The data-driven telco: How to progress

Becoming data-driven is an evolving journey

Telcos have started on the path to leveraging data more fully but techniques, technologies and their implications are continuously emerging and evolving – posing new opportunities and challenges for the teams responsible for plotting their course.

Although somewhat overused, the “data-driven” refrain provides a banner under which the Chief Data Officer (CDO) and other teams throughout the telco can remind the organisation of the importance of the work that they are doing.  As new technologies become available and capabilities such as automation progress in their sophistication, there will continue to be a steady stream of demands on the data team from across the organisation.  There will also be an increase in demand from outside the organization as telcos begin to play in multiple new ecosystems.

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STL Partners conducted primary and secondary research to determine the current priorities for telcos that have progressed some way down the data-driven track.  During our primary research, we spoke to four Chief Data Officers (CDOs) – or equivalent – at Orange, Zain, Telefónica and Vodafone and asked them about their core focus areas in the short- and mid-term and how they were driving forward the data-driven telco agenda. Topics for discussion included:

  • Their vision and expected future strategy
  • Their current focus areas
  • The work that they are undertaking to improve organisational structure and culture
  • Their priorities for future technology roll out.

As shown in the figure below, we note that some areas of priority remain unchanged from previous years and continue to be a focus in 2023, while new ones (shown in red) are appearing on the horizon.

Priorities for the CDO and their team

Roles of data-driven telco CDO

Source: STL Partners

Priorities are evolving from being focused specifically on accessing data and other relatively discrete A3 projects, to much more strategic and organisation-wide activities. As such, the scope of the CDO role is expanding.

Table of contents

  • Executive Summary
    • Recommendations
    • Vision and strategy
    • Organisation and culture
    • Technology
    • Next steps
  • Introduction
  • Priority 1: Select the right internal focus
    • How to select the most impactful projects
    • How to maintain a pipeline of successful projects
  • Priority 2: Create a joined-up organisation
    • A joined-up organization structure
    • Promoting the data culture
    • Skill sets of the Chief Data Officer (CDO)
  • Priority 3: Delivering a useable data set
    • Building a long-term data quality practise
    • Hybrid-cloud data deployment
  • Priority 4: Building data tools for all
  • Conclusion

Related research

 

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Data-driven telecoms: navigating regulations

Regulation has a significant impact on global communications markets

Telco relationships with telecoms regulators and the governments that influence them are very important. For data-driven telecoms, telcos must now also understand the regulation of digital markets, and how different types of data are treated, stored and transferred around the world. Data-driven telecoms is an essential part of telecoms growth strategy. The massive growth enjoyed by the global tech giants, in contrast with the stagnation of growth in the telecoms industry, provides a significant lure for telcos, to harness data and become digital businesses themselves. Of course, this necessitates complying with digital regulations, and understanding their direction.

Additionally, by participating in digital markets, and digitising their own systems, telcos are necessarily working with and sometimes competing against the global digital, for whom this legislation is essential to their ongoing business practices. Political reaction against some practices of these digital giants is leading to some toughened stances on digital regulation around the world, and a tarnished public perception.

Most businesses are impacted by digital regulation to some extent, but it is those most deeply embedded in digital markets that feel it the most, especially the digital hyper-scalers. What do Google, Meta, Microsoft et al need to do differently as digital regulations evolve and new standards come into play? And for telcos, apart from compliance, are there opportunities presented by new digital regulations? How can telcos and the digital giants evolve their relationships with the entities that regulate them? Can they ultimately work together to create a better future based on the Co-ordination Age vision, or will they remain adversarial with lines drawn around profit vs public good?

What is digital regulation?

The report covers two important aspects of digital regulation for telecoms players – data governance and digital market regulations.

It does not cover a third theme in digital regulation – the regulation of potentially harmful content and the responsibilities of digital platforms in this regard. This is a complex and far-reaching issue, affecting global trade agreements, sparking philosophical debates and leading to some tricky public relations challenges for digital platform providers. However, for the purposes of this report we will set aside this issue and focus instead on data governance and the regulation of digital markets which have most direct relevance to telcos in particular.

Data governance is a large topic, covering the treatment, storage and transfer of all kinds of data. Different national and regional regulatory bodies may have different approaches to data governance rules, broadly depending on where they find the balance between prioritising security, privacy and the rights of the individual, against the need for a free flow of data to fuel the growth of digital industries.

Regulation around data governance also naturally splits into two areas, one concerning personal data, and the other concerning industrial data, with greater regulatory scrutiny focused on the former. The regulation of these types of data are necessarily different because concerns about privacy only really apply to data that can be associated with individual people, although there may still be requirements around security, and fair access to industrial data. Examples of data governance regulation are the EU’s General Data Protection Regulation (GDPR) concerning personal data, and The Data Act concerning industrial data, or the Data Privacy and Protection Act in the US. All of these examples will be discussed in greater detail in the main body of the report.

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Significant types of digital regulation

Source: STL Partners

Regulation specific to policing digital markets has emerged when regulatory bodies decide that general competition law is not sufficient to serve digital markets, and that more specific and tailored rules or reparations are needed. Like other forms of competition law, this regulation aims to promote fair and open competition and curb market participants deemed to possess significant market power. Regulations of this nature are always to some degree controversial, because the exact boundaries of what constitutes significant market power have to be defined, and can be argued to be arbitrary or incorrectly drawn. Examples of this type of regulation that will be discussed in depth later in the report are the Digital Markets Act in the EU, and the Innovation and Choice Online Act in the US.

