0
2

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

0
2
0
2

1
2
0
2

2
2
0
2

3
2
0
2

4
2
0
2

5
2
0
2

Total Mobile revenues

Model 3

Model 3 CFA

By 2025, the difference between the counterfactual and the forecasted revenues is around 47 

billion euros, which is around 26% of counterfactual revenues. Note that these forecasts are based 

on the assumption that ‘all else remains equal’. As such, these forecasts do not anticipate 

further strategic responses by telecom operators to mitigate the decline in revenues, or the 

ability of telecom operators to expand their service portfolio (e.g. with M2M specific services).  

126   We are aware that WhatsApp did not exist before 2009, but there were other apps in use such as the BlackBerry 

messenger.  

Study on future trends and business models in communication services 

71 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.2.3  Modelling approach 

In Annex VIII, a basic approach for modelling revenues, profits and consumer utility in the telecom 

sector is presented. It is based on the principles of a standard Cournot model but is adapted to 

capture complementary products (such as subscriptions and voice calls) and associated two-part 

tariff pricing strategies. In this section we explain how the model can be adapted to capture more 

telecom specific features, such as: the interaction of fixed and mobile markets through call 

termination; a growth in GDP; a gradual increase in competition between operators; and the rising 

popularity of OCS. This basic model can be used for analysing the impact on revenues of a change 

in termination rates. For example, ACM follows the basics of the above model for assessing the 

impacts on prices, profits and consumer surplus accompanying the Art. 7 decision of the on MTR 
and FTR by the Dutch regulator ACM127. ACM has further extended the model. They modelled an 
interaction between the fixed and mobile sector by introducing fixed and mobile termination rates in 

the cost equations of mobile and fixed operators and accounting for (cross sector) network 

externalities in the demand function for subscriptions. The basic model can also be used to model 

the impact of a gradual or sudden increase in competition. Moreover, one can model a gradual 

increase in the competition in the market for broadband separately from a gradual increase in 

competition in the market for traffic (e.g. as a result of C(P)S and/or OCS competition). Other 

effects such as GDP growth or autonomous shifts in the preference of end-users from fixed to 

mobile voice services can in theory also be modelled. However, that would require further empirical 

research. 

Modelling the counterfactual  
We take the ACM model as a starting point128 and make the necessary adjustments (see Annex 
VIII). ACM has calibrated the model with country specific parameters in terms of the level of prices, 

the volume of traffic and the number of subscriptions to resemble the initial situation in the 

Netherlands. The model then calculates how these parameters evolve in response to a change in 

the level of fixed and mobile termination rates, subject to parameters that are not country specific 

and remain exogenous. The values for these factors are not country specific as they are based on 

international empirical academic research. These non-country specific variables concern the 

elasticity of demand for calls and for subscriptions, the size of network externalities, the mark-up of 

prices over costs in the market for voice calls (i.e. the cost-pass through), and the size of the 

waterbed effects.  

Rather than recalibrating the model, we left the model as it was (i.e. resembling the Netherlands as 

it was in 2010), be it that we let competition in the market for traffic grow thereby resembling the 
rising popularity in OCS and prices for traffic approaching marginal costs. Next we applied the 
values for EU average termination rates and let the model calculate the corresponding values for 

traffic, subscriptions and revenues for the previous and the next years. Subsequently, we 

normalised the revenue outcomes by setting 2005=1. For the counterfactual analysis we let 

competition in the market for traffic grow steadily as of 2010, at the average rate of growth during 

the period 2005-2010. I.e. we modelled the situation as if online communication services did not 

exist, assuming a gradual increase in the competition in the fixed and mobile telecom markets.  

127   See the reverence to Annex D and E at https://www.acm.nl/nl/publicaties/publicatie/11831/Besluit-marktanalyse-vaste-en-

mobiele-gespreksafgifte-2013-2015/. 

128   We note that this model only allows for modelling the fixed and mobile voice markets. It does not allow for incorporating 

SMS and data services. As such the modelling approach is limited as it cannot account for the potential substitution of text 
for voice or the rising share of data revenues in the overall revenues. The first effect we ignore as it is a (partial) clawback 
effect. The second effect is not a problem for the analysis of the fixed market as the data clearly distinguishes between 
revenues from traffic, voice subscriptions and broadband subscriptions. For the mobile market the second effect is a 
problem as the data only distinguishes between voice related revenues (i.e. aggregate figures on traffic and subscriptions) 
and data revenues. For practical reasons we treat data revenues as subscription revenues and the remainder as traffic 
related revenues. 

72 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
                                                           
Note that we did not model the impact of the development of GDP/cap, nor did we model a possible 

autonomous shift in end-users preference from fixed to mobile services. 

Results 

The results of the analysis are presented in Figure 3.12.  

Figure 3.12 Factual and counterfactual for fixed and mobile revenues (voice and total)  

Mobile 

Fixed 

1.05
1
0.95
0.9
0.85
0.8

1.05

1

0.95

0.9

Modelled mobile

CFA mobile

Modelled fixed

CFA fixed

Source: calculation on the basis of adaptation of ACM’s termination model. 

From the comparison it follows that by 2015 mobile revenues have decreased (up to 5.5% 

compared to the counterfactual) as a consequence of the rising popularity of OCS, while fixed 

revenues have increased (up to 0.75% of counterfactual revenues by 2015). The latter effect 

follows from the way the interaction between the fixed and mobile market has been modelled. 

Again, these results do not account for an income effect resulting from changes in GDP/cap and do 

not account for a possible autonomous shift in end-user preferences from fixed to mobile services. 

Both effects (resulting in an outward and upward shirt of the demand for mobile telephony services) 

may have mitigated the impact of a rising popularity of OCS.  

3.3 

Impact on profits and investments 

3.3.1 

Impact on costs and profits 

Impact on costs and profits of fixed networks 

We have observed in section 3.1.3 that in absolute terms fixed EBITDA has remained rather 

constant over time, despite a structural decline of fixed revenues. The fact that EBITDA has 

remained constant is the result of measures taken by telecom providers to lower fixed network 

related OPEX (see section 3.1.3). We did not find arguments that directly relate reductions in fixed 

OPEX to a rising popularity of OCS platforms. The reduction in OPEX was rather a response to 

declining revenues in order to fulfil expectations of shareholders and investors (see section 3.1.3).  

We have concluded in the previous section that we cannot find evidence supporting the hypothesis 

that the decline in fixed revenues is driven by the rising popularity of OCS platforms. As such we 

conclude that the rising popularity of OCS platforms did not have an impact on fixed OPEX or 

EBITDA. 

Impact on costs and profits of mobile networks 

The rising popularity of OCS platforms most likely had an impact on mobile costs and profits. From 

the previous section we conclude that the decline in mobile revenues is partly driven by a rising 

popularity of OCS platforms. All else being equal, this negatively affects profits. However, all else is 

not equal.  

Study on future trends and business models in communication services 

73 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Similar as for fixed, mobile operators have responded to a decline in revenues with intentions (and 

likely also measures, but it is unclear which measures) to reduce OPEX. These intentions were 

expressed in the annual reports of operators. These intentions might not have been expressed if 

revenues were not declining as a result of the rising use of online communication services. 

Furthermore, rising demand for mobile broadband and a (temporal) rise of handset replacement 

rates have had an upward effect on mobile OPEX, more than offsetting measures to reduce costs 

(see section 3.1.3). These upward drivers are not directly related to the popularity of OCS 
platforms129. However, there may have been an indirect effect as OCS platforms and smartphones 
are imperfect complements, and smartphones and mobile data consumption are also imperfect 

complements. Complementary products are products for which the popularity of one drives demand 
for the other, this effect goes both ways130.  

With perfect complements there is a one-to-one relation between demands for both services131. 
With imperfect complements the relation is less strong. We do not know how strong the 

complementarities between OCS, smartphones and data consumption are. It therefore is not 

possible to quantify potential indirect upward effects of an increased use of OCS on mobile OPEX. 

Moreover, although we have an indication of how much revenues mobile operators have lost due to 

rising OCS usage, it is impossible to deduct from this information how much costs saving this may 

have caused.  

If we assume that any possible upward and downward effects on OPEX as a result of rising OCS 

usage more or less balance out, the decline in mobile revenues as a result of increased OCS usage 

translates one-to-one in lower profits. Under this assumption, Table 3.2 shows the impact of the 

rising OCS usage on EBITDA and EBITA margins. Taking the EBITDA margin of 2010 (33%) as a 

reference point, mobile EBITDA margins would have grown (decreased) to 40% (32%) in 2013. 

This is a considerable increase compared to the factually observed EBITDA margin in 2013 (28%). 

Table 3.2 Impact of OCS on mobile EBITDA 

2010 

Factual 

156,992 

105,970 

51,023 

33% 

Revenues 

OPEX 

EBITDA 

Margin 

Factual 

133,077 

95,682 

37,395 

28% 

2013 

Counter factual 

Regression 

Modelled 

158,490 

141,000 

95,682(f) 

95,682(f) 

62,808 

40% 

45,318 

32% 

(f) = factually observed OPEX, assuming that any possible upward and downward pressures from increased OCS usage on 
OPEX balance out. 

3.3.2 

Impact on investments 

In section 3.1.3 we showed data confirming that investment levels in the EU (both fixed and mobile) 

have remained rather constant over time, with a dip between 2008 and 2010 when the financial 

crisis was at its peak. Figure 3.13 shows that data again. 

129   Online communication has (so far) not involved the transmission of a huge amount of data (this may change if mobile 

video conferencing were to become more popular). 

130   They are complements in a similar way as are demand/supply for content and the demand/supply for connectivity (see the 

Digital Agenda).  

131   An example of perfect complements is the left and the right shoe in a pair of shoes. 

74 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Figure 3.13 Mobile and fixed investments in the EU  

29,000

27,000

25,000

23,000

21,000

19,000

17,000

15,000

2005 2006 2007 2008 2009 2010 2011 2012 2013

CAPEX

CAPEX

Source: ETNO. 

As we did not find substantive evidence indicating that fixed revenues, costs, or profits have been 

affected by the increased popularity of OCS platforms, we see no reason for hypothesising a 

potential impact on fixed investments.  

The aggregate EU data does not provide indications that mobile telecom operators have invested 

less than they would have in the absence of pressures on revenues and profits (either from OCS 

competition or anything else). In fact, from the time OCS competition started to have an effect on 

telecom revenues in 2010, mobile CAPEX started to slightly increase. However, it is possible that 

telecom operators would have invested more in the absence of rising OCS competition. Given that 

network investments are (very) long term investment decisions, it is possible that any negative 

impact of OCS competition on investments materialises with a delay of a few years (and our most 

recent data is only from 2013) and only when the pressures on revenues and profits are of a long 

term structural nature. Whether these pressures from OCS competition are of a structural nature 

depends on the ability of telecom operators to redefine their revenue models as well as offer 

additional services within their service portfolio. We explore these aspects in chapter 5. 

If OCS competition causes structural pressures on telecom revenues and profits, this may 

eventually have a negative effect on investment levels. However, the relation between profits and 
investments is not straightforward. This is explained by Ecorys et al (2011)132. Arrow (1962)133 
argues that in a competitive industry (i.e. industries in which firms compete more heavily and 

thereby realise lower profits margins) firms have much more to gain from innovation in order to 

“escape” competition. The incentives for innovation are therefore much larger. However, following 
Schumpeter, Tirole (1992)134 states that “monopoly situations are natural breeding grounds for R&D 
and if one wants to induce firms to undertake R&D one must accept the creation of monopolies as a 
necessary evil”. Aghion et al. (2005)135 argue that the relationship between product market 
competition and innovation resembles an inverted U-shape and they support this idea with 

empirical analysis.  

Which of the above theories applies to telecom markets is not immediately clear. Bennett et al. 
(2002)136 point out that the mobile telecom industry is different from other research dominated 
industries (like pharmaceuticals) in the sense that a single firm does not typically undertake both 

132   See Ecorys, TNO and TUDelft (2011) “Steps towards a truly Internal Market for e-communications”, a study commissioned 

by the European Commission, DG Connect. 

133   Arrow, Kenneth (1962), “Economic Welfare and the Allocation of Resources for Invention,” in R. Nelson, ed., The Rate and 

Direction of Inventive Activity (Princeton, NJ: Princeton University Press, 1962), pp. 609–625. 

134   Tirole, J. (1992), The Theory of Industrial Organization, Cambridge, Massachusetts/London, England: MIT Press, fifth 

printing. 

135   Aghion, Philippe, Nick Bloom, Richard Blundell, Rachel Griffith and Peter Howitt. "Competition and Innovation: An 

Inverted-U Relationship," Quarterly Journal of Economics, 2005, 120(2), May, pp. 701-728. 

136   Bennet, M., De Bijl, P. W. J. and Canoy, M. (2002). "Future policy in telecommunications - An analytical framework", CPB 

005, The Hague, CPB. 

Study on future trends and business models in communication services 

75 

 
 
 
 
 
 
 
 
 
 
                                                           
research and delivery of telecommunication services. Most of the research is done by specific 

research oriented companies that operate globally. This separation between R&D and service 

delivery renders the emergence of a trade-off between competition and innovation less likely for the 

network operators.  

There is some empirical research into the topic of competition and innovation in mobile markets, 
using investment figures as a proxy of innovation. Friesenbichler (2007)137, using company data on 
investments in EU mobile telecom markets, finds an inverse U-shape relation between competition 
and investments. Ecorys et al (2011) find that an increase in competition138 leads to higher 
aggregate investment levels in the EU. This conclusion is based on a regression analysis of 

aggregate market data on mobile investments for the period 2000 to 2009. However, at firm level, 

they find empirical evidence suggesting that the relationship between competition and investments 

per operator is inverse U-shaped for the European mobile markets and that most observations are 

on the upward sloping segment of the curve, implying that at the micro level increased competition 

goes hand in hand with increased investments by mobile operators. 

These results are confirmed by a more recent study by Valletti et al (2015). The study finds, for a 

sample of 34 OECD countries and for the period 2004 to 2014, that an increase in the HHI by 10 
percentage points raises profit margins by 5.37 percentage points139 and raises investment per 
operator by 24.1% to 27.9%. As such, this study confirms that less competition is associated with 

increased profits and increased investments. This does not imply that an inverse U-shaped relation 

does not exist, but if it does, most markets are in the upward sloping segment of the curve. 

Another recent study by HSBC (2015a)140, using investment data of a much larger and global set of 
operators for the period 2003 to 2013141, also finds an inverse U-shaped relation between EBITDA 
margins and network investments per operator (see Figure 3.14). HSBC finds an optimum level of 

EBITDA of 38% for the period 2003 to 2013, which would imply higher mobile investments in the 

EU if EBITDA margins were restored to levels from before the introduction of OCS competition. 

Figure 3.14 Inverse U-shaped relation between mobile EBITDA margins and network investments 

Source: HSBC (2015a). 

137   Friesenbichler Klaus S. (2007) “Innovation and Market Concentration in Europe's Mobile Phone Industries Evidence from 

the Transition from 2G to 3G”, WIFO working paper 306/2007. 
138   Where compeotion is measured by the Hischman-Herfindahl Index. 
139   Or profits per operator by 48.1%. 
140   HSBC (2015a), “Supersonic - European telecoms mergers will boost capex, driving prices lower and speeds higher”, 

HSBC Global Resarch, Telecoms, Media & Technology, April 2015. 

141   The analysis was based on an unbalanced panel consisting of 66 firms with data extending over 11 years from 2003 to 

2013. These firms are drawn from 22 national markets covering all regions of the world. In total, there are 606 
observations. 

76 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
However, HSBC’s analysis is based on a large sample of operators from all around the world. The 

optimum level of EBITDA may be different in the EU than in other parts of the world because of 

differences in market and political context. The importance of context is evidenced by a second 

study of HSBC (2015b). The study reports that investments by European incumbent (plus 

Vodafone) have gone up during the second half of 2013 and maintained a high level throughout 

2014 and relates this upward swing to the EC unveiling and adopting the non-discrimination and 

cost methodology recommendation – see Figure 3.15 below. 

Figure 3.15 Growing network investments since mid-2013 as a result of EC policy? 

Source: HSBC 2015b, showing investment figures by European incumbents plus Vodafone. 

In relation to the possible role of market and political context, we note that the data used for the 

empirical analyses referred to above largely covers a period of time in which OCS competition did 

not play a role. None of the studies mentioned above have accounted for the impact of OCS 

competition on the relation between competition (measured by market concentration) or profits and 

the investment levels. As such, it is not clear to what extent the above findings are relevant for 

future market contexts in which OCS competition is a reality and in which telecom operators have 

been forced to re-invent their business models. After all, the previous observation by Bennett et al. 

(2002) implies that differences in business models have an impact on the relation between 

competition or profitability and the incentives to invest. In other words, where the separation 

between R&D and service delivery renders the emergence of a trade-off between competition and 

innovation less likely for the network operators, also the separation of network services and 

communication services may render the trade-off between competition in the market for services 

and the incentives to invest in networks less likely. Experiences in the US, where telecom operators 

have successfully adopted strategies that shifted revenues away from traffic and more to network 

related (data) services, shows that telecom operators can in principle mitigate and even undo the 

negative impact of OCS competition on overall profitability and thereby maintain incentives as well 

as means to invest. 

3.4  Summarising conclusions 

Overall fixed and mobile revenues have been declining in the EU since 2008. This decline is mainly 

driven by a decline in traffic related revenues. In the mobile market, the decline in traffic related 

revenues has been mitigated by increased data revenues. In the fixed market, subscription related 

revenues have remained rather constant. With a few exceptions, the above description applies to 

the EU as a whole as well as to most Member States that we have examined.  

Fixed revenues in the United States have developed similar to the developments in the EU. Mobile 

revenues, however, have developed notably different. Mobile voice related revenues have declined 

slightly, yet data related revenues have increased significantly. Overall, mobile revenues in the US 

have increased. Similarly, in South-Korea and Japan, fixed as well as the mobile revenues have 

Study on future trends and business models in communication services 

77 

 
 
 
 
 
 
 
 
 
 
 
increased as a result of growing data/subscription revenues. In Japan, as of 2012, the growth in 

data and subscription related revenues stagnated, having a negative effect on overall revenues in 

the fixed and mobile market 

We analysed the impact of OCS competition on telecom revenues in the EU on the basis of a 

regression analysis. The results are that the decline in fixed revenues could not be related to rising 

popularity of OCS. The decline in mobile revenues could be related to rising popularity of OCS, as 

well as a reduction in termination rates. Moreover, mobile revenues are positively related to the 

GDP growth. On the basis of the regression analysis we estimate that the impact of OCS 

competition has risen to around 28 billion euros (or 18% of the counterfactual revenues) by 2014. 

By 2025, the difference between the counterfactual and the forecasted revenues may be around 47 

billion euros, which is around 26% of the counterfactual revenues. We note that these forecasts are 

based on the assumption that ‘all else remains equal’. As such, these forecasts do not anticipate 

further strategic responses by telecom operators to mitigate the decline in revenues, or the ability of 

telecom operators to expand their service portfolio (e.g. with M2M specific services).  

Based on a bottom-up formal modelling approach we conclude that by 2015 mobile revenues have 

decreased up to 6% points compared to the counterfactual, while fixed revenues have increased up 

to 0.75% points of counterfactual revenues by 2015. These estimates did not account for mitigating 

GDP effects or for strategic responses in pricing strategies (such as the increased marketing of 

bundles and flat rate pricing schemes). 

In the EU fixed EBITDA remained constant despite the decline in revenues. This implies that fixed 

operators have reduced OPEX. We did not find arguments that directly relate reductions in fixed 

OPEX to a rising popularity of OCS platforms. As we did not find substantive evidence indicating 

that fixed revenues, costs, or profits have been affected by the increased popularity of OCS 

platforms, we see no reason for hypothesising a potential impact on fixed investments. Moreover, 

fixed investment levels remained fairly constant over the years. 

Mobile EBITDA declined both in absolute terms as in terms of % of revenues. This implies an 

increase in mobile OPEX. Reasons for the increase in OPEX are found in rising costs in terms of 

handset subsidies and because of rising data traffic and increasing network complexity. Any 

possible link between these cost drivers and OCS competition is indirect, running through the 

complementarity of demand for OCS and connectivity services. On the other hand, the decline in 

revenues as a result of rising OCS competition has had a negative impact on OPEX as it forced 

CEOs to implement cost saving programs. We cannot calculate the exact size of these effects. If 

we assume that upward and downward effects on OPEX balance out, the decline in mobile 

revenues as a result of increased OCS usage translates one-to-one into lower profits. Under this 

assumption, we show that in the absence of OCS competition, mobile EBITDA margins would have 

been at 32% to 40% in 2013. This is considerably higher compared to the factually observed 

EBITDA margin in 2013 (28%). 

The aggregate EU data does not provide indications that mobile telecom operators have invested 

less than they would have in the absence of pressures on revenues and profits (either from OCS 

competition or anything else). In fact, from the moment that OCS competition started having an 

effect on telecom revenues in 2010, mobile CAPEX started to slightly increase. However, the 

question is whether mobile investment levels would have been higher in the absence of OCS 

competition. In the short run we did not find evidence supporting this hypothesis. For the long run 

we conclude that if OCS competition causes structural pressures on ECS revenues and profits, this 

may eventually have a negative effect on investment levels. 

78 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
4  The regulatory playing field 

This chapter provides an overview of the extent to which ECS and OCS are subject to different sets 

of rules in the EU and in the various Member States. As such, we seek to identify possible 

deviations from the EU regulatory framework for electronic communications in national legislation 

and regulation. The regulation that is considered in this context includes, on the one hand, the 

national implementation of the EU regulatory framework for electronic communications as well as 

initiatives taken by NRAs through, for example, the market analysis procedure or the set-up of 

service/price comparison tools and, on the other hand, decisions taken by EU or national 

competition authorities in the context of merger or abuse of dominance cases. To identify possible 

differences in national regulation applicable to ECS providers, interviews have been held with NRA 

representatives of the Member States included in this study, namely France, Finland, Poland, 

Germany, Spain and the UK.  

As will be shown in section 4.2, the NRAs of the selected Member States do not impose stricter or 

other obligations on ECS providers than foreseen in the EU regulatory framework. As regards 

market structure, some changes in the national telecom markets in which ECS providers compete 

have occurred as a result of the entry of new market players and recent mergers.  

4.1  The EU legal framework 

The EU regulatory framework applicable to ECS providers consists of the: 
  Framework Directive142; 
  Authorisation Directive143; 
  Access Directive144; 
  Universal Service Directive145; 
  ePrivacy Directive146. 

Most obligations contained in the regulatory framework are only applicable to providers of services 

that qualify as an ‘electronic communications service’ (ECS) which is defined by Article 2(c) of the 

Framework Directive as ‘a service normally provided for remuneration which consists wholly or 

mainly in the conveyance of signals on electronic communications networks [...]’. The element of 

this definition that is crucial for the distinction between ECS and OCS is that an electronic 

communications service has to consist in the conveyance of signals. In order to fall under the scope 

of application of the regulatory framework, the provider has to be responsible for the transmission 

142   Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework 
for electronic communications networks and services (Framework Directive) (OJ 2002, L 108/33) as amended by Directive 
2009/140/EC (Better Regulation Directive). 

143   Directive 2002/20/EC of the European Parliament and of the Council of 7 March 2002 on the authorisation of electronic 

communications networks and services (Authorisation Directive) (OJ 2002, L 108/21) as amended by Directive 
2009/140/EC (Better Regulation Directive). 

144   Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on access to, and interconnection 
of, electronic communications networks and associated facilities (Access Directive) (OJ 2002, L 108/7) as amended by 
Directive 2009/140/EC (Better Regulation Directive). 

145   Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users' 

rights relating to electronic communications networks and services (Universal Service Directive) (OJ 2002, L 108/51) as 
amended by Directive 2009/136/EC (Citizens Rights Directive). 

146   Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of 

personal data and the protection of privacy in the electronic communications sector (Directive on privacy and electronic 
communications) (OJ 2002, L 201/37) as amended by Directive 2009/136/EC (Citizens Rights Directive). 

Study on future trends and business models in communication services 

79 

 
 
 
 
 
 
 
 
 
                                                           
or carriage of signals over an electronic communications network.147 Yet, the key characteristic of 
an OCS is that the service is delivered over the internet without the involvement of a network 

operator in the control or distribution of the service. The provision of the internet connectivity is 
(partially)148 detached from the provision of the OCS. OCS providers have to rely on the network 
operator to convey the signals over access networks to actually enable consumers to make use of 

their service.  

Because OCS providers themselves are not responsible for the conveyance of signals over an 

electronic communications network (i.e. the internet), they are usually not subject to the current EU 

regulatory framework for electronic communications and fall outside the reach of many of its 

obligations. Instead, OCS providers are subject to legal regimes that have a more general scope of 

application, such as the EU data and consumer protection frameworks. Obligations applicable to 

OCS providers therefore are a combination of rules from different legal fields which do not 

necessarily give rise to obligations similar to the ones imposed on ECS providers under the 

regulatory framework. 

However, this conclusion requires some nuancing with regard to Voice over Internet Protocol (VoIP) 

services such as Skype. In its Common Position on VoIP adopted in December 2007, the European 

Regulators Group (ERG) for Electronic Communications Networks and Services (the predecessor 

of BEREC) made a distinction between VoIP services that can be considered public ECS 

based on their access to and/or from the PSTN and whether E.164 numbers are provided or 
not:149  
  a service where E.164 numbers are not provided and from which there is no access to or from 

the PSTN (ERG category 1); 

  a service with outgoing access to the PSTN only and where no E.164 numbers are provided 

(ERG category 2);  

  a service with incoming access from the PSTN, mobile networks or via IP and where E.164 

numbers are provided (ERG category 3); and  

  a service where there is both incoming and outgoing access to the PSTN or mobile networks 

and where E.164 numbers are provided (ERG category 4).  

Because they involve the provision of outgoing and/or incoming access to and/or from the PSTN, 

ERG category 2, 3 and 4 VoIP services are regarded as ECS in the Common Position. As a result, 

some of the obligations under the Universal Service Directive are considered to be applicable to 

VoIP services depending on the ERG category to which they belong: 

  ERG category 1 VoIP services are considered not to be subject to any of the Universal Service 

Directive obligations; 

  ERG category 2 VoIP services are considered to be subject to Articles 20-22 of the Universal 

Service Directive (minimum contractual rights, transparency, QoS) and Article 26 (access to 

emergency services); 

  ERG category 3 VoIP services are considered to be subject to Articles 20-22 and Article 30 

(number portability) of the Universal Service Directive; 

  ERG category 4 VoIP services are considered to be subject to all of the aforementioned Articles 

of the Universal Service Directive. 

The distinction made by the ERG only applies to VoIP services and serves as a guideline for NRAs. 

As such, the ERG classification does not form part of the EU regulatory framework. Although it is 

not binding upon NRAs, the ERG Common Position on VoIP is the only guidance provided to NRAs 

147   See Case C-475/12, UPC v. Nemzeti Média, judgment of 30 April 2014, par. 43. 
148   We note that increasingly OCS providers make use of content distribution networks (CDNs) for backbone connectivity. 
149   European Regulators Group, “Common position on VoIP”, December 2007, ERG (07) 56rev2. 

80 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
                                                           
on EU level and therefore often forms the starting point for NRAs when considering their regulatory 

approach to VoIP services. In its report on OTT services, BEREC similarly referred to the Common 

Position on VoIP when arguing that OTT voice services that have the possibility to make incoming 

and/or outgoing calls to the PSTN could be considered as ECS (BEREC refers to these services as 
OTT-0).150 For these reasons, the ERG categories are included in the table and discussion below 
even though they are not embedded in binding EU rules.  

For this study the following rules governing ECS services are considered to be relevant: 

Data 

  Article 4 ePrivacy Directive: security of 

  Article 17 Data Protection Directive152 

ECS 

OCS151 

protection 

services in general. 

and Article 30 General Data Protection 
Regulation153: security of services only 

in case of personal data processing 

(see NOTE below); 

  Article 5 ePrivacy Directive: confidentiality 

  No specific provision in Data 

of communications including a specific 

Protection Directive and General Data 

prohibition on listening, tapping, storage or 

Protection Regulation on 

other kinds of interception or surveillance 

confidentiality of communications. 

of communications and related traffic data 

However, Article 16 Data Protection 

without consent of users (except when 

Directive: provides for confidentiality of 

legally authorised to do so). 

processing by requiring any person 

acting under the authority of the 

controller or of the processor not to 

process personal data except on 

instructions from the controller and 

Article 32 General Data Protection 

Regulation demands security of 

processing which includes 

confidentiality, integrity, availability 

and resilience of systems and services 

processing personal data; 

  Article 6 ePrivacy Directive: traffic data 

  No specific provision in Data 

may only be processed to the extent and 

Protection Directive and General Data 

for the duration necessary for the purpose 

Protection Regulation on traffic and 

of marketing ECS or for the provision of 

location data. 

value added services if the subscriber or 

user to whom the data relate has given 

consent; 

  Article 9 ePrivacy Directive: location data, 

other than traffic data, may only be 

150   BEREC, “Report on OTT services”, January 2016, BoR (16) 35, p. 16-17. 
151   Please note that this table only includes possible horizontal obligations applicable to OCS providers. Failure to comply with 
some of the obligations included in the table (in particular the obligations relating to portability, interoperability, quality of 
service and prices) may lead to ex post liability under EU competition law. However, on the basis of Article 102 TFEU only 
the behaviour of the dominant market player can be remedied. No obligations can be imposed under competition law on all 
OCS providers in general.  

152   Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with 
regard to the processing of personal data and on the free movement of such data (Data Protection Directive) [1995] OJ L 
281/31. The Data Protection Directive will be repealed and replaced by the General Data Protection Regulation which will 
be directly applicable and enforceable in all EU Member States two years after its adoption. 

153   Regulation (EU) No XXX/2016 of the European Parliament and of the Council on the protection of individuals with regard 

to the processing of personal data and on the free movement of such data (General Data Protection Regulation) [2016] OJ 
L XX/XX. At the time of writing, the General Data Protection Regulation had not yet been formally adopted. 

Study on future trends and business models in communication services 

81 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
ECS 

OCS151 

processed when made anonymous or with 

the consent of the users to the extent and 

for the duration necessary for the 

provision of value added services; 

  Article 13 ePrivacy Directive: unsolicited 

  No similar provision in Data Protection 

communications are only allowed for the 

Directive and General Data Protection 

purposes of direct marketing when prior 

Regulation on unsolicited 

consent of the users is obtained or when 

communications. Recital 47 of the 

previously acquired contact details are 

General Data Protection specifies that 

used for direct marketing of own similar 

processing of personal data for direct 

products or services. 

marketing purposes may be regarded 

as carried out for a legitimate interest 

NOTE: the Data Protection Directive and the 

of a controller (which would mean that 

General Data Protection Regulation also apply 

no consent of users is required for this 

to ECS providers but the ePrivacy Directive 

type of processing). Under Article 21 

overrides these two general data protection 

of the General Data Protection 

instruments with regard to the specific 

Regulation, the data subject does 

obligations set out therein in the electronic 

have the right to object to the 

communications sector. 

processing of personal data for direct 

marketing purposes after which the 

data shall no longer be processed for 

such purposes. 

NOTE: The difference in scope of the data 

protection guarantees relating to security 

as applicable to ECS and OCS providers 

may not lead to major divergences in 

practice, since most, if not all, of the data 

processed by ECS and OCS providers are 

personal data. 

Portability 

  Article 30 Universal Service Directive: 

  No equivalent portability requirement; 

obligation to facilitate the porting of 

  Article 18 of the General Data 

telephone numbers (cost-oriented price + 

Protection Regulation introduces a 

shortest possible time) (also considered 

right to data portability (no conditions 

applicable to ERG categories 3 and 4 

about costs and time limit). 

VoIP services). 

Interoperability 

  Article 4(1) Access Directive: right and 

  No similar requirement of 

obligation of operators of public electronic 

interconnection or interoperability. 

communications networks (not ECS 

providers) to negotiate interconnection in 

order to ensure interoperability of services. 

Contractual 

  Article 20 Universal Service Directive: 

  Only general contractual guarantees 

Rights 

specific minimum contractual rights for 

users adjusted to particularities of 

communication services (also considered 

included in the Directive on Consumer 
Rights154 and the Directive on Unfair 
Contract Terms155. 

154   Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights (Directive on 

Consumer Rights) [2011] OJ L 304/64. 

155   Council  Directive  93/13/EEC  of 5 April 1993 on unfair  terms in consumer contracts (Directive on  Unfair Contract Terms) 
[1993]  OJ  L  95/29  as  amended  by  Directive  2011/83/EU  of  the  European  Parliament  and  of  the  Council  of  25  October 
2011 on consumer rights [2011] OJ L 304/64. 

82 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
ECS 

OCS151 

applicable to ERG categories 2,3 and 4 

VoIP services). 

NOTE: the Directive on Consumer Rights and 

the Directive on Unfair Contract Terms also 

apply to ECS providers. 

Transparency  

  Article 21 Universal Service Directive: 

  Only general obligations under Article 

NRAs are able to require ECS providers to 

6 Consumer Rights Directive and 

Articles 5 and 6 of the E-Commerce 
Directive156. 

publish transparent, comparable, 

adequate and up-to-date information on 

applicable prices, charges and terms of 

conditions (also considered applicable 

to ERG categories 2,3 and 4 VoIP 

services). 

NOTE: the Consumer Rights Directive and the 

E-Commerce Directive also apply to ECS 

providers. 

Quality of 

  Article 22(3) Universal Service Directive: 

  No similar constraints for OCS 

Service 

NRAs are allowed to set minimum QoS 

providers. 

requirements (also considered 

applicable to ERG categories 2,3 and 4 

VoIP services). 

Access to 

  Article 26 Universal Service Directive: 

  No similar obligation for OCS 

emergency 

obligation to provide access to emergency 

providers. 

services 

services and the single European 

emergency call number (also considered 

applicable to ERG categories 2 and 4 

VoIP services). 

Prices  

  Article 9 Universal Service Directive: tariffs 

  No similar obligations for OCS 

of services provided by universal service 

providers. 

provider monitored by NRA in relation to 

national consumer prices and income 

(only applicable to designated 

universal service providers; not to all 

ECS); 

  Article 17 Universal Service Directive: 

NRAs may impose ex ante obligations to 

universal service providers with significant 

market power (only applicable to 

designated universal service providers; 

not to all ECS). 

Administrative 

  Article 12 Authorisation Directive: NRAs 

  No similar charges or contributions for 

charges 

may levy administrative charges; 

OCS providers. 

  Article 13 Universal Service Directive: 

Member States may set up a universal 

service fund to which ECS providers have 

156   Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information 
society services, in particular electronic commerce, in the Internal Market (E-Commerce Directive) [2000] OJ L 178/1. 

Study on future trends and business models in communication services 

83 

 
 
 
 
 
 
 
 
                                                           
ECS 

to contribute. 

OCS151 

In addition, there are diverging national rules on data retention and lawful interception. The 
annulment of the European Data Retention Directive by the European Court of Justice,157 has set 
precedents at national level leading to the annulment of national data retention rules in a number of 

Member States.  

As for the Member States included in the study, national data retention rules are currently in force in 

Germany, France, Spain, Poland, UK and Finland. These rules only apply to ECS providers and not 

to OCS providers. In France, the national data retention rules included in the French Postal and 

Electronic Communications Code apply not only to ECS providers but also to hosting providers. As 

a result, OCS providers that qualify as hosting providers are subject to the obligation of data 

retention in France. Currently, there is a case pending before the French Supreme Administrative 

Court about the validity of the national data retention rules. In Finland, national data retention rules 

are currently only applied to four specific ECS providers (namely DNA Oy, Elisa Oyj, Telia Sonera 

Finland Oyj and Ålcom Ab). In Poland, OCS providers are subject to general obligations in the e-

Commerce Act under which they are obliged to store the personal data and location data of their 

users. In Germany, a law has been adopted on data retention for the purpose of prosecuting 

criminal offences and protecting public security. The obligation of data retention only applies to ECS 

providers and not to OCS providers. 

National rules on lawful interception exist in all Member States considered in this study. These rules 

only apply to ECS providers and not to OCS providers in Germany, France, Spain, Poland and UK. 

In Finland, the obligation of lawful interception is technology neutral and applies to communications 

services in general. While the French Criminal Procedure Code and Postal and Electronic 

Communications Code only provide for the possibility to impose lawful interception on ECS 

providers, OCS providers may also be subject to orders for lawful interception in practice. Lawful 

intercepts are allowed, exceptionally, by way of a decision of the French Prime Minister in order to 

protect France’s essential scientific and economic potential, to prevent terrorism, criminality and 

organized crime.  

