Internet Access Spending

Expansion of high-speed networks opens new data-based business opportunities with the Internet of Things.

Segment definition

Internet Access Spending is the market for fixed network-broadband and mobile access, delivered by Internet service providers (ISPs) such as Swisscom and UPC.

Fixed network-broadband includes wired and wireless Internet connections at a fixed location. Mobile Internet, on the other hand, is accessible over cellular air interfaces via 3G, LTE (4G) or soon 5G networks on mobile or connected devices using embedded modems, dongles or data cards.

Since the market for Internet access and Internet content are separate, neither entertainment content such as music or films nor access fees for company telephones or intranets are included in the calculation of the Internet access market.

In 2017, there were 46 broadband connections per 100 inhabitants in Switzerland - the highest density worldwide.

Business innovation

Over the past ten years, the usage behaviour of our society has changed dramatically. Due to the introduction and distribution of powerful smartphones, which have to process ever-increasing amounts of data, the demands on mobile networks have also steadily increased. For this reason, telecom providers and their partners have been working for quite some time now on the next generation of mobile phones suitable for the mass market. The fifth generation, 5G, will bring about far-reaching changes to Switzerland by 2020. The technology will open up several new opportunities to its user base but will also increase the radiation exposure, which can have consequences on our health.

The increased speed and capacity 5G offers, as well as the reduced delay, will make a variety of applications for private users as well as industry and public services possible. Thanks to the faster transmission of data through 5G, self-driving cars can gather and analyse information in realtime, thereby enabling calculation of the route, braking or speed for each vehicle simultaneously. The low latency of 5G will help to identify dangerous situations and exchange data with other road users. One of the goals: smoother and even safer traffic. Also thanks to its reduced latency and faster data transfer, 5G will lead to completely new applications and user experiences in the field of virtual reality, for example in the area of telemedicine. By using a virtual reality headset, haptic gloves and virtual robot twins on site, the surgeon can operate without being physically present in the operating room.

5G technologies and standards are still under development. However, the providers Swisscom, Sunrise and Salt, together with their partners, have already conducted various tests. Since July 2018, providers can apply for 5G network frequencies. The introduction of 5G throughout Switzerland is expected in 2020. 5G-ready smartphones should be on the market by 2019.

The complete linkage of our society, from smartphones to household appliances or even entire production facilities, requires different data transmission rates and capacities. Besides 5G, broadband networks in Switzerland are also being expanded with the latest technologies to enable nationwide broadband coverage at top speeds. In the coming years, Swisscom will be focusing on fibre to the street (FTTS) with bandwidths of up to 500 Gbit/s.

“It’s not the aim of 5G to fully replace fixed broadband. For some applications such as critical IoT infrastructure, 5G is the optimal technology basis. In cities with high density however, the availability of fixed networks is necessary to meet the increasing capacity requirements.”

Martin Vögeli, Head of Group Strategy & Board Services, Swisscom AG

The Swiss Internet access spending market

Market overview

The Swiss Internet access market consists of wired broadband and mobile access. In 2017, wired broadband grew by 10.2% and mobile access declined by 2.8%. The overall market grew by 5.0% to a total of CHF4860 million.

The wired broadband market comprises various technologies such as cable, xDSL and fibreoptic networks. Switzerland, with its high-quality and extensive infrastructure, is one of the most advanced countries in this segment. However, due to the growth in mobile telephony, the downtrend in the number of fixed lines continues. In 2017, 46% of the Swiss population still had a broadband connection, the highest percentage in an OECD comparison. Transfer rates increased by 16% to 21.7 Mbps compared to the previous year, anyway fifth-fastest in the world and significantly higher than the global average connection speed of 7.2 Mbps. According to the Federal Office of Communications (OFCOM), the increased transmission rate in 2017 was accompanied by falling prices. Although prices are still above the OECD average, they are steadily declining. DSL providers continue to dominate the market: almost 70% use fibre and around 30% use cable.

The mobile market, which has grown rapidly since the advent of smartphones, is becoming slowly but surely saturated. The number of mobile communication customers remained stable year-on-year at 11.4 million. With a total population of 8.48 million, the mobile penetration rate in Switzerland was just under 135% but slightly above the European average (130%). In recent years, the invasion of smartphones has also led to a change in user behaviour. The volume of data on mobile networks rose by 55% compared to the previous year, mainly due to the increasing number of data subscriptions and today’s data-intense applications. Data usage for video already accounts for around 55% of the total and could rise to almost 75% by 2023.

In effort to cope with the enormous increase in mobile data traffic, market participants have invested large sums in the expansion of their network infrastructure: in 2017, providers Swisscom, Sunrise and Salt deployed a combined CHF 850 million to that purpose. LTE network coverage is now almost complete. Already 98 per cent of the Swiss population in urban as well as rural areas have access to 4G/LTE. And development of the next 4G+ technology is well underway.

Key players

Within Switzerland, four companies active in both the wired and mobile sectors dominate the Internet access market: Swisscom, UPC, Sunrise and Salt.