A global perspective

The market for digital services is by its nature global. Digital giants like Google, Meta, Amazon and Apple are offering a wide variety of digital services, both b2b and b2c, all over the world. Those services will be provisioned using storage, compute power, and even human workforce, that may or may not be located in the country or even region in which the service is being consumed. Thus digital regulations, especially those concerning data governance, are globally significant.

A global market

Source: STL Partners

This report places significant focus on the regulatory agendas of the European Union and the United States. This is because these are two of the most significant and influential global powers in setting trends in digital regulation. This significance is gained partly by market size – in a global market such as that for digital services, regulations that cover a large number of potential customers are going to have more weight, and the European Union has a population of roughly 447mn, while the population of the US is around 332mn. The US also maintains its significant role in setting the digital regulatory agenda by actively seeking influence and leadership, while the EU has gained influence by being one of the most proactive, and stringent, regulatory bodies in the world.

Table of Contents

  • Executive Summary
  • Introduction
  • Important trends in data governance regulation
    • Regulation of the processing, storage and use of personal data
    • Regulation of industrial data
  • Regulation of digital markets
    • The Digital Markets Act: Governing digital monopolies
    • The US approach to digital market regulation
  • A global perspective – how EU and US digital regulation trends are spreading around the world
    • The Globalisation of the EU Regulation: The Brussels Effect
    • Digital Economy Governance in the US Foreign Policy
    • Digital in the EU-US Transatlantic Relationship
    • A Patchwork of Digital Agreements in Asia
    • A New Global Framework on Cross-Border Data Flows
  • Conclusion
    • Advice for Telcos

Related research

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Four goals for the data-driven telco

Becoming a data-driven telco

There have been many case studies over the last five years demonstrating the disruption caused by “data-driven businesses”, i.e. those using insights to understand customers, automate processes, change their business models and drive new revenues. In the future, this concept will become an integral part of what it takes to compete successfully, allowing organisations to understand and run all parts of their operations, work with their customers and partners and take part in external activities in new ecosystems. This applies to telecoms operators as much as any other industry.

This research builds on a range of reports STL Partners has previously published on strategic topics related to telcos’ use of data, including:

This research turns to the practical topics of delivering on these strategic goals. The diagram below offers an overview of the drivers and barriers affecting delivery areas such as telco data management and machine learning (ML) in the short and longer term.

Drivers and barriers to being a data-driven telco

Source: STL Partners

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What capabilities should telcos develop?

Telcos are reasonably sophisticated users of data, but their particularly complex web of legacy systems requires a good deal of work around data management and governance to enable the extraction of data sets to give 360-degree view of the customer – and increasingly to provide training data for algorithms.

In the mid-term, telcos that are successful in selling IoT and becoming ecosystem players will require new A3 to deal with the increasing number of services, devices, price points and parties involved in providing service to a customer. Our research suggests that there is a range of new A3 technologies that can provide the automation and intelligence for this, as well as for the underlying data management processes.

In the longer-term, A3 will speed up decision making, impacting company strategy, new product and service creation, and customer experience. Humans will increasingly be supported by AI-, ML- and automation-powered tools in their decision-making. A similar progression will occur among competitors in telecoms, and in adjacent markets, increasing the complexity and speed of doing business. Besides integrating A3 into human workflows, working at increasing speed will depend on getting richer insights out of the available data with techniques such as small data and creation of synthetic data.

Capabilities for a data-driven telco

Source: STL Partners

 

Table of contents

  • Executive Summary
    • Capabilities telcos should develop over the medium term
    • What will telcos focus on in the mid-term?
    • Next steps
  • Becoming a data-driven telco
    • Short term drivers
    • Barriers in the short term
    • Long term drivers
    • Barriers in the long term
  • Availability of data
    • Use of data fabrics
    • Better data labelling
    • Rise of synthetic data
    • More intelligent data selection
    • Telco strategies for cloud usage
  • Equipping people
    • Augmented analytics and business intelligence
    • Decision intelligence
  • Work on governance
    • Governance across the telco
    • Agility in governance
    • Governance for AI and machine learning
    • Ethical governance
    • Improved measurement of governance
    • Governance in ecosystems
  • Index

New age, new control points?

Why control points matter

This executive briefing explores the evolution of control points – products, services or roles that give a company disproportionate power within a particular digital value chain. Historically, such control points have included Microsoft’s Windows operating system and Intel’s processor architecture for personal computers (PCs), Google’s search engine and Apple’s iPhone. In each case, these control points have been a reliable source of revenues and a springboard into other lucrative new markets, such as productivity software (Microsoft) server chips (Intel), display advertising (Google) and app retailing (Apple).

Although technical and regulatory constraints mean that most telcos are unlikely to be able to build out their own control points, there are exceptions, such as the central role of Safaricom’s M-Pesa service in Kenya’s digital economy. In any case, a thorough understanding of where new control points are emerging will help telcos identify what their customers most value in the digital ecosystem. Moreover, if they move early enough to encourage competition and/or appropriate regulatory intervention, telcos could prevent themselves, their partners and their customers from becoming too dependent on particular companies.