The costs of data retention and lawful interception have to be borne by the ECS providers 

themselves in Germany, Spain, Poland and Finland. However, in Finland providers have a right to 

receive compensation from the state for direct costs of investment and maintenance of systems, 

equipment and software acquired for the sole purpose of assisting public authorities. The costs of 

data retention by OCS providers in Poland are borne by the state, while ECS providers have to 

bear the costs of data retention themselves. In France, the costs of data retention and lawful 

interception are in principle born by the provider unless these obligations exceed the scope of their 

normal activity. The French state will bear costs incurred in relation to cases of public security or 

public order. In the UK, the providers have to bear the costs of data retention themselves while they 

can expect the government to make a fair contribution towards the costs of complying with a 

warrant for a lawful intercept.  

In conclusion, ECS providers can be considered to face additional burdens as compared to OCS 

providers with respect to data retention and lawful interception in most of the Member States 

included in the study. While ECS and OCS providers are both subject to similar obligations relating 

to data retention in Poland, OCS providers are treated more favourably as regards reimbursement 

of the costs. Exceptions to the more advantageous position of ECS providers with regard to lawful 

157   Joined Cases C-293/12 and C-594/12, Digital Rights Ireland and Seitlinger and Others, judgment of 8 April 2014. 

84 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
interception can be found in Finland where this obligation applies to communications services in 

general and in France where OCS providers may also be subject to orders for lawful interception in 

practice even though the French Criminal Procedure Code only provides for the possibility to issue 

such warrants to ECS providers. 

4.2  Situation at national level 

The analysis below points out that NRAs seem to struggle in applying the definition of ECS, as 

contained in the Framework Directive, to new communications services and in particular to VoIP. 
This is confirmed by the BEREC report on OTTs from January 2016158. Because of technological 
developments, the current definition of ECS has become difficult to apply due to the rise of services 

that were not foreseen when the definition was drawn up. Although the European Regulators Group 

(ERG) for Electronic Communications Networks and Services, the predecessor of BEREC, 

provided guidance on how to regulate VoIP services under the current EU regulatory framework in 

its 2007 Common Position on VoIP, some NRAs still seem reluctant to impose obligations under 

the Universal Service Directive, in particular access to emergency services and number portability, 

on VoIP providers and to enforce them. The distinction between ECS and OCS in general is not 

that clear-cut anymore. A grey area can be identified where OCS providers are at least partly 

responsible for the conveyance of signals, which is the crucial element of the definition of ECS for 

the distinction with OCS. 

France 

France does not deviate from the regulatory framework for electronic communications in terms of 

the obligations applicable to ECS and the competencies granted to the national telecom regulator 

ARCEP. With regard to the regulation of OCS, there is an ongoing legislative discussion whether 

ARCEP should be given competencies to regulate online platforms. Against the same background, 

the Conseil National du Numérique, an advisory body for digital policy, adopted an opinion on 
platform neutrality in May 2014.159 However, the latter initiative does not specifically target the level 
playing field issues between ECS and OCS. 

With regard to the regulation of VoIP services in France, the French Skype case is instructive. In 

March 2013, ARCEP informed the Paris public prosecutor of Skype’s persistent failure to comply 

with its obligation to register as an electronic communications operator. This failure constitutes a 

criminal offence under French law. ARCEP considered that the services offered by Skype enabling 

internet users located in France to call fixed and mobile numbers in France and around the world 

qualify as ECS. In the view of ARCEP, the fact of engaging in the business of electronic 

communications operator implies compliance with certain obligations including the routing of 
emergency calls and implementing the means required to perform legally ordered interceptions.160 
The case is still ongoing before French courts. 

Germany 

Germany does not deviate from the regulatory framework as regards the obligations imposed on 

ECS providers. With regard to VoIP services, the Bundesnetzagentur relies on the ERG Common 

Position. If VoIP providers offer access to or from the PSTN, certain ECS obligations such as the 

provision of access to emergency services are applicable.  

158   See Chapter 4, BoR (16) 35. 
159   See http://www.cnnumerique.fr/wp-content/uploads/2014/06/PlatformNeutrality_VA.pdf.  
160   Press Release ARCEP, “Skype refuses to register as an operator”, 12 March 2013, available at 

http://arcep.fr/index.php?id=8571&tx_gsactualite_pi1%5Buid%5D=1593&tx_gsactualite_pi1%5Bannee%5D=&tx_gsactuali
te_pi1%5Btheme%5D=&tx_gsactualite_pi1%5Bmotscle%5D=&tx_gsactualite_pi1%5BbackID%5D=26&cHash=baebcd8ef
257d3194065360ecec41a90&L=1. 

Study on future trends and business models in communication services 

85 

 
 
 
 
 
 
 
 
 
 
                                                           
With regard to the interpretation of the scope of application of the regulatory framework in 

Germany, a dispute that has arisen between Google and the Bundesnetzagentur is instructive. The 

latter had required Google to notify its web-based email service Gmail as a telecommunication 

service. On 11 November 2015, the German Administrative Court of Cologne delivered its judgment 

in the case and adopted a broad interpretation of the conveyance of signals criterion. The 

Administrative Court of Cologne followed the view of the Bundesnetzagentur and qualified Gmail as 

a telecommunication service under German law. The Court argued that even though Google does 

not convey the signals between the servers involved in email delivery over the open Internet, the 
transmission of these signals is still attributable to Google.161 In this regard, the German Court 
referred to the judgment of the European Court of Justice in UPC v. Nemzeti Média in which the 

latter made clear that the relevant criterion for classifying a service as an ECS is whether the 
provider of the service is responsible for the transmission of signals vis-à-vis end-users.162 The 
Administrative Court of Cologne argued that the term ‘responsibility’ used by the European Court of 

Justice should be understood in such a way that a company offering a communication service has 

to be held responsible for the transmission of signals by a third party if this transmission takes place 

for the purpose of enabling that company to provide its communication service to customers. When 

applying this reasoning to the factual circumstances of the case, the German Court attached 

importance to the fact that the transmission of signals was initiated by Gmail users by hitting the 
‘send’ button and was facilitated by Google’s email servers.163  

Even though the judgment only relates to the German Telecommunication Act, it may have a wider 

impact considering that the German definition of a telecommunication service is based on the 

harmonized definition of ECS in the regulatory framework for electronic communications. Under the 

broad interpretation of ECS put forward by the German Court, many other online communication 

services can be considered to fall within the scope of the regulatory framework. However, it remains 

to be seen whether this interpretation will be upheld by higher German Courts on appeal and 

whether it will be followed by other national courts. 

Spain 

The Spanish regulation in the electronic communications sector does not deviate from the 

framework. With regard to VoIP, it is important to note that ERG category 3 services do not exist in 

Spain because Spanish legislation does not allow providers to deliver services with only incoming 

access from the PSTN. ERG category 4 services are not subject to the obligation of number 

portability in Spain. ERG category 2 services have to provide access to the emergency number as 

a public obligation. The Spanish regulator CNMC is looking into some VoIP services provided in 

Spain but has not yet decided on its exact regulatory approach.  

Finland 

As of 1 January 2015, the new Finnish Information Society Code entered into force which renders 

the obligations of the ePrivacy Directive also applicable to communications services other than ECS 

including instant messaging services and many online social networking tools. The Finnish 

Information Society Code applies to communications services. Although the Code is not explicit in 

this regard, the preparatory works make clear that services such as email and messaging fall within 

its scope of application if the service provider participates in the transmission of the messages. The 

transmission can cover the complete transmission of the messages from end-user to end-user or 

just a part of it. The preparatory works explicitly state that services such as email and VoIP are 

161   Administrative Court of Cologne, 11 November 2015, case 21 K 450/15, par. 54, available at 
http://www.justiz.nrw.de/nrwe/ovgs/vg_koeln/j2015/21_K_450_15_Urteil_20151111.html. 

162   Case C-475/12, UPC v. Nemzeti Média, judgment of 30 April 2014, par. 43 as quoted in Administrative Court of Cologne, 

11 November 2015, case 21 K 450/15, par. 55-56. 

163   Administrative Court of Cologne, 11 November 2015, case 21 K 450/15, par. 59-61. 

86 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
                                                           
subject to the Information Society Code irrespective of whether they are provided by the internet 

access provider or by some other provider. The scope of application of obligations of the EU 

regulatory framework for electronic communications other than those contained in the ePrivacy 

Directive are not affected by the Finnish Information Society Code. 

In 2005, the Finish telecom regulator FICORA published an Opinion on the regulation of the 
services provided by Skype in Finland.164 In its Opinion, FICORA argued that Skype’s peer-to-peer 
service enabling users to communicate over the internet cannot be qualified as an ECS. FICORA 

held that the Finnish communications market legislation applies partly to both Skype Out and Skype 

In which are services providing access from or to the PSTN.  

Poland 

Poland does not deviate from the regulatory framework. No recent changes have been made in the 

implementation of the relevant Directives. With regard to the regulation of VoIP services, the Polish 
telecom regulator UKE organized a debate in 2008.165 Although no official classification is used, 
UKE is of the view that for VoIP services with outgoing access to the PSTN only and for VoIP 

services with both incoming and outgoing access to the PSTN (ERG categories 2 and 4), 

emergency access has to be provided. For VoIP services with incoming access from the PSTN only 

and for VoIP services with both incoming and outgoing access to the PSTN (ERG categories 3 and 

4), UKE finds that the obligation of number portability is applicable. Nevertheless, UKE does not yet 

actively enforce these obligations.  

UK 

The United Kingdom does not diverge from the regulatory framework in terms of the obligations 

applicable to ECS providers. With regard to the regulation of VoIP services, the UK telecom 
regulator Ofcom published consultation documents in 2004, 2006 and 2007.166 Ofcom’s 2007 
statement on VoIP and emergency services, which sets out the regulatory obligations applying to 

different types of VoIP services, identifies some VoIP services as likely to be ECS, subject to their 
individual characteristics.167 In particular, ERG category 2 and 4 VoIP services are considered to be 
subject to the obligation to provide access to emergency services.168 

4.3  Regulatory / policy situation Non-EU countries  

In order to compare the situation in non-EU jurisdictions regarding the regulation of telecom 

operators and OCS providers, local experts have been asked to complete a template report on 

relevant regulatory and policy developments in their respective countries. Since the term ‘electronic 

communications service’ or ‘ECS’ is not used in the regulatory framework of the non-EU countries 

considered in this study, the undertakings regarded as ‘ECS providers’ under the current EU 

regulatory framework for electronic communications will be referred to as ‘telecom operators’ for the 

purpose of this task. 

164   See http://www.ictregulationtoolkit.org/en/document/3566.  
165   See https://www.uke.gov.pl/relacja-z-debaty-o-przyszlych-regulacjach-telefonii-voip-3923.  
166   See http://stakeholders.ofcom.org.uk/consultations/voip/summary.  
167   Ofcom, ‘Regulation of VoIP Services: Access to the Emergency Services Statement and publication of a statutory 

notification under section 48(1) of the Communications Act 2003 modifying General Condition 4’, 5 December 2007, par. 
3.19, available at http://stakeholders.ofcom.org.uk/binaries/consultations/voip/statement/voipstatement.pdf.  
168   Ofcom, ‘Regulation of VoIP Services: Access to the Emergency Services Statement and publication of a statutory 

notification under section 48(1) of the Communications Act 2003 modifying General Condition 4’, 5 December 2007, par. 
5.1. 

Study on future trends and business models in communication services 

87 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Table 4.1 Comparison of the legal obligations applicable to telecom operators and OCS providers169 

United States 

South Korea 

Japan 

Brazil 

Data protection 

Some restrictions are imposed on 

Telecom operators have to protect 

Telecom as well as OCS providers 

Users of telecom services have 

and privacy 

VoIP providers with PSTN access as 

confidentiality of communications 

located in Japan must not violate 

rights to privacy and confidentiality of 

regards the use of data for marketing 

and the provision of user data by 

confidentiality of communications 

private communications. The 

purposes. Other providers (telecom 

telecom operators to third parties is 

under the Telecommunications 

recently adopted Marco Civil 

operators as well as OCS providers) 

subject to prior consent of the user. 

Business Law that also applies to 

introduced specific rules on data 

are largely free to establish their 

No such obligations are applicable to 

OCS. This limited geographic scope 

protection and privacy which apply to 

rights of use in a contract with end 

OCS providers. 

of application leads to a disparity 

internet activities and thus to OCS 

users. 

between foreign-based OCS 

providers. However, the lack of 

providers and telecom operators 

clarifications on key issues such as 

which are as a matter of fact 

what types of data are to be 

domestic companies. 

regarded as personal data may 

undermine the effectiveness of the 

Marco Civil. 

Portability 

Consumers have a legal right to 

There is no legal obligation for 

Number portability is only available 

The right to number portability is 

retain their telephone number. 

telecom operators to enable number 

for mobile phone numbers (including 

applicable to providers of mobile and 

Telecom operators and VoIP 

portability, but the existing regulation 

those handled by VoIP providers) 

fixed phone services. No equivalent 

providers with PSTN access are 

gives room for the government to 

and for fixed line phone numbers 

obligation is imposed on OCS 

required to cooperate when a 

establish a so-called “Plan for 

issued by one operator (NTT). A 

providers. 

customer switches providers. No 

Number Portability”. No equal 

consumer can only port a fixed line 

similar obligation is imposed on OCS 

development as regards portability 

number when changing from NTT to 

providers. 

exists for OCS providers. 

another provider, whereas porting to 

NTT is not possible. As a result, 

there is a disparity among telecom 

operators themselves. In addition, no 

equivalent obligation is imposed on 

OCS providers that are not handling 

mobile phone numbers. 

Interconnection / 

Telecom operators have a duty to 

A duty to interconnect applies for 

Interconnection obligations apply to 

Interconnection obligations apply to 

interoperability 

interconnect. The FCC expressly 

telecom operators, but the regulation 

facilities-based telecom operators. 

telecom operators which have to 

declined to regulate interconnection 

has not yet tackled the issue for OCS 

These obligations solely concern 

negotiate the general conditions of 

169   The full reports of the local experts containing a more detailed description of the legal obligations can be found in Annex V. 

88 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
                                                           
United States 

South Korea 

Japan 

Brazil 

between ISPs. No duty to 

providers. 

physical interconnection of telephony 

interconnection between themselves. 

interconnect exists for OCS 

providers. 

networks and do not include other 

OCS providers are outside the scope 

forms of interoperability. OCS 

of such requirements. 

providers are thus not subject to 

similar duties. 

Contractual rights 

No legislation is applicable. Telecom 

There are general provisions 

A number of provisions apply 

Sector-specific resolutions applicable 

of consumers 

and internet consumers depend on 

imposing an obligation on telecom 

regarding the terms and conditions of 

to telecom operators provide for 

‘take it or leave it’ contracts. 

operators to promptly respond to 

use. There is some room for 

general contractual elements. In 

consumer’s dissatisfaction. The 

government intervention with respect 

addition, a recently enacted act 

terms and conditions of use are 

to terms and conditions relating to 

which only applies to telecom 

basically defined by the telecom 

transparency, pricing, undue 

services establishes targeted 

operators. Practically, it works as 

discrimination and other grounds. 

provisions and additional rights for 

standard contracts. No specific 

Overall, the regulation is abstract 

consumers. General consumer law 

obligation is applicable to OCS 

and unspecific. Some obligations 

applies to OCS providers as well as 

providers. 

also apply to OCS providers, but 

the Marco Civil which has introduced 

certain facilities-based telecom 

specific provisions on the rights of 

operators are more strictly regulated.  

internet users.  

Transparency of 

The FCC has statutory power to 

The South Korean legislation assigns 

Transparency requirements exist for 

The Telecommunications Act and 

the service 

provision 

require telecom operators, ISPs, 

the task to the government to 

both telecom and OCS providers, but 

sector-specific regulation provide 

VoIP and SMS providers to operate 

formulate a policy with regard to the 

the regulation is more specific and 

users with a right to adequate 

in a transparent manner and to 

transparency of services of telecom 

strict for certain facilities-based 

information about conditions, tariffs 

request information from ISPs about 

operators. The government bears no 

telecom operators. OCS providers 

and prices. In addition, ANATEL 

interconnection and compensation 

similar responsibility with respect to 

tend to be less regulated, but some 

publishes transparency reports on 

arrangements. No similar obligations 

OCS providers. 

of them at the same level as certain 

the activities of telecom operators 

are imposed on OCS providers. 

facilities-based telecom operators. 

enabling users to compare the price 

There is thus also a disparity among 

and quality of services. No such 

facilities-based telecom operators. 

obligations or monitoring apply to 

OCS providers. 

Quality of service 

The FCC regulates quality of service 

There is no obligation for telecom 

Quality of service requirements apply 

OCS providers are not strictly 

offered by telecom operators. No 

operators to offer minimum quality of 

to some facilities-based telecom 

regulated as regards quality of 

minimum quality of service obligation 

services, but they are obliged to 

operators and not to OCS providers. 

service beyond compliance with their 

is applicable to OCS providers. 

improve the quality of services. No 

There is discussion about whether 

own terms of use and with general 

Study on future trends and business models in communication services 

89 

 
 
 
 
 
 
 
United States 

South Korea 

Japan 

Brazil 

similar obligation is applicable to 

the scope of application of these 

consumer law. In addition, users 

OCS providers. 

requirements should be extended to 

have a right under the Marco Civil to 

include ISPs. 

the preservation of the quality 

contracted for the purpose of access 

to the internet. For telecom 

providers, quality of service 

requirements are identified in sector-

specific resolutions.  

Access to 

emergency 

services 

Telecom operators and VoIP 

Telecom operators must provide 

Facilities-based telecom operators 

Telecom operators have to provide 

providers with PSTN access must 

emergency access. OCS providers 

have to provide access to 

emergency access. Providers of 

deliver consumers emergency 

are not subject to such an obligation. 

emergency services and must 

fixed and mobile phone lines are 

access. No such obligation is 

imposed on OCS providers. 

prioritize emergency-related 

prohibited from charging users for 

communications. No such obligations 

emergency calls. No similar duties 

apply to OCS providers. 

are currently imposed on OCS 

providers. 

Monitoring of 

The FCC does not regulate prices 

Although the government can 

Price regulation exists for certain 

Prices for telecom services can be 

consumer prices 

set by telecom operators and OCS 

regulate internet access service 

telecom services. Facilities-based 

freely established by telecom 

providers. 

providers with regard to high prices, 

telecom operators are required to 

operators and are monitored by 

price charges to consumers are in 

obtain government authorization for 

ANATEL. Telecom prices may be 

practice determined by telecom 

a price change that exceeds the 

readjusted every year in accordance 

operators which have to report the 

index issued by the government. For 

with the inflation index established in 

price plan to the government. No 

OCS providers, fairness in pricing is 

the contract between consumer and 

similar obligation is imposed on OCS 

monitored and not the price levels as 

telecom operator. No specific 

providers. 

such. For example, unfair 

provisions apply to OCS providers. 

discrimination may result in a 

government order to correct the 

pricing scheme. 

Taxation 

Telecom operators and VoIP 

No particular tax related obligation 

A number of tax advantages exist for 

A special federal tax is imposed on 

providers with PSTN access must 

for telecom operators that 

telecom operators amongst which an 

telecom operators. In addition, they 

collect telephone services taxes and 

distinguishes them from other 

exemption from business 

are subject to a state tax on 

have the option of collecting from 

business players. There is also no 

establishment tax. Certain telecom 

distribution of goods and services 

subscribers non-tax, financial 

taxation policy being made to deal 

operators are obliged to contribute to 

and a general tax over services 

90 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
United States 

South Korea 

Japan 

Brazil 

subsidy obligations. No such 

with the emergence of OCS 

the universal service fund, whereas 

which falls within the competence of 

possibility exists for OCS providers; 

providers in the communication 

such an obligation does not apply to 

the municipalities. OCS providers are 

however, electronic commerce 

market. 

OCS providers. 

solely subject to the latter form of 

activities trigger tax liability. 

taxation but municipalities have 

decided to waive these taxes in 

many instances as a result of which 

OCS are currently largely free of 

taxation.  

To create a more equal tax system, 

the Congress recently adopted an 

amendment to Brazilian tax 

legislation which would prevent 

municipalities from waiving tax 

obligations. However, this 

amendment still needs to be 

approved by the Senate before it can 

be finally enacted. 

Study on future trends and business models in communication services 

91 

 
 
 
 
 
 
 
 
 
 
 
 
Regulatory trends regarding OCS in the US 

In the United States, there has been a shift of business models of telecommunication companies 

whereby the decline in revenues from the provision of telecom services is offset by the growth in 

broadband access and data revenues. US regulators appreciate that OCS generally trigger less 

government oversight even though they increasingly operate as functional equivalents and 

competitive alternatives to more extensively regulated incumbent telecom services. Telecom 

incumbents, by contrast, aggressively seek deregulation to remedy the absence in parity of 

regulatory burdens. For example, incumbent telephone companies have persuaded the Federal 

Communications Commission (FCC) to consider what changes in regulatory oversight should occur 

in the transition from a copper wired based PSTN, to an internet-based, telephony marketplace. 

The US Communications Act of 1934, as amended, still creates different regulatory requirements 

as a function of the medium used. The Communications Act contains separate Titles, imposing 

inconsistent regulatory burdens on telecommunications service providers and information service 

providers. Unlike the US Congress which has shown unwilling to rewrite existing legislation, the 

FCC has evidenced significant interest in revising and revamping rules and regulations to 

accommodate changed circumstances and to adhere to regulatory symmetry. The FCC has 

substantially reduced, streamlined, or eliminated regulations of incumbents, in part based on 

market entry by OCS. For example, the Commission eliminated rate regulation for telephone 

services in light of significant facilities-based competition provided by wireless carriers, cable 

television operators and VoIP service providers.  

On the other hand, the FCC has ignored the deregulatory trend and imposed additional ex ante 

regulatory burdens on broadband internet access providers. In the 2015 Open Internet Order, the 

FCC classified broadband internet access as common carriage and imposed some of the 

telecommunications service rules and regulations on internet access providers. OCS are not 

explicitly addressed by the Open Internet Order as a result of which they still operate under a lighter 

regulatory regime than telecom operators. In particular, obligations of portability, interoperability, 

transparency of the service provision, quality of service and access to emergency services do not 

apply to OCS providers. In the US, there is no legislation entitling consumers to minimum 

contractual rights with regard to the use of telecom as well as OCS and regulators do not monitor 

consumer prices of communications services in general. With regard to broadband internet access 

providers, the FCC explicitly stated its intention not to impose rate regulation. Furthermore, telecom 

operators and OCS providers are largely free to establish their rights of use in a contract with end -

users as regards data protection and privacy. Limited restrictions are imposed on VoIP providers 

with PSTN access concerning the use of data for marketing purposes.  

Regulatory trends regarding OCS in South Korea 

The use of OCS in South Korea has been rapidly growing with the introduction of smartphones 

enabling consumers to make use of mobile internet. The Framework Act on Telecommunications 

focusses on the telephone industry and was not intended for regulating communications over the 

internet. To keep up with the shift towards all-IP communications in the telecom industry, some 

amendments have been made as a result of which communications over the internet now fall within 

its scope of application. In particular, internet access providers are regulated as common carriers 

and have been made subject to the same obligations as telecom operators.  

These regulatory obligations do not apply to OCS providers. In South Korea, so-called “facility-

based telecommunications service providers” have regulatory burdens, including business licenses, 

duty of service provision, mutual access, and approval of service terms (e.g. rates). On the other 

hand, service or content providers that cannot be regarded as facility-based service providers 

qualify as “value-added telecommunications service providers”. The latter providers include 

92 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
telecommunications services other than “common telecommunications services” which are defined 

as telecommunications services for transmitting or receiving sounds, data, images, etc. without any 

change in the form or contents thereof. Since OCS providers do not have their own network, they 

are classified as value-added telecommunication services. As a result, no ex ante regulation is 

applicable to OCS in South Korea.  

However, it is getting more difficult to draw a line between facility-based telecommunications 

service providers and value-added telecommunications service providers. Mobile VoIP service 

providers are offering services similar to facility-based providers’ message and voice services. 

Currently, mobile VoIP service providers are not regulated as facility-based providers because they 

do not have a network, but the debates between network operators and mobile VoIP service 

providers have been intensifying. Because of the growth of internet data traffic, more investments 

are necessary to guarantee the quality of services. Network operators do not have an incentive to 

invest due to the fact that OCS providers benefit from their networks without economically 

contributing to the deployment. The roots of the problem are said to lie in the absence of regulation 

for OCS providers. Nevertheless, so far no concrete regulatory burden is imposed on OCS 

providers in South Korea.  

On several occasions, incumbent South Korean telecom operators threatened to block local OCS 

including a video-on-demand service delivered over the internet (HanaTV 2006), a smart TV 

application (Smart TV 2012) and a mobile VoIP service (Kakao Talk 2012). With the widespread 

use of these OCS leading to an increase in data traffic and a decline in revenues from traditional 

voice and text services, South Korean incumbent telecom operators raised prices for data usage 

and put pressure on the Korean Communications Commission to take action against OCS 

providers. As a response to the 2012 Kakao Talk case, the Korean Communications Commission 

decided to allow telecom operators to charge subscribers for access to mobile VoIP services. Since 

the newly established Ministry of Science, ICT & Future Planning became responsible for the net 

neutrality policy in 2013, several measures concerning traffic management of telecom operators 

have been taken. The most recent development is the launch of a new service plan by the major 

South Korean mobile operators at the request of the government in 2015. Under this service plan, 

users are charged based on their data use while unlimited access to traditional voice and text 

services is offered. As a consequence of the introduction of this service plan, net neutrality issues 

relating to the use of mobile VoIP services are expected to lose in significance considering that 

mobile VoIP providers do not have a competitive advantage in the domestic South Korean market 

anymore. Because of the unlimited traditional voice calls and text messages provided by incumbent 

South Korean telecom operators, the use of mobile VoIP services will likely decline since 

consumers no longer have an incentive to use mobile VoIP services for their communications within 

South Korea.  

Regulatory trends regarding OCS in Japan 

Telecom operators in Japan are increasingly experiencing competitive pressure from OCS 

providers. While the Telecommunications Business Law also applies to certain OCS, like webmail 

and IP voice, and OCS providers thus often fall into the same category as telecom operators, there 

are at least two major forms of regulatory disparities between telecom and OCS providers. First, a 

stricter form of regulation exists for a narrower class of telecom players such as those owning 

telecommunication facilities. Second, foreign entities providing services in Japan may escape 

regulatory obligations because they do not have an establishment in the country. Since OCS 

providers are typically established outside Japan and do not own any telecommunication facilities, 

they face lighter regulatory burdens than certain domestic facilities-based telecom operators. 

Nevertheless, there is not much discussion regarding the regulatory asymmetries between telecom 

Study on future trends and business models in communication services 

93 

 
 
 
 
 
 
 
 
 
and OCS providers. In Japan, policy and regulatory discussions focus more on the disparities 

among several classes of facilities-based telecom operators.  

Certain facilities-based telecom operators are regulated more strictly than others depending on their 

local market share, whether they are considered to provide a universal service or are otherwise 

designated to have a large public influence. Within the group of facilities-based telecom operators, 

regulatory asymmetries exist in particular with regard to number portability, contractual rights of 

consumers, transparency of the service provision and quality of service. OCS providers also face 

regulatory requirements relating to contractual rights and transparency, but they tend to be less 

regulated. This is not necessarily because OCS providers are completely unregulated or enjoy 

intentional, targeted deregulation. In this regard, it is important to note that OCS providers may be 

subject to the same level of regulation as some facilities-based telecom operators that are not 

designated to have a large influence on consumers. In some cases, facilities-based telecom 

operators thus benefit from the same lighter regulatory treatment as OCS providers. This may also 

explain why policy discussions in Japan focus on the regulatory asymmetries among facilities-

based telecom operators and not so much on the asymmetries between telecom and OCS 

providers. In addition, the weakness of domestic OCS providers is considered to be a problem for 

Japan’s ICT sector. It is generally understood that the rise of domestic OCS providers may be more 

likely in an unregulated environment. For that reason, regulatory parity between OCS and facilities-

based telecom providers can be regarded as an impediment to the development of a stronger 

domestic OCS market. 

Calls for the complete abolishment of the asymmetries among facilities-based telecom operators 

are rare as a result of which certain disparities are likely to remain. The direction of government 

policy seems to be the deregulation of facilities-based telecom providers to enable them to leverage 

their position to build vertically integrated businesses. With regard to the regulation of OCS in 

Japan, no specific measures are currently being implemented or discussed. 

Regulatory trends regarding OCS in Brazil 

The expansion of OCS in Brazil has led to heated discussions between telecom operators and OCS 

providers because of the alleged regulatory asymmetries. Telecom operators have claimed this 

distinction to constitute an unfair advantage and have pushed for further regulation in the sector, 

especially in terms of taxation, so as to level the playing field for companies providing similar 

services. In addition, some telecom operators have decided to launch partnerships with OCS 

players. For instance, mobile telecom operators Claro and TIM offer special data formulas for 

WhatsApp users via zero-rating packages. The Telecommunications Act defines telecommunication 

services as the set of activities that enables the offer of transmission, emission, or reception, via 

electromagnetic means, of symbols, characters, signals, writing, images, sounds or information of 

any nature. In addition, the Act creates a special category of services that complement and 

advance telecommunication services, the so-called value-added services. While these services are 

defined by the Telecommunications Act, they are not subject to the obligations contained therein. 

The Telecommunications Act does not provide for a further classification of the various telecom 

services but delegates the competence to differentiate between services to the telecom regulator 

ANATEL.  

ANATEL issued regulations distinguishing between, among others, multimedia communications 

services (SCM) and mobile personal services (SMP). SCM are defined as fixed telecommunications 

services of collective interest offered by private companies which enable the transmission, emission 

and reception of multimedia information. Internet access providers that combine the provision of 

internet access with the provision of SCM are considered as SCM providers and fall within the 

scope of the Telecommunications Act. If the activities of an internet access provider remain limited 

94 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
to offering access to the internet, it is regarded as a value-added service provider and is not subject 

to the Telecommunications Act. In practice, all large companies in Brazil that offer internet access 

operate as SCM providers and only small internet access providers remain value-added service 

providers. SMP are defined as mobile terrestrial telecommunications services of collective interest 

that enable communication between mobile stations. Further provisions on contractual elements, 

consumer rights and duties of SCM and SMP providers are contained in the respective regulations 

issued by ANATEL.  

OCS may be regarded as value-added services as a consequence of which they do not fall under 

the scope of application of the Telecommunications Act. With regard to VoIP services, ANATEL 

made clear that two interpretations are possible. If the VoIP service connects to a phone line and 

the infrastructure of communication is provided or managed by the VoIP provider, it is regulated as 

a telecommunications service. If the VoIP service is entirely provided over the internet, it is 

regarded as a value-added service that is not regulated under the Telecommunications Act. 

Recently, the president of ANATEL declared that WhatsApp is not to be considered as a 

telecommunications service. ANATEL has not issued further explanatory notes on other types of 

OCS. If an OCS is regarded as a value-added service, the activities of the provider will be subject 

to laws with a more general scope of application, other than the Telecommunications Act and the 

resolutions issued by ANATEL, such as the Code of Consumer Protection and the Marco Civil. 

Consumer authorities in Brazil are said to be struggling in enforcing consumer law in the area of 

new technologies and respect for consumer rights is argued to be lacking in OCS such as Skype. 

The Marco Civil applies to internet activities and establishes net neutrality as one of the principles 

of internet usage in Brazil. It is not yet clear whether zero-rating amounts to a violation of net 

neutrality under the Marco Civil. The lawfulness of the above-mentioned zero-rating services 

offered to WhatsApp users by mobile telecom operators Claro and TIM has already been criticized. 

The regulation on the implementation of the Marco Civil is expected to provide clarity on these 

discussions. In addition to regulating net neutrality, the Marco Civil also introduced specific rules on 

privacy and data protection in the online environment. Overall, data protection and privacy remain 

largely unregulated in Brazil as compared to international standards. 

Since OCS (with the exception of VoIP services connecting to the PSTN) are likely to be regarded 

as value-added services by ANATEL, there is currently no level playing between telecom operators 

and OCS in Brazil. Stricter and more specific rules apply to telecom operators under the 

Telecommunications Act and the resolutions issued by ANATEL as compared to the more general 

legislation to which OCS are subject as value-added services. Regulatory and policy discussions 

about OCS in Brazil have largely focused on the creation of an equal tax system. The Congress 

has recently adopted an amendment to tax legislation which prevents municipalities from waiving 

tax obligations from certain services which would bring the position of OCS providers closer to that 

of telecom operators as regards taxation. Before final enactment, the amendment still needs to be 

approved by the Senate. This call for regulation has been rejected by the president of ANATEL who 

has defended less taxation for traditional telecom operators instead of imposing tax obligations on 

new technologies that may end up harming innovation and consumers. As a result, the future of 

OCS regulation in Brazil is not clear. On the one hand, ANATEL and civil society responded 

negatively to attempts to extend the duties of telecom operators to OCS providers. On the other 

hand, the strong influence of large corporations on Brazilian politics and the current economic crisis 

have led to calls for stronger regulation of OCS. While ANATEL seems to be in favour of reducing 

regulation in the telecom sector, the Congress suggested to impose stronger tax obligations on 

OCS providers and holds the final word on possible future legislation applicable to OCS providers.  

Study on future trends and business models in communication services 

95 

 
 
 
 
 
 
 
 
 
 
4.4  Comparison between non-EU and EU countries 

Market situation 

In all non-EU countries included in this study, telecom operators are experiencing competitive 

pressure from OCS providers. This seems to be particularly the case in South Korea and Brazil 

where local telecom operators, just like their EU counterparts, have argued that the rise of OCS has 

had the effect of lowering their overall revenues. Only in the US it is reported that telecom operators 

have been able to compensate the decline in revenues from the provision of traditional telecom 

services by the increased revenues from broadband subscriptions and data use. US telecom 

operators have been able to benefit from the development of OCS which has stimulated consumer 

demand for (faster) broadband connections and (larger) data plans. In Japan, no conflicts between 

telecom and OCS providers seem to have occurred yet and level playing field discussions focus 

instead on regulatory asymmetries among distinct classes of telecom operators.  

Regulatory framework in the telecom sector 

The US legislator crafted statutory definitions for the communications sector giving rise to a 

dichotomy between regulated telecommunications services, subject to significant regulatory 

oversight, and information services, subject to far less regulation. Although the FCC has not 

specifically stated that OCS are information services under the US regulatory framework, it has 

explicitly exempted them from the heavier telecommunications service common carrier regulation. 

In South Korea, telecom operators are regulated as facility-based telecommunication service 

providers while OCS are classified as value-added telecommunication services to which no ex ante 

regulation applies. In Brazil, a similar distinction is made by the legislator between, on the one 

hand, telecommunication services that ANATEL further classified in resolutions and, on the other 

hand, value-added services that complement and advance telecommunication services. Value-

added services are not subject to the obligations contained in the Telecommunications Act and to 

the resolutions issued by ANATEL. Instead, more general legislation applies to these value-added 

service of which OCS are considered to form part.  

These distinctions in US, South Korean and Brazilian regulation are comparable to the situation in 

the EU where telecom operators are subject to the obligations in the EU regulatory framework for 

electronic communications and OCS are subject to legal regimes that have a more general scope 

of application and that do not necessarily give rise to obligations similar to the ones imposed under 

the regulatory framework. In Japan, the situation is different because OCS providers often fall into 

the same regulatory category as a certain class of telecom operators. Facilities-based telecom 

operators that are designated to have a large influence on end-users are regulated more strictly 

than other telecom operators in Japan. OCS providers are generally subject to the same regulatory 

burdens as the latter less-regulated telecom operators. Level playing field discussions in Japan 

therefore focus on the regulatory asymmetries among distinct classes of telecom operators, one of 

which includes OCS providers.  

Policy and regulatory discussions with regard to OCS 

Although the different regulatory burdens applicable to telecom operators and OCS providers have 

been the subject of debates between network operators and mobile VoIP service providers in South 

Korea, the legislator and regulator have not taken action to address the level playing field issues in 

the market for communication services. The rise of OCS in South Korea did require the authorities 

to take a stance on net neutrality when incumbent telecom operators threatened to block local OCS 

which put their revenues from traditional voice and text services at risk. Whereas net neutrality 

regulation is being implemented in the EU, US and Brazil, South Korea seems hesitant to strongly 

protect net neutrality. Instead, the South Korean authorities have protected the telecom market from 

96 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
the potential revenue losses allegedly caused by OCS by allowing telecom operators to place 

restrictions on the use of mobile VoIP services.  

In Japan, policy and regulatory discussions focus more on the regulatory disparities among several 

classes of telecom operators instead of on the asymmetry between telecom and OCS providers. 