In the wired broadband market, Swisscom still dominates with a market share of almost 50%. UPC with 18.5% and Sunrise with 10.4% market shares follow in second and third place. It should be noted here that Salt only entered the wired broadband sector in early 2018, a mover which will have an impact on the market pecking order in the future.

The picture in the mobile communications market is similar to that in the wired broadband market. Here, Swisscom's market share comes to around 58%, that of Sunrise 25%, leaving Salt with 17%. Salt in particular was able to achieve year-on-year growth both in terms of subscriptions and prepaid customers. At the same time, cable operators had 150,000 mobile customers, of which more than three quarters (115,000) were UPC’s. In the longer term, they could become serious competitors in this market. Currently, CATV operators have a market share of just over 1%.

Principal drivers

New business opportunities with the Internet of Things

The number of networked devices and machines will double worldwide to ten billion within three years and then triple in the following two years. The potential for IoT goes far beyond networked cars. Other interesting areas of application include the networked home (control and monitoring), entertainment, predictive maintenance and factory automation. Telecom companies are focusing on the expansion of narrowband Internet of Things (NB-IoT) networks with corresponding flat offers for data transfer, as well as on IoT-based business models (e.g. networked supply chains/logistics, smart manufacturing, automation of workflows). The potential of IoT/M2M is huge in the telecom industry, as the number of networked devices is growing exponentially and resulting in many new business models. At present, IoT projects are in particular aimed at optimising logistics/production (e.g. avoiding downtimes) and monitoring plants/machines.

“In the area of Internet of Things we see great opportunities for B2B organisations and manufacturers. With specific product development, consulting and service providing, we can further develop our core business.”

Martin Vögeli, Head of Group Strategy & Board Services, Swisscom AG

eSIM – the new generation of SIM card

The embedded SIM (eSIM) card is becoming increasingly important and opening up new opportunities for mobile operators and manufacturers of interconnected consumer devices. eSIM is expected to help accelerate the IoT business as SIMs can be reprogrammed dynamically and remotely. eSIM cards will facilitate the switching of telecom providers, which in turn will reduce margins and act in favour of OTTs or virtual telecom. The eSIM's reach extends to new devices such as smart watches, wristbands and rings, all of which could increase the number of mobile connections. Embedding a SIM card can save up to 90% space compared to a physical card. In 2017/2018 the first devices came onto the market. These are additional devices (such as the Apple Watch) which are primarily operated with a multi-device option.

The volume of data is growing inexorably

Last year alone, mobile data volume increased by 65 percent worldwide and will continue to expand in the coming years, thereby leading to growth in both market segments. With the introduction of 5G, more and more devices will be linked together, causing a surge in data traffic. That volume plays an important role in the various segments of the entertainment and media industry, as it is no longer just a question of making Internet access available to users, but also one of providing them with the best possible service within technical limits.

Investments in network infrastructure increase

To meet the needs of different users and application areas, providers must constantly expand their broadband and mobile network infrastructure. Swisscom, Sunrise and Salt invest hundreds of millions of Swiss francs every year to improve network coverage and transmission speeds. Salt for example invests in future technologies such as dark fibre backhauling, the expansion of their fibre fixed broadband access, and new data centres. Switzerland holds top positions in many areas. The preparatory measures and ultimately the introduction of 5G will also ensure that investment in the providers' network infrastructure will continue to rise in the future.

Market growth

The usually high growth rate in the Swiss internet access market has significantly slowed. For the forecast period 2018 - 2022, we estimate that revenue in the overall market will decrease at a compound annual growth rate (CAGR) of -0.1% to a total of CHF4834 million.

According to our forecasts, the wired broadband market should continue to grow much slower over the next five years at a CAGR of 0.4%. The market is becoming more and more saturated, whereas the growth can be attributed primarily to the expansion of ultra-broadband networks (100 Mbit/s and more) and infrastructure investments, where Switzerland and its providers are deploying substantial sums.

In mobile communications, we assume a decline of 2.0% in 2018 due to the current strong price pressure in a highly saturated sector, as well as a decrease of the penetration rate in 2017. The market is expected to stabilise thereafter, mainly due to the introduction of the new 5G mobile standard which will lead to rapid growth in data traffic and an increasing number of networked devices. For the mobile sector, we project a CAGR of -1.0 percent through 2022.

Comparison to Western Europe

Compared to the other OECD countries, the Swiss population still has the highest percentage of broadband Internet access (46%). However, Switzerland still has some catching up to do in the area of fibreoptic connections. Although around 30% of Swiss households have an optical fibre connection (FTTH), only 8% of them actually use it. Switzerland's already high penetration rate in the fixed broadband segment means that the growth rate in this area (a CAGR of -0.1%) is well below the average for the other Western European countries (5.3% CAGR).

In the mobile communications market, Switzerland has a penetration rate of 135%, which is slightly above the European average of 130%. In the area of mobile prices, Switzerland continues to lag behind in an OECD comparison. The high market penetration, as well as the fact that mobile phone coverage in Switzerland is around 98 to 99%, means that the relative growth rate for mobile Internet access will be lower than the Western European average.