The emergence of Microsoft’s operating system as the dominant platform in the PC market left many of its “partners” struggling to eke out a profit from the sale of computer hardware. Looking forward, there is a similar risk that a company that creates a dominant artificial intelligence platform could leave other players in various digital value chains, including telcos, at their beck and call.

This report explores how control points are evolving beyond simple components, such as a piece of software or a microprocessor, to become elaborate vertically-integrated stacks of hardware, software and services that work towards a specific goal, such as developing the best self-driving car on the planet or the most accurate image recognition system in the cloud. It then outlines what telcos and their partners can do to help maintain a balance of power in the Coordination Age, where, crucially, no one really wants to be at the mercy of a “master coordinator”.

The report focuses primarily on the consumer market, but the arguments it makes are also applicable in the enterprise space, where machine learning is being applied to optimise specialist solutions, such as production lines, industrial processes and drug development. In each case, there is a danger that a single company will build an unassailable position in a specific niche, ultimately eliminating the competition on which effective capitalism depends.

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Control points evolve and shift

A control point can be defined as a product, service or solution on which every other player in a value chain is heavily dependent. Their reliance on this component means the other players in the value chain generally have to accept the terms and conditions imposed by the entity that owns the control point. A good contemporary example is Apple’s App Store – owners of Apple’s devices depend on the App Store to get access to software they need/want, while app developers depend on the App Store to distribute their software to the 1.4 billion Apple devices in active use. This pivotal position allows Apple to levy a controversial commission of 30% on software and digital content sold through the App Store.

But few control points last forever: the App Store will only continue to be a control point if consumers continue to download a wide range of apps, rather than interacting with online services through a web browser or another software platform, such as a messaging app. Recent history shows that as technology evolves, control points can be sidestepped or marginalised. For example, Microsoft’s Windows operating system and Internet Explorer browser were once regarded as key control points in the personal computing ecosystem, but neither piece of software is still at the heart of most consumers’ online experience.

Similarly, the gateway role of Apple’s App Store looks set to be eroded over time. Towards the end of 2018, Netflix — the App Store’s top grossing app — no longer allowed new customers to sign up and subscribe to the streaming service within the Netflix app for iOS across all global markets, according to a report by TechCrunch. That move is designed to cut out the expensive intermediary — Apple. Citing data compiled by Sensor Tower, the report said Netflix would have paid Apple US$256 million of the US$853 million grossed by its 2018 the Netflix iOS app, assuming a 30% commission for Apple (however, after the first year, Apple’s cut on subscription renewals is lowered to 15%).

TechCrunch noted that Netflix is following in the footsteps of Amazon, which has historically restricted movie and TV rentals and purchases to its own website or other “compatible” apps, instead of allowing them to take place through its Prime Video app for iOS or Android. In so doing, Amazon is preventing Apple or Google from taking a slice of its content revenues. Amazon takes the same approach with Kindle e-books, which also aren’t offered in the Kindle mobile app. Spotify has also discontinued the option to pay for its Premium service using Apple’s in-app payment system.

Skating ahead of the puck

As control points evolve and shift, some of today’s Internet giants, notably Alphabet, Amazon and Facebook, are skating where the puck is heading, acquiring the new players that might disrupt their existing control points. In fact, the willingness of today’s Internet platforms to spend big money on small companies suggests they are much more alert to this dynamic than their predecessors were. Facebook’s US$19 billion acquisition of messaging app WhatsApp, which has generated very little in the way of revenues, is perhaps the best example of the perceived value of strategic control points – consumers’ time and attention appears to be gradually shifting from traditional social into messaging apps, such as WhatsApp, or hybrid-services, such as Instagram, which Facebook also acquired.

In fact, the financial and regulatory leeway Alphabet, Amazon, Facebook and Apple enjoy (granted by long-sighted investors) almost constitutes another control point. Whereas deals by telcos and media companies tend to come under much tougher scrutiny and be restricted by rigorous financial modelling, the Internet giants are generally trusted to buy whoever they like.

The decision by Alphabet, the owner of Google, to establish its “Other Bets” division is another example of how today’s tech giants have learnt from the complacency of their predecessors. Whereas Microsoft failed to anticipate the rise of tablets and smart TVs, weakening its grip on the consumer computing market, Google has zealously explored the potential of new computing platforms, such as connected glasses, self-driving cars and smart speakers.

In essence, the current generation of tech leaders have taken Intel founder Andy Grove’s famous “only the paranoid survive” mantra to heart. Having swept away the old order, they realise their companies could also easily be side-lined by new players with new ways of doing things. Underlining this point, Larry Page, founder of Google, wrote in 2014:Many companies get comfortable doing what they have always done, making only incremental changes. This incrementalism leads to irrelevance over time, especially in technology, where change tends to be revolutionary, not evolutionary. People thought we were crazy when we acquired YouTube and Android and when we launched Chrome, but those efforts have matured into major platforms for digital video and mobile devices and a safer, popular browser.”