Furthermore, regulatory parity between OCS and telecom providers in Japan is considered to 

constitute an impediment to the rise of stronger domestic OCS providers. While no specific steps 

have been taken yet in the EU, South Korea or Japan to address the level playing field issues 

between telecom operators and OCS providers, the US FCC has aligned the US regulatory regime 

with changing market developments and reinterpreted the rules over time by reducing the 

regulation imposed on incumbent telecom operators. On the other hand, the US regulation 

applicable to telecom operators has in some instances been extended to cover also VoIP providers 

and ISPs (the latter as a result of the 2015 Open Internet Order). While VoIP service providers 

offering access to and from the PSTN are not classified as either unregulated information service 

providers or regulated telecommunications service providers, they are subject to some of the US 

regulations and requirements applied to conventional telephone service providers. In Brazil, VoIP 

services providing access to or from the PSTN are regulated as telecommunication services while 

VoIP services entirely provided over the internet are regarded as value-added services to which 

telecom regulation does not apply. In the EU, VoIP services also have a special position. National 

telecom regulators in the EU are, in accordance with the 2007 Common Position on VoIP published 

by the European Regulator’s Group (ERG) for Electronic Communications Networks and Services, 

free to impose some of the obligations included in the Universal Service Directive on certain VoIP 

providers depending on whether they offer access to and/or from the PSTN and whether E.164 

numbers are provided or not. 

In Brazil, policy and regulatory discussions about level playing field issues between telecom and 

OCS providers have mainly focused on the creation of an equal tax system. In this context, the 

Congress recently adopted an amendment to Brazilian tax legislation which would prevent 

municipalities from waiving certain tax obligations from OCS. Currently, OCS providers are still 

largely free of taxation while telecom operators face several types of taxes. 

Conclusion 

In conclusion, in all non-EU countries considered in this study more strict and specific ex ante 

regulation applies to telecom operators than to OCS providers. Japan is a bit of an exception in this 

regard because OCS providers are subject to the same regulatory burdens as a certain class of the 

less-regulated telecom operators in Japan.  

As regards the policy or regulatory responses to the rise of OCS in the non-EU countries, there 

seems to be a trend towards deregulation in the telecom sector to create a more level playing field 

between telecom and OCS providers. The US FCC has already reacted to the changing 

developments in the market for communications services by reducing the regulatory obligations 
applicable to incumbent telecom operators170. However, some of the US telecom obligations have 
also been imposed on VoIP providers and ISPs. In Brazil, current policy discussions particularly 

deal with taxation issues. While the Brazilian legislator is in the process of imposing tax obligations 

on OCS providers, ANATEL seems rather to be in favour of reducing regulation in the telecom 

sector. In Japan where level playing field discussions mainly focus on the asymmetries among 

different classes of telecom providers, current government policy seems to go in the direction of 

deregulation of facilities-based telecom operators. South Korean authorities, in their turn, seem to 

protect the position of telecom operators considering the government’s reluctance to adopt strict net 

170   For an overview of the deregulatory measures adopted by the FCC, see Annex IV. 

Study on future trends and business models in communication services 

97 

 
 
 
 
 
 
 
 
 
 
                                                           
neutrality or traffic management rules. With the launch of the new service plan by major South 

Korean telecom operators, the use of mobile OCS, and in particular VoIP services, is expected to 

decline as consumers will have unlimited access to traditional voice and text services. 

98 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
5  An analysis of telecom and OCS business 

models 

5.1 

Introduction 

The purpose of this chapter 

This chapter analyses the ability and potential of telecom providers to compete with the internet -

based providers of communication services. As explained earlier, answering this question from a 

legal perspective (as is done later on in Chapter 6) does not provide a complete answer. From the 

legal perspective, the question can be rephrased: Can a traditional ECS provider, currently falling 

under the telecommunication framework directive, offer a service that does not involve the 

(managed) conveyance of signals and does not interconnect using the telephone numbers? Clearly 

they can, as is evidenced by social network apps like Libon and Tuenti owned and operated by, 

respectively, Orange and Telefonica. But the fact that telecom operators can start an OCS app 

does not provide proper insight in how they are positioned, or how they can position themselves, to 

compete with OCS providers. They come from different technology, business and market 

backgrounds and, as a result of that, face different challenges in sustaining or growing their 

businesses. 

The assessment of the ability for telecom service providers to compete with OCS providers requires 

a more in-depth analysis of market developments as well as of telecom and OCS technology and 

business models. On market developments we have established in chapter 2 that end-users 

consider OCS and telecom services to be substitutes and that the rising popularity of OCS has 

been one of the drivers behind the reduction in (at least mobile) telecom revenues. In this chapter 

we analyse whether telecom service providers are able to develop and innovate business models in 

a similar way as OCS providers can. This requires (amongst others) analysing how the assets 
underlying the telecom providers’ business compare to the assets of the OCS providers171. In a 
second step, we analyse whether telecom service providers can leverage their own assets in a 

similar way as OCS providers.  

For our analysis, we use an approach based on the DAMIAN172 method. We include both intrinsic 
differences in assets that come from differences in technology, business and market backgrounds 

and differences that may be introduced by regulations. This helps to provide insight in the influence 

of ECS-specific regulation on the competition between ECS providers and OCS providers and the 

potential effect of abolishing specific regulation. Annex VII contains more information on the 

DAMIAN approach and how it is applied in this study. 

5.2  Competition and complementarity among telecom providers and OCS providers 

5.2.1  Competition occurs within and between ecosystems 

A closer look at the competition between telecom providers and OCS providers reveals that this is 

not a straightforward head-on competition on communication services. The competition is more 

diverse, both in terms of the services and applications involved and in the propositions to end-

users. 

171   This chapter will also show that there are already large differences in assets among OCS providers. 
172   http://publications.tno.nl/publication/34611843/NhocfJ/TNO-2014-R11482.pdf. 

Study on future trends and business models in communication services 

99 

 
 
 
 
 
 
 
 
 
 
                                                           
A key observation is that both competition within and between ecosystems play a role. Telecom 

services are provided on the basis of the E.164 numbering plan (i.e., telephone numbers) for 

identification and providing inter-user connectivity. This global ecosystem is owned and operated by 

a large number of providers (in most countries there are more than one) that each serve their own 

(interconnected) subgroup of end-users. The multi-ownership of the ecosystem creates horizontal 

dependencies. These are governed by interconnection agreements and interoperability standards 
(obligations) and termination regimes173. The services provided on the basis of the number regime 
are (to a certain extent) tied to the underlying physical network. As such, the operator of the 

physical network has a range of possibilities to manage the quality of the communication service. 

The multi-ownership of the ECS ecosystem distinguishes ECS networks from OCS networks. OCS 

ecosystems are typically owned by a single entity and as such there are no horizontal 

dependencies within the ecosystem. This is not written in stone. It may be that multiple smaller 

OCS networks engage in interoperability agreements when they may not be able to realise a critical 
mass for the direct network effects to kick in174. But until now, the OCS platforms that have realised 
large enough scale keep the ecosystems closed.  

Moreover, many OCS operators offer their own services to the people in their ecosystem (vertical 

integration) but they may also host services of others. The dependencies between the ecosystem 

and the hosted services are governed by a set of routines, protocols, and tools for building software 
applications175. A prime example of a communication ecosystem that hosts services from other 
providers is WeChat (see Figure 5.1).  

Figure 5.1 App developer’s portal for WeChat 

Source: http://dev.wechat.com/wechatapi. 

As stated, the competitive process can be described as an interaction between and within 

ecosystems. Telecom operators compete among each other within the ECS ecosystem by taking 

away clients from other telecom operators and by taking strategic measures to retain customers. 

OCS competition can much better be described as a competition between ecosystems without a 

need to steal subscribers away from competitors (end-users can and do subscribe to multiple 

platforms), but rather a need to provide end-users with an optimal user experience such that they 

173   Depending on the type of termination regime, these may be subject to price regulation. 
174   A notable example is Google Hangouts that is engaging with companies like Sameroom and Bluejeans that provide 

interoperability solutions see https://sameroom.io/blog/announcing-support-for-google-hangouts/ and 
https://bluejeans.com/press-releases/blue-jeans-for-google-hangouts-interoperability-service. Moreover, Skype and other 
voice based OCS applications like Halonet, Gigaset.net and CSIP are interconnecting with the ECS networknetworks to 
benefit from the network effects. 

175   Also referred to as Application Programming Interfaces or APIs. 

100 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
keep lending their eyes and ears to (say) Facebook and not easily ‘change the channel’ to (say) 

Google Hangouts.  

5.2.2  Competition in different dimensions of end-user experience 

Following our analysis of the ecosystems in the previous section, we now zoom in at the way 

communication apps and services are offered. Although stand-alone telephony services are still 

available, telecom providers are increasingly promoting bundled offerings, in which fixed telephony 

is bundled with internet access and television services. Similarly, mobile telephony and SMS are 

bundled with mobile internet access. Many telecom providers that have both fixed and mobile 

networks have introduced the next level of bundling, quad play, which combines the fixed and 

mobile bundles. Finally, many telecom providers are enriching their triple and quad play bundles 

with cloud storage, security services and other features that complement their internet access 

service. On the OCS side, separate communication apps are available (for example, Skype and 

WhatsApp), but many leading providers also pursue a bundling (or packaging) strategy. Skype is 

part of Microsoft’s Office 365 suite, the Hangout communication app is offered in close connection 

with Google’s range of other applications, such as search, Gmail, YouTube, and Google Drive 

cloud. Apple’s iMessage and Facetime communication apps are preinstalled on the iPhone and 

iPad, together with iCloud storage and a range of other applications. Thus, bundling and packaging 

of a diverse set of applications and services are common in the competition among telecom 

providers and OCS providers. 

When we consider the propositions to end users, we see that different companies differentiate by 

focusing on specific areas, thus reducing the degree of head-on competition, see  

Figure 5.2.  

Figure 5.2. The different areas that contribute to the value of an application or application bundle for the 
end user176. 

The applications themselves (both communication apps and others) and their features are part of 

the Function & Content area. Specifically in the area of TV and audio-visual services, providers are 
seeking to differentiate themselves through the production or acquisition of unique content177. The 

176   Adapted from Frank Berkers, Pieter Nooren, Menno Bangma, “Analysing Dynamics in the Converging Digital Ecosystem - 
Applying the DAMIAN methodology to the case of VoIP and managed mobile telephony services”, Competition and 
Regulation in Network Industries (CNRI) Conference, Brussels, November 2013, Available at 
http://crninet.com/2013/6a.%20Berkers-Paper.pdf. 

177   For example, Telefonica has acquired the rights of the Spanish Primera Division, Sky and BT have the rights for the 

Premier League. KPN has moved into television production with a drama series, following the examples of on-line video 
providers like Netflix that strongly promote their own original content. 

Study on future trends and business models in communication services 

101 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
bundling and packaging are key components in the Find & Obtain area, together with the means to 

find applications (e.g., through recommendations) and obtain them (e.g., through app stores). There 

is wide variation in the customer relation and the revenue model used by different providers which 

is further explored in section 5.3. In the Enable & Connect area, the telecom providers have a 

strong position through their access networks, which are used by OCS providers to distribute their 

applications. Many larger OCS providers bring their own contributions to the technical chain 

required to make applications work, for example through content distribution networks, cloud 

infrastructures, (mobile) operating systems and devices. Telecom providers, in turn, also operate 

cloud infrastructures and provide devices, such as set-top boxes. For the smartphones they provide 

to their customers, they depend on device makers (which can have an OCS role as well, such as 

Apple). Finally, providers position themselves and compete in the Experience area, by optimizing 

and tailoring the convenience of the interplay of applications, devices and networks. 

In summary, we observe that telecom providers and OCS providers compete with diverse bundles 

and packages, in several areas that are of value for end users. Although telecom providers 

compete on pricing of bundles among themselves, the competition between telecom providers and 

OCS providers takes place in the four areas outlined above. As discussed in the next section, there 

is strong differentiation in the revenue models. 

5.3  Analysis of revenue models and assets  

5.3.1  A typology of revenue models 

The main revenue models that can be distinguished178 are presented in Table 5.1. 

Table 5.1 Revenue models by telecom providers and OCS providers 

Revenue model 

Direct payment 

Examples 

Short explanation 

Telecom providers, such as 

Users pay a direct fee for use of 

Orange, Tele2 and Telefonica 

the service either through 

subscriptions, post or prepayment. 

It is currently the main revenue 

model of telecom service providers. 

(Personalised) advertisements 

Google, Facebook 

Users are shown (personalised) 

Device sale 

Apple, Samsung 

Users buy devices, and receive 

advertisements while using the 

service. 

Software license 

Microsoft 

services at no additional costs. 

Users pay for a license to use the 

software, through a one-time 

payment or a recurring subscription 

fee. 

(Access to) 

App stores, Amazon store, 

The platform offers companies 

WeChat 

access to end-users, in return for a 

payment, usually in the form of a 

percentage of the sales revenue. 

(Acquisition) 

WhatsApp, Instagram 

A start-up company using 

investment capital to grow, and is 

later acquired by another company. 

178   Challenges for Competition Policy in a Digitalised Economy, Nicolai van Gorp and Olga Batura, IP/A/ECON/2014-12, PE 

542.235, July 2015. 

102 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
The two revenue models on the bottom of the table, the “access to” and the “acquisition” models 

are considered to be of lesser importance for the current analysis. The acquisition model is 

associated with start-up companies. Many start-ups start with venture capital, based on the promise 

of a larger company potentially acquiring the start-up company in the future. This model allows for 

fast growth, as no service income needs to be made. Eventually the new services become part of a 

larger entity and one of the other revenue models will be pursued. 

In many cases, companies combine the above models, leading to hybrid forms. For example, 

Skype does use the direct payment model for Skype-out, even while it is offered as part of a 

broader software offering (i.e. bundled with Microsoft Office). And while YouTube is mainly running 
on the advertisement model, it is now also offering subscriptions for an ad-free version179.  

5.3.2  Examples of different revenue models 

Direct payment revenue model – ECS example of Orange 

The value webs for fixed and mobile communication services are shown in Figure 5.3 and Figure 

5.4. They are quite similar. Analogous to traditional value chains, the value webs contain a number 

of main activities that are required to provide a service or service bundle. These main activities 

(Service, Service Aggregation, Distribution and Consumption) are found in the top of the figure in 

blue, together with one other activity, Navigation & Selection, which is relevant for value webs 

considered later on in this chapter. Additional main activities and other orderings can be 

considered, but this is not required for our analysis. The activities and the order in which they are 

presented have been shown to be suitable for a wide variety of telecom, media and internet 
services180.  

In our description, we use the example of the telephony services offered by Orange as part of a 

triple-play bundle. There are many other companies that offer similar bundles according to a similar 

value web, such as Deutsche Telekom, KPN, Telefonica and Tele2. 

179   http://youtube-global.blogspot.nl/2015/10/red.html. 
180   Over-the-Top (OTT) players: Market dynamics and policy challenges, Godlovitch et al,, IP/A/ITRE/FWC/2013-046, PE 

569.979, December 2015, available at 
http://www.europarl.europa.eu/RegData/etudes/STUD/2015/569979/IPOL_STU(2015)569979_EN.pdf. 

Study on future trends and business models in communication services 

103 

 
 
 
 
 
 
 
 
 
 
                                                           
Figure 5.3 Orange offers a telephony service as part of triple play over its fixed network 

The fixed telephony service by Orange takes what we call the managed route at the top of the 

figure. On the left-hand side, Orange offers the service, i.e. it has the commercial relationship, 

typically in the form of a subscription, with the customer. Moving to the right, Orange aggregates its 

fixed telephony service in a triple play bundle with internet and television. Then, Orange distributes 

the services over its own fixed core and access network. The routes for telephony and television 

are managed, in the sense that there is a reservation of network capacity for these services. For 

accessing The Internet, the access network offers a so-called best-effort connectivity, meaning that 

the quality is usually good but not guaranteed, as there is no reservation of network capacity for the 

services and applications provided over it. On the right-hand side, the services are consumed by 

customers. This calls for suitable devices, such as a fixed phone for the telephony service, a TV 

and a set-top box for the television service. Many different devices are used for the applications 

provided over the internet access, from PCs, tablets and smartphones to game consoles. 

The mobile telephony service is shown in Figure 5.4. It is typically bundled with SMS and mobile 

internet access. The telephony and the SMS services are offered via a managed route, with 

bandwidth reservations in the mobile core and access network. Most customers use a smartphone 

for telephony, SMS and mobile internet access. Mobile internet access can also be used on SIM-

card enabled tablets. A diminishing minority of people use simple mobile phones (i.e. non-

smartphones) for mobile telephony. 

104 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
Figure 5.4. Orange offers telephony, SMS and Internet access over its mobile network 

It is possible to subscribe to a telephony-only service (i.e., a traditional fixed line subscription or 

telephony with SMS mobile subscription). However, Orange and other service providers have all 

moved to the marketing and sales of subscriptions for bundles as those sketched above. In fixed 

triple-play bundles, the marketing emphasis is on the Internet access speeds and the 

television/Video-on-Demand offering. The internet and TV offer is completed with fixed telephony, 

typically offering unlimited national calls. In mobile, the emphasis is on the size of the data bundle. 

The subscriptions with larger data bundles typically include unlimited national calls and SMS. 

Orange’s position in telephony services is underpinned by a set of assets that it has built over time, 

see Table 5.2. The focus here is on the assets that are particularly relevant for telephony and 

messaging services, and the bundles in which they are offered. The assets in bold are the strongest 

assets (key assets) owned by Orange, as it is costly or difficult for other companies to reproduce 

them. As a result, these assets are the most important for Orange’s position relative to its 

competitors. 

Table 5.2 Orange assets in its direct payment business model for fixed and mobile bundles 

Orange Asset 

Explanation 

Evaluation 

Access network with 

Based on Copper/fibre in fixed, 

Key asset: fixed access networks are costly 

national coverage 

radio spectrum in mobile. 

to reproduce, radio spectrum licenses are 

costly and scarce. 

Core network 

Largely based on fibre and also 

Relevant asset but not key as there exist 

micro-wave connections for mobile 

multiple parallel national and international 

backhaul. 

core networks. 

Skilled technical 

Network and process designers 

Relevant asset but not key because it is not 

personnel 

who are crucial for the reliable 

unique to Orange. 

operation of networks with fine-

grained national coverage. 

Study on future trends and business models in communication services 

105 

 
 
 
 
 
 
 
 
 
 
Orange Asset 

Explanation 

Evaluation 

National base of 

Post-paid users have a contractual 

Key asset: in ICT services it is costly to 

subscribed users 

and billing relation with Orange. 

attract and retain post-paid users. Pre-paid 

customers (which represent a substantial 

part of mobile users) are of less value as 

they do not have a contractual relation and 

their user information remains unknown to 

the provider. 

Brand 

The Orange brand is well-known in 

Relevant asset but not key as there are 

France and a number of other 

other well-known and respected brands in 

countries. 

ICT services. 

Global reach through 

The International E.164 numbering 

Relevant asset but not unique to Orange. 

phone numbers 

plan and the interconnection 

agreements between providers 

ensure a global network effect for 

telephony and SMS. 

Local presence 

Retail channels and outlets, 

Key asset: retail channels, outlets and 

helpdesk in local language. 

helpdesk provide opportunities for 

customers to interact locally and physically 

with the company and is costly to 

reproduce. 

Local TV content 

Contractual relations with 

Key asset: local language content is crucial 

providers for local language 

in TV offering (in particular in broadcast) 

content. 

and is hard to acquire as it requires 

knowledge and access to the national 

audio-visual market. 

User Data 

Telecom service providers have 

Not a key asset (yet) as it is currently not 

access to a large amount of data 

widely used in the direct payment business 

on their customers, e.g. telephony, 

model. The use of data for direct marketing 

text, consumers’ location and 

purposes is limited to internal use and 

usage of the ECS services. 

existing customers, e.g. in advising them on 

suitable offers, unless prior consent of users 
has been obtained181. 

Device sale model – example: Apple 

Apple bundles two communication apps with its devices: iMessage (messaging) and 

FaceTime (voice and video communication).  

Figure 5.5 shows how iMessage and FaceTime are provided through the value web. These 

services take a typical on-line route, characterised by the use of the internet for distribution. On the 

left-hand side, Apple offers the iMessage and FaceTime apps. They are pre-installed on many 

Apple devices, together with other applications such as iTunes and iCloud. iMessage and Facetime 

are offered only on Apple devices, such as the iPhone, iPad and Mac. For distribution and transport 

of the voice, video, text and audio-visual content, Apple relies on a combination of its own cloud 

infrastructure and the internet access networks to reach its users. The Orange internet access 

network is an example of such a network.  

181   Section 6.3.1 explains the role of the ePrivacy directive in this context. It is explained there that unsolicited 

communications are only allowed for the purposes of direct marketing in case of prior consent of the respective users. If 
the provider has received the electronic contact details of a customer in the context of the sale of a product or service, it is 
allowed to use these details for direct marketing of its own similar products or services. 

106 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
                                                           
Figure 5.5 Apple offers iMessage and FaceTime communication for free on Apple devices. 

The main source of revenue for Apple is device sales, accounting for 84% of revenues in 2015182. 
The iMessage and FaceTime applications are offered free of charge on Apple devices. In the Apple 

business model, these and other applications appear to be primarily aimed at driving the sales of 

the devices by adding user value to them.  

Table 5.3 Apple’s assets in its devices business model. 

Apple Asset 

Explanation 

Evaluation 

Global user base 

Relevant asset, not unique to Apple 

Strong global premium 

Apple is the best established 

Key asset: large group of customers are 

brand 

premium brand for smartphones 

willing to pay a premium price for Apple 

with the most loyal customer 

devices 

group 

User experience expertise   Design of devices and user 

Relevant asset: user experience is the main 

interfaces 

factor behind the attraction of the devices 

and the Apple brand. 

Strong device ecosystem 

Combination of devices, cloud 

Key asset: attracts app developers and 

infrastructure and apps provides 

customers, also important to retain 

complete portfolio 

customers as ecosystem works exclusively 

with Apple devices 

Mobile OS 

Apple’s iOS mobile operating 

Key asset that underpins the device 

system 

ecosystem. 

Local presence 

Apple operates a number of 

Relevant asset: opportunity for customers to 

flagship stores in larger cities, 

interact locally and physically with the 

complemented with a number of 

company, adds to premium branding. 

certified Apple-only retail chains 

182   Apple Q4 2015 Summary data, available from http://images.apple.com/pr/pdf/q4fy15datasum.pdf.  

Study on future trends and business models in communication services 

107 

 
 
 
 
 
 
 
 
 
 
                                                           
Apple Asset 

Global IT/cloud 

infrastructure 

Explanation 

Evaluation 

This infrastructure is important in 

Relevant asset, but not unique to Apple as 

the delivery of high-quality and 

there exist multiple large cloud 

responsive applications. 

infrastructures 

Access to large scale 

Factories for smartphones and 

Relevant asset, but not unique. 

production facilities 

tablets 

Advertising model – examples: Google and Facebook 

An advertising model is intrinsically a two-sided business model: on one side, services are offered 

to consumers and on the other side services are offered to advertisers. 

We use Google and Facebook as two examples to analyse this model. Figure 5.6 shows a value 

web depicting how Google delivers applications and advertisements to consumers. Specifically, in 

the service category, Google offers a broad range of applications to consumers, such as Hangout, 

Gmail, YouTube and Maps. These services are aggregated by Google and offered in Google play 

(Google’s app store) and iTunes (Apple’s app store) for download. Furthermore, these applications 

are typically already preinstalled on devices with Android OS. For the delivery of voice, text, audio 

and video from these services, Google relies on a combination of its own infrastructure and the 

Internet access provided to the consumers by a telecom provider, such as Orange. These services 

are typically presented to consumers in apps on tablets and smartphones, as well as via web 

browsers on laptops and PCs. While offering services directly to users, Google in parallel offers 

advertising services to brand owners and advertising agencies. Specifically, Google uses the 

customers’ data collected through its broad range of applications to provide (personalised) 

advertisements to these same customers. The advertisements to be displayed to a certain 

consumer at a specific moment are selected and distributed by Google via its advertising platform 

(DoubleClick) over the Internet connection of the target consumer and presented in the app or 

webpage he/she is using. These include Google’s own webpages and apps, such as YouTube and 

the Google search engine. 

Figure 5.6 Google offers Hangout and many other applications via the Internet in an advertising model 

Note: The full green arrows denote the delivery routes for the Google applications to users. The dotted blue arrows show the 
routes for the personalised advertising that are presented in some (but not all) of the applications. 

108 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
The main assets used by Google to deliver these services are listed in Table 5.4. These assets 

include those used to offer services directly to the consumers as well as services to the advertisers. 

Table 5.4 Google’s assets within its advertising revenue model 

Google Asset 

Explanation 

Evaluation 

User Data 

Obtained through a range of 

Key asset: Google’s data set is large and 

applications 

hard to replicate. 

Data analytics/algorithms 

The analytics are crucial to 

Relevant asset but not key as other 

extract value from the user data. 

companies have it as well  

skilled technical personnel 

Engineers and data scientists to 

Relevant asset but not key because it is not 

Global IT/cloud 

infrastructure 

develop Google’s global IT/cloud 

unique to Google (e.g. Apple and Facebook 

infrastructure and algorithms  

also own this asset)  

This infrastructure is important in 

Relevant asset but not key as there are 

the delivery of high-quality and 

multiple companies that have and even offer 

responsive applications. 

large IT/cloud infrastructures (e.g., Amazon) 

Service diversity within the 

The diversity of the applications 

Relevant asset but not key as it is not 

bundle 

increases the stickiness of the 

unique to Google. Google arguably has the 

Google ecosystem.  

most diverse and extended set of 

Global user base 

applications. 

Key asset although not unique to Google. 

Google has one of the largest user bases. 

Strong global brand 

Google is a well-known global 

Relevant asset but Not a key asset as 

brand 

people may choose other brands that offer 

services that work well. 

OS platform 

The Android OS that Google 

Key asset: Android is used on the majority 

offers for tablets and 

of mobile handsets and provides the scale 

smartphones. Used by many 

for wide distribution of applications through 

popular handset brands, such as 

pre-instalment. 

Samsung and Sony 

Advertising platform  

The platform offered to 

Relevant asset but not unique to Google: 

advertisers to manage their 

there are many other advertising platforms 

(personalised) market/ads 

available. 

campaigns 

Contracts with advertisers 

The relationship with advertisers 

Key asset: the existing contracts/relations 

using the advertising 

(directly or indirectly) is crucial to 

with advertisers are unique to Google and 

platform 

obtain advertising revenues. 

not easily reproduced by others. 

Websites and apps 

The ads are placed on the 

Key asset: the large user base reached by 

Google search engine, on Gmail, 

the Google applications, including its very 

on YouTube, etc. 

popular search engine is difficult to match 

by other companies. 

Another example of the usage of the advertising model is Facebook. Facebook offers “social” 

communication services via its social network (posting/commenting/liking “status” messages, links, 
photos and videos) and an instant messaging service via Facebook messenger183. The value web 
for Facebook is depicted in Figure 5.7. The delivery of applications and advertisements to the users 

follows a similar path as in the Google value web. We do note that Facebook uses three types of 

183   Facebook also owns WhatsApp and Instagram which provide messaging, these applications are not separately considered 

in this report. 

Study on future trends and business models in communication services 

109 

 
 
 
 
 
 
 
 
 
 
                                                           
advertising platforms: LiveRail specialises in video ads, Atlas focuses on cross-device advertising, 

and Audience Network allows advertisers to run Facebook ads on other mobile apps. 

Figure 5.7 Facebook offers Facebook messenger over the Internet in an advertising model 

Table 5.5 shows Facebook’s main assets. As for Google’s case, both assets for delivering services 

to consumers and to advertisers are considered. 

Table 5.5 Facebook’s assets within its advertising revenue model 

Facebook Asset 

Explanation 

Evaluation 

User Data 

Obtained through Facebook’s 

Key asset: the represents a unique angle: 

social network 

the social aspect. 

Data analytics/algorithms 

The analytics are crucial to 

Relevant asset but not key as other 

extract value from the user data. 

companies have those as well.  

Highly skilled technical 

engineers to maintain/develop 

This is not a key asset because it is not 

personnel 

Facebook’s global IT/cloud 

unique to Facebook (e.g., Apple and 

infrastructure and top data 

Google have this asset too). 

scientists that can analyse data 

and improve Facebook’s 

algorithms  

Global IT/cloud 

infrastructure 

Global user base 

This infrastructure is important in 

Relevant asset but not key as there exist 

the delivery of high-quality and 

multiple companies offering large IT/cloud 

responsive applications. 

infrastructure (e.g. Amazon). 

Key asset, although not unique to 

Facebook. Facebook has one of the largest 

global user bases. 

Strong global brand 

Facebook is a well-known global 

Not a key asset as people may choose 

brand 

other brands that offer a services with a 

similar “social” aspect (friends, profile, 

social history). 

110 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
Social graph/history 

The social graph contains the 

Key asset: it is difficult to reproduce, as it 

activities and relations between 

would require a significant effort from the 

Facebook’s users and underpins 

consumers (rebuild its social graph, share 

the user data. 

photos and updates) and would imply the 

loss of the history accumulated so far 

(previous photos and interactions). 

Advertising platform  

The platform offered to 

Relevant asset but not unique to Facebook: 

advertisers to manage their 

there are many other advertising platforms 

(personalised) market/ads 

available. 

campaigns 

Contracts with advertisers 

The relationship with advertisers 

Key asset: the existing contracts/relations 

using the advertising 

(directly or indirectly) is crucial 

with advertisers are unique to Facebook 

platform 

obtain advertising revenues. 

and not easily reproducible by others. 

Websites and apps 

The ads are shown in Facebook’s 

Key asset: the large user base reached by 

social networking apps and web 

Facebook and the amount of time spent 

pages. 

makes this asset both valuable and hard to 

reproduce. 

It is important to note that the advertising model used by Google and Facebook is composed of 

three main elements: 

1.  The end users’ data is used to construct profiles and audience segmentation that are offered to 

the advertising platforms to optimise the relevance of the advertisements presented to the users 

(personalised ads); 

2.  An advertising platform; 

3.  Web pages and apps in which advertisements can be published. 

While Google’s and Facebook’s models comprise all three elements, revenue models using only 

one of them also exist. For example, DoubleClick and LiveRail were offering only the advertising 

platform before being acquired by Google and Facebook, respectively. Additionally, many websites 

use the third element in the model, by accepting to publish advertisements on their pages for a fee. 

Software licence model – example: Microsoft 

Microsoft offers voice, text and video communication through Skype. Skype is part of Microsoft’s 

Office 365 bundle, for which it sells monthly or yearly subscriptions. Skype is also available as a 

separate application from app stores, such as Google play and the Apple app store, and as a 

download from the Skype website. In this way, Microsoft ensures that Skype is available on many 

devices, including many devices that do not have a Microsoft operating system. Similar to Apple’s 

FaceTime and Google’s Hangout, Skype relies on a combination of Microsoft’s own cloud 

infrastructure (and possible other Internet core networks) and the internet access networks offered 

by Internet Service providers, such as Orange.  

Study on future trends and business models in communication services 

111 

 
 
 
 
 
 
 
 
 
 
Figure 5.8 Microsoft offers Skype over the Internet as a part of its Office suite and also as a separate 

app 

The basic Skype-to-Skype communications are offered free of charge. It can be combined with paid 

extensions to and from the PSTN (such as SkypeOut, SkypeIn and SkypeToGo). Although these 

paid extensions do generate revenues for Microsoft, the main contribution to the business model 

seems to be that Skype makes the Office bundle more attractive and increases its stickiness. See 

Table 5.6 for an over view of the related assets. 

Table 5.6 Microsoft’s assets in its software licencing business model 

Microsoft Asset 

Explanation 

Evaluation 

Global user base 

Microsoft has many customers for 

Relevant asset but not unique to Microsoft. 

its services, with a growing 

proportion having a monthly or 

yearly subscription to products 

Widespread deployment of 

Office bundle is widespread 

Key asset: Microsoft can add new 

Office software 

among business customers and 

applications to the Office to make it more 

also among consumers  

attractive and obtain more subscription 

revenues or increase stickiness. 

Windows OS  

Windows is the most widely used 

Relevant asset, but not key as it currently 

OS for PCs. 

plays a rather small role in smartphones and 

tablets. 

Strong global brand name 

Microsoft has a strong position in 

Key asset: Microsoft can build on its close 

and position in business 

the business market with a 

and longstanding relation with many 

market 

complete portfolio in software and 

business customers. 

services for servers, desktops, 

office and cloud  

IT/cloud infrastructure 

Important for the delivery of high-

Relevant asset, but not unique to Microsoft 

quality and responsive 

as there exist multiple large cloud 

112 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
Microsoft Asset 

Explanation 

applications 

Evaluation 

infrastructures. 

Highly skilled technical 

Engineers and developers 

This is not a key asset because it is not 

personnel 

maintain and develop Microsoft’s 

unique to Microsoft. 

software, cloud infrastructure and 

devices.  

Other models: the ‘access to’ model and the ‘acquisition’ model 

The access to model exploits the control that a company has over access to a (large) group of its 

customers. This model is used as a smaller, secondary revenue model in some of the cases 

analysed in the preceding sections. For example, Apple’s revenues are dominated by the sales of 

devices, but it also obtains revenues from paid apps offered by app developers in its app stores 

through a revenue sharing model. Similarly, triple play providers can in certain cases obtain 

revenues from TV channels with a relatively small audience that want their channel to be included 

in a TV package. 

The acquisition model is primarily associated with start-ups that aim to create future value for 

themselves or other companies through an innovative application or platform. Typically, their focus 

is the rapid building of a large group of users rather than the development of revenue streams 

based on one of the revenue models described above. In a later stage, the value can be unlocked 

by the company itself when it has found a business model that suits the application and user group. 

Alternatively, the value can be unlocked by another company that finds the innovation a valuable 

addition to its own products. When the user group built by the start-up company is large, the 

acquisition price can be high. A well-known example is the acquisition of WhatsApp by Facebook in 
2014184 for $16 billion. 

5.4  Telecom operators’ ability to move to alternative business models  

To identify the ability and potential for telecom service providers to enter (more) into the OCS 

domain, we first need to identify the various routes telecom service providers can take for moving in 

this OCS direction. Table 5.7 reflects the two dimensions along which telecom providers may move 

in the direction of OCS-type service provision: horizontally – a shift towards an OCS-style revenue 

model; and vertically – a shift towards an OCS-style services portfolio. This provides for four 

options.  

Table 5.7 The various routes telecom service providers can take to move more into the OCS domain 

Current revenue model 

Alternative revenue model(s) 

Current 

service 

Current situation, offering telephony services 

Extend the revenue model based on 

bundled with data (i.e. internet access) and TV 

current service portfolio, by adding one of 

portfolio 

(mostly fixed-line) for a direct payment, using 

the following models: 

either subscriptions or prepaid model. 

  advertising-based; 

  device-sale based; 

 

software-license based. 

184   http://newsroom.fb.com/news/2014/02/facebook-to-acquire-WhatsApp/. 

Study on future trends and business models in communication services 

113 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Current revenue model 

Alternative revenue model(s) 

New service 

The service portfolio can be extended by offering 

Offer new services based on new 

portfolio 

new applications or improved functionality, 

revenue models.  

making the offered bundle more attractive. E.g. 

extensions can be: 
  RCS185-like services; 

  Content-based services. 

Based on innovative capacity, not on 

existing assets. 

Moving to a new service portfolio and a new revenue model at the same time is the most difficult 
option, as it offers the smallest scope for reuse of existing assets186. The two other options offer 
more scope for reuse of assets. Below, we analyse for these two options whether telecom service 

providers can reuse their existing assets and whether they can access essential assets required in 

the model. Obviously, is not to be expected that telecom providers would completely abandon their 

current direct payment revenue model. For example, one could envisage that the internet access 

services would be based on direct payment, while certain communication services could be based 

on an alternative model. Another option would be to support bundles of services as a whole through 

a combination of direct payment and alternative models. 

5.4.1 

Introducing new services with existing revenue model 

In our desk research and during our interviews, two examples were provided of potential ECS 

success stories in launching OCS: Libon and Tuenti. These two examples show that telecom 

service providers have had some success in this area, but they have not been able to grow an OCS 

service to the global scale and the network effects enjoyed by the leading players.  

Libon  
Libon187 is an application launched by Orange. It is in essence a chat application offering free text 
chat and voice calls for its users. It is offered by Orange to both Orange and non-Orange users. 

The basic Libon application provides three things: advanced visual voicemail, free calls and free 

messaging. Also, interconnection with the PSTN is provided to provide cheap (international) voice 

calls to E.164 numbers. At first, Libon started out with offering a Premium package including a 

certain amount of ‘free’ voice calls, amongst other added functionality. Later on, Libon switched to 

just offering calls to E.164 numbers for certain tariffs, enabling users to buy packages of minutes. 

Libon is extended with various service parts for specific purposes: 

  Libon Open Chat to start an online chat session with a non-Libon user. This works by sending a 

friend an HTML link through SMS, where this HTML link directs to a web-based chat session; 

the Libon user can use Libon, where the friend can use any web-enabled smartphone to chat 

through the browser; 

  A mobile number to receive calls when the Libon user is on Wi-Fi. In certain places, indoor cell 

phone coverage is not sufficient to actually receive calls. If there is Wi-Fi available in those 

places, this allows users to use Libon to receive regular phone calls on their mobile number. 

