Internet Access Spending is the market for fixed broadband and mobile access, delivered by service providers (ISPs). Fixed broadband includes wired and wireless Internet connections, delivered to a fixed location. Mobile Internet is access over cellular air interfaces generally via a 2, 3 or 4G network to mobile or connected devices that use embedded modems, dongles or data cards.
The markets for Internet Access and Internet Content are separate. Content (music, film, news and so on), as well as Access fees for company phones or corporate intranets, is not included in the market for access.
Due to new data sources and a modified calculation, the overall level of the wired broadband market was raised. Subsequently, values for the years 2011-2014 have been adjusted.
The Swiss Internet Access Market
Swisscom, Sunrise, Salt and UPC are the key players in Switzerland’s Internet Access, which is divided into two segments: fixed broadband, and mobile. All except Salt are active in both segments; Salt provides mobile access only. Access technologies include cable, xDSL and fibre-optics networks. The latter is growing fastest. Almost complete coverage (99.9%) has been reported for the overall broadband technology combination on national and rural level in Switzerland. NGA (next-generation) broadband services were available to 99.0% of all households in Switzerland and to nearly 9 in 10 (89.5%) rural households. Currently, about 10% of the 3.9 million Swiss households have a fibre-optic connection. At the end of 2015, 67 per cent of Swiss broadband households were connected through xDSL (incl. optic-fibre), versus 33 per cent via cable.
Competition to supply ever greater bandwidth has for some time been fierce, and this is likely to intensify. However, the attendant price increases (of supplying more bandwidth) are slowing. Providers are making large infrastructure investments and innovating technically to justify their relatively high prices. The providers are offering ever-higher bandwidth to accommodate user demand: at the moment, an average user increases his data volume 60% per year. For mobile users, data traffic doubles every 12 months.
Bandwidth advancements are reflected in Switzerland’s high average connection speed (16.2 Mbit/s in Q3 2015, rank 4 worldwide). Fast connectivity enables providers to follow new developments in content. In Q3 2015, 36 per cent of all Swiss broadband connections could handle 15+ Mbit/s (the minimum for streaming of 4K (Ultra HD) videos).
According to the president of Switzerland’s Federal Communications Commission (ComCom), infrastructure investments of network operators remain high. “In 2015, investments to develop fixed broadband and mobile communications infrastructure reached 2 billion CHF,” he said. “This has enabled LTE (4G) coverage of over 94% in Switzerland for all three mobile network operators.”
Nine-tenths of Swiss residents aged 14-69 access the Internet several times per week. Mobile Internet penetration reached 99 per cent in 2015. Due to the trend of second devices, we estimate that penetration will in the next few years increase to significantly more than 100 per cent. This fosters the need for fast mobile internet access. Accordingly, the use of LTE for high-speed, mobile access is advancing rapidly. LTE coverage of the Swiss population has reached 94-98 per cent (depending on the provider). Providers are currently introducing the next-generation LTE-A standard, which allows mobile bandwidths of up to 450 Mbit/s. At the end of 2015, Swisscom has already introduced 300 Mbit/s LTE-A in 28 cities.
The necessity of this is evident. In Western Europe and North America, mobile data usage is expected to multiply 6-fold by 2021. With new Voice-over-LTE (VoLTE) technology that enables faster, higher-quality voice transmission, providers will be encouraged to move phone transmission from the current 2G and 3G frequencies to faster 4G/LTE frequencies.
By 2017, Swisscom plans to shift all telephony from conventional landlines to IP (Internet based). More than half of Swisscom's customer base have already switched. Thanks to this transformation all services run via the internet - it is the basis to digitalise business and drives bandwidth requirements.
Currently, Swisscom and Ericsson coordinate and support research for the 5G standard, which is expected to be fully developed by 2019. Their research includes applications such as smart transportation, smart grid, Internet of Things (IOT) and virtual reality, which are being developed and tested with industrial partners.
Two main factors are driving Internet Access growth: increased mobile device penetration; and consumer demand for higher fixed-broadband bandwidths. Without the latter, a saturation of the mobile market should lead to receding growth in the next 5 years. As bandwidth prices for wired broadband remained stable over the last few years, consumers increasingly choose higher bandwidths. This increased average revenue per user (ARPU), especially in the cable segment (We have adjusted prior years’ figures to reflect this development).
We do not expect ever-rising ARPU for wired broadband access, as decreases in bandwidth prices are likely to offset higher bandwidth demand. The mobile-data ARPU will likely decrease over the next years, due to: increased price competition, and UPC’s recent entry into the mobile market. This cutback will be more than compensated by two factors: first, the growing number of mobile subscribers; second, technological advancements in machine-to-machine communication that is sparking remarkable growth in the mobile-data traffic. The revenue impact of this development remains to be seen. In total, we assume that Switzerland’s Internet Access market will grow to CHF 5.9 billion in 2020.