Table of contents

  • Executive Summary
  • Introduction
  • What constitutes a control point?
    • Control points evolve and shift
    • New kinds of control points
  • The big data dividend
    • Can incumbents’ big data advantage be overcome?
    • Data has drawbacks – dangers of distraction
    • How does machine learning change the data game?
  • The power of network effects
    • The importance of the ecosystem
    • Cloud computing capacity and capabilities
    • Digital identity and digital payments
  • The value of vertical integration
    • The machine learning super cycle
    • The machine learning cycle in action – image recognition
  • Tesla’s journey towards self-driving vehicles
    • Custom-made computing architecture
    • Training the self-driving software
    • But does Tesla have a sustainable advantage?
  • Regulatory checks and balances
  • Conclusions and recommendations

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Big data analytics – Time to up the ante

Introduction

Recent years have seen an explosion in the amount of data being generated by people and devices, thanks to more advanced network infrastructure, widespread adoption of smartphones and related applications, and digital consumer services. With the expansion of the Internet of Things (IoT), the amount of data being captured, stored, searched and analysed will only continue to increase. Such is the volume and variety of the data that it is beyond traditional processing software and is therefore referred to as ‘big data’.

Big data is of a greater magnitude and variety than traditional data, it comes from multiple sources and can be comprised of various formats, generated, stored and utilised in batches and/or in real-time. There is much talk and discussion around big data and analytics and its potential in many sectors, including telecommunications. As Figure 1 shows, analysis of big data can give an improved basis upon which to base human-led and automated decisions by providing better insight and allowing greater understanding of the situation being addressed.

Figure 1: Using Big Data can result in richer data insights

Source: STL Partners

This report analyses how telcos are pursuing big data analytics, and how to be successful in this regard.  This report seeks to answer the following questions:

  • When does data become ‘big’ and why is it an important issue for telcos?
  • What is the current state of telco big data implementations?
  • Who is doing what in terms of intelligent use of data and analytics?
  • How can big data analytics improve internal operational efficiencies?
  • How can big data be used to improve the relationship between telcos and their customers?
  • Where are the greatest revenue opportunities for telcos to employ big data, e.g. B2B, B2C?
  • Which companies are leading the way in enabling telcos to successfully realise big data strategies?
  • What is required in terms of infrastructure, dedicated teams and partners for successful implementation?

This report discusses implementations of big data and examines how the market will develop as telco awareness, understanding and readiness to make use of big data improves.  It provides an overview of the opportunities and use cases that can be realised and recommends what telcos need to do to achieve these.

Contents:

  • Executive Summary
  • Big data analytics is important
  • …but it’s not a quick win
  • …it’s a strategic play that takes commitment
  • How is ‘big data analytics’ different from ‘analytics’?
  • Opportunities for telcos: typically internal then external
  • Market development and trends
  • Challenges and restrictions in practice
  • What makes a successful big data strategy?
  • Next steps
  • Introduction
  • Methodology
  • An overview of big data analytics
  • Volume, variety and velocity – plus veracity and value
  • The significance of big data for telcos and their future strategies
  • Market development and trends
  • Challenges and restrictions
  • Optimisation and efficiency versus data monetisation
  • Telcos’ big data ecosystem
  • Case studies and results 
  • Early results
  • Big data analytics use cases
  • Examples of internal use-cases
  • Examples of external use cases
  • Findings, conclusions and recommendations

Figures:

  • Figure 1: Using Big Data can result in richer data insights
  • Figure 2: The data-centric telco: infusing data to improve efficiency across functions
  • Figure 3: Options for telcos’ big data implementations
  • Figure 4: Telco’s big data partner ecosystem
  • Figure 5: The components of a telco-oriented big data

Apple’s pivot to services: What it means for telcos

Introduction

The latest report in STL’s Dealing with Disruption stream, this executive briefing considers Apple’s strategic dilemmas in its ongoing struggle for supremacy with the other major Internet ecosystems – Amazon, Facebook and Google. It explores how the likely shift from a mobile-first world to an artificial-intelligence first world will impact Apple, which owes much of its current status and financial success to the iPhone.

After outlining Apple’s strategic considerations, the report considers how much Apple earns from services today, before identifying Apple’s key services and how they may evolve. Finally, the report features a SWOT (strengths, weaknesses, opportunities and threats) analysis of Apple’s position in services, followed by a TOWS analysis that identifies possible next steps for Apple. It concludes by considering the potential implications for Apple’s main rivals, as well as two different kinds of telcos – those who are very active in the service layer and those focused on providing connectivity and enablers.

Several recent STL Partners’ research reports make detailed recommendations as to how telcos can compete effectively with the major Internet ecosystems in the consumer market for digital services. These include:

  • Telco-Driven Disruption: Will AT&T, Axiata, Reliance Jio and Turkcell succeed? To find new revenues, some telcos are competing head-on with the major internet players in the digital communications, content and commerce markets. Although telcos’ track record in digital services is poor, some are gaining traction. AT&T, Axiata, Reliance Jio and Turkcell are each pursuing very different digital services strategies, and we believe these potentially disruptive moves offer valuable lessons for other telcos and their partners.
  • Consumer communications: Can telcos mount a comeback? The rapid growth of Facebook, WhatsApp, WeChat and other Internet-based services has prompted some commentators to write off telcos in the consumer communications market. But many mobile operators retain surprisingly large voice and messaging businesses and still have several strategic options. Indeed, there is much telcos can learn from the leading Internet players’ evolving communications propositions and their attempts to integrate them into broad commerce and content platforms.
  • Autonomous cars: Where’s the money for telcos? The connected car market is being seen as one of the most promising segments of the Internet of Things. Everyone from telcos to internet giants Google, and specialist service providers Uber are eyeing opportunities in the sector. This report analyses 10 potential connected car use-cases to assess which ones could offer the biggest revenue opportunities for operators and outline the business case for investment.
  • AI: How telcos can profit from deep learning Artificial intelligence (AI) is improving rapidly thanks to the growing use of deep neural networks to teach computers how to interpret the real world (deep learning). These networks use vast amounts of detailed data to enable machines to learn. What are the potential benefits for telcos, and what do they need to do to make this happen?
  • Amazon: Telcos’ Chameleon-King Ally? New digital platforms are emerging – the growing popularity of smart speakers, which rely on cloud-based artificial intelligence, could help Amazon, the original online chameleon, to bolster its fast-evolving ecosystem at the expense of Google and Facebook. As the digital food chain evolves, opportunities will open up for telcos, but only if the smart home market remains heterogeneous and very competitive.

Apple’s evolving strategy

Apple is first and foremost a hardware company: It sells physical products. But unlike most other hardware makers, it also has world-class expertise in software and services. These human resources and its formidable intellectual property, together with its cash pile of more than US$250 billion and one of the world’s must coveted brands, gives Apple’s strategic options that virtually no other company has. Apple has the resources and the know-how to disrupt entire industries. Apple’s decision to double the size of it’s already-impressive services business by 2021 has ramifications for companies in a wide range of industries – from financial services to entertainment to communications.

Throughout its existence, Apple’s strategy has been to use distinctive software and services to help sell its high-margin hardware, rather than compete head-on with Google, Facebook, Microsoft and Amazon in the wider digital services and content markets. As Apple’s primary goal is to create a compelling end-to-end solution, its software and services are tightly integrated into its hardware. Although there are some exceptions, notably iTunes and Apple Music, most of Apple’s services and software can only be accessed via Apple’s devices. But there are four inter-related reasons why Apple may rethink that strategy and extend Apple’s services beyond its hardware ecosystem:

      • Services are now Apple’s primary growth engine, as iPhone revenue appears to have peaked and new products, such as the Apple Watch, have failed to take up the slack. Moreover, services, particularly content-based services, need economies of scale to be cost-effective and profitable.
      • Upstream players, such as merchants, brands and content providers, want to be able to reach as many people as possible, as cost-effectively as possible. They would like Apple’s stores and marketplaces to be accessible from non-Apple devices, as that would enable them to reach a larger customer base through a single channel. Figure 1 shows that Apple’s iPhone ecosystem (which use the iOS operating system) is approximately one quarter of the size of rival Android in terms of volumes.
      • Artificial intelligence is becoming increasingly central to the propositions of the major Internet ecosystems, including that of Apple. The development of artificial intelligence requires vast amounts of real-world data that can be used to hone the algorithms computers use to make decisions. To collect the data necessary to detect patterns and subtle, but significant, differences in real-world conditions, the Internet players need services that are used by as many people as possible.
      • As computing power and connectivity proliferates, the smartphone won’t be as central to people’s lives as it is today. For Apple, that means having the best smartphone won’t be enough: Computing will eventually be everywhere and will probably be accessed by voice commands or gestures. As the hardware fades into the background and Apple’s design skills become less important, the Cupertino company may decide to unleash its services and allow them to run on other platforms, as it did with iTunes.

Content:

  • Executive Summary
  • Introduction
  • Apple’s evolving strategy
  • Playing catch-up in artificial intelligence
  • What does Apple earn from services?
  • What are Apple’s key services?
  • Communications – Apple iMessage and FaceTime
  • Commerce – Apple Pay and Apple Wallet
  • Content – iTunes, Apple Music, Apple TV
  • Software – the App Store, Apple Maps
  • Artificial intelligence and the role of Siri
  • Tools for developers
  • Conclusions and implications for rivals
  • Implications for rivals

Figures:

  • Figure 1: Installed base of smartphones by operating system
  • Figure 2: Apple’s artificial intelligence, as manifest in Siri, isn’t that smart
  • Figure 3: Apple’s services business is comparable in size to Facebook
  • Figure 4: The services business is Apple’s main growth engine
  • Figure 5: The strength of Apple’s online commerce ecosystem
  • Figure 6: iMessage is becoming a direct competitor to Instagram and WhatsApp
  • Figure 7: Various apps allow consumers to make payments via Apple Pay
  • Figure 8: Apple Pay is available in a limited number of markets
  • Figure 9: Unlike most Apple services, Apple Music is “available everywhere”
  • Figure 10: Apple’s App Store generates far more revenue than Google Play
  • Figure 11: Apple Maps’ navigation trailed well behind Google Maps in June 2016
  • Figure 12: SWOT analysis of Apple in the services sector
  • Figure 13: TOWS analysis for Apple in the service market

Telco-Driven Disruption: Will AT&T, Axiata, Reliance Jio and Turkcell succeed?

Introduction

The latest report in STL’s Dealing with Disruption in Communications, Content and Commerce stream, this executive briefing explores the role of telcos in disrupting the digital economy. Building on the insights gleaned from the stream’s research, STL has analysed disruptive moves by four very different telcos and their prospects of success.