185   Rich Communication Suite services aim to extend mobile telecom operator services beyond telephony and SMS by adding 

instant messaging, live video and file sharing. See http://www.gsma.com/network2020/rcs. 

186   This approach resembles the line of thought applied in the ‘new product, new market’ reasoning. Companies can either 
start a new product in their existing market (leveraging market presence), or start in a new market with their current 
product (leveraging product strength), but in general will not do both at the same time. 

187   http://libon.com/. 

114 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
For the future, Libon is RCS-ready. This means that once RCS will be offered by other providers, 

Libon can be interconnected with those offerings as well. In a presentation by Orange, the rationale 
and business drivers of Libon are explained188: 
  Libon provides direct revenues through a direct payment model, quite similar to the current 

telecom model: buy prepaid credit and use this to make phone calls; 

  Libon gives Orange an advantage in the ECS market, as it is a unique offering that is 

compelling especially to younger people; 

  Libon helps to retain users with Orange; it helps Orange to keep their usage of OCS down. 

But, when looking at the number of users, the question remains if the service can already be called 
successful. The data from November 2014188 show 10 million downloads and 2 million Monthly 
Active Users (MAUs). This is quite small when looking at the uptake of OCS apps like Skype and 

WhatsApp (see Figure 2.1 on page 37). The functionality Libon offers is very ‘me too’, with most 

things already offered by Skype, WhatsApp, Viber, etc. A unique selling point could be the 
quality189, as it is offered by a telecom provider that has control over (parts of) the network. As no 
quality of service data is available, this point could not be investigated. It seems an intriguing 

statement as service offerings such as Skype and Viber are many times larger in numbers of users 

and apparently manage to satisfy their users based on internet connectivity. 

Tuenti  
Tuenti started in 2006 as a Spanish social network service190. In 2010, it was acquired by 
Telefonica. From 2013 onwards, it has been suffering from dwindling numbers191 as did many 
national social network services, losing out probably to Facebook. Instead it has become a mobile 
telephony provider in certain countries, and offers an instant messaging application192 allowing text 
and voice exchanging between its users and offering calls to E.164 numbers. In this form, it also 

seems a me-too service, comparable in its offering to many of the OCS, albeit with a much smaller 

number of users. 

5.4.2 

Introducing new revenue model for existing services 

Advertising model 

The assets of a typical telecom service providers show a match with the first element of the 

advertising model: consumer data – but telecom providers are not in a position to use this 

asset. 

As mentioned in Section 5.3, the advertising model is a growing revenue model in the Internet 

arena. This model comprises the following multiple elements: consumers’ data, advertising platform 

and publishing websites. In order to assess how telecom service providers are positioned to apply 

the advertising model, and under which of the three elements, Table 5.8 compares the assets of 

OCS providers using this revenue model with the typical assets of telecom service providers. The 

focus is on the key OCS assets, supplemented with views on non-key assets where relevant. The 

rightmost column reflects on differences and potential barriers that can keep telecom service 

providers from using these assets. 

188   https://www.youtube.com/watch?v=4xfyRcZdwRc. 
189   http://www.businesswire.com/news/home/20150506005277/en/Orange-Group%E2%80%99s-Voice-Messaging-App-

Libon-Extends. 

190   https://en.wikipedia.org/wiki/Tuenti. 
191   http://www.telecompaper.com/news/tuenti-social-network-loses-58-of-users-in-6-months-survey--991729. 
192   https://www.tuenti.com/?m=Login. 

Study on future trends and business models in communication services 

115 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Table 5.8 Comparison of telecom provider and OCS assets in the context of the advertising revenue 

model 

OCS Asset 

Equivalent telecom provider 

Evaluation 

asset? 

User Data 

Data from ECS services usage 

Telecom service providers are not in a 
position to use this asset193. The data from 

ECS services usage would correspond to 

the first element of the advertising model. 

Global user base 

National base of subscribed users  Although the user base of a telecom 

provider is smaller than that of large OCS 

providers, it can still cover a substantial 

portion of the population in a country. This 

would make the national subscriber base 

relevant for the first element of the 

advertising model. 

OS platform 

Smaller platforms, for example 

This asset is related to the ability of a 

set-top boxes for IPTV 

provider to reach and obtain data from 

customers. It is relevant for the first element 

of the advertising model. 

Contracts with advertisers 

To be acquired 

Key asset for the second element of the 

using the advertising 

platform 

advertising revenue model. 

Websites and apps 

Partially covered by the telecom 

This asset is relevant for the third element of 

providers own portals, calling and 

the advertising model. Not as many people 

texting interfaces. Would be very 

visit their telecom provider’s portal, and the 

well covered by personalised 

calling and texting interfaces on the phone 

advertising in (broadcast) TV 

are usually build and controlled by the OS 

services. 

provider. Personalised advertising in TV 

services would be a very strong asset here, 

given the number of users and time spent. 

Global IT/cloud 

infrastructure 

National or multinational IT/cloud 

Large telecom service providers have an 

infrastructures 

extensive national or multinational IT/cloud 

infrastructure that they use to serve their 

business customers. 

Advertising platform 

To be acquired  

Important asset for the second element of 

the advertising revenue model. 

In the context of the advertising revenue model, the applicability of data protection rules (in 

particular the e-privacy directive) is a key factor. ECS operators are more restricted in their use of 

personal data (including location information) and unsolicited communications than OCS 
providers193. Thus, it is seen that rules that have been introduced to protect the users of ECS 

193   Section 6.3.1 explains that under the ePrivacy directive, which currently does not apply to OCS providers, ECS providers 

face more restrictions with regard to the processing and use of personal data than under horizontal EU data protection 
legislation with which both ECS and OCS providers have to comply. Three provisions of the ePrivacy Directive are of 
particular relevance in this context. Article 13 of the ePrivacy Directive requires ECS providers to obtain prior consent of 
users for unsolicited direct marketing communications which would include advertising messages. Under Article 5 of the 
ePrivacy Directive, ECS providers are obliged to protect the confidentiality of communications and are prohibited from 
listening or tapping communications without the consent of users, except when having a legal authorization. Article 6 of the 
ePrivacy Directive specifies that traffic data may only be processed to the extent and for the duration necessary for the 
purpose of marketing ECS or for the provision of value added services if the subscriber or user to whom the data relate 
has given consent. In accordance with Article 9, location data, other than traffic data, relating to subscribers may only be 
processed when it is made anonymous or with the consent of subscribers. While Article 13 thus requires ECS providers to 
obtain consent of users for sending them unsolicited direct marketing communications, Articles 5, 6 and 9 reduce the 
amount or type of personal data that ECS providers are legally entitled to use without the consent of users. 

116 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
                                                           
services in these areas also introduce a difference in the opportunities in the use of assets between 

telecom providers and OCS providers. 

The assets of telecom service providers do not present a match with those needed for the second 

element of the advertising model, the advertising platform. They could negotiate with the owners of 

existing advertising platforms to use these. Purely for illustration, Figure 5.9 shows how Google’s 

DoubleClick ad exchange could be combined with Orange’s assets in an advertising revenue model 

for Orange’s fixed and mobile bundles. Such an advertising model would probably be used in 

parallel to other revenue models, such as the familiar direct payment model. 

Figure 5.9 Illustration of potential use of Google’s DoubleClick ad exchange in an Orange advertising-

supported service bundle 

Device sale model 

The assets of a typical telecom service provider do not show a good match with the device 

sale model. 

The market for devices, in particular smartphones, is challenging, even for large companies. 
According to newspaper reports194, Apple obtained around 92% of the total profits in production and 
sales of smartphones, while it accounted for only 20% of the total number of smartphones. Other 

well-known phone makers such as Samsung and Microsoft make much smaller profits or even 

losses. Against this background, it is useful to investigate how the telecom service providers’ key 

assets compare to those of the most successful smartphone maker, Apple. This is shown in Table 

5.9. 

194  

“Apple’s Share of Smartphone Industry’s Profits Soars to 92%”, Wall Street Journal, July 12, 2015, available at 
http://www.wsj.com/articles/apples-share-of-smartphone-industrys-profits-soars-to-92-1436727458. 

Study on future trends and business models in communication services 

117 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Table 5.9 Comparison of telecom provider assets and OCS assets in the context of the device sale 

model 

OCS Asset 

Equivalent telecom provider 

Evaluation 

asset? 

Strong global premium 

Strong national and sometimes 

Premium brand is key differentiator for 

brand 

multi-National brand 

Apple and cannot be matched by telecom 

service providers. 

Strong device and 

Some of the applications (e-mail, 

Device ecosystem is key asset that is hard 

applications ecosystem 

cloud storage)  

to reproduce. Fall-back is to use an existing 

device ecosystem (Android), which makes 

the device offer less differentiated. 

Mobile OS 

To be developed or acquired 

The most successful way to underpin a 

device ecosystem is currently through 

devices OSs. Telecom providers may need 

to develop another underpinning. 

Global user base 

National or multi-national user 

Economies of scale that can be obtained by 

base, partly with a contractual and 

telecom service providers are smaller, as 

billing relation 

the user base is smaller. The telecom 

providers do have a close relationship with 

their subscribing customers. 

Local presence 

Local retail outlets, local language 

Large telecom service providers have a 

helpdesk 

stronger local presence than Apple. 

Global IT/cloud 

infrastructure 

National or multinational IT/cloud 

Large telecom service providers have an 

infrastructures 

extensive national or multinational 

infrastructures. 

Many telecom service providers already provide their own branded smartphones195, many of which 
are positioned as high-end Android smartphones. This shows that telecom service providers are 

familiar with the concept of device sales and are also aiming to use their branded devices as 

differentiators in their bundled offers. Still, the underlying revenue model is a direct payment model 

for services and not for devices. The role of the branded smartphone is to make the ECS bundles 

more attractive and not to generate substantial revenues. Two of the current key assets of telecom 

service providers cannot be leveraged in the pure device sale model: the access network and the 

local TV content. Therefore, the device sale model cannot be considered as a new approach to 

exploit existing assets. 

Software license model 

The assets of a typical telecom service providers show a partial match with the software 

licensing model. 

The software licensing model is very common in the ICT business market. Small and large 

companies are used to buying software licenses, either through a one-time license fee or a 

subscription. The subscription period can range from one month to multiple years. In the consumer 

market, on-line gaming is an example of a specific segment that has a longstanding tradition of 

periodic subscriptions. The subscription model is now entering the consumer market in other 

segments as well. For example, Adobe offers consumers a yearly subscription to its Acrobat 

publishing software, Microsoft offers a monthly subscription to its Office suite, Netflix and Spotify 

ask monthly fees for use of their streaming services. These offers combine software with cloud 

services. They illustrate that companies that depend primarily on the software licensing model are 

195   Examples include Orange (http://boutique.orange.fr/mobile/orange), EverythingEverywhere (http://shop.ee.co.uk/mobile-

phones and http://shop.vodafone.co.uk/shop). 

118 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
                                                           
extending it to broader bundles that include services, also in the consumer market. In effect, this 

represents a move from the pure software licensing model towards the existing direct payment 

model for service bundles used by telecom service providers. Table 5.10 analyses the match 

between typical telecom provider assets and the software licensing model.  

Table 5.10 Comparison of telecom provider assets and OCS assets in the context of the software 

licensing model. 

OCS Asset 

Equivalent telecom provider 

Evaluation 

asset? 

Widespread deployment 

National and sometimes multi-

Telecom service providers can bundle 

of Office software 

national use of internet access 

communications apps with their internet 

and television services 

access and television services in the same 

way that Microsoft adds Skype to its Office 

suite. 

Strong global brand name 

The larger telecom service 

In the business market, in particular for large 

and position in business 

providers have strong national or 

businesses, larger groups of end users that 

market 

multi-national positions in the 

communicate often among themselves can 

business market 

be won over for a communication service. 

This helps to grow towards a critical mass. 

Global user base 

national or multi-national user 

Economies of scale that can be obtained by 

base, partly with a contractual and 

telecom service providers are smaller, as 

billing relation 

the user base is smaller. The telecom 

providers do have a close relationship with 

their subscribed customers. 

IT/cloud infrastructure 

National or multinational IT/cloud 

Large telecom service providers have 

infrastructures 

extensive national or multinational IT/cloud 

infrastructures that can be used for offering 

applications, including communication apps.  

One could say that both Microsoft and the telecom service providers bundle communication 

functions or applications with other applications and obtain direct payment revenues. A key 

difference is for Microsoft, the communication functions are add-ons to the existing bundle and are 

growing in significance, while for the telecom service providers, the telephony and text 

communication functions that used to be the cornerstone of their offering are losing this role as they 

are being replaced by internet access and television as the primary service (in the consumer 

market).  

5.5  Future outlook: unclear opportunities from new technologies  

Telecom operators have been going through major changes the last few decades, at least 

technology-wise. Much of their service portfolio used to be in very specific hardware: telephone 

exchanges, DSLAMs, network routers and switches. To a certain extend this is still true today, but 

much has already changed. Telecom operators have been moving to ‘all IP’, where a generic 

network infrastructure is the main and only network, and all services are moved to ‘above IP’, such 

as e.g. telephony services with the move to VoIP technology. This is in line with a broader trend of 

‘software-isation’: with the increase in processing capabilities of general purpose hardware, it is 

now quite possible to do things in software that used to require specialised hardware. This trend is 

continuing with the coming of cloud technology, which provides even more general purpose 

processing capability. Telecom operators are now to a large extend companies running software, 

Study on future trends and business models in communication services 

119 

 
 
 
 
 
 
 
 
 
 
and are thus in the business of management of software releases and of software integration. Many 

telecom operators are now running their own cloud platforms and have large teams of trained 

software engineers.  

As network companies they still own their networks as main assets. And, these networks still 

require specialised hardware today (routers, switches, base stations), to be able to deal with the 

ever increasing amounts of data generated by today's services. New services will require more 

bandwidth, and certain categories of services also require lower latencies. Meanwhile, users 

depend more and more on the availability of the network, as networked services become a greater 

part of every-day life, and the number of networked devices is growing rapidly. Networks will evolve 

to deal with these new requirements, with new demands being fulfilled by new technology while at 

the same time new technologies also allow for previously unthought-of services.  

Two important new technology developments that may play a role in current developments are 

Software Defined Networking (SDN) / Network Function Virtualisation (NFV), in particular as they 

apply to 5G (next generation mobile network). Both developments (SDN/NFV, 5G) are about taking 

networking to a next level, introducing virtualisation and centralisation of control, while at the same 

time giving more flexibility, also in the access networks. This enhances the access network assets 

of telecom operators, and possibly provides two new opportunities: 

  The first potential opportunity is to open up network functions to third parties. This would enable 

application providers and service providers to control the network to a certain extend. It would 

allow for control of functions like routing control, quality control and monitoring. In theory, 

application providers would be able to control the network to such an extent, that their 

application needs are met with regard to quality (i.e. availability, bandwidth, delay constraints, 

etc.). The question remains if these potential opportunities will result in actual wholesale 

markets for enhanced network services. OTT providers in the broad sense (including all OTT 

services, not limited to OCS) show that they are very capable of offering their services based on 

the current network infrastructure. Many large OTT providers do operate their own core 

infrastructure, including core network and cloud infrastructure. For the last mile, they obviously 

rely on the telecom operators to provide connectivity. In general, OTT providers seem to be able 

to offer their services using the general Internet access their users have, not needing any 

configurable network access. There have been examples of OTT providers that pay the access 
provider for improved connectivity to end users, e.g. through specific peering arrangements196, 
but such deals have been scarce. If there is a real future demand for enhanced network 
services such as enabled by SDN and NFV is thus still unclear197; 

  The second potential opportunity is to create pan-European access networks. SDN/NFV will 

allow telecom operators to configure their own access service on top of the infrastructure of 

others. This could allow telecom operators to create a pan-European offer, based on a single 

interface offer by the various networks. Still, the question is if SDN/NFV is solving a bottleneck 

in creating pan-European networks. Based on the current wholesale service offerings, no 

operators are currently creating such pan-European networks. SDN/NFV may allow new 

wholesale service offerings that can make creating such a pan-European offering easier. But, 

configuring the network is only one part in creating such an offer. Closing all necessary 

(bilateral) agreements and performing IT and process integration (Operation Support Systems / 
Business Support Systems) are other parts198. For such inter-operator IT interfaces there is 
standardisation in the Metro Ethernet Forum199, but this work is still on-going. And, once a pan-
European offer is created, there are also costs involved with marketing & sales and with 

196   http://www.businessinsider.com/netflix-comcast-streaming-deal-2014-2?IR=T. 
197   http://searchtelecom.techtarget.com/tip/2016-telecom-trends-As-NFV-goes-so-goes-carrier-cloud. 
198   http://ec.europa.eu/newsroom/dae/document.cfm?doc_id=2648. 
199   http://ec.europa.eu/digital-agenda/en/news/public-workshop-access-and-interoperability-standards-promote-single-market-

e-communications, see Presentation 7, MEF. 

120 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
                                                           
customer support. Thus, the question remains if creating this new network infrastructure is 

solving a main barrier, and it is too early to tell. 

Besides new opportunities, SDN/NFV can also provide cost reduction, which is one of the main 
reasons many telecom operators are now studying these technologies200. The interest from telecom 
operators is more in virtualisation, as here the potential cost savings are more within the scope of 
NFV compared to SDN. A study is underway in this area to investigate these topics further201. 

Both topics (SDN/NFV and 5G) are discussed in more detail in Annex VII. 

5.6  Summary 

Telecom providers and OCS providers compete with bundles and packages that also include 

communication applications and services. They differentiate their offers in in many areas, such as 

the features and (audiovisual) content they offer, in the user experience, in devices and network 

infrastructure underlying the applications and also, in particular, in the revenue model. The desk 

research and interviews in this study show only few examples of telecom providers that launch new, 

OCS-style communication applications. When it comes to changing the revenue model for existing 

bundles, the (personalised) advertising revenue model is best supported by the key assets of the 

telecom providers, see Table 5.11. However, unlike OCS providers, telecom providers are currently 

not in a position to use a potential key asset, i.e., the user data, in an advertising revenue model. 

This is because the rules that have been introduced to protect users impose stricter rules on 

telecom operators than on OCS providers. This point is analysed further in section 6.3.1. 

Table 5.11 Summary of revenue model and assets analysis in the ability of telecom provider to move to 

OCS-style business models 

Current 

revenue model 

Match in assets 

Remarks 

service 

Advertising 

Good: own source of detailed 

Role of data protection regulation is 

portfolio  

personalised data, TV as own 

important here: unlike OCS providers, 

publishing platform. To be 

telecom providers cannot use some of 

complemented with OCS 

the key assets in an advertising 

advertising network assets. 

revenue model. 

Device sale 

Poor: no premium brand, no 

device ecosystem 

Software licence 

Moderate: popular bundles, 

Large OCS providers with software 

billing relation with customers 

licence models are moving towards a 

direct payment model based on 

monthly/yearly subscriptions and are 

thus moving to the current ECS 

revenue model. 

New 

Direct 

Limited: assets support 

Market results show some limited 

services 

payment/subscriptions 

national service but no global 

successes (Libon, Tuenti). 

portfolio 

scale 

200   https://tbrnewscommentary.wordpress.com/2015/12/28/a-clearer-nfvsdn-timeline-emerges-as-momentum-builds-from-

pocs-and-rfps-to-commercial-predeployments/. 

201   SMART 2015/0011. https://ec.europa.eu/digital-agenda/en/news/study-implications-emerging-technologies-software-

defined-networking-and-network-function,  

Study on future trends and business models in communication services 

121 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
6 

Impact on end-users 

6.1 

Introduction 

This chapter presents an analysis of the degree to which consumer interests are safeguarded by 

either market forces or legal provisions, when using online communication services. The analysis 

focuses on the following consumer interests that are targeted by the Regulatory Framework:  
  Data protection, privacy and security202; 
  Freedom of choice and preventing lock-in effects203; 
  Transparency204; 
  Quality and affordability205; and  
  Other rights such as being able to communicate with all peers, businesses, and governments 

throughout the Community206, and having access to emergency numbers207. 

This chapter first describes forces driving the competition among OCS service providers in 

conjunction with a first indication of potential risks and opportunities for consumer interests when 

using OCS. Next we provide an analysis of the legal obligations applying to OCS providers in their 

relationship to end-users and compare them to legal obligations imposed on ECS providers. The 

purpose of each of these obligations as applicable to ECS is specified in order to analyse whether 

the same rationale is also valid for OCS. If this is the case, it is assessed whether the purposes are 

sustainably met by other means than rules/obligations/rights (e.g. market forces) and whether there 

are objective technical or other obstacles to their achievement. 

6.2  Competition and consumer interests 

There are a number of features of the competition among OCS platforms that may give rise to 

concerns as well as opportunities related to consumer interests. In the analysis below we recognise 

that the consumer interests as stated above are closely related when discussed in relation to the 

competitive process. As such, we discuss these under the general heading of freedom of choice 

and preventing lock-in effects. Next we discuss the role of innovation and the gains for end-users. 

We note that the issue of emergency services will not be addressed in this section but only in 

section 6.3. 

202   As addressed by the ePrivacy Directive. 
203   As addressed by number portability obligations in Article 30 of the Universal Service Directive in combination with 

interconnection obligations under Article 4(1) Access Directive. Portability and interconnection are obligations under the 
Regulatory Framework that aim to preserve the public interest of maintaining freedom of choice as to prevent lock-in and 
to preserve competition. Moreover, preserving competition has a dual role of being an objective in itself with the aim of 
ensuring quality and affordability (and innovation). 

204   Facilitated by contractual rights to information (article 20 of the Universal Service Directive) and other measures to 

promote transparency for end-users (Articles 21 and 22 of the Universal Service Directive).  

205   As stated in the above footnote, the Regulatory Framework aims to ensure quality and affordability by aiming to preserve / 
promote competition. In addition, Articles 9 and 22(3) Universal Service Directive provide additional safeguards for 
ensuring (respectively) affordability and quality. 

206   As targeted by the interconnection obligation - see Recital 5 of Directive 97/33/EC of the European Parliament and of the 
Council of 30 June 1997 on interconnection in Telecommunications with regard to ensuring universal service and 
interoperability through application of the principles of Open Network Provision (ONP) [1997] OJ L 199/32. 

207   As addressed by Article 26 Universal Service Directive. 

Study on future trends and business models in communication services 

123 

 
 
 
 
 
 
 
 
 
 
 
                                                           
6.2.1  Freedom of choice and preventing lock-in effects 

Generally speaking, the risk of being locked-in hinders the freedom of choice for consumers. All 

else being equal, locked-in consumers may be subject to high prices (monetary of otherwise) and 

low quality. End-users are locked-in if there are no alternative services available or if switching to 

such alternative services involves too high search and switching costs. Search costs increase when 

markets are not transparent such that price and quality of different service offerings cannot easily 

be compared.  

In the context of the digital economy, there are some additional specific relations between the 

different consumer interests. Switching costs may be high due to network effects that are typically 

associated with communication networks: the larger the subscription base of a network, the higher 

the gains from joining that network and hence the higher the costs of leaving that network. Network 

effects may thus lead to a certain paradox in consumer interests: on the one hand, a large 

network allows end-users to communicate with more peers, businesses, and government entities 

throughout the Community, on the other hand, it raises switching costs and may raise entry 

barriers. Moreover, in the digital economy, end-users may perceive barriers for switching to 

alternative and new providers that know much less about the individual’s preferences. Analysing 

and processing personal data play an important role in optimising user experience. As such, 

switching to a new provider may result in a lower quality of the user experience. The digital 

economy also as a number of characteristics (such as multi-homing) that mitigate the risk of lock-in.  

Below, we elaborate on these mechanism of digital competition. 

Network effects and tipping markets 

Platform competition is driven by network effects that, under the assumption of homogenous 

demand, cause the market to tip into a winner-take-all outcome. As such, the competitive game 

between platforms resembles competition for the market, rather than competition in the market. 

This suggests that there is a non-competitive end-game and that, while competition for the market 

is still in progress, the primary target of competitors is to grow as fast as possible in terms of the 

number of users. Generating revenues is not a primary strategic objective during this phase. Once 

the platform has reached a critical mass, end-users may be locked in and the development of a 

revenue model becomes essential. Many online business models seem to follow or have followed 
this strategy; the most notable examples are Amazon and WhatsApp208.  

Heterogeneous demand and multi-homing 

In reality the market is more dynamic and demand is not homogenous, and there is room for 

multiple ecosystems (or platforms). Once a platform has realised a critical scale, entry on the basis 

of copying the incumbent’s business model is unlikely to be successful. Entrants seek opportunities 

to differentiate by responding to the heterogeneity of consumer preferences and they develop 

alternative business models. As a result, the competition between ecosystems is not a zero-sum 

endgame and multiple communication platforms may exist, next to each other, each servicing a 

particular market niche (see Van Gorp and Batura, 2015).  

End-users cannot be categorised into separate market niches. A single end-user has different 

categories of peers with whom it seeks to socially interact: friends, family, colleagues, business 

partners etc. Moreover a single end-user may have different communication needs in relation to 

each of these different categories. It follows that while online business models may target a 

208   This type of business model has also been referred to as the ‘acquisition model’ because once the critical mass has been 
reached, these ecosystems become a prime take-over target for other digital companies (see Van Gorp and Batura 2015, 
TNO et al 2015, and e-Conomics 2015). 

124 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
particular market niche, end-users make use of multiple platforms to fulfil the various 

communication needs they have. This is referred to as ‘multi-homing’.  

Multi-homing reduces the risk of a lock-in effect that we referred to above. In a static world with 

homogenous demand, switching between communication platforms is nearly impossible due to the 

network effects. However, when the user-base of different communication platforms largely 
overlaps due to multi-homing, switching costs go down significantly209. Moreover, when usage 
patterns of end-users that multi-home are shifting from network A to network B, network effects may 

incentivise single-homing friends on network A to subscribe to network B as well. Such dynamics 
have been observed on multiple occasions; e.g. in relation to Facebook and Instagram210, and in 
relation to WhatsApp and Telegram shortly after Facebook’s take-over of WhatsApp211. 

Bundling of services in response to multi-homing 

Multi-homing does not fully neutralise the role of direct network effects as the engine of growth and 

lock-in. Once you have a large subscription base to your ecosystem, you can start delivering 

services to your audience. But multi-homing forces platform operators to respond more strongly to 

the heterogeneity of demand in order to prevent subscribers from making (more) use of competing 

ecosystems. One way to respond to demand heterogeneity is to operate multiple platforms (as 

Facebook is doing). Another way is to offer multiple services on the same platform, e.g., instant 

messages; voice communication; file sharing; and video conferencing. Platform operators may offer 

other types of services (such as video and music distribution) and/or open the ecosystems for other 

service providers and become a portal to the Internet and potentially form a bottleneck. Google and 

Facebook are perhaps the most recognisable examples of multi-service providers. A more recent 
example of an instant messaging app that is evolving into a portal is WeChat212.  

Strategic responses by digital service providers to the heterogeneity of demand may give rise to 

economies of scale and scope which may eventually create bottlenecks in the digital value chain. 

The role of data 

A platform can be seen as a ‘data mine’ from which the digital company is excavating user data for 

internal and/or external use. Internal usage refers to using the data to optimise the end-users 

experience of using the platforms. External usage refers to using the data in support of the 

company’s revenue model; e.g. by selling the data to third parties or by using the data to facilitate 

targeted advertisement campaigns.  

When an operator has access to the content of communication taking place within the ecosystem, it 

learns about the preferences of its end-users. The more services/platforms are offered by a single 

company, the more data can be mined by that company. As such there are economies of scope in 

offering or operating multiple services and platforms. Furthermore, economies of scope can be 

enhanced when data is used to create synergies by linking platforms/services through user data. By 

combining user-data from multiple platforms, a multi-platform operator can optimise the experience 

209   For example, an individual may communicate with friends and family on Facebook and with colleagues and business 

partners via LinkedIn. But when most of his/her friends are subscribed to LinkedIn as well (or when most of his/her 
colleagues and business partners are subscribed to Facebook as well) the switching barriers resulting from network effects 
are lowered considerably. 

210   http://www.cnet.com/news/why-teens-are-tiring-of-facebook/. 
211  

212  

“Telegram was experiencing a hysteric and unusual growth of registrations the day after [the take-over], almost 100 new 
members per second” http://www2.deloitte.com/nl/nl/pages/risk/articles/takeover-whatsapp-by-facebook-a-curse-or-a-
blessing-for-privacy.html. 
“WeChat users in China can access services to hail a taxi, order food delivery, buy movie tickets, play casual games, 
check in for a flight, send money to friends, access fitness tracker data, book a doctor appointment, get banking 
statements, pay the water bill, find geo-targeted coupons, recognize music, search for a book at the local library, meet 
strangers around you, follow celebrity news, read magazine articles, and even donate to charity” 
http://a16z.com/2015/08/06/wechat-china-mobile-first/. 

Study on future trends and business models in communication services 

125 

 
 
 
 
 
 
 
 
 
 
 
                                                           
for both end-users and advertisers across all platforms213. At the same time, each platform can be 
regarded as an additional vein in the company’s data mine. As such, the operation of multiple 

interlinked services/platforms creates a multiplier effect for the operator as well as for users on all 

sides of the platform. 

The high concentration of data veins with one or a few players may create several opportunities 

and risks: 

  Opportunities are that end-users can be offered a much better user experience. Moreover, 

because of the value of data vis-à-vis other platform users (e.g. advertisers), there are 

incentives for platform operators to nurture end-users so that they keep providing personal data. 

All this will have a positive impact on affordability and quality; 

  The opportunity also entails a risk in that users become locked-in to services of a single 

provider because that provider is able to provide a much better user-experience for all of its 

services as it can re-use personal information across service platforms for this purpose; 

  Other potential risks are that the high concentration of personal data attracts hackers. Large 

digital service provider will likely do everything to prevent a hack (if only to prevent a fatal harm 

to reputation) and indeed the chances to a security breach increase when data is concentrated 

in one location. However, the impact of a security breach may be much higher as compared to 

situation where all personal data is scattered across different service providers. 

6.2.2  The role of innovation  

While clearly end-users benefit from innovative efforts by OCS providers, these innovative efforts 

are not always aimed at or compatible with certain basic public interests, such as global 

interconnection or having access to emergency numbers. Complying with these objectives implies 

complying with standards. During interviews with OCS providers, one interviewee stated ‘either 

innovate or inter-operate’. Building interconnection costs time, money and energy, and as stated 

interconnection is about connecting (service) functionality that is essentially the same in two 

different networks. This is per definition contrary to innovation, as innovation is about doing 

something new, essentially make things different in your service offering. The fall-back can be to 

interconnect basic functionality, such as the ability to exchange voice and text either synchronous 

or a-synchronous, and leave the rest outside the interconnection. Basically, OCS providers show 

this is not needed for innovation: new start-ups are able to grow extremely fast without 

interconnection, building their own user base with a new service offering.  

Interconnection should normally be there to help newcomers enter the market. Many new OCS 

providers clearly do not request such help nor seem to need it. As seen earlier, the number of 

online social networks is already large and new ones arrive on a regular basis. Because of the 

innovation based competition, large (seemingly established) players can become less popular and 
dwindle overnight (e.g. Myspace214, MSN messenger215). Van Gorp and Batura (2015) explain that, 
despite network effects, OCS providers cannot lean back and stop innovating. Entry barriers are 

low and IT infrastructure can scale with the number of users thanks to cloud technology. End users 

are used to using any number of applications, new innovations can and will be readily picked up 

and used, and old innovation can and will be discarded just as quickly. This results, as described by 

the authors, in constant competition for the market in which digital business models need to 

213   Consumers using various services from only one company allow this company to develop detailed user profiles and use 
these to optimise the experience for end-users. At the same time, advertisers are offered a one-stop-shop that allows for 
targeted ad campaigns to specific end-users and reach those end-users independent of what kind of service/platform they 
use. 

214   http://www.bloomberg.com/bw/magazine/content/11_27/b4235053917570.htm. 
215   http://www.whoishostingthis.com/blog/2014/10/22/instant-messengers/. 

126 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
                                                           
continuously innovate in all possible areas: new techniques, new products, new revenue models, 

new sales channels, new customers, etc.  

6.3  Legal safeguards mitigating the risks for end-users  

This section presents an analysis of the legal obligations applying to OCS providers in their 

relationship to end-users. The objective is to assess to what extent the (scope of the) obligations 

applicable to OCS providers differ(s) from the obligations imposed on ECS providers on the basis of 

the regulatory framework for electronic communications and what impact this has on end-users. 

The existing rules applicable to OCS with regard to data protection, portability, contractual rights, 

transparency of the service provision, quality of service, access to emergency services, and prices 

and costs will be mapped and compared to the obligations imposed on ECS providers under the 

regulatory framework. The purpose of each of these obligations applicable to ECS is specified in 

order to analyse whether the same rationale is also valid for OCS. If this is the case, it is assessed 

whether the purposes are sustainably met by other means than rules/obligations/rights (e.g. market 

forces) and whether there are objective technical or other obstacles to their achievement. 

6.3.1  Data protection 

Relationship between general EU data protection legislation and the ePrivacy Directive 

Both ECS and OCS providers are subject to EU secondary data protection legislation applicable to 

controllers (and processors) of personal data in general. The Data Protection Directive, which is 

currently still in force, will be repealed and replaced by the General Data Protection Regulation 

which will be directly applicable and enforceable in all EU Member States two years after its 
adoption.216 The Data Protection Directive and the General Data Protection Regulation lay down 
certain rules to ensure that personal data is processed fairly, lawfully and in accordance with a 

specified purpose. In particular, Article 6 of the Data Protection Directive and Article 5 of the 

General Data Protection Regulation require personal data to be collected for specified, explicit and 

legitimate purposes and not further processed in a way incompatible with those purposes as well as 

to be adequate, relevant and not excessive in relation to the purposes for which they are collected 

and/or further processed.. ECS providers have to comply with EU secondary data protection 

legislation (currently the Data Protection Directive and in the future the General Data Protection 

Regulation), as well as with the sector-specific ePrivacy Directive which forms part of the regulatory 

framework for electronic communications. The ePrivacy Directive only applies to ECS providers and 

thus forms an extra layer of legislation that requires compliance from ECS providers. As Article 1(2) 

of the ePrivacy Directive makes clear, its provisions particularise and complement the Data 

Protection Directive. Article 95 of the General Data Protection Regulation states that it does not 

impose additional obligations for the processing of personal data on ECS providers in relation to 

matters for which they are subject to specific obligations with the same objective set out in the 

ePrivacy Directive. In other words, the ePrivacy Directive will override the General Data Protection 

Regulation with regard to obligations of a similar nature. 

Differences between the obligations of ECS and OCS providers as regards data protection 

Articles 4 and 5 of the ePrivacy Directive impose duties on ECS providers with regard to the 

security of their services and the confidentiality of communications. Article 17 of the Data Protection 

Directive and Article 32 of the General Data Protection Regulation applicable to OCS providers only 

provide for obligations of security in case personal data is processed. In practice, this difference in 

216   At the time of writing, the General Data Protection Regulation had not yet been formally adopted. It is expected to enter 

into force in 2018. 

Study on future trends and business models in communication services 

127 

 
 
 
 
 
 
 
 
 
 
 
                                                           
scope of application may not lead to major divergences considering that most, if not all, of the data 

processed by ECS and OCS providers is personal data. However, some more substantial 

differences between ECS and OCS providers remain under the status quo.  

No specific provision relating to confidentiality of communications can be found in the Data 

Protection Directive and the General Data Protection Regulation that is equivalent to Article 5 of the 

ePrivacy Directive. In particular, listening, tapping, storage or other kinds of interception or 

surveillance of communications and the related traffic data by persons other than users is 

prohibited under Article 5(1) of the ePrivacy Directive, unless consent of the users is obtained. The 

Data Protection Directive and the General Data Protection Regulation does not contain such a 

prohibition. 

Secondly, Article 6(3) of the ePrivacy Directive specifies that traffic data may only be processed to 

the extent and for the duration necessary for the purpose of marketing ECS or for the provision of 

value added services if the subscriber or user to whom the data relate has given consent. Under 

Article 6(1) of the ePrivacy Directive, traffic data relating to subscribers and users must be erased 

or made anonymous when it is no longer needed for the purpose of the transmission of a 

communication. No such limitations apply to OCS providers under the Data Protection Directive and 

the General Data Protection Regulation. 

In addition, ECS providers are subject to specific rules on the treatment of location data, other than 

traffic data, in accordance with Article 9 of the ePrivacy Directive. This provision makes clear that 

location data may only be processed when made anonymous or with the consent of the users to the 

extent and for the duration necessary for the provision of value added services. Under the Data 

Protection Directive and the General Data Protection Regulation, no such specific obligation is 

applicable to OCS providers who therefore have the possibility to rely also on alternative legal 

grounds to process such data (see in more detail below). 