Online content trends and consumer preferences are boosting demand for higher bandwidths and faster mobile-connections. To attract new customers, and to increase ARPUs of existing customers, sizeable investments in new technologies and existing infrastructure are required. Thanks both to strong competition among providers and consumer willingness of to pay for higher bandwidths, Switzerland’s Internet Access infrastructure is among the world’s most advanced.
Mobile Internet Access is the fastest growing market segment. Users want to be flexible and access the Internet regardless of where they are. Over the next few years, we expect mobile access revenue to overtake that of the wired access. This will be driven by increasing numbers of smartphones and tablets.
A growing population, a growing number of households, and a shift in consumer preference towards online content: all these are pushing demand for faster access. Meanwhile, quality of media content is constantly improving, which also demands higher data volumes. Developments of smartphones to higher resolution and smaller size are also sparking content changes. Large increases in video content are underway, often in HD quality. Finally, there is a virtuous circle being created: higher data-volume causes Internet service providers to develop their networks, which in turn pushes providers to create content of even higher quality.
Mobile device penetration is rising steadily. The multiplicity of devices creates need for simultaneous mobile connections. Providers therefore can sell either multiple mobile connections or bundled options leading to higher revenues. Mobile Internet access in the next few years is estimated to reach penetration rates of well above 100%.
“Access to the Internet is a fundamental challenge of our time.” (Mark Zuckerberg, 2016)
Globally, Internet Access still has enormous growth potential. Tech giants like Facebook are making great efforts in this area. Their motivation is the conviction that access to the Internet is already important, and that it will only become more important. In 2013, Facebook founder Marc Zuckerberg launched Internet.org, an initiative that aims to connect all people, especially the poor and those in remote regions. This example serves to illustrate how the importance and dispersion of internet access might grow even further in the coming years.
Given relentless demand for internet access, Swiss Internet Access providers will continue to build larger, faster, more-stable networks. As user behaviour changes, Internet Access is bound to see new technology, innovative services and products on a regular basis. Big telecom players are investing heavily to prepare their networks for rising user expectations in terms of speed and stability. This development holds true for wired broadband and mobile internet.
In Switzerland, especially the demand for mobile internet is growing remarkably. This stems from increasing mobility and smartphone use, plus new forms of communication and entertainment. Not least, the “Internet of Things” (machine-to-machine technology) will drive growth in mobile Internet. Moving on from smartphones, tablets and other consumer electronics, wireless connectivity is now being implemented into to a variety of machines such as vehicles, household appliances, monitors and sensors. These machines, connected to the Internet, offer innovative new services to customers. And they will require massive growth in data transfers. Network operators will need to put even greater effort into infrastructure to increase its power and stability. This will allow rising revenues in Mobile Internet.
As demand for mobile Internet access increases, shared Wi-Fi networks will also gain importance as means of connecting to the Internet. Swisscom owns a large network of public hotspots in Switzerland that grant its customers with certain subscriptions access at no additional cost. Since this network is concentrated at highly-frequented locations, its geographic coverage is limited. Still, Swisscom has increased hotspots from 2’200 last year to a current 3’400. This rapid dispersion is a prime example of efforts being made by providers to fulfil customer expectations. Thanks to these public hotspots, consumers with lower value subscriptions benefit from faster internet connections.
UPC takes a “Shareconomy”- approach: its international Wi-Fi network “Wi-Free” can be accessed by any UPC customer who activated the service on his own device. After a pilot phase in St. Gallen, it was activated on customer networks in October 2014, and now more than 500’000 open homespots exist in Switzerland. All over Europe, there are about seven million open access points. All UPC users, who have registered their home network, can use these. As Wi-Free uses a second network, the private WiFi connection is not affected, and its bandwidth is not shared with Wi-Free users. So far, Wi-Free bandwidths are rather low: their sharing capacity is limited to five simultaneous users per homespot. Operating distance is also limited by low signal strength.
Because UPC operates internationally, its customers are able to use Wi-Free abroad. Networks in Austria, the Czech Republic, Hungary, Ireland, the Netherlands, Switzerland, Slovakia, Poland and Romania allow users to connect with the same credentials. This could be a valuable alternative to roaming.
Comparison to Western Europe
According to the OECD, Switzerland has the highest fixed-broadband penetration of all OECD countries, 52 per cent as of Q4 2015, versus an OECD average of 29 per cent. Switzerland’s average connection speed is one of the highest in Europe, and it should increase along with the growth of new optic-fibre networks. Switzerland’s mobile broadband penetration of 99 per cent beats the OECD average of 90 per cent, but is still lower than some OECD countries, such as Finland, Japan and Sweden.
In recent years, the Internet Access market has grown at double-digits both in Switzerland and in Western Europe. We expect growth in both regions to decrease over the next five years. The decline is likely to be more pronounced in Switzerland than in Western Europe. Market saturation and competition will cause that slowdown.