In the digital economy, start-ups and major Internet platforms, such as Alibaba, Amazon, Apple, Facebook, Google, Spotify, Tencent QQ and Uber, are generally considered to be the main agents of disruption. Start-ups tend to apply digital technologies in innovative new ways, while the major Internet platforms use their economies of scale and scope to disrupt markets and established businesses. These moves sometimes involve the deployment of new business models that can fundamentally change the modus operandi of entire industries, such as music, publishing and video gaming.

However, these digital natives don’t have a monopoly on disruption. So-called old economy companies do sometimes successfully disrupt either their own sector or adjacent sectors. In some cases, incumbents are actually well placed to drive disruption. As STL Partners has detailed in earlier reports, telcos, in particular, have many of the assets required to disrupt other industries, such as financial services, electronic commerce, healthcare and utilities. As well as owning the underlying infrastructure of the digital economy, telcos have extensive distribution networks and frequent interactions with large numbers of consumers and businesses.

Although established telcos have generally been cautious about pursuing disruption, several have created entirely new value propositions, effectively disrupting either their core business or adjacent industry sectors. In some cases, disruptive moves by telcos have primarily been defensive in that their main objective is to hang on to customers in their core business. In other cases, telcos have gone on the offensive, moving into new markets in search of new revenues.

Increasingly, these two strategies are becoming intertwined. As regulators use spectrum licensing and local loop unbundling to fuel competition in connectivity, telcos have found themselves embroiled in damaging and expensive price wars. One way out of this commoditisation trap is to enhance and enrich the core proposition in ways that can’t easily be replicated by rivals. For example, BT in the UK has demonstrated that one of the most effective ways to defend the core business can be to bundle connectivity with exclusive content that consumers value. This report analyses four very different variants of this basic strategy and their chances of success.

Note, the examples in this report are intended to be representative and instructive, but they are not exhaustive. Other telcos have also pursued disruptive strategies with varying degrees of success. Many of these strategies have been described and analysed in previous STL Partners’ research reports. Digital transformation is a phenomenon that is not just affecting the telco sector. Many industries have been through a transformation process far more severe than we have seen in telecoms, while others began the process much earlier in time. We believe that there are valuable lessons telcos can learn from these sectors, so we have decided to find and examine the most interesting/useful case studies.

Contents:

  • Executive Summary
  • Introduction
  • Strategy One: Aggressive Acquisitions
  • AT&T – how will engineering and entertainment mix?
  • Strategy Two: Fast and Fluid, build a portfolio
  • Axiata places many digital bets
  • Strategy Three: Leapfrogging the legacy
  • Reliance Jio – super-disruptor
  • Strategy Four: Building an elaborate ecosystem
  • Turkcell goes toe-to-toe with the big Internet ecosystems

Figures:

  • Figure 1: Figure 1: The largest pay TV providers in the US in September 2016
  • Figure 2: Fullscreen Entertainment – free to AT&T Wireless customers
  • Figure 3: AT&T’s television customer base is shrinking
  • Figure 4: But AT&T’s Entertainment Group has seen ARPU rise
  • Figure 5: Celcom Planet’s 11Street marketplace caters for all kinds of products
  • Figure 6: XL has integrated its commerce and payment propositions
  • Figure 7: The Tribe video-on-demand proposition majors on Korean content
  • Figure 8: 4G was designed to deliver major capacity gains over 3G
  • Figure 9: Vodafone’s view of spectrum holdings in India
  • Figure 10: Reliance Jio is offering an array of entertainment and utility apps
  • Figure 11: Reliance’s network is outperforming that of rivals by a large margin
  • Figure 12: Vodafone India has slashed the cost of its mobile data services
  • Figure 13: Vodafone, Airtel and Idea account for 72% of the Indian market
  • Figure 14: The performance required for Reliance to achieve a ROCE of 18%
  • Figure 15: Digital services have become a major growth engine for Turkcell
  • Figure 16: Downloads of Turkcell’s apps are growing rapidly
  • Figure 17: Turkcell TV+ is gaining traction both on and off network
  • Figure 18: Turkcell’s ARPU is growing steadily
  • Figure 19:Turkcell is seeing rapid growth in mobile data traffic

Consumer communications: Can telcos mount a comeback?

Introduction

Although they make extensive use of WhatsApp, Facebook Messenger, Snapchat and other Internet-based communications services, consumers still expect mobile operators to enable them to make voice calls and text messages. Indeed, communication services are widely regarded as a fundamental part of a telco’s proposition, but telcos’ telephony and messaging services are losing ground to the Internet-based competitors and are generating less and less revenue.

Should telcos allow this business to gradually melt away of should they attempt to rebuild a competitive communications proposition for consumers? How much strategic value is there in providing voice calls and messaging services?

This report explores telcos’ strategic options in the consumer communications market, building on previous STL Partners’ research reports, notably:

Google/Telcos’ RCS: Dark Horse or Dead Horse?

WeChat: A Roadmap for Facebook and Telcos in Conversational Commerce

This report evaluates telcos’ current position in the consumer market for voice calls and messaging, before considering what they can learn from three leading Internet-based players: Tencent, Facebook and Snap. The report then lays out four strategic options for telcos and recommends which of these options particular types of telcos should pursue.