Reference also has to be made to Article 13 of the ePrivacy Directive which lays down that 

unsolicited communications are only allowed for the purposes of direct marketing in case prior 

consent of the respective users is obtained. If the provider has received the electronic contact 

details of a customer in the context of the sale of a product or service, it is allowed to use these 

details for direct marketing of its own similar products or services. Uncertainty exists about the 

exact scope of application of Article 13 of the ePrivacy Directive. The rules relating to unsolicited 

communications are generally interpreted to apply to any entity, not only to ECS providers that send 

messages via electronic communications. However, this does not mean that Article 13 of the 
ePrivacy Directive is also applicable to messages exchanged within social media platforms.217 
While one could interpret the scope of application of the rules more broadly, neither the Article 29 
Working Party218, nor the EDPS have clarified this aspect explicitly. To the contrary, it has been 
noted that certain opinions of the Article 29 working Party may be interpreted as favouring a more 
restrictive approach.219 As a result of this interpretation, prior consent of the user would not be 
necessary for direct marketing via OCS such as WhatsApp, Facebook or Skype.  

217   ePrivacy Directive: assessment of transposition, effectiveness and compatibility with the proposed Data Protection 

Regulation, Final Report - A Study Prepared for the European Commission DG Communications Networks, Content & 
Technology, 2015, p. 89-90. 

218   The Article 29 Working Party was set up under Article 29 of the Data Protection Directive and is composed of a 

representative from the national data protection authority of each EU Member State, a representative of the European 
Data Protection Supervisor (the independent supervisory authority that is responsible for ensuring that all EU institutions 
and bodies respect people’s right to personal data protection and privacy when processing their personal data) and a 
representative of the European Commission.  

219   For a detailed analysis, see ePrivacy Directive: assessment of transposition, effectiveness and compatibility with the 

proposed Data Protection Regulation, Final Report - A Study Prepared for the European Commission DG Communications 
Networks, Content & Technology, 2015, p. 89-93. As quoted in that report, see Article 29 Working Party, ‘Opinion 5/2004 
on unsolicited communications for marketing purposes under Article 13 of Directive 2002/58/EC, WP90 (2004), p. 4; Article 

128 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
                                                           
Finally, Article 4(3) of the ePrivacy Directive installs an obligatory reporting mechanism on ECS 

providers to notify a personal data breach to the competent national authority. If the breach is likely 

to adversely affect the personal data or privacy of the individual, the ECS provider also has to notify 

the breach to the individual concerned. Such an obligatory notification procedure is not part of the 

Data Protection Directive and is therefore currently not applicable to OCS providers. The General 

Data Protection Regulation will create a more level playing field between ECS and OCS providers 

in this regard as it imposes an obligation to notify personal data breaches on processors of 

personal data in general in Articles 31 and 32. While the exact scope of the obligation contained in 

the General Data Protection Regulation is different from that in the ePrivacy Directive, both ECS 

and OCS providers will be subject to an obligatory notification procedure for personal data 

breaches once the General Data Protection Regulation enters into force.  

Rationale underlying the specific protection of location data under the ePrivacy Directive 

The other distinctions between ECS and OCS providers highlighted above with regard to the 

protection of traffic data, location data and unsolicited communications will persist after the General 

Data Protection Regulation has entered into force. As regards the purpose underlying the rules 

relating to location data other than traffic data under Article 9 of the ePrivacy Directive, recital 35 

states that the processing of location data ‘which are more precise than is necessary for the 

transmission of communications and which are used for the provision of value added services […] 

should only be allowed where subscribers have given their consent. Even in cases where 

subscribers have given their consent, they should have a simple means to temporarily deny the 

processing of location data, free of charge’. OCS providers also collect and process location data to 

an extent unnecessary for enabling communications and instead use them for the provision of other 

services such as targeted advertising. The same rationale underlying the rules involving processing 

of location data in ECS is thus valid for OCS. Location data can be regarded as personal data and 

is explicitly recognized as such under Article 4(1) of the General Data Protection Regulation. As a 

result, the Data Protection Directive and the General Data Protection Regulation apply to the 

processing of location data in OCS. This implies that the processing of location data in OCS has to 

be fairly, lawfully and in accordance with a specified purpose.  

However, Article 9 of the ePrivacy Directive is stricter in that the only legitimate ground that an ECS 

provider can invoke to process location data is consent. Under Article 7 of the Data Protection 

Directive and Article 6 of the General Data Protection Regulation, several additional legitimate 

grounds may be relied upon by OCS providers, namely: the performance of a contract; compliance 

with a legal obligation; protection of the vital interests of the data subject or another natural person; 

performance of a task carried out in the public interest or in the exercise of official authority vested 

in the controller; legitimate interests pursued by the controller or by a third party, except where such 

interests are overridden by the interests or fundamental rights and freedoms of the data subject 

which require protection of personal data. As long as OCS providers can base the processing of 

location data on any of these grounds, no consent of users is required. While users of ECS can 

prevent their providers from processing location data by denying consent, users of OCS do not 

have this amount of control as long as OCS providers are able to rely on legitimate grounds for 

processing other than consent. This asymmetry in legal protection seems difficult to justify because 

users are nowadays not only confronted with the processing of location data in the context of ECS 
but also, or even primarily, in OCS. In addition, the privacy risks may be similar in ECS and OCS.220  

29 Working Party, ‘Opinion 1/2008 on data protection issues related to search engines’, WP148 (2008), p. 12; and Article 
29 Working Party, ‘Opinion 13/2011 on Geolocation services on smart mobile devices’, WP185 (2011), p. 9. 
220   ePrivacy Directive: assessment of transposition, effectiveness and compatibility with the proposed Data Protection 

Regulation, Final Report - A Study Prepared for the European Commission DG Communications Networks, Content & 
Technology, 2015, p. 14 and 82. 

Study on future trends and business models in communication services 

129 

 
 
 
 
 
 
 
 
 
                                                                                                                                                               
Rationale underlying the specific rules on unsolicited communications under the ePrivacy 

Directive 

With respect to unsolicited communications, recital 40 to the ePrivacy Directive makes clear that it 

was considered justified to require prior explicit consent of recipients for those forms of unsolicited 

communications that ‘may on the one hand be relatively easy and cheap to send and on the other 

may impose a burden and/or cost on the recipient’. The following means of unsolicited 

communications are specified ‘automated calling machines, telefaxes, and e-mails, including SMS 

messages’. While unsolicited communications sent via OCS can be considered to be similarly easy 

and cheap to send while imposing a burden or cost on end-users, it is at least unclear if messages 

sent through OCS platforms can generally be considered to fall within the scope of application of 

Article 13 of the ePrivacy Directive (with the exception of e-mail).  

All else being equal, there does not seem to be a valid reason for treating ECS and OCS differently 

in terms of the applicable rules relating to unsolicited communications and, consequently, for 

providing a different level of legal protection to end-users depending on whether the service 
qualifies as an ECS or not221. However, market forces may render legal interventions unnecessary 
by letting new business models surface that address these potential market failures. Already in 
2004 McMillan222 interviewed industry experts expressing the vision that the proliferation of Ad 
Blockers will make permission-based marketing key in (the future of) online advertising resulting in 

a balance “whereby people online will be tolerant of advertising and advertisers will be more 

respectful and less intrusive toward their online audiences”. A decade later, the Economist 

concludes that “Websites’ use of ever more in-your-face advertising formats (videos that play 

automatically, pop-ups that obscure the text you are trying to read) have driven ever more people to 

seek ways to block them”. As a result ad-blockers have become increasingly popular. Some ad-

blockers have started to work with whitelist of ‘acceptable ads’ that will not be blocked (sometimes 

in return of a payment by the advertiser). The German ad-blocker Eyeo has initiated an 
independent board to decide ad acceptability223.  

Ad-blockers are currently developed for dealing with unsolicited communication in the OCS 

environment, but they could equally be developed for the ECS environment. It is not clear at this 

point in time whether such innovative market based solutions can provide a similar degree of 

protection than legislation. However, the intensity of use of ad-blockers may serve as an indication 

of ‘demand’ by end-users to be in control over being approached with unsolicited communication. 

The 2015 Ad Blocking Report (by Pagefair and Adobe) concludes that ad block usage in Europe 

grew by 35% during the past year, increasing to 77 million monthly active users in Q2 2015”. The 

degree of popularity of ad blockers differs between Member States (as is shown in Figure 6.1). 

221   ePrivacy Directive: assessment of transposition, effectiveness and compatibility with the proposed Data Protection 

Regulation, Final Report - A Study Prepared for the European Commission DG Communications Networks, Content & 
Technology, 2015, p. 9: ‘Moreover, for certain provisions, such as Art. 6 – relating to the processing of traffic data – or Art. 
9 – on location data other than traffic data – the narrow scope leads to unacceptable situations of unequal treatment. It is 
difficult to justify why traffic or location data should receive different legal protection if they are processed in the context of 
very similar services from a functional perspective. The same observation is valid for the provision of Art. 13(1), prohibiting 
the use of e-mail without prior consent of the recipient only for messages transmitted via electronic communications and 
not for messages exchanged via information society services such as social media platforms’. 

222   McMillan, Sally J. "Internet advertising: One face or many." Internet advertising: Theory and research (2004): 1-30. 
223   http://www.cio.com/article/2988076/adblock-plus-creators-plan-independent-board-to-decide-ad-acceptability.html. 

130 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
                                                           
Figure 6.1 Share of internet users using ad blocking software  

Source: http://downloads.pagefair.com/reports/2015_report-the_cost_of_ad_blocking.pdf. 

6.3.2  Portability 

Number portability under the Universal Service Directive 

Under Article 30 of the Universal Service Directive, ECS providers are obliged to facilitate the 

porting of telephone numbers on the request of a subscriber who is switching to a new operator. 

The porting of the number and its subsequent activation has to take place against a cost-oriented 

price and within the shortest possible time. By enabling subscribers to retain their telephone 

number when changing to a new provider, consumer choice and effective competition is facilitated 

and switching costs are addressed. No equivalent portability duty for OCS providers can be found 

in existing EU legislation. However, in line with the ERG 2007 Common Position on VoIP, NRAs 

may also make VoIP services that offer incoming access to the PSTN (ERG categories 3 and 4) 

subject to the obligation of number portability.  

Cause of user lock-in in ECS and OCS 

As recital 40 of the Universal Service Directive makes clear, number portability was regarded a key 

facilitator of consumer choice and effective competition in a competitive telecommunications 

environment. For this reason, it was considered that end-users should be able to retain their 

number on the public telephone network independently of the organization providing service. This 

reasoning still applies in today’s context of telecom operators competing among each other within 

the ECS ecosystem by taking away clients from other telecom operators and by taking strategic 

measures to reduce churn and keep end-users locked-in.  

In order to assess possible switching costs in OCS, it needs to be identified what may cause lock-in 

of end-users in these services. To enable communication functionalities, OCS providers require 

users to create an account with a unique user identifier. Depending on the technical features of the 

service, several user identifiers can be distinguished. While, for example, WhatsApp and Viber rely 

Study on future trends and business models in communication services 

131 

 
 
 
 
 
 
 
 
 
 
 
on existing mobile phone numbers or email addresses as user identifiers, other OCS such as 

Facebook Messenger and Skype require users to create a new identifier. The choice for a specific 

user identifier affects in particular the way in which the list of contacts is selected with which 

communication is possible. The list of contacts can be derived from the handset’s native address 

book (as in case of WhatsApp and Viber) or from other users of the related social network (such as 
on Facebook Messenger) or users of the messaging application (for example, Skype).224 In OCS 
that rely on email addresses or phone numbers as user identifiers, the list of contacts will not cause 

lock-in because a user controls these identifiers him- or herself and can thus give an OCS provider 

access to his or her handset’s address book to build up the same communication network in a new 
service.225 In other OCS that require users to create a new unique identifier, the inability to transfer 
the list of contacts to a new service is more likely to create switching costs. In addition to the list of 

contacts, the messaging history accumulated by using a certain OCS may be the cause of user 

lock-in. 

Data portability issues as a cause of switching costs in OCS 

Under current EU law, no duty applies to OCS providers to facilitate the transfer of personal data of 

a user to a new provider. The switch to a new OCS provider may thus cause users to lose all data 

and interaction history accumulated by using a certain service. As a result of this, users may feel 

locked-in and decide to stay with their current OCS provider even though they may prefer the 
service of a different provider.226 However, here one has to recognise that, end-users can and do 
subscribe to multiple platforms227. As such, ‘switching’ does not necessarily imply ending a 
subscription with a current provider or losing all prior data and interaction. Indeed, a switching 

process becomes more gradual thereby effectively spreading the costs of a possible definite 

termination of a subscription over time.  

In the context of the Facebook/WhatsApp merger, the European Commission confirmed that data 

portability issues did not constitute a barrier to consumers’ switching in the case of consumer 

communications apps. In its merger decision, the Commission argued that it had not found any 

evidence suggesting that this was indeed the case. The Commission considered that messaging 

history from communications apps does not necessarily carry long-term value for consumers on the 

ground that communication via apps tends to consist to a significant extent of short, spontaneous 

chats. In addition, the Commission argued that a limit to data portability is unlikely to prevent 

switching since the messaging history remains accessible on a user’s smartphone even if the user 

starts using a different app, as long as the user does not delete such history or uninstall the app. 

Finally, communications apps often rely on the user’s phone book to compose a list of contacts 
which will remain available to new providers upon authorization of the user.228 

The focus of the previous discussion has been on losing data or losing access to a chat history. In 

the context of multi-homing, this may or may not necessarily cause strong lock-in effects. But when 

we focus the discussion on the role of data in creating user experience, conclusions may be 

different. The instant message history may not be of importance to the end-user (as argued by DG 

Competition). It is valuable information for the service provider that it can use in customising the 

experience of using the services. This typically applies to OCS that are linked to other services by 

the same provider (e.g. FB Messenger is linked to Facebook, Instagram, etc.). The disadvantage 

for the end-user of using another service of another provider (e.g. multi-homing on Facebook and 
LinkedIn) materialises in the form of lower user experience229. The end-user would not experience 

224   Case No COMP/M.7217 – Facebook/WhatsApp, 3 October 2014, footnote 48 on p. 18. 
225   See Case No COMP/M.7217 – Facebook/WhatsApp, 3 October 2014, par. 121. 
226   This argument was raised in the Facebook/WhatsApp merger case. 
227   Providers rather offer end-users with an optimal user experience to keep all eyes and ears pointed at them. 
228   Case No COMP/M.7217 – Facebook/WhatsApp, 3 October 2014, par.113-115 and 134. 
229   For example, a Facebook user gets suggestion for viewing photobooks of friends on Instagram, and at the same time it 
can chat one-to-one with friends on FB messenger and keep up to date and responding to messages by long-distance 

132 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
                                                           
such disadvantage if it were using another service of the same provider (e.g. by multi-homing on 

Facebook and Instagram). 

New right to data portability 

Irrespective of whether data portability issues in OCS are considered to give rise to switching costs, 

Article 18 of the General Data Protection Regulation could remedy a potential situation of user lock-

in. This provision contains the so-called ‘right to data portability’ which would enable a user to 

transfer personal data locked up in a specific service to a new provider. In particular, a user shall 

have ‘the right to receive the personal data concerning him or her, which he or she has provided to 

a controller, in a structured and commonly used and machine-readable format and have the right to 

transmit those data to another controller without hindrance from the controller to which the data 

have been provided’. Where technically feasible, the user has ‘the right to obtain that the data is 

transmitted directly from controller to controller’. Although the new right was introduced by the 

European Commission to give users more control over their personal data and to build trust in the 
online environment,230 the effects of its implementation will likely also include a reduction of 
switching costs for users. In a 2012 speech, the then Commissioner for Competition Almunia 

indeed argued that ‘portability of data is important for those markets where effective competition 

requires that customers can switch by taking their own data with them’. In his view, in markets that 

build on users uploading their personal data ‘retention of these data should not serve as barriers to 

switching’ and ‘[c]ustomers should not be locked in to a particular company just because they once 
trusted them with their content’.231  

While the material scope of application of the requirement of number portability was straightforward 

(namely the telephone number of the subscriber wishing to switch), this is more complicated with 

regard to the right to data portability because it is not clear at the outset to which data the new right 

should apply. Article 18 of the proposal for a General Data Protection Regulation specifies that the 

right to data portability covers ‘personal data concerning him or her, which he or she has provided 

to a controller’. Since personal data exchanged in OCS typically relates to multiple users and may 

be subject to intellectual property protection, additional complexities have to be tackled for 
regulating data portability that were not at issue in the legislative process for number portability.232 
Article 18 of the General Data Protection Regulation states that the right to data portability ‘shall not 

adversely affect the rights and freedoms of others’. In this regard, other legal regimes may set limits 

on the data that can be ported by a user. Privacy issues occur when other users do not agree to the 

transmission of messages addressed or relating to them that the user posted who wishes to switch 
to a new provider.233 Similar concerns arise in case of the transfer of pictures in which several 
individuals appear. Enabling a user to move such a picture to another OCS provider can infringe 

the privacy rights of the others if they have not given permission to upload the picture to another 
service.234 Intellectual property law issues may occur in case a license prohibits a user from 

friends on the Facebook social media website. The Facebook user can enjoy all these functionalities without having to 
leave the Facebook environment. One can compare the situation to an individual with a very diverse taste in music and 
preferring a single bar that plays that wide variety of music over visiting multiple bars each playing a particular genre. 
230   Commission Staff Working Paper — Impact Assessment accompanying the General Data Protection Regulation and the 
Directive on the protection of individuals with regard to the processing of personal data by competent authorities for the 
purposes of prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, 
and the free movement of such data, SEC(2012) 72 final, p. 43.  

231   Speech former Competition Commissioner Almunia, ‘Competition and personal data protection’, Privacy Platform event: 
Competition and Privacy in Markets of Data, Brussels, 26 November 2012, SPEECH/12/860. For a comparison between 
regulation and competition enforcement for addressing data portability issues, see I. Graef, J. Verschakelen & P. Valcke, 
“Putting the Right to Data Portability into a Competition Law Perspective”, Law. The Journal of the Higher School of 
Economics, Annual Review 2013, p. 8-9, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2416537.  
232   For a more detailed analysis of these issues in the context of social networks, see I. Graef, “Mandating portability and 

interoperability in online social networks: Regulatory and competition law issues in the European Union”, 
Telecommunications Policy 2015, vol. 39(6), p. 507-508. 

233   J. Grimmelmann, “Saving Facebook”, Iowa Law Review 2009, vol. 94, p. 1193. 
234   L. Costa & Y. Poullet, “Privacy and the regulation of 2012“, Computer Law & Security Review 2012, vol. 28(3), p. 257. 

Study on future trends and business models in communication services 

133 

 
 
 
 
 
 
 
 
                                                                                                                                                               
transferring content such as photos. In addition, OCS providers themselves are able to impose 

restrictions on what data can be downloaded and transmitted invoking their own intellectual 
property rights.235 Because of these difficulties, it is unlikely that the right to data portability, once 
entered into force, will address possible user lock-in in OCS altogether. Furthermore, the General 

Data Protection Regulation does not set any conditions regarding the costs and time limit that 

should apply for porting personal data. It therefore remains to be seen how effective the right to 

data portability will be in practice in giving users more control over their personal data and in 

reducing potential switching costs of users in OCS. At the same time, it can be questioned whether 

data portability remains a requirement for effective competition in the OCS environment to the same 

extent as number portability in the ECS environment. 

6.3.3 

Interoperability 

Interconnection of networks versus interoperability of services 

On the basis of Article 4(1) of the Access Directive, operators of public electronic communications 

networks have a right, and when requested by other undertakings, an obligation to negotiate 

interconnection with each other in order to ensure provision and interoperability of services in the 

European Union. A similar requirement does not exist for OCS providers which are consequently 

still legally entitled to exclude competitors from interconnecting with their service (at least as long as 

such a lack of interoperability does not qualify as abuse of dominance under Article 102 TFEU). As 

a result of this regulatory asymmetry, users can make traditional phone calls and send SMS 

messages to any other user regardless of his or her ECS provider, while interaction on, for 

example, VoIP and messaging services is in practice still limited to those users who joined the 

same OCS. It is important to note that interoperability in the OCS environment would require 

interconnection between services and not between networks. The provision of an ECS is closely 

integrated with the provision of a network as a consequence of which network interconnection 

results into service interconnection. For example, because of the interconnection between the 

respective electronic communications networks, a customer of KPN can make a phone call to a 

customer of Proximus. However, OCS are delivered over the internet independently of the 
underlying network, but they rely on the presence of interconnected networks236. 

Balancing pros and cons of mandating interoperability in OCS 

When considering to impose interoperability requirements on OCS providers, one should weigh the 

benefits of mandated interoperability against possible negative effects. From the perspective of new 

OCS providers, interoperability could constitute an advantage. Barriers to market entry may be 

lower for new players if they can interconnect with incumbent OCS and their users can also interact 

with others who have not yet joined the new OCS. At the same time, mandated interoperability may 

have negative effects on competition and innovation in the long term by pre-empting certain market 

developments.  

The extent of multi-homing by users in the market may also form a relevant consideration. In this 

regard, the European Commission argued in its Facebook/WhatsApp merger decision in the 

context of consumer communications apps that users are not locked-in to a particular physical 

network, hardware solution or anything else that needs to be replaced in order to use another 
service.237 The Commission also pointed out that multi-homing by users is facilitated by the ease of 
downloading a consumer communications app which is easy to access and does not take up much 

235   P. Swire & Y. Lagos, “Why the Right to Data Portability Likely Reduces Consumer Welfare: Antitrust and Privacy Critique”, 

Maryland Law Review 2013, vol. 72(2), p. 348. 

236   See also N. BROWN, “An assessment of the proportionality of regulation of ‘over the top’ communications services under 
Europe’s common regulatory framework for electronic communications networks and services”, Computer Law & Security 
Review 2014, vol. 30(4), p. 361-362. 

237   Case No COMP/M.7217 – Facebook/WhatsApp, 3 October 2014, par.134. 

134 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
                                                           
capacity on a smartphone. Using multiple apps seems easy, in the Commission’s view, because a 

user does not have to log in each time when switching an app and the messages are pushed (i.e. 
delivered automatically) onto the device.238 According to the respondents to the market 
investigation in Facebook/WhatsApp, users have in fact installed three or more consumer 
communications apps on their smartphones and use two or more apps every month.239 One could 
thus argue that as long as there is an underlying internet connection, users can run different OCS in 
parallel without much difficulty.240 This is confirmed by the responses to our questionnaire. 

Applying the objectives of interconnection in the ECS environment to the OCS situation 

When considering whether the objectives of interconnection in the ECS environment are still valid 

for the OCS market situation, one could have a look at the recitals to the 1997 Open Network 

Provision Directive which formed the basis for the interconnection between public electronic 

communications networks. In the latter context, recital 5 to the 1997 Open Network Provision 

Directive states that ‘it is necessary to ensure adequate interconnection within the Community of 

certain networks and interoperability of services essential for the social and economic well-being of 
Community users’.241 Considering the many alternatives that are available to end-users these days 
to interact, interoperability between OCS may not be necessary for ensuring the social and 

economic well-being of users in the EU. Instead, interconnection between OCS may serve a 
different goal namely the advancement of effective competition in the online environment.242 This 
was also one of the objectives of the obligation to interconnect public electronic communications 

networks as adopted in the 1997 Open Network Provision Directive. Recital 2 notes in this regard 

that ‘fair, proportionate and non-discriminatory conditions for interconnection and interoperability 

are key factors in fostering the development of open and competitive markets’. At the time 

interconnection between public electronic communications networks was mandated, no alternative 

means were available on the market for enabling end-users to interact with each other at a 

distance. In the absence of the interconnection obligations adopted under the 1997 Open Network 

Provision Directive, users would thus need to have multiple subscriptions, one for each network 

available in the market, in order to be able to interact with all users connected to an electronic 

communications network. Requiring a user to have one physical connection per operator would 
have been unworkable and would have led to an unnecessary duplication of infrastructure.243 
These considerations should be taken into account when assessing the need for interoperability 

between OCS with the aim of stimulating effective competition. 

6.3.4  Contractual rights, transparency, quality of service, and emergency services 

Specific safeguards under the Universal Service Directive 

With regard to contractual rights, transparency, quality of service and access to emergency 

services, specific safeguards apply to users of ECS on the basis of the Universal Service Directive. 

Article 20 of the Universal Service Directive specifies some specific minimum contractual rights 

ECS providers have to offer to their users. These are adjusted to the particularities of ECS services 

and relate, among others, to rights to information (i) on whether access to emergency services is 

238   Case No COMP/M.7217 – Facebook/WhatsApp, 3 October 2014, par. 133. 
239   Case No COMP/M.7217 – Facebook/WhatsApp, 3 October 2014, par. 110. 
240   N. Brown, “An assessment of the proportionality of regulation of ‘over the top’ communications services under Europe’s 
common regulatory framework for electronic communications networks and services”, Computer Law & Security Review 
2014, vol. 30(4), p. 362-363. 

241   Recital  5  of  Directive  97/33/EC  of  the  European  Parliament  and  of  the  Council  of  30  June  1997  on  interconnection  in 
Telecommunications  with regard to ensuring universal service and interoperability through application of the principles of 
Open Network Provision (ONP) [1997] OJ L 199/32. 
In  the  context  of  social  networks,  see  I.  GRAEF,  “Mandating  portability  and  interoperability  in  online  social  networks: 
Regulatory and competition law issues in the European Union”, Telecommunications Policy 2015, vol. 39(6), p. 510-511. 

242  

243   N. Brown, “An assessment of the proportionality of regulation of ‘over the top’ communications services under Europe’s 
common regulatory framework for electronic communications networks and services”, Computer Law & Security Review 
2014, vol. 30(4), p. 362. 

Study on future trends and business models in communication services 

135 

 
 
 
 
 
 
 
 
 
                                                           
offered; (ii) on the minimum quality of service offered; (iii) on traffic management tools; (iv) on 

compensation arrangements which apply if the contracted service quality levels are not met. As 

regards transparency, NRAs are on the basis of Article 21 of the Universal Service Directive able to 

require ECS providers ‘to publish transparent, comparable, adequate and up-to-date information on 

applicable prices and tariffs, on any charges due on termination of a contract and on standard 

terms and conditions in respect of access to, and use of, services provided by them to end-users 

and consumers’. In addition, Article 22 of the Universal Service Directive provides that Member 

States have to ensure that NRAs are able to require ECS providers ‘to publish comparable, 

adequate and up-to-date information for end-users on the quality of their services and on measures 

taken to ensure equivalence in access for disabled end-users’. NRAs may specify the quality of 

service parameters to be measured and the content, form and manner of the information to be 

published in order to ensure that end-users, including disabled end-users, ‘have access to 

comprehensive, comparable, reliable and user-friendly information’. With respect to the availability 

of emergency services, Article 26 of the Universal Service Directive requires Member States to 

ensure that all end-users of ECS are able to call the emergency services free of charge by using 

the single European emergency call number and any national emergency call number. 

General safeguards under horizontal EU consumer protection law 

In line with the ERG 2007 Common Position on VoIP, NRAs may impose the obligations included in 

the Universal Service Directive relating to contractual rights, transparency and quality of service on 

VoIP providers that offer either incoming, outgoing or incoming as well as outgoing access to the 

PSTN (ERG categories 2, 3 and 4). Users of other types of OCS cannot rely on these specific rights 

and are only entitled to more general contractual guarantees included in legal instruments like the 

Directive on Unfair Contract Terms, the Consumer Rights Directive and the E-Commerce Directive. 

For instance, Article 3 of the Directive on Unfair Contract Terms establishes that a contractual term 

has to be considered unfair if it causes significant imbalance in the parties’ rights and obligations to 

the detriment of the consumer. In addition, Article 5 of the Directive on Unfair Contract Terms 

requires contracts to be drafted in ‘plain and intelligible language’. More specifically, Article 6 of the 

Consumer Rights Directive requires traders in general to provide information on ‘the main 

characteristics of the goods or services, to the extent appropriate to the medium and to the goods 

or services’. In addition, Articles 5 and 6 of the E-Commerce Directive lay down which general 

information service providers have to offer to consumers. The proposal for a Digital Content 
Directive244 that the European Commission published in December 2015 should also be mentioned 
here. Article 3(1) of the proposal makes clear that the Digital Content Directive would apply to any 

contract where digital content is supplied to a consumer and, in exchange, ‘a price is to be paid or 

the consumer actively provides counter-performance other than money in the form of personal data 

or any other data’. For the purposes of the Directive, ‘a service allowing sharing of and any other 

interaction with data in digital form provided by other users of the service’ is regarded as ‘digital 
content’.245 The Directive would thus apply to OCS. Contracts regarding ECS, however, are 
explicitly excluded from its scope of application.246 Article 6 of the proposal lays down a number of 
specific rules for suppliers with regard to the conformity of the digital content with the contract. 

Another provision that is relevant to OCS is Article 13(2)(c) of the proposal which requires a 

supplier to provide a consumer who terminates the contract ‘with technical means to retrieve all 

content provided by the consumer and any other data produced or generated through the 

consumer's use of the digital content to the extent that data has been retained by the supplier’. The 

244   Proposal for a Directive of the European Parliament and of the Council on certain aspects concerning contracts for the 

supply of digital content, 9 December 2015, COM(2015) 634 final. 

245   Article 2(1)(c) of the Proposal for a Directive of the European Parliament and of the Council on certain aspects concerning 

contracts for the supply of digital content, 9 December 2015, COM(2015) 634 final. 

246   Article 3(5)(b) of the Proposal for a Directive of the European Parliament and of the Council on certain aspects concerning 

contracts for the supply of digital content, 9 December 2015, COM(2015) 634 final. 

136 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
                                                           
provision goes on to state that the consumer is 'entitled to retrieve the content free of charge, 

without significant inconvenience, in reasonable time and in a commonly used data format’.  

Appropriateness of extending the obligations of the Universal Service Directive to OCS 

These general contractual safeguards that apply to users of OCS are not as extensive and as 

detailed as the sector-specific rules for ECS. Irrespective of whether OCS providers should be 

obliged to offer access to emergency services (in line with the ERG 2007 Common Position on 

VoIP, NRAs may impose this obligation also on ERG category 2 and 4 VoIP services which both 

provide outgoing access to the PSTN), the question arises whether users should at least be entitled 

to relevant information enabling them to make informed decisions about which OCS to choose. 

Transparency concerns may arise when users are not offered more specific information about the 

characteristics of a service. A lack of transparency could become problematic when consumers 

start to use OCS as complete substitutes for ECS. In such a situation, it could be considered 

whether users should be made aware of the inherent limitations of OCS. For instance, if it is not 

technically possible for an OCS provider to offer access to emergency services or to guarantee 

minimum quality of service levels, users could be provided with adequate information to this end. 

Some OCS providers already inform users about such limitations. As an illustration, reference can 

be made to the Terms of Use of Skype which make explicit that ‘Skype’s software and products are 

not intended to support or carry emergency calls to any type of hospitals, law enforcement 

agencies, medical care units or any other kind of services that connect a user to emergency 

services personnel or public safety answering points’. In particular, Skype requires its users to 

‘acknowledge and agree that: (i) it is [their] responsibility to purchase, traditional wireless (mobile) 

or fixed line telephone services that offer access to Emergency Services and (ii) Skype is not a 
replacement for [their] primary telephone service’.247  

In view of future scenarios where users abandon ECS completely purchasing only connectivity 

services and fulfil all of their communication needs through OCS, access to emergency services 

should be mandated on OCS. In particular, when VoIP give access to the PSTN and hence to E164 

numbers, access to emergency services should be ensured if reliable routing arrangements are 

feasible. 

At the same time, it may be difficult to impose all obligations contained in the Universal Service 

Directive on OCS providers. For instance, transparency with regard to the applicable prices and 

tariffs as required by Article 21 of the Universal Service Directive will not have much relevance for 

OCS, as long as they are provided for free or at very low price to users. Similarly, it may not be 

necessary to impose a maximum duration of contracts on OCS providers, as Article 30(5) of the 

Universal Service requires in order to facilitate consumer switching across ECS providers, as long 

as OCS providers enable users to terminate their contract anytime and stop collecting user data as 

well as targeting advertisements after such a termination. 

Technical obstacles to ensuring emergency access 

With regard to the obligation to ensure access to emergency services, not all OCS providers and 

even VoIP providers offering access to or from the PSTN are able to implement a stand-alone 

emergency call if their applications run (partly) over the networks of third parties. Due to a potential 

lack of reliability and information on user location, they may not be able to guarantee the same level 

of end-to-end experience as ECS providers. For example, if a caller contacts the emergency call 

number via a VoIP service with only outgoing access to the PSTN, the emergency services will not 

247   Microsoft Services Agreement, ‘Skype’, effective as of 1 August 2015, available at https://www.microsoft.com/en-

gb/servicesagreement/.  

Study on future trends and business models in communication services 

137 

 
 
 
 
 
 
 
 
 
 
                                                           
be able to ring the caller back in the case of a dropped call.248 Due to the technical limitations of 
such OCS, it would not be feasible for these providers to ensure emergency access. In a scenario 

in which (certain) users abandon ECS completely and instead rely on OCS to fulfil all of their 

communication needs, it would be problematic if access to emergency services is not guaranteed 

by OCS providers. In a scenario where users do not entirely substitute OCS for ECS, they would 

still have access to emergency services via their ECS provider.  

So far, not many people have unsubscribed from the numbering regime (see chapter 2). However, 

this might change as large providers of OCS are for some reason showing intentions to vertically 

integrate the provision of broadband services into their current service portfolio. Facebook and 

Google are offering internet connections in low income countries (with mobile Wi-Fi solutions like 

project Loom) as well as high income countries (like Google Fiber in cities like Austin and Atlanta). 

There would still be no harm as long as these broadband connections come with a telephone 

number, however, OTT players are currently also developing MVNO-type broadband-only services 
and channel people’s to call through their own apps; like Google fi249 and Apple SIM250 and also 
Facebook could be moving into that direction251. 

6.3.5  Prices and costs 

Price control and administrative charges in the ECS environment 

A limited form of price control applies to ECS providers with regard to prices of universal services. 

On the basis of Article 9 of the Universal Service Directive, tariffs of services falling under the 

universal service obligations are monitored by the NRAs in relation to national consumer prices and 

income. In addition, Member States may provide tariff options for universal services departing from 

those provided under normal commercial conditions to ensure that those on low incomes or with 

special social needs are not prevented from accessing or using the publicly available telephone 

service. Under Article 17 of the Universal Service Directive, NRAs may impose ex ante obligations 

on undertakings with significant market power to prevent the identified undertakings from charging 

excessive prices, inhibiting market entry, restricting competition by setting predatory prices, 

showing undue preference to specific end-users or unreasonably bundling services. These 

obligations can include retail price cap measures, measures to control individual tariffs, or 

measures to orient tariffs towards costs or prices on comparable markets in order to protect end-

user interests. No such possibility exists for imposing ex ante regulatory obligations on OCS 

providers. 

As regards administrative charges, Article 12 of the Authorisation Directive entitles the NRAs to levy 

administrative charges from ECS providers in order to finance their activities in managing the 

authorisation system and for the granting of rights of use. In addition, Article 13 of the Universal 

Service Directive entitles NRAs to set up a universal service fund to which ECS providers have to 

contribute. These costs impose an additional burden on ECS providers, since no such charges are 

applicable to OCS providers.  

Possible impact in the OCS environment 

In practice, OCS are often provided for free or at very low price to users as a result of which price 

monitoring of these services does not seem appropriate or desirable. Furthermore, considering that 

the monitoring of prices of ECS providers is limited to universal services, the lack of an ex ante 

248   N. BROWN, “An assessment of the proportionality of regulation of ‘over the top’ communications services under Europe’s 
common regulatory framework for electronic communications networks and services”, Computer Law & Security Review 
2014, vol. 30(4), p. 366. 

249   https://fi.google.com/about/?u=0. 
250   http://www.apple.com/nl/ipad/apple-sim/. 
251   http://www.pricingdataplans.com/facebook-become-mvno-want-customers/. 

138 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
price monitoring system for OCS is not likely to negatively impact users or to lead to unacceptable 

regulatory asymmetries. The same conclusion can be reached with regard to the administrative 

charges levied to ECS providers under the Authorisation Directive and the Universal Service 

Directive. Although these charges lead to additional costs for ECS providers, the direct impact on 

consumers seems limited. 

Study on future trends and business models in communication services 

139 

 
 
 
 
 
 
 
 
7  Summarising conclusions 

Task 1: A description of the current market situation in the EU with regard to the presence of 

internet based communication services and an assessment of the degree of substitutability 

between traditional telecom services and internet based communication services.  

An accelerating increase in OCS usage during the first half of the 2010s. 