Content:

  • Introduction
  • Executive Summary
  • What do telcos have to lose?
  • Key takeaways
  • Learning from the competition
  • Tencent pushes into payments to monetise messaging
  • Facebook – nurturing network effects with fast footwork
  • Snapchat – highly-focused innovation
  • Telcos’ strategic options
  • Maximise data traffic
  • Embed communications into other services
  • Differentiate on reliability, security, privacy and reach
  • Compete head-on with Internet players
  • Recommendations

Figures:

  • Figure 1: Vodafone still makes large sums from incoming calls & messages
  • Figure 2: Usage of Vodafone’s voice services is rising in emerging markets
  • Figure 3: Vodafone Europe sees some growth in voice usage
  • Figure 4: Internet-based services are overtaking telco services in China
  • Figure 5: Usage of China Mobile’s voice services is sliding downwards
  • Figure 6: China Mobile’s SMS traffic shows signs of stabilising
  • Figure 7: Vodafone’s SMS volumes fall in Europe, but rise in AMAP
  • Figure 8: Voice & messaging account for 38% of China Mobile’s service revenues
  • Figure 9: Line is also seeing rapid growth in advertising revenue in Japan
  • Figure 10: More WeChat users are making purchases through the service
  • Figure 11: About 20% of WeChat official accounts act as online shops
  • Figure 12: Line’s new customer service platform harnesses AI
  • Figure 13: Snapchat’s user growth seems to be slowing down
  • Figure 14: Vodafone Spain is offering zero-rated access to rival services
  • Figure 15: Google is integrating communications services into Maps
  • Figure 16: Xbox Live users can interact with friends and other gamers
  • Figure 17: RCS is being touted as a business-friendly option
  • Figure 18: Turkcell’s broad and growing range of digital services

Autonomous cars: Where’s the money for telcos?

Introduction

Connected cars have been around for about two decades. GM first launched its OnStar in-vehicle communications service in 1996. Although the vast majority of the 1.4 billion cars on the world’s roads still lack embedded cellular connectivity, there is growing demand from drivers for wireless safety and security features, and streamed entertainment and information services. Today, many people simply use their smartphones inside their cars to help them navigate, find local amenities and listen to music.

The falling cost of cellular connectivity and equipment is now making it increasingly cost-effective to equip vehicles with their own cellular modules and antenna to support emergency calls, navigation, vehicle diagnostics and pay-as-you-drive insurance. OnStar, which offers emergency, security, navigation, connections and vehicle manager services across GM’s various vehicle brands, says it now has more than 11 million customers in North America, Europe, China and South America. Moreover, as semi-autonomous cars begin to emerge from the labs, there is growing demand from vehicle manufacturers and technology companies for data on how people drive and the roads they are using. The recent STL Partners report, AI: How telcos can profit from deep learning, describes how companies can use real-world data to teach computers to perform everyday tasks, such as driving a car down a highway.

This report will explore the connected and autonomous vehicle market from telcos’ perspective, focusing on the role they can play in this sector and the business models they should adopt to make the most of the opportunity.

As STL Partners described in the report, The IoT ecosystem and four leading operators’ strategies, telcos are looking to provide more than just connectivity as they strive to monetise the Internet of Things. They are increasingly bundling connectivity with value-added services, such as security, authentication, billing, systems integration and data analytics. However, in the connected vehicle market, specialist technology companies, systems integrators and Internet players are also looking to provide many of the services being targeted by telcos.

Moreover, it is not yet clear to what extent the vehicles of the future will rely on cellular connectivity, rather than short-range wireless systems. Therefore, this report spends some time discussing different connectivity technologies that will enable connected and autonomous vehicles, before estimating the incremental revenues telcos may be able to earn and making some high-level recommendations on how to maximise this opportunity.

 

  • Executive Summary
  • The role of cellular connectivity
  • High level recommendations
  • Contents
  • Introduction
  • The evolution of connected cars
  • How to connect cars to cellular networks
  • What are the opportunities for telcos?
  • How much cellular connectivity do vehicles need?
  • Takeaways
  • The size of the opportunity
  • How much can telcos charge for in-vehicle connectivity?
  • How will vehicles use cellular connectivity?
  • Telco connected car case studies
  • Vodafone – far-sighted strategy
  • AT&T – building an enabling ecosystem
  • Orange – exploring new possibilities with network slicing
  • SoftBank – developing self-driving buses
  • Conclusions and Recommendations
  • High level recommendations
  • STL Partners and Telco 2.0: Change the Game 

 