The internet has led to the development of alternative communication networks and services that 

can fulfil similar communication needs (and sometimes additional needs) at lower costs, compared 

to classical telephony services. Over time, more and more social network and other communication 

initiatives have surfaced. While there is a large variety of social networks, there are only a few 

(very) large ones and a long tail of less popular networks. There is a considerable number of people 

who ‘multi-home’, i.e. they subscribe to more than one online social network and may use these 

simultaneously. The bulk of today’s OCS networks were introduced around 2010 and the 

introduction of the smartphone is considered an important driver for the development of these OCS 

apps. As the number of OCS users has grown, the number of daily messages sent per person has 

grown as well. Today, the average WhatsApp user sends around 40 messages per day and 

receives almost twice as many messages. For comparison, the daily number of SMSs sent per 

mobile user in the EU is around 4.5.  

Less fixed and more mobile telecom services; less voice and more SMS 

Since the mid-2000s, the European telecom markets are characterised by a reduction in fixed voice 

calls going hand in hand with growing mobile calls. This combined trend continued at a more 

moderate rate into the 2010s. SMS volumes have increased strongly throughout the 2000s. During 

the 2010s the growth in SMS has come to a halt and volumes started to decline. 

Gradually moving away from two-part tariffs, toward flat-fee based bundles 

Before the 1990s, when each telecom operator was a national monopolist offering voice 

communication services only, the optimal pricing strategy was to apply a two-part tariff comprising 

of a (low) fixed monthly subscription fee and a (high) per-minute user charge. As a result of 

increased competition in the fixed market (first C(P)S-based, later LLU-based) the two-part tariff 

pricing regimes became increasingly under pressure, leading to a decrease in the incremental (per 

minute) costs of making a fixed phone call. Towards the end of the 2000s fixed services were 

increasingly sold in a bundle, combined with internet access and TV. Within these bundles, telecom 

operators started offering subscriptions with a fixed amount of voice minutes. 

The widespread marketing of fully unlimited mobile plans across Europe started around 2012/2013. 

The decline in termination rates facilitated the switch-over to flat rate pricing of voice. However, the 

main drivers seem to be related to other market forces (i.e. related increased competition between 

telecom providers, likely influenced by the rising popularity of OCS platforms). 

End-users increasingly regard OCS as substitutes for telecom services  

A survey conducted among 1750 people in seven Member States shows that online communication 

services are considered a substitute for traditional communication services in the perception of the 

end-users. The other main conclusions regarding substitutability of OCS and ECS are: 

  The fact that everybody with a telephone number can be reached is an important reason for 

people to keep a telephony subscription, but that does not prevent them from being subscribed 

Study on future trends and business models in communication services 

141 

 
 
 
 
 
 
 
 
 
 
 
to OCS as well. Hence, using OCS does not imply nor require people to terminate their 

telephony subscription; 

  Users experience few to no major barriers to using OCS, besides their concerns about privacy. 

An important reason for users not to rely on only OCS voice is that they and/or their 

interlocutors are not always and everywhere online, and that not everyone can be reached via 

OCS voice. This barrier is very much context related and might become less important as social 

networks grow and mobile broadband coverage improves. We note that the reduction of data 

roaming costs is a precondition in an international context. Moreover, there may remain use 

cases for traditional voice and SMS which OCS cannot supply; this may depend on the rate of 

take-up of OCS by businesses and public authorities, as well as the rate at which OCS 

platforms manage to provide add on services like premium services, micropayments, etc.; 

  Price is an important factor determining the choice between using ECS and OCS; 

  Other factors determining the choice between using ECS and OCS is that the latter offer more 

functionality in terms of group calls/messages and file sharing; 

  Mobile telecom revenues and profits have been under pressure as a result of the rising 

popularity of OCS. We found no evidence of such pressure on fixed revenues and profits. 

Task 2: A comparison of the market situation in the EU with that in relevant third countries 

and assessment of the reactions of regulators in these relevant third countries to the 

emergence of internet based communication services. 

Market situation 

In all non-EU countries included in this study, telecom operators are experiencing competitive 

pressure from OCS providers. This seems to be particularly the case in South Korea and Brazil 

where local telecom operators have argued that the rise of OCS has had the effect of lowering their 

overall revenues. Only in the US telecom operators have been able to compensate the decline in 

revenues from the provision of traditional telecom services by increased revenues from broadband 

subscriptions and data use. In Japan, there is no evidence of conflicts between telecom and OCS 

providers and level playing field discussions focus instead on regulatory asymmetries among 

distinct classes of telecom operators. 

Regulatory responses 

Regarding the policy or regulatory responses to the rise of OCS in the non-EU countries, there 

appears to be a trend towards deregulation in the telecom sector to create a more level playing field 

between telecom and OCS providers. The US FCC has already reacted to the changing 

developments in the market for communications services by reducing the regulatory obligations 

applicable to incumbent telecom operators. However, some of the US telecom obligations have 

also been imposed on VoIP providers and ISPs. In Brazil, current policy discussions particularly 

deal with taxation issues. While the Brazilian legislator is in the process of imposing tax obligations 

on OCS providers, the NRA ANATEL seems to be in favour of reducing regulation in the telecom 

sector. In Japan where level playing field discussions mainly focus on the asymmetries among 

different classes of telecom providers, current government policy appears to go in the direction of 

deregulation of facilities-based telecom operators. South Korean authorities appear to protect the 

position of telecom operators considering the government’s reluctance to adopt strict net neutrality 

or traffic management rules. With the launch of a new service plan by major South Korean telecom 

operators, the use of mobile OCS, and in particular VoIP services, is expected to decline as 

consumers will have unlimited access to traditional voice and text services. 

142 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
Task 3: An analysis of the impact of the rise of internet based communication services on 

telecom revenue, costs, profits, and investment. 

Developments of KPIs 

Overall fixed and mobile revenues have been declining in the EU since 2008. This decline is mainly 

driven by a decline in voice and SMS traffic related revenues. In the mobile market, the decline in 

traffic related revenues has been mitigated by increased data revenues. In the fixed market, 

revenues from voice and Internet subscription have remained rather constant.  

Since 2008, fixed EBITDA margins have increased slightly in Europe. Together with the decline in 

revenues, this indicates a decrease in fixed operating expenditures (OPEX). Mobile EBITDA has 

gone down in absolute terms as well as in terms of % of revenues. With a decline in revenues this 

implies an increase in mobile OPEX. Reasons for the increase in OPEX can be found in rising costs 

in terms of handset subsidies and because of costs associated with rising data traffic and 

increasing network complexity. For example, in order to meet demand for higher data rates, 

networks are built with smaller cells, driving costs for site maintenance and rental (which form 35% 

to 50% of network related OPEX according Capgemini and other sources). 

Nonetheless, mobile and fixed operators have maintained annual investment levels fairly constant 

over the past years. 

Impact of OCS competition on revenues 

To identify the potential impact of the rising popularity of OCS on telecom revenues a top-down 

regression based trend analysis and a bottom-up sector model have been applied. This requires a 

theory of causality. The primary hypothesis is that the loss in revenues is caused by the rising 

popularity of OCS. An alternative hypothesis could be that the loss in revenues is the result of 

increased competition among telecom operators. However, the causality between the rising 

popularity of OCS and a reduction in telecom revenues is more subtle. Next to a possible 

substitution effect, there is also a degree of complementarity between OTT services in general and 

internet access services, driving demand for the latter and mitigating a negative effect of OCS 

substitution for telephony and SMS services. However, the ability of telecom operators to monetise 

an increased willingness to pay for Internet access is mitigated by the fact that OTT competition 

tends to commoditise the value proposition of telecom operators vis-à-vis end-users, which in turn 

triggers a bundling strategy to reduce churn. Furthermore and largely independent of the rise of 

OCS, revenues have decreased in response to regulatory interventions by NRAs or by the 

European Commission (such as a decline in termination and roaming rates). Last, but not least, it 

has been argued that the global economic downturn has affected telecom revenues as well.  

The regression analysis has tested the hypotheses described above. None of the regressions 

resulted in statistically significant results for the fixed market. Hence, the rising popularity of OCS 

has had no statistically significant impact on fixed revenues. The regression analysis confirmed that 

mobile revenues are influenced by the popularity of OCS communication platforms, the level of 

mobile termination rates, and average GDP per capita. On the basis of the regression results, we 

find that mobile revenues were about 18% below the level of revenues that might have been 

expected in the absence of OCS competition. 

The modelling based approach results in an impact of 5.5% lower revenues than expected under 

the counterfactual. Given the available data neither of these analysis approaches is perfect, 

nonetheless they point in the same direction, i.e., that mobile telecom revenues have been 

impacted by competition from OCS.  

Study on future trends and business models in communication services 

143 

 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of OCS competition on costs, profits and investment 

In the EU, fixed EBITDA remained constant despite the decline in revenues. This implies that fixed 

operators, which includes not only incumbents, but also altnets and cable, have reduced OPEX. 

The study did not find arguments that directly relate reductions in fixed OPEX to a rising popularity 

of OCS platforms. As the study did not find substantive evidence indicating that fixed revenues, 

costs, or profits have been affected by the increased popularity of OCS platforms, there is no 

reason for hypothesising a potential impact on fixed investments, especially as fixed investment 

levels remained fairly constant over the years. 

Mobile EBITDA declined both in absolute terms as well is in terms of % of revenues. Combined with 

lower revenues this implies an increase in mobile OPEX. On the one hand, any possible link 

between the identified cost drivers and OCS competition is indirect, running through the 

complementarity of demand for OCS and connectivity services. On the other hand, the decline in 

revenues as a result of rising OCS competition resulted in lower OPEX as it forced CEOs to 

implement cost saving programs. Due to lack of data the exact size of these effects cannot be 

calculated. 

The analysis of EU data did not provide indications that mobile telecom operators have invested 

less than they would have done in the absence of pressures on revenues and profits (either from 

OCS competition or anything else). In fact, from the time OCS competition started having an effect 

on telecom revenues in 2010, mobile CAPEX started to slightly increase. Would mobile investment 

levels have been different in the absence of OCS competition? For the short run, the analysis did 

not result in evidence supporting this hypothesis.  

Task 4: An assessment of the strategic response by telecom providers to the new 

challenges triggered by internet based business models. 

The study observes that competition between telecom and OCS providers is a process of 

competition within and between ecosystems. Telecom operators compete among each other within 

the telecom ecosystem. OCS competition can best be described as a competition between 

ecosystems. As such, OCS platforms compete with the telecom ecosystem as a whole. This 

competition between telecom and OCS ecosystems is not a straightforward head-on competition on 

communication services only. Both telecom providers as well as OCS providers have increasingly 

promoted bundles in which voice, text, and other services (such as audio-visual, audio, cloud and 

storage) are bundled with a service that is close to the core assets of a service supplier. For 

telecom operators this asset is the internet access service. For OCS providers this may be a variety 

of different core assets. For both types of players, bundling strategies are aimed at on the one hand 

differentiation from competitors to escape competition, on the other hand at internalising 

complementarities between services and leveraging different core or legacy assets into the 

competitive game.  

A major difference between telecom and OCS business models can be found in relation to the 

revenue models and in how they make use of platform economics. Telecom operators typically 

apply a subscription based revenue model in which end-users are directly charged for accessing 

services. Among OCS providers one observes a much wider diversity of revenue models based on 

either direct payment, (personalised) advertisements, device sale, software licensing, etc. Analysis 

of the market developments shows that the rising popularity of OCS (among other factors) has 

impacted the revenue models of telecom operators, as providers were increasingly forced to 

abandon the traditional two-part tariff system and charge flat fees. Other factors have been e.g. 

progressing competition as a result of regulation, lowering of termination rates, etc. 

144 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
Task 5: An analysis of barriers for telecom providers to compete with the internet based 

communication services (on the basis of case studies) and analysis whether all competitors 

face the same barriers or do telecom providers face additional barriers to entry? 

While telecom and OCS providers may be in competition with each other, they have different 

legacies, different assets, and they are not in all cases subject to the same rules. Because of these 

differences, telecom providers may not have the same opportunities to compete on the basis of 

developing alternative services and/or business models. In order to gain insights in how telecom 

operators are positioned vis-à-vis OCS providers one needs a more elaborate analysis of the entire 

business model. Such analysis recognises that each digital business model has various dimensions 

in which the operator must simultaneously make a number of interrelated strategic choices. 

Because these choices are interrelated, not all actors have the same options in choosing among 

business models. The choices available to an actor are very much determined by its legacy assets 

and the rules to which the actor has to abide.  

Current revenue model / new service portfolio 

There are examples of OCS type services that are currently being operated by telecom providers. 

For example, social network apps such as Libon and Tuenti are owned and operated by Orange 

respectively Telefonica. These apps have not been able to grow into an OCS service of global 

scale nor have they enjoyed similar network effects as the leading OCS. The reason is not so much 

related to the fact that these services are offered by telecom providers that are subjected to a 

different set of rules. The reasons are: (i) these new services are not complementary to the existing 

service portfolio (but substituting); and (ii) there are many similar services available that are based 

on alternative revenue models that do not involve financial payment by the end-users. Moreover, 

the functionality offered by the telco initiated OCS apps are of the category ‘me too’ (with most 

things already offered by Skype, WhatsApp, Viber, etc.). Higher (sound) quality could be 

considered as a unique selling point for OCS apps offered by telecom operators, as they control 

(parts of) the network. However, it is questionable whether this will provide a strong competitive 

edge as service offerings such as Skype, WhatsApp and Viber apparently manage to satisfy the 

quality needs by their users based on ‘best effort’ internet connectivity.  

New revenue model for existing services 

The only OCS-type revenue model that shows a good match with the current assets of telecom 

service providers (notably consumer data) is the advertising model. Unlike OCS providers, telecom 

providers are currently not in a position to use a potential key asset, i.e., the user data, in an 

advertising revenue model. This is because the rules that have been introduced to protect users 

impose stricter rules on telecom operators than on OCS providers in the area of using and 

processing personal data (Article 5 and 6 ePrivacy Directive) and location data (Article 9 ePrivacy 

Directive). Moreover, Article 13 of the ePrivacy Directive makes the sending of unsolicited 

marketing communications by automated calls, fax and electronic mail (including SMSs) subject to 

user's or subscriber's consent, but the same rule does not apply to messages sent through OCS 

platforms.  

For other revenue models (such as the device sale model as applied by Apple and the Software 

licence model as applied by Microsoft) there is no match with the current telecom service portfolio 

and the current assets of telecom operators. 

Study on future trends and business models in communication services 

145 

 
 
 
 
 
 
 
 
 
 
 
Task 6: An assessment of the impact on end-users of using internet based services in terms 

of: data protection; portability; contractual rights; transparency of the service provision; 

quality of the service; prices; and costs. 

The study has analysed the degree to which consumer interests are safeguarded by either market 

forces or legal provisions, when using online communication services. The analysis focused on the 

following consumer interests that are targeted by the Regulatory Framework:  

  Freedom of choice and preventing lock-in effects; 

  Quality and affordability;  

  Transparency;  

  Being able to communicate with all peers, businesses, and governments throughout the 

Community;  

  Access to emergency numbers; and 

  Data protection, privacy and security. 

Freedom of choice, quality, affordability and communicating with peers 

Many of the consumer interests specified above can be analysed in parallel as they are interrelated 

(notably the first four). In general, a risk of being locked-in hinders the freedom of choice for 

consumers. All else being equal, consumers that are locked-in may be subject to high prices 

(monetary or otherwise) and low quality. End-users are locked-in if there are no alternative services 

available or if switching to such alternative services involves too high search and switching costs. 

Search costs increase when markets are not transparent such that price and quality of different 

service offerings cannot easily be compared. Moreover, communication services are characterised 

by network effects.  

Network effects are typically associated with high switching costs: the larger the subscription base 

of a network, the higher the gains from joining that network and hence the higher the costs of 

leaving that network. In the context of communication services, network effects may thus lead to a 

certain paradox in consumer interests: on the one hand, a large network allows end-users to 

communicate with more end-users throughout the community, on the other hand, it raises switching 

costs and may raise entry barriers.  

With regards to ECS, these risks for consumer interests have been mitigated by a number of rules 
that do not equally apply to OCS252.  
 

(Number) portability Article 30 USD obliges ECS providers to facilitate the porting of telephone 

numbers on the request of a subscriber who is switching to a new operator. As recital 40 of the 

Universal Service Directive makes clear, number portability was regarded a key facilitator of 

consumer choice and effective competition in the telecommunications environment. No 

equivalent portability duty for OCS providers can be found in existing EU legislation; 

 

Interconnection and Interoperability On the basis of Article 4(1) of the Access Directive, ECS 

providers have to negotiate interconnection with each other in order to ensure provision and 

interoperability of services in the European Union; the objective being to foster the development 

of open and competitive markets and to allow communicate with all peers, businesses, and 

governments throughout the Community. A similar requirement does not exist for OCS 

providers; 

  Price control: On the basis of Article 9 USD, tariffs of services falling under the universal 

service obligations are monitored by the NRAs in relation to national consumer prices and 

income. Under Article 17 USD, NRAs may impose ex ante obligations on undertakings with 

significant market power to prevent (amongst others) the identified undertakings from charging 

252   With regards to transparency about contractual rights and prices, there are no major differences in the degree of legal 
protection provided by ECS specific rules and general horizontal rules to which OCS providers have to abide as well, 

146 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
                                                           
excessive price. There are no horizontal rules that are equivalent to Article 9 and 17 of the 

Universal Service Directive (USD); 

  Quality monitoring: Article 22 USD provides that Member States have to ensure that NRAs 

are able to require ECS providers ‘to publish comparable, adequate and up-to-date information 

for end-users on the quality of their services and on measures taken to ensure equivalence in 

access for disabled end-users’. NRAs may specify the quality of service parameters to be 

measured and the content, form and manner of the information to be published. There are no 

horizontal rules that are equivalent to Article 22 USD; 

  Contractual rights: Article 20 of the USD deals with minimum contractual rights to information 

on, among others, (i) whether access to emergency services is offered; (ii) the minimum quality 

of service offered; (iii) traffic management tools; and (iv) on compensation arrangements which 

apply if the contracted service quality levels are not met. Article 30(5) of the Universal Service 

requires a maximum duration of contracts in order to facilitate consumer switching across ECS 

providers. There are no horizontal rules that are equivalent to Article 20 and 30(5). 

Since end-users do not benefit from a similar level of legal protection when using OCS, it may be 

considered appropriate to subject OCS to similar obligations. On the other hand, differences 

between ECS and OCS may argue in favour of differences in obligations. 

With respect to lock-in problems, end-users due to being subscribe to multiple providers at the 

same time (multi-homing) may reduce the risk of lock-in. When the user-base of different 

communication platforms largely overlaps due to multi-homing, switching costs go down 

significantly: with multiple channels of communication available, an end-user is not restricted to a 

single platform. Moreover, when usage patterns of end-users that multi-home are shifting from 

network A to network B, network effects may incentivise single-homing friends on network A to 

subscribe to network B as well. Such dynamics have been observed on multiple occasions and are 

necessary to mitigate the lock-in effect. If communications partners are unable or unwilling to use 

alternative services, a lock-in still remains. 

Also, switching between platform can bring along ‘costs’ that provide a sense of lock-in. Because 

digital business models may analyse and process personal data for optimising user experience, 

end-users may perceive barriers for switching to alternative and new providers which know much 

less about their individual preferences. Multi-homing does not seem to mitigate this effect. The 

General Data Protection Regulation provides for a right to data portability that would enable a user 

to transfer personal data locked up in a specific service to a new provider. 

A switch to a new OCS provider may also cause users to lose data and interaction history 

accumulated by using a certain service. As a result of this, users may feel locked-in. However, here 

one has to recognise that ‘switching’ in the context of multi-homing does not necessarily imply 

ending a subscription with a current provider or losing all prior data and interaction. Indeed, a 

switching process becomes more gradual thereby effectively spreading the costs of a possible 
definite termination of a subscription over time253.  

With regards to interconnection between OCS to the advancement of effective competition in the 

online environment, it is relevant to consider differences between ECS and OCS with regards to 

multi-homing. At the time interconnection between public electronic communications networks was 

mandated, there were no alternative means for communicating at a distance. In the absence of 

interconnection obligations users would thus need to have multiple subscriptions in order to be able 

253  

In the context of the Facebook/WhatsApp merger, the European Commission confirmed that data portability issues did not 
constitute a barrier to consumers’ switching in the case of consumer communications apps. 

Study on future trends and business models in communication services 

147 

 
 
 
 
 
 
 
 
 
 
 
                                                           
to interact with all peers throughout the community. Requiring a user to have multiple physical 

connections (one per operator) would have been unworkable as it would have led to an 

unnecessary and costly duplication of infrastructure. In the OCS environment, multi-homing is not 

associated with duplications of infrastructure. These considerations should be taken into account 

when assessing the need for interoperability between OCS with the aim of stimulating effective 

competition. 

All in all, the responsiveness of digital markets to consumer heterogeneity in combination with the 

ability for end-users to multi-home may support the freedom of choice for consumers. As a 

consequence, end-users can change their (intensity of) use of OCS provider in response to a 

degradation of prices and/or quality. This possibility may be relevant when assessing the need for 

regulating price and quality of OCS. Other considerations to take into account are (i) that OCS may 

suffer from technological limitations to guarantee minimum quality of service levels; (ii) that 

consumers are often not charged with monetary prices, and (iii) that contracts with a specified 

minimum durations are uncommon for OCS. These differences may imply less need for regulation 

(or different forms of regulation) in order to preserve particular end-users interests in the OCS 

context: 

  Rather than extending a contractual right to information about the minimum quality of service 

offered254, it may suffice to entitle end-users to relevant information about inherent 
(technological) limitations of OCS and enable them to make informed decisions about which 

OCS (not) to subscribe to. Such (technological) limitations may relate to offering access to 

emergency services or guaranteeing minimum quality of service levels; 

 

It may be difficult / unnecessary to impose some of the other obligations contained in the 

Universal Service Directive on OCS providers. For instance, transparency with regard to, inter 

alia, the applicable prices and tariffs as required by Article 21 of the Universal Service Directive 

will not have much relevance for OCS, as long as they are provided for free or at very low price 

to users. (While users often do not pay with monetary currency, it can be argued that they ‘pay’ 

with data – we elaborate on this this below under ‘Privacy, data protection, and data security’); 

 

It may not be necessary to impose a maximum duration of contracts on OCS providers as long 

as OCS providers enable users to terminate their contract anytime. 

Access to emergency numbers 

With respect to the accessibility of emergency services, only a few Member States (Denmark, 

Finland and UK) require OCS that interconnect, giving access to E.164 numbering regime to also 

provide access to emergency numbers. The access to emergency numbers via OCS is 

technologically challenging as it is routing the call to the right PSAP (Public Safety Answering Point) 

and obtain information on the location of the caller is not always technically feasible. In addition, 

there may be no call-back functionality if the call is dropped. However, access to emergency 

services should be mandated on OCS in view of future scenarios where users abandon ECS 

completely purchasing only connectivity services and fulfil all of their communication needs through 

OCS. In particular, when VoIP give access to the PSTN and hence to E164 numbers access to 

emergency services should be ensured if reliable routing arrangements are feasible. 

Privacy, data protection, and data security 

Because of the complex technological nature of digital business models, digital markets are not 

transparent and people are not always aware of the risks they run regarding privacy and security or 

do not discount these risks correctly which hinders making informed choices. In addition, OCS 

users do not enjoy equivalent legal safeguards with regard to privacy and data protection as 

compared to ECS users. While both OCS and ECS providers are subject to the horizontal data 

protection rules contained in the current Data Protection Directive and the future General Data 

254   And on compensation arrangements which apply if the contracted service quality levels are not met. 

148 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
                                                           
Protection Regulation, the ePrivacy Directive imposes additional obligations on ECS providers that 

currently do not apply to OCS providers. These rules by which ECS (but not OCS) providers need 

to abide are: 

  Article 5 ePrivacy Directive requires confidentiality of communications and specifically prohibits 

listening, tapping, storage or other kinds of interception or surveillance of communications and 

related traffic data without consent of users; 

  Article 6 ePrivacy Directive requires traffic data to be processed only to the extent and for the 

duration necessary for the purpose of marketing ECS or for the provision of value added 

services if the subscriber or user to whom the data relate has given consent; 

  Similarly, Article 9 ePrivacy Directive prevents ECS providers from processing location data and 

other traffic data without the consent of the users (or this data should be made anonymous); 

  Article 13 ePrivacy Directive prohibits the sending of messages via automated calling machines, 

faxes or electronic email (including SMSs) without the consent of end-users.  

This asymmetry in legal protection seems difficult to justify because users are nowadays not only 

confronted with reading, storing and processing of personal data, including traffic and location data, 

in the context of ECS but more so in the context of OCS. Privacy risks may, as a result, be similar 

in ECS and OCS. 

Task 7: An assessment of the sustainability of internet based business models within the 

scope of the next five years; taking account of potential disruptive technologies or changing 

user behaviour as well as of possible inherent limitations of the business/strategies. 

In order to analyse the sustainability of digital business models, one has to understand the 

competitive process taking place in the digital economy. In section 6.2 we concluded that there are 

competitive forces that drive market concentration (network effects and economies of scope) and 

that there are market forces that mitigate market concentration (multi-homing and easy entry and 

scale-up through cloud technologies). This results in constant competition for the market in which 

digital business models need to continuously innovate in all possible dimensions: new techniques, 

new products, new revenue models, new sales channels, new customers, etc.  

Pressures to adjust business models not only come from competitors. Technological solutions start 

surfacing that aim to empower consumers. For example, in section 6.3.1 we discussed that ever 

more people seek ways to block advertisements. Ad Blockers may make permission-based 

marketing key in (the future of) online advertising, which implies a need for OTTs and OCSs to 

adjust business models. This not only relates to revenue models but also to other (interrelated) 

dimensions of the business model (e.g. to how data is used and can be monetised).  

Study on future trends and business models in communication services 

149 

 
 
 
 
 
 
 
 
 
 
 
 
Annex I Overview of data collected 

This Annex provides relevant information on the data that we have collected and (where relevant) 

how we processed the data to make it suitable for analysis. The data concerns: 

  Market data on volumes;  

  Market data on KPIs by telecom operators; 

  The survey among end-users. 

Market data 

Data on volumes  

  We collected market data describing the developments in the communications market; 

  We collected data on volumes of use of telecom services (fixed and mobile) for 7 EU Member 

States (DE, EE, ES, FIN, FR, PL, and UK) and 4 non-EU jurisdictions (S-Korea, Japan, Brazil, 

and the United States); 

  For OCS (including voice, text, social media and video streams) we collected data on the 

percentage of people using OCS in the 7 EU Member States; 

  This data provides a general description of the current market situation in the EU with regard to 

the OCSs presence. The data covers the period 2006 to 2014, with forecasts up to 2020. The 

methodology used for making forecasts is enclosed as Annex IX; 

  The table below provides an overview of the data that we collected, the geographical 

coverages, the years covered, and sources used. 

Indicator  

Fixed voice 

Countries covered 

Years  

Source  

FR, DE, UK, PL, FI, ES, EE, US, Kor, 

2007-2014 

Gartner 

Jap, Br 

Mobile voice 

FR, DE, UK, PL, FI, ES, EE, US, Kor, 

2007-2014 

Gartner 

Jap, Br 

SMS 

FR, DE, UK, PL, FI, ES, EE, US, Kor, 

2007-2014 

Gartner, ITU, e-Marketer 

Jap, Br 

Online voice (e.g. 

FR, DE, UK, PL, FI, ES, EE,  

2007-2015 

Idate, ECDAS**,  

Skype) 

Online text (instant 

FR, DE, UK, PL, FI, ES, EE 

2006 - 2015 

Eurostat, ECDAS**, 

messaging and social 

media) 
** ECDAS: European Commission Digital Agenda Scorecard. 

Quality of that data on OCS  

Eurobarometer, Idate, 

and e-Marketer 

We note that data on ECS services is more accurate then data on the use of OCS because when 

telecom operators report, they report actual observations. Data on the volume of use of OCS is 

often based on surveys and hence may be biased.  

Memory errors 

There are several sources for data on the use of OCS-services that are collected via surveys (such 

as Eurostat, Eurobarometer, Idate, and eMarketer). We also organised a survey ourselves in which 

we asked (amongst others) to what extent respondents make use of OCS today and in 2008. 

Because this data is based on memories and perceptions, the information about today’s use of 

Study on future trends and business models in communication services 

151 

 
 
 
 
 
 
 
 
 
 
 
OCS is more accurate than data on past use of OCS. This effect is due to what is known as 

memory errors. There are over 40 different types of memory errors of which one is in particular 
relevant for our analysis: the context effect255. The context effect refers to the fact that cognition and 
memory are dependent on context, such that out-of-context memories are more difficult to retrieve 

than in-context memories (e.g., recall time and accuracy for a work-related memory will be lower at 

home, and vice versa). In our survey we anticipated for the context effect by describing some 
historical events that took place in 2008, but this did not entirely correct the memory error256.  

Using multiple sources 

We made use of data on the use of OCS-services that is provided by Eurostat, Eurobarometer, 

Idate, and e-Marketer. There is no single source that provides time series describing the 

development of the use of OCS since 2005 in all Member States. Constructing such time series 

required us to merge data sets and to analyse differences and similarities in trends described and 

metrics used by these different sources.  

For data on the percentage of the population using online text services we used multiple sources. 

First, Eurostat contains three separate time series reporting on the use of online text services, 

each covering different years. See the table below.  

Indicator 

I 

Internet use: other communication uses (chat sites, etc.) 

metric 

% of 

individuals 

period 

2005-2007 

II 

Internet use: posting messages to social media sites or instant 

% of 

2009, 2010 and 

messaging 

II

Participation in social networks 

I 
Source: Eurostat. 

individuals 

2012 

% of 

2011 and 2013 - 

individuals 

2014 

In addition, several special edition of the Eurobarometer have monitored the use of social 

networking services (such as social media website, chat websites, instant messaging) among 
internet users257. Furthermore, for some of the Member States in our sample we have found data 
from Idate as well as from e-Marketer on the percentage of the population that is using social 

networking services. 

None of the above datasets is perfect. Some of them cover only a few years, or do cover not 

enough countries in our sample. In order to obtain a time series that covers enough years to 

analyse a trend, we had to combine the different sources. For this we took the Eurostat data as a 

starting point because that data has the most coverage in terms of years. However, one needs to 
merge the three different datasets that Eurostat publishes separately258. We have tried to merge 
these datasets on the basis of comparing trends and imputation.  

255   A second memory error that may be relevant is the consistency bias, which means that humans incorrectly remember 

one's past attitudes and behaviour as resembling present attitudes and behaviour. However, this bias is stemming from a 
human tendency to retroactively adjust attitudes to avoid admitting to being inconsistent. In the context of our survey we 
don’t expect that ‘fear of being inconsistent’ was relevant.  

256   Psychological research finds that context reinstatement can be achieved by mentally visualizing that environment; see 

Smith, S.; Vela, E. (2001). "Environmental context-dependent memory: A review and meta-analysis". Psychon. Bull. Rev. 8 
(2): 203–220.  

257   To compare this data with the Eurostat data, one has to correct for the differences in the percentage of the population that 
is using the internet (this data is available from Eurostat and the European Commission’s Digital Agenda Scorecard). 

258   An argument for Eurostat for not merging these datasets may have been that the methods for surveying, the exact 

questions asked, or the sampling strategy followed may have been different. Such differences do not allow to compare the 
absolute figures in the two datasets. However, it does not prevent comparing the trend in the figures in the two datasets. 

152 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Constructing the final data set for OCS text based services. 

Taking the different data sets of Eurostat as a starting point, we first examined if the first two of 

these data sets can be merged further manipulation and by assessing missing data points on the 

basis of imputation (i.e. taking the average of the previous and the next year). There are missing 

data points for 2008 and 2011, where 2008 is also the ‘merge point’ - see Table A.1.1. 

Table A.1.1 Merging two Eurostat datasets on the usage of OCS text based services 

I
e
c
r
u
o
S

n
o
i
t
a
t
u
p
m

i

I
I
e
c
r
u
o
S

n
o
i
t
a
t
u
p
m

i

I
I
e
c
r
u
o
S

2005 

2006 

2007 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

DE 

EE 

ES 

FR 

PL 

Fi 

24 

17 

13 

15 

10 

22 

UK 
Source: Eurostat. 

6 

26 

21 

20 

17 

18 

22 

13 

28 

25 

27 

19 

26 

22 

20 

32 

31 

29 

22 

31 

25 

27 

35 

37 

31 

25 

35 

27 

33 

33 

35 

31 

31 

41 

42 

36 

34 

39 

37 

32 

42 

46 

47 

34 

43 

42 

33 

42 

49 

57 

: 

: 

: 

: 

: 

: 

: 

: 

: 

: 

: 

: 

: 

: 

There is a risk to this approach that it may create an artificial ‘shock’ in the trend at the point where 

two data sets are merged (2008 in this case). A graphical presentation of the data shows that there 

are discontinuities in the trend, but shows that these are not in the year 2008 (see Figure A.1.1).  

Figure A.1.1 Merged datasets sources I and II 

60

50

40

30

20

10

0

2005 2006 2007 2008 2009 2010 2011 2012

Source: Eurostat. 

On the basis of the above figure we conclude that the risk of creating artificial shocks as a result of 

merging the datasets has not materialised while merging the first two datasets. Next, we take the 

third dataset from Eurostat. This data is also reported by DG Connect in the Digital Agenda 

Scoreboard. The third dataset contains data for 2011, which is missing in the second dataset; the 

second dataset contains data for 2012, which is missing from the third dataset. The two datasets 

can therefore be merged ‘like pieces of a puzzle’, rather than ‘being glued together’.  

Study on future trends and business models in communication services 

153 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
Table A.1.2 Adding a third Eurostat datasets on the usage of OCS text based services 

m
o
r
f
d
n
e
r
T

I
I
/
I
e
c
r
u
o
s

I
I
I
e
c
r
u
o
S

d
n
e
r
T

I
I
I
e
c
r
u
o
S

2005 

2006 

2007 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

DE 

EE 

ES 

Fi 

FR 

PL 

24 

17 

13 

15 

10 

22 

26 

21 

20 

17 

18 

22 

28 

25 

27 

19 

26 

22 

32 

31 

29 

22 

31 

25 

UK 
Source: own calculations based on Eurostat data. 

13 

20 

6 

27 

35 

37 

31 

25 

35 

27 

33 

33 

35 

31 

31 

41 

42 

36 

42 

37 

35 

45 

36 

36 

50 

34 

43 

42 

33 

42 

49 

57 

42 

49 

46 

51 

38 

35 

58 

42 

51 

51 

56 

39 

37 

60 

In this case we observe some noticeable data points for some countries (red figures in the table) 

causing strange jigsaw developments in the trends for some Member States - see Figure A.1.2. 

Figure A.1.2 Artificial shocks in Eurostat data 

60

50

40

30

20

10

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

DE

Fi

FR

PL

Source: own calculations based on Eurostat data. 

In order to verify whether these shocks are also observed by other sources we compare the 

merged Eurostat dataset with data from the Eurobarometer (2009 to 2015), Idate (2008 to 2011) 

and e-marketer (2011 to 2013). On the basis of this comparison we can make informed decisions 

about correcting for outliers. Such correction can be based on a common trend observed in other 

datasets, or simply by dropping the suspicious data point. Figure A.1.3 summarises this process. 

154 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
Figure A.1.3 comparing datasets 

 0.70
 0.60
 0.50
 0.40
 0.30
 0.20
 0.10
 -

 0.70
 0.60
 0.50
 0.40
 0.30
 0.20
 0.10
 -

 0.50

 0.40

 0.30

 0.20

 0.10

 -

 0.70
 0.60
 0.50
 0.40
 0.30
 0.20
 0.10
 -

DE 

Drop Eurostat.  
Use average 
other sources 

Eurostat data 
seems 
incompatible with 
other data. Other 
data seems 
compatible with 
each other 

Eurobarometer 
confirms 
temporal 
stabilisation 
around 2010. 

 0.60

 0.50

 0.40

 0.30

 0.20

 0.10

 -

EE 

Stick to 
Eurostat.  

2000

2005

2010

2015

2020

2000

2005

2010

2015

2020

EUSTAT

EB

Idate

e-mar

EUSTAT

EB

Idate

e-mar

ES 

No large discrepancies in 
between the various data 
sources after 2009. 

Stick to 
Eurostat. 
Ignore pre-
2009.  

FI 

Stick to 
Eurostat.  

No large 
discrepancies, 
except for the drop in 
users in 2012 as 
reported by Eurostat. 

 0.70
 0.60
 0.50
 0.40
 0.30
 0.20
 0.10
 -

Correct the 
2012 
outlier.  

2000

2005

2010

2015

2020

2000

2005

2010

2015

2020

EUSTAT

EB

Idate

e-mar

EUSTAT

EB

Idate

e-mar

Stick to 
Eurostat, 
but… 

FR 

…take 
average of 
other sources 
after 2010  

Eurostat’s jigsaw 
trend between 
2010 and 2012 is 
not confirmed by 
other data.  

EB and Idate do 
confirm a strong 
marginal 
diminishing growth 
effect after 2010 

Correct 
outlier 

PL 

 0.50

 0.40

 0.30

 0.20

 0.10

 -

The decline 
from 2009 to 
2010 as 
reported by 
Eurostat is not 
confirmed by 
EB.  

…erase 
data point 

EB confirms a 
temporal decline 
around 2011/12 but 
it remains strange 

2000

2005

2010

2015

2020

2000

2005

2010

2015

2020

EUSTAT

EB

Idate

EUSTAT

EB

Idate

e-mar

UK 

Stick to 
Eurostat.  

No large 
discrepancies 
between the various 
data sources. 

2000

2005

2010

2015

2020

EUSTAT

EB

Idate

e-mar

The final data set 

Figure A.1.4 presents the final data set that we use in our further analysis. We also plotted the 

logos of OCS platforms around the year of introduction. 

Study on future trends and business models in communication services 

155 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Figure A.1.4 Use of social networks (share of total population) 

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

DE

EE

ES

FI

FR

PL

UK

Source: own calculations based on the above sources. 

Constructing the final data set for OCS voice based services. 

Eurostat contains several time series reporting on the use of online voice services.  

Indicator 

metric 

period 

I 

II 

Internet use: telephoning, videoconferencing 

% of individuals  2005 - 2007 

Internet use: telephoning or video calls 

% of individuals  2008 - 2014 

Source: Eurostat. 

We explore again whether we can merge these datasets by simply ‘gluing’ these two data sets 

without further manipulation. The two data sets are presented below. 

dataset I 

dataset II 

2005 

2006 

2007 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

DE 

EE 

ES 

Fi 

FR 

PL 

UK 
Source: Eurostat. 

10 

14 

7 

14 

5 

8 

7 

13 

16 

9 

18 

9 

10 

8 

15 

19 

13 

16 

32 

17 

13 

15 

30 

14 

16 

23 

20 

18 

17 

34 

14 

15 

21 

20 

20 

18 

38 

15 

15 

19 

21 

28 

22 

46 

23 

21 

23 

24 

35 

23 

47 

20 

22 

24 

24 

27 

24 

43 

24 

28 

30 

28 

30 

10 

4 

10 

5 

5 

A graphical presentation of the data confirms that there is a notable shock at the ‘merge point’ in 

France (see Figure A.1.5). For other Member States, both datasets seem to match. 

156 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Figure A.1.5 Development OCS-V users as % of population 

50

45

40

35

30

25

20

15

10

5

0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

DE

EE

ES

Fi

FR

PL

UK

Source: Eurostat. 

It seems that there is something odd going on with the data for France in the second data set of 

Eurostat. Intuitively, one would expect that the use of online voice services has increased over the 

years. However, the data suggests that the use of online voice services in France peaked in 2008, 

declined until 2011 and then grew again to a current level of just below the 2008 level. The size of 

this effect is also very large and would not have remained unnoticed in media coverage at the time. 

However, we did not find any references to this remarkable development in French news articles 

from 2008/2009. Without doing the data too much harm, we decided to treat the observations for 

2008 and 2009 in France with caution and drop them as being outliers, resulting in the following 

final dataset for France: 

Figure A.1.6 Development OCS-V users as % of population in France 

35%

30%

25%

20%

15%

10%

5%

0%

2004

2006

2008

2010

2012

2014

2016

OCS V

OCS V*

OCS V* concerns ‘suspicious’ data points that we dropped as being outliers. 

Data on KPIs of Telecom operators  

Indicator  

Countries covered 

Comment  

Source 

Overall Revenues 

FR, DE, UK, PL, FI, ES, EE, 

2000-2018 

Gartner 

EU27 

Mobile total revenues 

FR, DE, UK, PL, FI, ES, EE, 

2007-2019 

Gartner 

EU27 

Mobile voice and SMS 

FR, DE, UK, PL, FI, ES, EE,  

2007-2019 

Gartner 

revenues 

Study on future trends and business models in communication services 

157 

 
 
 
 
 
 
 
 
 
 
 
 
Indicator  

Countries covered 

Comment  

Source 

Mobile Data revenue 

FR, DE, UK, PL, FI, ES, EE,  

2007-2019 

Fixed total revenues 

FR, DE, UK, PL, FI, ES, EE, 

2007-2019 

EU27 

Fixed voice revenues 

FR, DE, UK, PL, FI, ES, EE,  

2007-2019 

Fixed subscription revenues  

FR, DE, UK, PL, FI, ES, EE,  

2007-2019 

Gartner 

Gartner 

Gartner 

Gartner 

EBITDA 

OPEX 

Fixed Capex  

Mobile Capex 

EU27 

EU27 

EU27 

EU27 

* Opex = Reveue – EBITDA. 

Survey among end-users 

2008-2012 

Eurostat GSMA 

2008-2012 

Derived*  

2006-2014 

ETNO (referring to figures 

from Idate) 

2006-2014 

ETNO (referring to figures 

from Idate) 

For the specific 7 Member States mentioned above we sent out online questionnaires to 

consumers and SMEs to retrieve data on usage of ECS and OCS. The questionnaires provide us 

with an understanding of the degree to which end-users (consumers and businesses) perceive 

OCS as a substitute for ECS services. In other words we inquire whether they are willing to switch 

and whether they can switch (technologically speaking). The questions from the survey are 

included in Annex II. 

Consumer survey sample 

Sample strategy 

The sampling strategy we followed takes into account the main characteristics of the target 

populations. It aims at determining the main drivers of influence of the use and the choice between 

OCS and ECS services. Originally we considered the following dimensions: income, education, age 

and location (urban or rural). Because of budgetary constraints we needed to reduce the number of 
dimensions259. We decided to drop the characteristics ‘income’ and ‘education’ from our sampling 
strategy on the basis of the following arguments. 

The influence of age is obvious from Eurostat data below. The use of OCS is skewed towards 

younger generations. 

OCS V take-up and age 

OCS T take-up and age 

70
60
50
40
30
20
10
0

100

80

60

40

20

0

<15 yo

> 75 yo

16-24 yo

25-34 yo

<15 yo

> 75 yo

16-24 yo

25-34 yo

35-44 yo

45-54 yo

55-64 yo

65-74 yo

35-44 yo

45-54 yo

55-64 yo

65-74 yo

259   With a given response rate, one needs larger survey panels in order to have a final sample that is representative with 

respect to all characteristics. 

158 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
People who live in urban regions have better access to broadband services260 and hence are more 
likely to use online services. Eurostat describes degree of urbanization261 as a “valuable 
explanatory variable in the analysis of social statistics. (…) Access to broadband or mobile 

telecommunication networks can be problematic in more remote rural areas.” The data confirms 

that OCS are less intensely used in rural areas.  

OCS V take-up and urbanisation  

OCS T take-up and urbanisation  

70

60

50

40

30

20

10

0

Estonia EU15 Finland France Poland Spain

UK

Estonia EU15 Finland France Poland Spain

UK

1 Urban

2 med urban

3 rural

1 Urban

2 med urban

3 rural

Education and income levels also seem to be relevant characteristics. Eurostat data shows that the 

use of OCS is skewed towards higher levels of education and income.  

OCS V take-up and education  

OCS T take-up and education  

70

60

50

40

30

20

10

0

Estonia EU15 Finland France Poland Spain

UK

Estonia EU15 Finland France Poland Spain

UK

1 high edu

2 med edu

3 low edu

1 high edu

2 med edu

3 low edu

70

60

50

40

30

20

10

0

70

60

50

40

30

20

10

0

260   See e.g. J. Bouckaert et al. Access Regulation, Competition, and Broadband Penetration: An International Study, 

Telecommunications Policy 34 (2010) 661–671. 

261   See https://circabc.europa.eu/sd/a/69497b9d-ec9e-4b59-ad7b-

1ab709c57d99/CORE%20VARIABLES%20UPDATED%20GUIDELINES%20May%202011.pdf. 

Study on future trends and business models in communication services 

159 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
OCS V take-up and household income 

OCS T take-up and household income 

60

50

40

30

20

10

0

Estonia

EU15

Finland Germany Poland

Spain

Estonia

EU15

Finland Germany Poland

Spain

1st q

2nd q

3rd q

4th q

1st q

2nd q

3rd q

4th q

All variable seem to be relevant. A reason for this may that these variables are correlated262.  

The influence of income (and indirectly education) on the use of OCS may be ambiguous. Several 

studies have found a positive correlation between income and broadband take-up (i.e. the income 
elasticity of demand is positive)263. Since broadband access is a prerequisite for using OCS, one 
may expect a positive correlation between income and the use of OCS. However, a major driver of 

the popularity of OCS is the fact that these are typically offered for free. The extent of this effect is 

measured by cross elasticity of demand (i.e. the extent to which end-users switch from ECS to OCS 

as a result of a change in the price). Cross elasticity of demand is typically lower among high 

income groups. This effect mitigates the first income effect mentioned above.  

We decided to drop the characteristics ‘income’ and ‘education’ from our sampling strategy 

because of their potentially ambiguous effects and because the costs of the survey increase with 

the number of sampling characteristics.  

Comparison to samples in other (comparable) surveys 

The ETNO: Digital Consumer Survey was applied to 9000 respondents from 9 countries. The 

data were weighted by gender, age and region to be representative of all people aged 15+ in each 

country. The Eurostat data above confirms the relevance of age and region. However, a closer look 

at gender data from Eurostat learns that distinguishing between genders is not very relevant. 

OCS V 

OCS T 

60

50

40

30

20

10

0

70

60

50

40

30

20

10

0

60

50

40

30

20

10

0

EU15 DE

EE

ES

FR

PL

FI

UK

EU15 DE

EE

ES

FR

PL

FI

UK

male

female

male

female

262   People who live in urban areas have generally enjoyed a higher level of education and generally earn a higher income. 
263   See e.g. J. Bouckaert et al. Access Regulation, Competition, and Broadband Penetration: An International Study, 

Telecommunications Policy 34 (2010) 661–671. 

160 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
  
                                                           
Analysys Mason “Connected Consumer Survey” interrogated more than 1000 respondents for 

several countries (Spain, France, UK, Germany, Poland in the EU). They didn’t need to weigh the 

outcomes as the panel matched the national demographic characteristics. They had to weigh 

responses for the other part of their survey (non EU countries) because panel requirements were 
not met264. They weighed their national panels by employment statutes, age range, gender, 
average household size and situation.  

In its special Data protection265 Eurobarometer targets “resident in each Member States and aged 
15 years and over. The basic sample design applied in all states is a multi-stage, random 

(probability) one. In each country, a number of sampling points was drawn with probability 

proportional to population size (for a total coverage of the country) and to population density. […] 

For all countries surveyed, a national weighing procedure, using marginal and intercellular 

weighting, was carried out. In all countries, gender, age, region and size of locality were introduced 

in the iteration procedure.” 

All three surveys agree that at least age and urbanisation rate should be taken along as most 

relevant variables. 

Response rate 

For each country we acquired a sample of 250 respondents that was representative for the 

population with a bias to younger generations (as described above). As such, response rates do not 

apply.  

Sample VS population 

Because we did a prospective study, we wanted a bias towards younger generations, because the 

behaviour of today’s teenagers is indicative for the behaviour of tomorrow’s young adults. 

Therefore, our sample is purposefully biased towards younger generations (see Figure A.1.7). 

Figure A.1.7 Representativeness of the population in the dimension of age (2015) 

2015 

70%
60%
50%
40%
30%
20%
10%
0%

s
r
a
e
y
5
1
r
e
d
n
u

s
r
a
e
y
9
2
o
t
5
1

s
r
a
e
y
9
4
o
t
0
3

s
r
a
e
y
4
6
o
t
0
5

s
r
a
e
y
4
8
o
t
5
6

r
e
v
o
d
n
a
s
r
a
e
y
5
8

Population

Sample

Source: of the population is Eurostat (unweighted average of the respective Member States). 
n sample = 250 per Member States. 

At member state level the age bias is approximately equal (see Figure A.1.8). 

264   See Analysys Mason, « The Connected Consumer Survey 2015 » p29. 
265   http://ec.europa.eu/public_opinion/archives/ebs/ebs_431_en.pdf. 

Study on future trends and business models in communication services 

161 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Figure A.1.8 Representativeness of the population in the dimension of age at Member State level (2015)  

70%

60%

50%

40%

30%

20%

10%

0%

DE

EE

ES

FR

PL

FI

UK

DE

EE

ES

FR

PL

FI

UK

population

Sample

15 to 29 years

30 to 49 years

50 to 64 years

The representativeness of the current sample for increases while people grow older. To make a 

forecast of how representative our current sample will be within 5 to 10 years we have to make 

certain assumptions. We assume that within five years:  

  33% (5/15)) of the people currently in the age group of under 15 y.o. will belong to the age 

group of 15 to 29 y.o.;  

  33% (5/15)) of the people currently in the age group of 15 to 29 y.o. will belong to the age group 

of 30 to 49 y.o.;  

  25% (5/20) of the people currently in the age group of 30 to 49 y.o. will be in the age group of 

50 to 64 y.o.;  

  33% (5/15) of the people currently in the age group of 50 to 64 y.o. will be in the age group of 

65 to 84 y.o.; and that  

  25% (5/20) of the people currently in the age group of 65 to 84 y.o will be in the age group of 

>85 y.o. and that all people of currently above 85 year old have died (which is not a realistic 

assumption).  

Under these assumptions the representativeness of our current sample in 2020 and 2025 (in the 

dimension of age) is as follows: 

Figure A.1.9 Representativeness of the population in the dimension of age in 2020 and 2025  

2020 

2025 

70%
60%
50%
40%
30%
20%
10%
0%

70%
60%
50%
40%
30%
20%
10%
0%

s
r
a
e
y
5
1
r
e
d
n
u

s
r
a
e
y
9
2
o
t
5
1

s
r
a
e
y
9
4
o
t
0
3

s
r
a
e
y
4
6
o
t
0
5

s
r
a
e
y
4
8
o
t
5
6

r
e
v
o
d
n
a
s
r
a
e
y
5
8

s
r
a
e
y
5
1
r
e
d
n
u

s
r
a
e
y
9
2
o
t
5
1

s
r
a
e
y
9
4
o
t
0
3

s
r
a
e
y
4
6
o
t
0
5

s
r
a
e
y
4
8
o
t
5
6

r
e
v
o
d
n
a
s
r
a
e
y
5
8

Population

Sample

Population

Sample

162 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Furthermore, our sample is rather balanced in the dimension of urbanisation (see below). 

Figure A.1.10 Location of respondents 

balanced in urbanisation 

70%

60%

50%

40%

30%

20%

10%

0%

DE

EE

ES

FR

PL

FI

UK

DE

EE

ES

FR

PL

FI

UK

Population

Sample

> 50,000 inhabitants

5000 to 50,000 inhabitants

< 5000 inhabitant

N = 250 per Member States. 

Study on future trends and business models in communication services 

163 

 
 
 
 
 
 
 
 
 
 
Annex II  

End-user survey 

Study on future trends and business models in communication services 

165 

 
 
 
 
 
 
 
 
 
166 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
Study on future trends and business models in communication services 

167 

 
 
 
 
 
 
 
 
 
168 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
Study on future trends and business models in communication services 

169 

 
 
 
 
 
 
 
170 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
Study on future trends and business models in communication services 

171 

 
 
 
 
 
 
 
 
 
 
 
Annex III 

Interviews 

General introduction  

The study aims to identify current and future trends in digital communication services and online 

business models that are likely to emerge. Moreover it assesses the related implications for 

traditional telecom business models. An important question in this context is whether the current 

regulatory set-up, making distinction between electronic communication services (ECS) and online 

communication services (OCS), is creating a level playing field problem and needs to be changed. 

To obtain market insights interviews have been conducted with stakeholders. See Annex V for the 

list of interviewees. 

Some specifics on the project: 

  The project runs from April 2015 until February 2016 (final report); 

  A stakeholder workshop was held in December, to discuss the findings with relevant market 

players; 

 

Interviews are held with a number of ECS and OCS providers, with independent experts, with 

NRAs and various representative bodies. These interviews were held before and in the summer 

period. 

Some terms we use in the interviews: 

  ECS services: this is about fixed telephony, mobile telephony, SMS, and to a lesser extend: 

video telephony, MMS; 

  OCS services: this is about online communication services, offered via the Internet. Examples 

are Skype, Whatsapp, Facebook, iMessage, Twitter, etc. Social network services are part of 

this; 

  We focused on 7 EU countries in more depth during the study. These countries are Germany, 

France, Poland, Spain, Finland, Estonia, and the UK. 

The legal framework (please read before the Interview) 

The EU regulatory framework refers to the framework containing all regulations specific for ECS 

services. This consists of the: 

  Framework directive; 

  Authorisation directive; 

  Access directive; 

  Universal service directive; 

  Privacy and electronic communications directive. 

The framework distinguishes electronics communication services from online communication 

services. OCS which do not require any conveyance of signals (at least according to the current 

interpretation of the regulatory framework) fall outside the reach of many obligations of the 

regulatory framework. Web based services are subject to legal regimes that have a more general 

scope of application, such as the EU data and consumer protection frameworks. Obligations 

applicable to OCS therefore form a more piecemeal framework combining rules from different legal 

fields which do not necessarily give rise to obligations similar to the ones imposed on ECS 

providers under the regulatory framework. 

Study on future trends and business models in communication services 

173 

 
 
 
 
 
 
 
 
 
 
 
 
However, this conclusion requires some nuancing when considering Voice over Internet Protocol 

(VoIP) services such as Skype. The European Regulators Group (ERG) for Electronic 

Communications Networks and Services has made a distinction between VoIP services that can 
be considered public ECS based on their access to and/or from the PSTN:266 (i) a service 
where E.164 numbers are not provided and from which there is no access to or from the PSTN 

(ERG category 1), (ii) a service with outgoing access to the PSTN only and where no E.164 

numbers are provided (ERG category 2), (iii) a service with incoming access from the PSTN, 

mobile networks or via IP and where E.164 numbers are provided (ERG category 3), and (iv) a 

service where there is both incoming and outgoing access to the PSTN or mobile networks and 

where E.164 numbers are provided (ERG category 4): 

  Category 1 is not subject to any of the Universal Service obligations; 

  Category 2 is subject to Articles 20-22 of the Universal Service Directive (minimum contractual 

rights, transparency, QoS) and Article 26 (access to emergency services); 

  Category 3 is subject to Articles 20-22 and Article 30 (number portability) of the Universal 

Service Directive; 

  Category 4 is subject to all of these Articles of the USD.  

The distinction made by the ERG serves as a guidelines for national regulators. As such, it is not 

embedded in European rules. The distinction is only relevant with regards to the USD, not with 

respect to other rules.  

For this study the following rules governing ECS services are considered as relevant: 

ECS 

OCS 

Data 

  Article 4 ePrivacy Directive: security of 

  Article 17 Data Protection Directive: 

protection 

services in general; 

  Article 5 ePrivacy Directive: confidentiality of 

security of services only in case of 
personal data processing267; 

communications in general. 

  Article 16 Data Protection Directive: 

confidentiality only in case of 

personal data processing.  

Portability 

  Article 30 Universal Service Directive (also 

  No equivalent portability 

applicable to ERG categories 3 and 4 

requirement. 

VoIP services). 

Interoperability 

  Article 4(1) Access Directive: right and 

  No similar requirement of 

obligation to negotiate interconnection. 

interoperability. 

Contractual 

  Article 20 Universal Service Directive: 

  Only general contractual guarantees 

Rights 

specific minimum contractual rights for 

users adjusted to particularities of 

communication services (also applicable 

to ERG categories 2, 3 and 4 VoIP 

services). 

included in the Directive on 
Consumer Rights268 and Directive on 
Unfair Contract Terms269. 

Transparency  

  Article 21 Universal Service Directive: NRAs 

  Only general obligations under 

are able to require ECS providers to publish 

Article 6 Consumer Rights Directive: 

transparent, comparable, adequate and up-

information on the main 

to-date information on applicable prices, 

characteristics of goods and services 

charges and terms of conditions (also 

to the extent appropriate. 

266

267

268

269

   European Regulators Group, “Common position on VoIP”, December 2007. 
   The difference in scope of the data protection guarantees applicable to ECS and OCS providers may not lead to major 
divergences in practice, since most, if not all, of the data processed by ECS and OCS providers are personal data.  

   Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights [2011] OJ L 

304/64. 

   Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts [1993] OJ L 95/29. 

174 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
                                                           
ECS 

OCS 

applicable to ERG categories 2, 3 and 4 

VoIP services). 

Quality of 

  Article 22(3) Universal Service Directive: 

  No similar constraints. 

Service 

NRAs are allowed to set minimum QoS 

requirements (also applicable to ERG 

categories 2,3 and 4 VoIP services). 

Access to 

  Article 26 Universal Service Directive: 

  No similar obligation for OCS 

emergency 

obligation to provide access to emergency 

providers. 

services 

services and the single European 

emergency call number (also applicable to 

ERG categories 2 and 4 VoIP services). 

Prices  

  Article 9 Universal Service Directive: tariffs 

  No similar (ex ante) obligations for 

of services monitored by NRA in relation to 

OCS providers. 

national consumer prices and income; 

  Article 17 Universal Service Directive: NRAs 

may impose ex ante obligations to providers 

with significant market power. 

Administrative 

  Article 12 Authorisation Directive: NRAs 

  No similar charges for OCS 

charges 

may levy administrative charges. 

providers. 

Access to 

  ECS providers have access. 

  No access for OCS providers. 

national 

numbering 

regime 

In addition there are country specific rules on data retention and lawful intercepts. Note that the 

ECJ has recently annulled European rules on data retention. This has set precedents at national 

level, leading to the annulment of national data retention rules in a number of Member States. 

Questions for ECS providers 

General Questions 

  Please indicate in how many EU countries you are active. In particular, please also indicate if 

you are active in the 6 countries, and with which services; 

  Elaborate on differences in the 6 EU countries, if any, on the following topics: 

-  Consumer behaviour; 

-  Regulatory; 

-  Costs of providing services; 

- 

Influence of OCS services on the communications market. 

  Do you offer online services? Also online voice or text services? Please elaborate: 

- 

If not, have you considered offering such services? What is the reason or reasons for not 

offering such services? 

- 

If so, what services do you offer, and where? What is the reason or reasons for offering such 

services? Do you consider your offering successful? 

Study on future trends and business models in communication services 

175 

 
 
 
 
 
 
 
 
 
 
 
For the period 2008-2015 

Market developments 

  Please describe events in (any of) the respective Member States that have influenced the 

competition among ECS providers (e.g. policies promoting switching, change in termination 

rates, or change in the (art 7) regulation of particular (wholesale) markets); 

  How has this affected prices, revenues and profits? Can you make a guestimate of how large 

this effect was in terms of percentages? 

  Please describe the influence of online services on competition / company performance in the 

markets for fixed telephony, mobile telephony and SMS: 

-  Can you provide us with company data supporting your analysis? 

  Please describe how consumer behaviour has changed over this period in (any of) the 

respective Member States. 

Business models and strategies 

  What are your main assets as an ECS provider? Please elaborate; 

  Are you dependent on others for your business? What do you need from others for your 

business? Please elaborate; 

  According to you, what is the business/earning model of the online communication services like 

Skype and WhatsApp? 

  How did you respond to the way the OCS providers are acting in the market; i.e. how did this 

affect your market / marketing strategy? And what impact did this have on your performance? 

  What options did you see to respond to the OCS providers? How did you come to a choice 

between various options? 

  Would you have had more / better options to adjust your business model / marketing in 

response of the rise of online services if…: 

-  Regulation were different, please elaborate; 

-  The costs of the underlying technology were lower, please elaborate; 

-  You had more complementary services, please elaborate. (With complementary services, 

we mean a different revenue generating service that benefits from you offering (nearly) free 

communication services); 

-  Other. 

  Are you aware of success stories (or failed initiatives) by ECS providers offering online 

communication services (voice, text, social networks)? 

-  What was the key to success; or  

-  Why did they fail; 

-  Rich Communication Services (RCS) could be seen as a response to OCS providers. How 

do you see this, is this a successful new service or not? Please elaborate. 

For the period 2015-2020 

  How will OCS business models evolve in the coming 5 years, taking account of future  

-  consumer needs (what consumer needs?); 

- 

technologies (what technologies?); and  

-  competitors (which competitors?). 

  How will this affect your business model as an ECS provider? 

  What (network) specific technological developments do you see that will influence your future 

business model, if any?  

-  How will this affect the strategic position of voice and text messaging services in that 

business model? 

  How would you change your business model / marketing strategy if ECS rules were abolished 

and the general rules applying to OCS were also governing ECS? (Please consider the legal 

framework as described in the introduction). 

176 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
Questions for OCS providers 

General Questions 

  Which of the following services do you offer: 

-  Voice over Internet; 

- 

Instant messages over internet; 

-  Social Network website; 

-  Other online communication services….. 

  Could you make a guestimate of the development of the use of these services in the respective 

Member States (or Europe in general)? 

- 

In terms of annual percentage change since 2008? 

-  What metric do you use? 

-  What level are we today? 

  Elaborate on differences in the 6 EU countries in terms of: 

-  Consumer behaviour (and how it has developed since 2008); 

-  Regulatory; 

-  Costs of providing services; 

- 

Influence of OCS services on the communications market. 

  What do you see as the main differences between the EU and other parts of the world (e.g. US, 

Japan), on the use of OCS services vs ECS services? 

  Do you offer services that qualify as an electronic communication service, and if so, under what 

ERG category do they fall? Please consider the legal definition and categories as presented in 

the introduction. 

Business strategy 

  What are your main assets as an OCS provider? Please elaborate; 

  Are you dependent on others for your business? What do you need from others for your 

business? Please elaborate; 

  How do you regard telecom operators? (as Competitor, as Supplier, as Partner, Other); 

  Could you elaborate on the business/revenue model(s) behind online communication Apps? 

  How will these models evolve in the coming 5 years, taking account of future: 

-  consumer needs (what consumer needs?)  

- 

technologies (what technologies?); and  

-  competitors (which competitors)? 

  Can you elaborate on the influence of current regulations as applied to OCS services on your 

strategy? Please consider the legal definition and categories as presented in the introduction; 

  What do you see as future outlook for ECS services? Please elaborate; 

  What would be the impact on online business models if: 

A.  ECS rules were abolished and the general rules applying to web-based services were also 

governing ECS? 

B.  ECS rules were made applicable to the web-based services (when applicable). (please 

consider the legal framework as presented in the introduction). 

  Are you aware of success stories (or failed initiatives) by ECS providers offering online 

communication services (voice, text, social networks)? 

-  What was the key to success; or  

-  Why did they fail; 

-  Rich Communication Services (RCS) could be seen as a response to OCS providers. How 

do you see this, is this a successful new service or not? Please elaborate. 

Study on future trends and business models in communication services 

177 

 
 
 
 
 
 
 
 
 
Questions for NRAs 

Regulatory set-up  

  To what extent does your country deviate from the regulatory set up described above? Consider 

the area of: 

-  Data protection; 

-  Contractual rights for users; 

-  Transparency about prices and contract terms; 

-  Competencies granted to NRA for setting minimum quality of service requirements; 

-  Competencies granted to NRA regarding monitoring of consumer prices; 

-  Other. 

  What rules exist on data retention for: 

-  OCS services?  

-  ECS services? 

  Who bears the costs of data retention for: 

-  OCS services?  

-  ECS services? 

  What rules exist on lawful intercepts for: 

-  OCS services?  

-  ECS services? 

  Who bears the costs of lawful intercepts 

-  OCS services?  

-  ECS services? 

  Do OCS providers provide services in your country that qualify as an ECS, and if so, under what 

ERG category do they fall?  

  Do ECS providers provide services in your country that do not qualify as an ECS? 

The use of OCS services  

Consider the following services: 

  Voice over Internet; 

 

Instant messages over internet; 

  Social Network website; 

  Other online communication services ….. 

  Are you aware of research into the development of the use of these services in your country? 

  Could you make a guestimate of the development of the use of these services in your country? 

- 

In terms of annual percentage change since 2008? 

-  What metric do you use? 

-  What level are we today? 

  According to you, what has been the Influence of OCS services on the communications market 

in your country? 

-  How has it affected the marketing strategy of traditional telco’s? 

-  How has it affected the performance of traditional telco’s (terms of subscribers, use, 

turnover, profit)? 

  How will OCS and ECS models evolve in the coming 5 years, taking account of future: 

-  consumer needs (what consumer needs?); 

- 

technologies (what technologies?), and  

-  competitors (which competitors?). 

178 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
Timeline of events 

  Did the NRA take any initiatives resulting into more intense market competition and diminishing 

revenues for ECS providers since 2008? 

-  Through the market analysis procedure (e.g. by defining and analysing additional relevant 

markets; by imposing more or stricter access or price obligations on ECS providers on 

previously monitored markets…); 

-  Through the set-up of service/price comparison tools (e.g. in Belgium: www.bestetarief.be); 

-  Other. 

  Has there been an entry / exit / merger resulting into more/less intense market competition and 

diminishing/increasing revenues for ECS providers since 2008? 

- 

(E.g. in Belgian, the cable company Telenet has entered the mobile market with an 

aggressive pricing strategy leading to a drop in mobile prices and revenues.). 

  Did the EU or national competition authority take any decision (in the context of a merger or 

abuse of dominance case) resulting into more intense market competition and diminishing 

revenues for ECS providers since 2008? 

- 

(E.g. in the Netherlands: Liberty Global / Ziggo merger decision from October 2014 in which 

the European Commission adopted commitments to prevent Liberty Global from restricting 

competition from OTT services). 

General closing question  

  Currently we are in the process of gathering market data for the 6 Member States, may we ask 

you at a later stage to share this data with your colleagues in the respective countries and ask 

them to explain trends and breaks in the trends?  

  Early December we organise a large stakeholder workshop in Brussels in relation to the study. 

We would be pleased if you could participate to this workshop and advertise it to your peers. 

We will send you more detailed information about the purpose, set-up and exact date of the 

workshop after the summer holidays. 

Study on future trends and business models in communication services 

179 

 
 
 
 
 
 
 
 
 
 
 
Annex IV  Deregulation by the FCC 

The FCC’s first deregulation initiatives in the early 1980s addressed the reduction and eventual 

elimination of domestic long distance telephone service regulation: 

  Policy & Rules Concerning Rates for Competitive Common Carrier Services & Facilities 

Authorizations Therefor, First Report and Order, 85 F.C.C. 2d 1(1980), Second Report and 

Order, 91 F.C.C. 2d 59 (1982), Fourth Report and Order, 95 F.C.C. 2d 554 (1983), Sixth Report 

and Order, 99 F.C.C. 2d 1020 (1985), reversed sub nom.,. MCI Telecommunications Corp. v. 

AT & T, 512 U.S. 218 (1994).  

With enactment of the Telecommunications Act of 1996, the FCC turned its attention to streamlining 

regulation of local telephone service. Telecommunications Act of 1996, Pub. L. No. 104-104, 110 

Stat. 56, codified in scattered sections of Title 47 of the United States Code.  

In re Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 

11 FCC Rcd. 15,499 (1996) (first report and order), aff’d in part, rev’d in part, AT&T Corp. v. Iowa 

Utils. Bd., 525 U.S. 366 (1999); In re Implementation of the Local Competition Provisions of the 

Telecommunications Act of 1996, 15 FCC Rcd. 3696 (1999) (third report and order and fourth 

further notice of proposed rulemaking), rev’d and remanded, United States Telecom Ass’n v. FCC, 

290 F.3d 415 (D.C. Cir. 2002) (rejecting the FCC’s local exchange network unbundling 

requirements as insufficiently calibrated); In re Review of the Section 251 Unbundling Obligations of 

Incumbent Local Exchange Carriers, 16 FCC Rcd. 22,781 (2001); In re Review of the Section 251 

Unbundling Obligations of Incumbent Local Exchange Carriers, 18 FCC Rcd. 16,978 (2003) (report 

and order and order on remand and further notice of proposed rulemaking), corrected by Errata, 18 

F.C.C.R. 19,020 (2003), vacated and remanded in part, aff’d in part, United States Telecom Ass’n 

v. FCC, 359 F.3d 554 (D.C. Cir. 2004) (the FCC should not implement statutory requirements that 

incumbent carriers cooperate with market entrants when the Commission determines that adequate 

marketplace competition exist); FCC v. Midwest Video Corp., 440 U.S. 689 (1979)(FCC mandated 

public access channels on cable television networks constituted unlawful common carrier duties). 

See also, Earthlink, Inc. v. FCC, 462 F.3d 1 (D.C. Cir. 2006) (affirming the FCC’s decision to 

forbear from imposing most local loop unbundling requirements on incumbent carriers); U.S. 

Telecom Ass’n v. FCC, 359 F.3d 554, 588 (D.C. Cir. 2004) (upholding the FCC’s nationwide 

decision to refrain from requiring § 251 unbundling fiber broadband elements and reversing the 

Commission’s decision not to eliminate other unbundling requirements in light if the adverse impact 

on carrier investment incentives). 

Section 160 of the amended Communications Act of 1934 authorizes the FCC to forbear (i.e., 

refrain from applying) existing regulatory requirements:  

  47 U.S.C. § 160(a)(1)-(3) (“Notwithstanding section 332(c)(1)(A) of this Act, the Commission 

shall forbear from applying any regulation or any provision of this Act to a telecommunications 

carrier or telecommunications service... if the Commission determines that (1) enforcement of 

such regulation or provision is not necessary to ensure that the charges, practices, 

classifications, or regulations by, for, or in connection with that telecommunications carrier or 

telecommunications service are just and reasonable and are not unjustly or unreasonably 

discriminatory; (2) enforcement of such regulation or provision is not necessary for the 

protection of consumers; and (3) forbearance from applying such provision or regulation is 

consistent with the public interest.”).). 

Study on future trends and business models in communication services 

181 

 
 
 
 
 
 
 
 
 
 
On the matter of VoIP service, the FCC wants to impose only those voice telephony regulation the 

Commission considers necessary to safeguard consumers. The FCC does not want to specify 

whether VoIP is a telecommunications service, or an information service, because this decision 

would constrain its flexibility. If the FCC applied the information service classification, VoIP 

operators would assert that the Commission cannot impose universal service funding obligations 

and other common carrier duties. If the FCC applies the telecommunications service, it would have 

to apply common carrier duties subject to incremental deregulation allowed by Sec. 160 of the 

Telecommunications Act of 1996. 

Vonage Holdings is an interesting example of the FCC's continuing refusal to classify VoIP as 

either a telecommunications service or an information service. Extrapolating from the FCC 

argument accepted by the D.C. Circuit leads to the conclusion that offerors of either 

telecommunications or information services may provide telecommunications as one component of 

services offered. As such, other Title II requirements also using the verb ‘provide’ may be applied to 

interconnected VoIP without having to define its type of service. In effect, the FCC has established 

a means of regulating VoIP implementations outside of the telecommunications/information 

services dichotomy in addition to exercises of its ancillary Title I authority.” Marc Elzweig, D, None 

of the Above: On the FCC Approach to VoIP Regulation, 2008 U. CHI. LEGAL F. 489, 503 (2008).  

Vonage Holdings Corp.’s Petition for Declaratory Ruling Concerning an Order of the Min. Pub. Utils. 

Comm’n, Memorandum Opinion & Order, FCC 04-267, 19 FCC Rcd 22404 (2004), aff’d. sub nom, 

Minn. Pub. Utils. Comm’n v. FCC, 483 F.3d 570 (8th Cir. 2007). “Today, interconnected VoIP 

providers must contribute to universal service, offer access to law enforcement subject to legitimate 

wiretaps, provide E911 emergency service, support users with disabilities, protect the privacy of 

customer information they use to complete calls, offer number portability, and report service 

outages. The FCC has adopted all these requirements, which have been relatively uncontroversial, 

without ever having to decide whether certain forms of VOIP fall under the definition of 

“telecommunications service” subject to Title II of the Communications Act.” Kevin Werbach, 

Reflections on Network Transitions and Social Contracts for the Broadband World, 13 COLO. 

TECH. L.J. 45, 65 (2015). 

182 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
Annex V 

List of interviewees 

Table A.5.1 List of interviewees 

Category 

Telecom operators 

Industry organisations  

OCS providers  

NRA’s 

Industry experts 

Organisation / Person 

3 x challengers 

4 x incumbent  

ETNO 

ECTA 

3 large OCS operators 

ACM 

UKE  

ARCEP 

Bundesnetzagentur 

CMT 

Ficora 

2 x telecom expert 

1 x OCS expert 

Study on future trends and business models in communication services 

183 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Program and participants of the 

Annex VI 
workshop 

Program 

The program of the workshop is provided in Table 1 below. 

Table A.6.1 Workshop program 

Time 

09:00 

Reception, coffee / tea 

09:30 

Start of program, welcome 

09:40 

Main current findings from the project & discussion 

 

(How) do ECS and OCS compete? 

  Market developments since 2005; 

 

Impact on ECS KPI’s; 

  Does everybody play by the same rules? 

11:00 

Short break 

11:15 

Continue main current findings & discussion 

  Analysis of ECS and OCS business models. 

12:30 

Lunch 

14:00 

Introduction of hypotheses 

14:15 

Interactive group sessions 

15:45 

Wrap-up 

16:00 

End 

List of participants 

Table A.6.2 below lists the attendants and the organisations represented. 

Table A.6.2 List of participants 

Name 

ACUNTO, Lucia D’ 

ARMENGOL TORIO, Anna 

BACKER, Frederick DE  

BARA, Gyula 

BELTRÀ NAVARRO, Guillermo  

BEZEGOVA, Edita  

BLADOCHA, Aurelie  

BLONDEEL, Yves  

DE STREEL, Alexandre  

EBERL, Peter 

FERRAZZINI, Axel  

FIRLUS, Malte  

FITORI, Erzsebet  

GLOSER, Jakub  

Organisation 

TNO 

EC, DG CNECT 

Telefonica 

EC, DG CNECT 

BEUC 

Ecorys 

ECTA 

T-REGS 

Namur University 

EC, DG CNECT 

BlackBerry 

Deutsche Telekom 

ECTA 

Ecorys 

Study on future trends and business models in communication services 

185 

 
 
 
 
 
 
 
 
 
 
 
Name 

GORP, Nicolai VAN  

GRAEF, Inge  

GREENAWAY Sean 

HAZELEGER, Ellen  

HENTSCHEL, Kristin  

KLEIJN, Huib DE  

KRUSIEWICZ, Malgorzata 

LECHLER, Stefan 

LEMSTRA, Wolter  

LOGGHE, Frederic  

LÖRINCZ, Barbara  

MCCONNELL, Stephen  

NIGGE, Ralf  

NOLASCO, Inês  

NOOREN, Pieter  

PATEL, Jaymeen  

POGGI, Federico  

ROSSI, Luisa  

SHORTALL, Tony  

SOMMERBERG, Christof  

STOKKING, Hans  

VALCKE, Peggy  

Organisation 

Ecorys / e-Conomics 

KU Leuven 

EC, DG COMP 

ACM 

Bundesnetzagentur 

ACM 

EC, DG CNECT 

EC, DG CNECT 

TU Delft 

Proximus 

Gartner 

Ofcom 

Deutsche Telekom 

ECTA 

TNO 

Apple 

Fastweb 

Orange 

Telage 

QSC AG 

TNO 

KU Leuven  

WAHYUNINGTYAS, Sih Yuliana  

KU Leuven / Atma Jaya University 

186 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
Annex VII  DAMIAN value web methodology  

For the analysis of the ability and potential of telecom providers to adopt OCS-type business 
models and compete with OCS providers, we use an approach that is derived from the DAMIAN270 
method. A first step in the Damian approach is to identify the current situation (i.e., identify the 

applications and services involved and the actors that need to be considered). This step is already 

described in Chapter 2. The further steps are: 

 

to identify the business and revenue models the various actors on the field are using to 

compete; 

 

to derive the value webs for each of the actors and the related revenue models, in the form of a 

graphical representation of the way the applications are provided to users;  

 

to determine, from the value webs, the key assets that actors own and those they use from 

others. 

These steps correspond to the actions in the right-hand side of the DAMIAN process flow in Figure 

A.7.1 YYY below, aimed at building the overview of current services and revenue models. This is 

done in section 5.3 in the main body of this report. Based on this overview, we study a number of 

scenarios for telecom providers to move into OCS-style services or revenue models. The steps to 

build these scenarios correspond to the left-hand side of the figure: 

 

identify for each scenario the assets that telecom providers own to support a new revenue 

model and the assets that they would need to develop or acquire to compete with OCS offers; 

  determine whether telecom providers are limited in the use of their assets in new revenue 

models, for example by ECS-specific regulation. 

Figure A.7.1 YYY. The use of the DAMIAN value web approach for the analysis of telecom and OCS 

business models. 

The outcome of this analysis (in section 5.4) is an overview the (potential) ability of ECS providers 

to move into OCS-style services and revenue models, based on the assets they have available and 

their ability to leverage these. In our overview, we consider both intrinsic differences in assets that 

270   http://publications.tno.nl/publication/34611843/NhocfJ/TNO-2014-R11482.pdf. 

Study on future trends and business models in communication services 

187 

 
 
 
 
 
 
 
 
 
 
                                                           
come from differences in technology, business and market backgrounds and differences that may 

be introduced by ECS-specific regulations. This helps to provide insight in the influence of ECS-

specific regulation on the competition between ECS providers and OCS providers and the potential 

effect of abolishing specific regulation. 

188 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
Annex VIII  SDN & 5G 

Two new technology developments that are of interest in the area of this study are SDN/NFV and 

5G. This annex provides an overview of these developments, in particular in regard to this study. 

SDN/NFV can offer flexibility with regard to QoS differentiation 

Two major technologies that are currently being studied and trialled by infrastructure providers are 
Software Defined Networking (SDN) and Network Function Virtualisation (NFV)271,272.  

Software Defined Networking is about network programmability: taking the control layer out of the 

physical switching equipment and putting this in a centralized software environment, possibly using 

a cloud environment. This allows making all control decisions over packets traversing the network 

at a central location. Doing so brings two major benefits. The first is that a central location can have 

the overview of the entire network (or part thereof within one administrative domain), and thus make 

optimized routing decisions. Such a centralised solution will also allow a single point of access for 

services and applications to interact with the network. The second main advantage is that a 

centralized software control layer allows for more flexibility. Implementing new functionality currently 

needs updates and configuration of all the switches, possibly directly impacting the hardware, 

making this a cumbersome process. SDN allows for a centralized change in software, possibly only 

at the application level. This allows for much more flexibility, as software development can have 

shorter timelines than hardware replacement and making changes at one central place is easier 
than making changes at many places throughout the network273.  

The development of SDN and NFV is a global effort, with major contributions from telecoms and IT 

vendors and operators. There are a number of dedicated industry fora which focus on the 
development of open-source software, such as OPNFV274 and openstack275. Others focus on 
standards, such as the Open Networking Foundation276. The ETSI NFV Industry Specification 
Group has a prominent role in coordinating and consolidating the global development work, 

captured in a first suite of specifications released in early 2015. Figure A.7.1 sketches a high-level 

architecture for SDN and NFV.  

271   http://blog.altran.es/telecomunicaciones-media/are-telecom-operators-adopting-sdn-nfv/. 
272   http://www.telecomasia.net/content/nfv-and-sdn-adoption-remains-strong-despite-obstacles. 
273   As such, it is very comparable to the concept of Intelligent Networking (IN) in telephony networks, IN having the same 

concepts (centralisation and software-isation) and the same benefits. 

274  https://www.opnfv.org/. 
275  https://www.openstack.org/. 
276  https://www.opennetworking.org/. 

Study on future trends and business models in communication services 

189 

 
 
 
 
 
 
 
 
 
 
 
                                                           
Figure A.8.1 Software Defined Networking depicted in three layers 

Source: TNO277. 

It should be mentioned here that different bodies have different focal points and often also different 

terminologies. The figure does not attempt to capture the richness and subtleties of the SDN and 
NFV world. It draws on concepts presented in white papers by the Metro Ethernet Forum278,279 and 
ETSI NFV280281.  

SDN offers significant advantages in distributed data centres. Distributed data centres often have a 

meshed network, with different routes between the various distributed nodes and locations. SDN 

allows optimizing traffic flows, rerouting traffic as capacity and demand dictate. Based on a 

complete traffic overview of the entire network, the link utilisation can be very high. E.g. link 
utilisation can go from a normal 30% / 50% up to near 100%282283. In large distributed data centres, 
this is an enormous benefit. Besides this, SDN can also increase the robustness, allowing real-time 

rerouting of traffic in case of link failures, and prioritizing more important traffic. 

Where SDN is about taking the control of the core routing functions and centralise this in a software 
layer, Network Function Virtualisation (NFV284) is about taking all kinds of other network functions 
and virtualising these, i.e. centralising them in a software layer. Networks contain all kinds of 

functions beyond basic routing, such as Network Address Translation (NAT), Access Control, 

Firewalling, Deep Packet Inspection (DPI), Caching, etc. Current use cases for NFV are about 
virtualising Customer Premises Equipment (CPE, i.e. ‘modem’) and virtualised DPI285. The main 
advantages of NFV are in costs and manageability. The costs of implementing and managing 

functions over time are to be much lower when doing this at a centralised location in software, 

compared to doing this distributed in the network hardware itself. Still, NFV has yet to be 

implemented and deliver on its promises.  

277   Ref SMART interop report. 
278  http://www.metroethernetforum.org/Assets/White_Papers/Carrier_Ethernet_and_SDN_Part_1_-

_An_Industry_Perspective_08-14-14.pdf. 

279  http://www.metroethernetforum.org/Assets/White_Papers/Carrier_Ethernet_and_SDN_Part_2_-

_Practical_Considerations_09-14-14.pdf. 
280  http://portal.etsi.org/NFV/NFV_White_Paper.pdf. 
281  http://portal.etsi.org/NFV/NFV_White_Paper2.pdf. 
282   Jain, S., Kumar, A., Mandal, S., Ong, J., Poutievski, L., Singh, A., & Vahdat, A. (2013, August). B4: Experience with a 

globally-deployed software defined WAN. In ACM SIGCOMM Computer Communication Review (Vol. 43, No. 4, pp. 3-14). 
ACM. 

283   http://entuity.com/software-defined-networking-now-never-dont-know-a-10-part-series-part-1/. 
284   https://portal.etsi.org/nfv/nfv_white_paper.pdf. 
285   http://www.fi-athens.eu/program/sessions/nfv-hype-towards-actual-implementation-and-deployment. 

190 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
                                                           
If we compare this to the current telecom operators, the main question is how their infrastructure 

would benefit from SDN and NFV. 

When looking at SDN, the main benefits it currently brings in data centres is better utilisation of core 

infrastructure and more flexibility in dealing with various traffic priorities. The first advantage is 

certainly beneficial to Telecom operators, as they have large core infrastructure. But, this core 

infrastructure is not a core asset of Telecom operators in the value web, as different players in the 

value web each have their own core infrastructure. The access network is a main core asset for 

Telecom operators, but the access network is characterised by a single bottleneck link between 

network and user, i.e. the DSL connection, DOCSIS connection, 4G connection, etc. On this link, 

there are no alternatives, there is no high link utilisation to be achieved: the user decides what 

traffic is generated here through the use of his or her (Internet) services. SDN does not help 

achieve high efficiency here, smart routing does not get you around the single bottleneck link in the 

access, although it does provide capabilities in how services can use the bandwidth that is 

available. 

The second advantage is more flexibility and programmability. SDN can certainly enable traffic 

differentiation, in real-time. Currently, service differentiation for specific specialised services is 

realised through specially configured managed connections, allowing for example ECS telephony 

traffic or IPTV traffic to have a dedicated bandwidth. SDN would allow for applying prioritisation in 

real-time. This would allow for voice or video traffic from a variety of applications, including ECS 

and OCS, to receive priority treatment. To provide end-to-end managed traffic will however require 

agreement between the service providers involved. Either there is enough bandwidth and no 

prioritisation is necessary, or there is a bandwidth bottleneck. In case of a bottleneck, prioritising 

certain traffic will also mean de-prioritising other traffic. This can thus lead to differentiation, giving 

more important or real-time services right of way compared to other services.  

When looking at NFV, the main benefit this should bring is cost reduction through optimisation and 

improved flexibility. At first, With NFV you can do the same as you currently can, but optimise the 

way you do it. Although the cost-reduction it provides is certainly worthwhile for telecom operators 

to pursue, it does not change the role of their assets in the value web. On the other hand, NFV can 

offer improved flexibility. As network functions are no longer built into the distributed (hardware) 

infrastructure, changes to such functions only have to be made centrally. Also, as these network 

functions are now carried out in a software layer, this allows creating interfaces so that different 

functions can be applied to different situations. Basically, this makes it possible to have third parties 

to choose and even run their own network functions on top of the basic connectivity provided by the 

underlying network. As such, this may change the current wholesale services as offered by the 

owners of the current physical infrastructure. It enables other providers to use such new wholesale 

services and tailor their own offering. As such, using NFV for new wholesale services can lead to a 

modernised version of VULA, with more differentiation and flexibility.  

The main question is if this would change the dynamics in the value web. If telecom operators are 

able to use such new wholesale services to extend their reach, for example allowing them to 

become pan-European access providers, how does this affect the value web? Telecom operators 

will have an increased scale, and potentially a few large pan-European providers could emerge. 

Still, this will only partly help in the competition with OCS providers, as the service packages offered 

based on the pan-European scale will remain the same as they are now on a national level. On the 

one hand, offering services pan-European not only requires the telecommunications infrastructure 

for such services. It also requires many other things to be arranged: having local content, doing 

local marketing, arranging for customer support including service engineers, having all business 

relations with wholesale providers, doing IT integration in each country for all supporting processes, 

Study on future trends and business models in communication services 

191 

 
 
 
 
 
 
 
 
 
 
etc. And, becoming a pan-European access provider may give certain benefits of scale, this is 

mainly about Telco-Telco competition within the access market. Becoming a pure white label 

access provider in a country does not give many competitive advantages, becoming an actual 

competitor in a local market will probably require adding more value. Nonetheless, offering such 

(new) access services does not significantly change the interaction on the service level between 

telecom operators and OCS providers. 

To further put this in perspective, SDN and NFV are relative young technologies. Telecom 

operators are currently doing trials with these technologies, but large roll-outs have not yet been 

planned. Similar to the introduction of Intelligent Networking in the ‘90s, this may take quite some 

time, as the business cases and real benefits of these new technologies are yet to be discovered. 
They are still in the early phases of the hype cycle286, and the real tangible benefits in the telco-
space are yet to be realised on a large scale. 

5G incorporates SDN/NFV for more network flexibility in mobile networks 

5G is the term for the next generation mobile network technology, expected to be available from 
2020 forwards287,288. It is the natural successor to the current 4G mobile technology. Part of the 5G 
suite of technology is evolution, bringing more bandwidth and capacity, especially in the upstream 

direction, lowering delays and lowering the energy requirements for devices in using the network. 

This will enable higher quality video streaming, more real-time applications such as monitoring and 

control, and enabling networked sensors to run for long periods, i.e. years, without charging. On the 

other hand, 5G also promises more revolution. Multiple access technologies, both cellular and non-

cellular technologies such as Wi-Fi, can be used simultaneously, thereby increasing the robustness 

and reliability of the access services delivered. The 5G network can also be used for applications 

requiring high reliability, such as in healthcare, automotive and emergency services.  

Furthermore, 5G incorporates virtualisation technologies such as SDN and NFV, and other similar 

technologies such as Mobile Edge Computing (MEC, i.e. placing general purpose processing and 

storage capacity at the edge of the network). Currently, service providers such as Netflix do extend 

their own infrastructure towards the edges of the network, preferably having points of presence at 

each large access provider, to achieve the desired level of performance. By extending their core 

infrastructure, they are less reliant on the infrastructure of others and can thus to some extend 

guarantee a certain quality to their users. With 5G, the network infrastructure is playing into this 

trend. By using technologies such as SDN and NFV and MEC, this will allow services to ‘control’ 

the network towards the edges. For OCS service providers such as Microsoft/Skype this would 

mean that, instead of rolling out their infrastructure to the edges of the network, they could use the 

generic computing platforms offered by 5G providers. This would bring their services even closer to 

the edge than is the case today, allowing more assurances in offering quality services. Even though 

a 5G provider would typically have their own new 5G radio access, their core infrastructure would 

allow for multi-tenancy, i.e. offering tailored network services for all kinds of services to all kinds of 

providers.  

5G is also about developing a new ecosystem for mobile services. Many functions, such as 

authentication/authorisation, payments, security, identity, etc., can be supported in the network. 

But, currently, ecosystems for such things are already (being) developed by providers of OTT 

services, separate from the network. The OTT approach to innovate in these areas separate from 

286   http://lightmesh.com/blog/riding-the-hype-curve. 
287   https://5g-ppp.eu/wp-content/uploads/2015/02/5G-Vision-Brochure-v1.pdf. 
288   https://www.ngmn.org/uploads/media/NGMN_5G_White_Paper_V1_0.pdf. 

192 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
the network has proven very successful and it remains to be seen whether this pattern will be 

changed in the foreseeable future. 

As such, 5G is in part an evolution in networking, offering higher data rates, as well as lower data 

rates in support of IoT, higher reliability and lower delays. These things will certainly be used at the 

service level, but in much the same way as current networks are used by current services. 5G also 

incorporates changes in the network paradigm through virtualisation, but as explained above with 

respect to SDN and NFV, the question remains to what extend this will influence the dynamics in 

the value web. It may mean that the value of the access network increases, and thus that telecom 

operators add more value in the value web. At the same time, it may not change the dynamics in 

the playing field on the service level for communication services. 

Study on future trends and business models in communication services 

193 

 
 
 
 
 
 
 
 
 
Annex IX  A basic model 

Below we present a basic approach for modelling revenues, profits and consumer utility in the 

telecom sector. It is based on the principles of a standard Cournot model but is adapted to capture 

complementary products (such as subscriptions and voice calls) and associated two-part tariff 

pricing strategies. Next we explain how the model can be adapted to capture more telecom specific 

features such as the interaction of fixed and mobile markets through call termination, a growth in 

GDP, a gradual increase in competition between operators, and the rising popularity of OCS. 

A basic model  

For total revenues (𝑇𝑅) we distinguish between Voice Revenues (𝑉𝑅), Internet access or data 

Revenues (𝐼𝑅), and Other Revenues from TV, Cloud, etc. (𝑂𝑅).  

1 

𝑇𝑅 = 𝑉𝑅 + 𝐼𝑅 + 𝑂𝑅 

VR comprises of Subscription Revenues (𝑆𝑅) and voice and SMS Traffic Revenues (𝑇𝑅).  

2 

𝑉𝑅 = 𝑆𝑅 + 𝑇𝑅 

𝑆𝑅 equals the number of subscriptions (𝑆) times the subsection fee (𝑓) 

3 

𝑆𝑅 = 𝑆 × 𝑓 

𝑇𝑅 equals the amount of traffic (𝑇) times the price per minute/message (𝑝) 

4 

𝑇𝑅 = 𝑇 × 𝑝 

Following the literature on two-part tariff pricing there is a complementarity between 𝑆𝑅 and 𝑇𝑅 (see 

section 2.3.1). To capture this complementarity we model two markets that are interrelated: a 
market for calls and a market for subscriptions289.  

In the traffic market the relation between price for traffic 𝑝 and demand for traffic 𝑇 is described the 

following linear function:  

5 

𝑝 = 𝛼 − 𝛽𝑇  

The price for traffic that results in the market (𝑝∗) is a function of demand for traffic (5), the marginal 
costs of traffic (𝑀𝐶𝑇) and the intensity of competition in the market for traffic (𝑛). In a standard 
Cournot model 𝑛 stands for the number of suppliers and 𝑝∗ would be as follows:290 

6 

𝑝∗ =

1

𝑛+1

𝛼 +

𝑛

𝑛+1

𝑀𝐶𝑇 

The number of calls and messages 𝑇∗ can be found by solving 5 for 𝑝∗.  

289   We follow the logic of the impact assessment accompanying the Art. 7 decision of the on MTR and FTR by the Dutch 
regulator ACM; see the reverence to Annex D and E at https://www.acm.nl/nl/publicaties/publicatie/11831/Besluit-
marktanalyse-vaste-en-mobiele-gespreksafgifte-2013-2015/. 

290   See http://www.sjsu.edu/faculty/watkins/oligopoly.htm for an elaborate explanation of the algebra. 

Study on future trends and business models in communication services 

195 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
We note that the degree to which prices reflect marginal costs increases with the intensity of 

competition. In a monopoly situation where n=1, the degree to which (changes in) costs are 
reflected in 𝑝∗ is equal to ½ and the degree to which exogenous demand shocks (a change in 𝛼) 
are reflected in 𝑝∗ is equal to ½ as well. When the market is highly competitive and 𝑛 = ∞ (changes 
in) marginal costs are fully reflected in 𝑝∗ and demand shocks are of no influence291. 

Profits in the market for traffic 𝜋𝑇

∗ equal  

7 

𝜋𝑇

∗ = 𝑇∗ × (𝑝∗ − 𝑀𝐶𝑇) 

Demand for subscriptions can be described by a similar formula as 5, but we introduce an 

interdependency with the outcomes in the market for voice calls. More specially, the demand for 

subscriptions is a positive function of the consumer surplus (𝐶𝑆) realised in the market for voice 

calls. Consumer surplus equals the utility enjoyed from consumption 𝑈 minus the money paid for 
the service (𝑇∗ × 𝑝∗).  

Total utility from making calls (𝑈𝑚) is a positive function of number of minutes called (𝑇∗). Total 
consumer surplus of the making calls (𝐶𝑆𝑚) is a function of 𝑈𝑚 minus the money paid ( 𝑇∗ × 𝑝∗). 
The consumer surplus from receiving calls (𝐶𝑆𝑟) is a function of the number of calls received. For 
the analysis we assume a closed network in which (at the aggregate level) the number of calls 
made equals the number of calls received, equals 𝑇∗.  

As such, the consumer surplus from making calls equals 

8 

𝐶𝑆𝑚 = 𝑈𝑚(𝑇∗) − (𝑇∗ × 𝑝∗) 

The consumer surplus from receiving calls equals 

9 

𝐶𝑆𝑟 = 𝑈𝑟(𝑇∗) 

The relation between subscription fees 𝑓 and demand for subscriptions 𝑆 is described by the 

following linear function: 

10  𝑓 = 𝑎(𝐶𝑆𝑚 + 𝐶𝑆𝑟 + γU𝑥) − 𝑏𝑆  

Where U𝑥 stands for utility enjoyed from being able to make and receive calls (without actually 
having made or received them). This factor can capture network effects by making it dependent on 
the total number of subscriptions292.  

The subscription fee that results from the market (𝑓∗) is a function of demand for subscriptions (10), 
the marginal costs of subscriptions (𝑀𝐶𝑠) and the intensity of competition in the market for 
subscriptions (𝑚).  

11 

𝑓∗ =

1

𝑚+1

𝑎(𝐶𝑆𝑚 + 𝐶𝑆𝑟 + γU𝑥) +

𝑚

𝑚+1

𝑀𝐶𝑠 

291   We note that under Bertrand competition, 𝑛 can approach ∞ already with 2 suppliers if they both offer completely identical 

services and end-users are not experiencing any search and switching costs See 
https://en.wikipedia.org/wiki/Bertrand_competition#Bertrand_competition_versus_Cournot_competition for an excellent 
description of the difference between Cournot and Bertrand competition. 

292   For the purpose of explaining the model here, we refrain from showing the mathematics here. In a model that is rather 

tsimilar to the one explained here, the Dutch regulator ACM (see footnote 289) has incorporated the network effect.  

196 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Where the supplier experiences lower costs of a subscription when the average profits from traffic 

(per subscription) increase. 

12 

𝑀𝐶𝑠 = 𝐶 −

𝜋𝑇
𝑆

The number of subscriptions sold 𝑆∗ can be found by solving 10 for 𝑓∗.293  

We note that the markets for traffic and for subscriptions are interrelated (complementary) through 

10 and 12. The model shows the basic logic of a two-part tariff model: if the price of traffic goes 

down, the price of a subscription goes up. This is also referred to as a Waterbed Effect. In the 

model this effect is captured by two mechanisms: 

M.1. 

If  prices  of  traffic  go  down,  the  utility of  traffic and  the  willingness pay  for  subscriptions  go 

up. This translates into an upward shift of the demand curve and thereby into higher prices, 

subject to the degree of competition in the market for subscriptions; 

M.2. 

If revenues from traffic go down, the net costs of a subscription go up. This translates into 

higher prices, subject to the degree of competition in the market for subscriptions.  

Extensions of the model  

The basic model can be used for analysing the impact on revenues of a change in termination 

rates. For example, ACM follows the basics of the above model for assessing the impacts on 

prices, profits and consumer surplus accompanying the Art. 7 decision of the on MTR and FTR by 
the Dutch regulator ACM294. ACM has further extended the model. They modelled an interaction 
between the fixed and mobile sector by introducing fixed and mobile termination rates in the cost 

equations of mobile and fixed operators and accounting for (cross sector) network externalities in 

the demand function for subscriptions.  

The basic model can also be used to model the impact of a gradual or sudden increase in 

competition. For example, by letting 𝑚 in equation 11 grow gradually over time one can model a 

gradual increase in the competition in the market for broadband. By letting 𝑛 in equation 6 grow 

gradually over time, one can model a gradual increase in competition in the market for traffic (e.g. 

as a result of C(P)S competition). Similarly, the rising popularity of OCS can be simulated by letting 

𝑛 in equation 6 grow. In fact, the rising popularity of free-of-charge OCS like WhatsApp can be 

modelled by setting 𝑛 = ∞. The strategic response by operators to adopt a flat fee pricing policy 
can be modelled by setting 𝑝∗ equal to zero the model then automatically calculates the 
corresponding subscription fee 𝑓∗. 

The impact of a change in GDP can in theory also be modelled. This requires modelling an income 

effect in equations 5 and 10 by making the intercepts of these functions with the vertical axis a 

function of GDP. Without further empirical research it is however not possible to determine the size 

of the respective coefficients.  

Another problem with the modelling approach is that is difficult to account for a possible 

autonomous shift in the preference of end-users from fixed to mobile voice services. 

Modelling the counterfactual  

We take the ACM model as a starting point and make the necessary adjustments. We note that this 

model only allows for modelling the fixed and mobile voice markets. It does not allow for 

incorporating SMS and data services. As such the modelling approach is limited as it cannot 

in fact 10 and 11 should be solved simultaneously because of 12. 

293  
294   See the reverence to Annex D and E at https://www.acm.nl/nl/publicaties/publicatie/11831/Besluit-marktanalyse-vaste-en-

mobiele-gespreksafgifte-2013-2015/. 

Study on future trends and business models in communication services 

197 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
account for the potential substitution of text for voice or the rising share of data revenues in the 

overall revenues. The first effect we ignore as it is a (partial) clawback effect. The second effect is 

not a problem for the analysis of the fixed market as the data clearly distinguishes between 

revenues from traffic, voice subscriptions and broadband subscriptions. For the mobile market the 

second effect is a problem as the data only distinguishes between voice related revenues (i.e. 

aggregate figures on traffic and subscriptions) and data revenues. For practical reasons we treat 

data revenues as subscription revenues and the rest as traffic related revenues. Indeed this is a 

limitation of the modelling approach, notably because of the increasing share of data services in the 

mobile service package. On the other hand, the (strong) rise in data consumption in terms of MB 
downloaded only translates for a small fraction in increasing prices for broadband subscriptions295. 
This mitigates the problem for our analysis as it implies that the statistics on data revenues may 

serve as a proxy for the development of subscription revenues.  

ACM has calibrated the model with country specific parameters in terms of the level of prices, the 

volume of traffic and the number of subscriptions to resemble the initial situation in the Netherlands. 

The model then calculates how these parameters evolve in response to a change in the level of 

fixed and mobile termination rates, subject to parameters that are not country specific and remain 

exogenous. The values for these factors are not country specific as they are based on international 

empirical academic research.  

These non-country specific variables concern the elasticity of demand for calls and for 

subscriptions, the size of network externalities, the mark-up of prices over costs in the market for 

voice calls (i.e. the cost-pass through), and the size of the waterbed effects. With ACM’s model 

incorporates both effects M.1 and M.2. 

M.2 is embedded in an equation governing the price at t=1 as a function of the price at t=0. The 

coefficient of M.2 is a variable, just as the coefficient governing the cost-pass through in the market 

for traffic. Its value can vary from 0.5 to 1. By choosing a level for the coefficient, ACM assumes a 

level of competition in the Dutch market. We make this coefficient dependant on the degree of 

competition. We estimate this degree of competition on the basis of data on average operating 

expenses in the EU as reported by Eurostat and the GSMA. We know from equation 6 and 11 that 

the revenue/price ratio equals n/(n+1) which allows us to get us to deduct the degree of competition 

n. We note that this is an indication of the overall/average level of competition in the market for 

traffic and subscriptions. We assume that competition in the market for traffic is initially the same 

than in the market for subscriptions. We assume that the degree of competition is gradually 

increasing in both markets as a result of regulatory measures, auctions, and other exogenous 

events (see section 3.2.1). As of 2010 we let the competition n in the market for traffic grow 
exponentially towards infinity, thereby resembling the rising popularity in OCS. This results in an s-
shaped development path of the term n/(n+1) approaching 1.  

M.1 (measuring the responsiveness of the demand for subscriptions in response to lower calling 

prices) is embedded in the equation of demand for subscriptions and its coefficient is fixed and set 

equal to the slope of the demand curve b. We allowed this coefficient to be between 0 and the 

slope of the demand curve b. 

Rather than further recalibrating the model, we left the model as it was (i.e. resembling the 

Netherlands as it was in 2010). Next we plugged in the values for EU average termination rates and 

295   For example the monthly price for Internet access services offered by the French operator Free has been stable at 
EUR29.99 for years. See Lemstra and Van Gorp (2013), “Unbundling Regulation is a necessary, but not sufficient 
condition to reach the final rung of the investment ladder’” Presented on June 7, 2013 at the Florence School of Regulation 
conference “Regulation in an Age of Convergence”.  

198 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
let the model calculate the corresponding values for traffic, subscriptions and revenues for the 

previous and the next years. Subsequently, we normalised the revenue outcomes by setting 

2005=1 as to calculate the impact on revenues in term of percentages of the revenues attainable in 

the counterfactual situation.  

For the counterfactual analysis we let n grow steadily as of 2010 at the average rate of growth 

during the period 2005-2010. I.e. we modelled the situation as if online communication services did 

not exist, assuming a gradual increase in the competition in the fixed and mobile telecom markets.  

We note that we did not model the impact of the development of GDP/cap, nor did we model a 

possible autonomous shift in end-users preference from fixed to mobile services.  

Study on future trends and business models in communication services 

199 

 
 
 
 
 
 
 
 
 
 
Annex X  Methodological note on data 
collection 

There were two challenges regarding data collection for the purpose of this study. First the data 

gathering exercise was challenging because there is a discrepancy between the data needed for 

analysis and the way the data is reported by the sources. In this particular study it was a challenge 

to separate reported revenue figures into different revenue streams (such as fixed, mobile, 

subscription, traffic and data). Another challenge was to produce forecasts in a dynamic setting 

such as today’s communication markets. As a market intelligence provider, Gartner has a proven 

methodology for dealing with these challenges.  

How to separate revenue items 

Gartner collects data separately in two “grand” classes:  

1.  Consumer Fixed Voice, Internet and Broadband Services; 

2.  Mobile Services. 

Statistics are constituted as follows: 

Fixed Voice, Internet and Broadband Services statistics  

Facilities-based carriers, especially former incumbent carriers, make up the bulk of the consumer voice, 

Internet and broadband services market in a given country. However, Gartner also counts consumer voice 

and data revenue generated by cable TV operators, ISPs and some non- facilities based operators, such 

as Internet-based service providers, virtual operators and resellers. 

Regardless of whether or not they own the underlying access lines themselves, service providers mostly 

connect to consumers using one of the following three fixed access types: 

 

 

Copper connection to the home; 

Fiber to the home (FTTH) or fiber to the premises (FTTP) combined with Ethernet over 

unshielded twisted-pair (UTP) in the last mile to a building; 

 

Hybrid fiber-coaxial (HFC) from a cable TV company. 

However, Gartner also includes other relevant access technologies that play a role in bringing voice or data 

connections to consumers, when these connections are used as a replacement for the above fixed access 

technologies. These include: 

 

 

Residential satellite-based broadband services; 

Residential fixed wireless broadband services; 

  Wireless local loop (WLL) services (used as an alternative to the public switched telephone; 

 

network [PSTN]). 

Mobile Services statistics: 

Gartner publishes a comprehensive global mobile services forecast on a quarterly basis. The parameters 

published are: 

 

 

 

Number of mobile connections; 

Average revenue per unit (ARPU); 

Total service revenue split by mobile data and mobile voice. 

These components are generally published by operators but also, to some extent, by country telecom 

regulatory bodies. 

Study on future trends and business models in communication services 

201 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following specificities apply to the components: 

 

 

Connections — The number of individual network connections at the end of a given year296; 

ARPU — a mobile operator’s average revenue per connection on an annual basis. Usage 

charges for each SIM card are calculated separately; 

 

Voice Revenue — Total revenue from cellular voice services, including the cost of connection 

and monthly access fees, if applicable; 

 

Data Revenue — The sum of messaging revenue (SMS and Multimedia Messaging Service 

[MMS]) and data-over-cellular revenue. Data over cellular is basically general-purpose mobile 

data whether charged as prepaid data, data bundled with a contract or as a stand-alone mobile 

data contract; 

 

Service Revenue — The sum of data revenue and voice revenue. 

Production of forecasts 

The forecasting process can be summarized in three steps: 

1.  Trend analysis — this is based on the historical impact of changes in market conditions. Gartner 

analyses the latest quarterly market or year-end results from CSPs and regulatory bodies around 

the world in order to review and compare data from previous quarters. This will help understand 

where changes have occurred in the market and the size of the impact on a CSP level; 

2.  Scenario planning of future changes in market conditions — this helps to identify expected 

changes in price and thus the ARPU. Forecasters are directed to develop precise assumptions 

about the future, with due consideration given to factors that could cause the forecast to stray in 

one direction or another. Forecasters are advised to consider the complete range of influences 

that could affect our numbers, including general macroeconomic conditions and exchange rate 

fluctuations; 

3.  Review — as a last step the forecast is reviewed, critiqued and revised by all those involved in 

the forecast process — both analysts and the Gartner forecasting team. 

For Consumer Fixed Voice, Internet and Broadband Services, the following methodological considerations 

hold: 

 

The consumer fixed service market model consists of three fundamental components — voice 

services, broadband access services and Internet access services — each comprising two 

further subcomponents: connections and average revenue per unit (ARPU). The two 

subcomponents (connections and ARPU) are multiplied to calculate each revenue component. 

The three components (voice services, broadband access services and Internet access services) 

are added to give the total consumer fixed service forecast. 

In its forecasts, Gartner takes into account a set of influencing factors: alternative services, regulatory and 

national policies, operator’s pricing models, technology/infrastructure. Household Connection Preferences 

are put in relation to the Total Addressable Market of Connections to forecast Voice, Broadband and Dial-

Up Connections. The number of consumer connections is determined by household connection 

preferences. These preferences are a result of: a household's propensity to use alternative services, such 

as IM, P2P voice solutions or mobile replacement; external forces, such as economic pressures and 

controlling expenses within the household; and choice of specific technology and the corresponding service 

pricing to provide connectivity into the home. Operator Business Models are put in relation to Operator 

Pricing Models to project ARPU by Connection. The operator’s business and pricing model has an impact 

on the ARPU of voice, broadband and dial-up connections in the consumer marketplace. Pricing models, 

296   Where:  
Multiple subscriber identity module (SIM) cards bearing one number count as a single connection; 
 
Two numbers associated with a single SIM card count as two connections; 
 
 
Prepaid SIM cards count as single connections provided they are in operation at the end of the year in question. 
The connection forecast includes cellular modem connections and mobile connections to connected devices (including 
media tablet devices, e-readers, portable navigation devices, media players, imaging devices and mobile gaming devices).  

202 

Study on future trends and business models in communication services 

 
 
 
 
 
 
 
 
 
 
                                                           
 
as determined by operators for their services, are dependent on competition in the marketplace, which, in 

some markets, is heavily influenced by regulatory and national policies. 

For Mobile Services, the two main forecast components that Gartner uses are ARPU and mobile 

connections. There are many reasons why the ARPU and connections may change during a quarter. For 

example, increased competition in a country may lead to operators changing their competitive strategies 

and having to start competing more heavily on price, thus reducing their prices which would lead to a 

decrease in ARPU. Also, the tendency for operators to focus on post-paid consumers, rather than pre-paid 

consumers in mature markets, generally leads to slower growth in the total number of net additions on a 

quarterly basis and could generate a higher ARPU. In addition, Gartner’s forecast logic provides a 

mechanism by which iterations of these two aspects (number of mobile connections and ARPU) can be 

altered for future years, based on the market conditions observed. 

Study on future trends and business models in communication services 

203 

 
 
 
 
 
 
 
 
 
European Commission 

Study on future trends and business models in 
communication services  
Luxembourg, Publications Office of the European Union 

2016 – 205 pages  

ISBN 978-92-79-58901-0 
doi:10.2759/829599 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
K
K
-
0
1
-
1
6
-
5
9
9
-
E
N
-
N

doi:10.2759/829599      ISBN 978-92-79-58901-0