  • Figure 1: Incremental annual revenue estimates by service
  • Figure 2: Autonomous vehicles will change how we use cars
  • Figure 3: Vehicles can harness connectivity in many different ways
  • Figure 4: V2X may require large numbers of simultaneous connections
  • Figure 5: Annual sales of connected vehicles are rising rapidly
  • Figure 6: Mobile connectivity in cars will grow quickly
  • Figure 7: Estimates of what telcos can charge for connected car services
  • Figure 8: Potential use cases for in-vehicle cellular connectivity
  • Figure 9: Connectivity complexity profile criteria
  • Figure 10: Infotainment connectivity complexity profile
  • Figure 11: In-vehicle infotainment services estimates
  • Figure 12: Real-time information connectivity complexity profile
  • Figure 13: Real-time information services estimates
  • Figure 14: The connectivity complexity profile for deep learning data
  • Figure 15: Collecting deep learning data services estimates
  • Figure 16: Insurance and rental services’ connectivity complexity profile
  • Figure 17: Pay-as-you-drive insurance and rental services estimates
  • Figure 18: Automated emergency calls’ connectivity complexity profile
  • Figure 19: Automated emergency calls estimates
  • Figure 20: Remote monitoring and control connectivity complexity profile
  • Figure 21: Remote monitoring and control of vehicle services estimates
  • Figure 22: Fleet management connectivity complexity profile
  • Figure 23: Fleet management services estimates
  • Figure 24: Vehicle diagnostics connectivity complexity profile
  • Figure 25: Vehicle diagnostics and maintenance services estimates
  • Figure 26: Inter-vehicle coordination connectivity complexity profile
  • Figure 27: Inter-vehicle coordination revenue estimates
  • Figure 28: Traffic management connectivity complexity profile
  • Figure 29: Traffic management revenue estimates
  • Figure 30: Vodafone Automotive is aiming to be global
  • Figure 31: Forecasts for incremental annual revenue increase by service

AI: How telcos can profit from deep learning

The enduring value of connected assets

In the digital economy, the old adage knowledge is power applies as much as ever. The ongoing advances in computing science mean that knowledge (in the form of insights gleaned from large volumes of detailed data) can increasingly be used to perform predictive analytics, enabling new services and cutting costs. At the same time, the widespread deployment of connected devices, appliances, machines and vehicles (the Internet of Things) now means enterprises can get their hands on granular real-time data, giving them a comprehensive and detailed picture of what is happening now and what is likely to happen next.

A handful of companies already have a very detailed picture of their markets thanks to far-sighted decisions to add connectivity to the products they sell. Komatsu, for example, uses its Komtrax system to track the activities of almost 430,000 bulldozers, dump-trucks and forklifts belonging to its customers. The Japan-based company has integrated monitoring technologies and connectivity into its construction and mining equipment since the late 1990s. Komatsu says the Komtrax system is standard equipment on “most Komatsu Tier-3 Construction machines” and on most small utility machines and backhoes.

Komatsu’s machines ship with GPS chips that can pinpoint their position, together with a unit that gathers engine data. They can then transmit the resulting data to a communication satellite, which relays that information to the Komtrax data centre.

The data captured by Komtrax (and other Internet of Things solutions) has value on multiple different levels:

  • It provides Komatsu with market intelligence
  • It enables Komatsu to offer value added services for customers
  • It gives detailed data on the global economy that can be used for computer modelling and to support the development of artificial intelligence

Market intelligence for Komatsu

For Komatsu, Komtrax provides valuable information about how its customers use its equipment, which can then be used to refine its R&D activities. Usage data can also help sales teams figure out which customers may need to upgrade or replace their equipment and when.

Komatsu’s sales and finance departments use the findings, for example, to offer trade-ins and sales of lighter machines where heavy ones are underused. Its leasing firm can also use the information to help find customers for its rental fleet.

Furthermore, Komatsu is linking market information directly with its production plants through Komtrax (see Figure 1). It says its factories “aggressively monitor and analyse the conditions of machine operation and abrasion of components” to enable Komatsu and its distributors to improve operations by better predicting the lifetime of parts and the best time for overhauls.

Figure 1: How Komatsu uses data captured by its customers’ equipment

Source: Komatsu slide adapted by STL Partners

Value added services for customers

The Komtrax system can also flag up useful information for Komatsu’s customers. Komatsu enables its customers to access the information captured by their machines’ onboard units, via an Internet connection to the Komtrax data centre.

Customers can use this data to monitor how their machines are being used by their employees. For example, it can show how long individual machines are sitting idle and how much fuel they are using. Komatsu Australia, for example, says Komtrax enables its customers to track a wide range of performance indicators, including:

  • Location
  • Operation map (times of day the engine was on/off)
  • Actual fuel consumptionAverage hourly fuel consumption
  • Residual fuel level
  • High water temperature during the day’s operation
  • Dashboard cautions
  • Maintenance reminders/notifications
  • “Night Time” lock
  • Calendar lock
  • Out of Area alerts
  • Movement generated position reports
  • Actual working hours (engine on time less idle time)
  • Operation hours in each work mode (economy, power, breaker, lifting)
  • Digging hours
  • Hoisting hours
  • Travel hours
  • Hydraulic relief hours
  • Eco-mode usage hours
  • Load frequency (hours spent in four different load levels determined by pump pressures or engine torque)

 

Content:

  • Introduction
  • Executive Summary
  • The enduring value of connected assets
  • Tapping telecoms networks
  • Enabling Deep Neural Networks
  • Real world data: the raw material
  • Learning from Tesla
  • The role of telcos
  • Conclusions and Recommendations

Figures:

  • Figure 1: How Komatsu uses data captured by its customers’ equipment
  • Figure 2: Interest in deep learning has risen rapidly in the past two years
  • Figure 3: Deep learning buzz has helped drive up Nvidia’s share price
  • Figure 4: The key players in the development of deep learning technology
  • Figure 5: Mainstream enterprises are exploring deep learning
  • Figure 6: The automotive sector is embracing Nvidia’s artificial intelligence
  • Figure 7: Google Photos learns when users correct mistakes
  • Figure 8: Tesla’s Autopilot system uses models to make decisions
  • Figure 9: Tesla is collecting very detailed data on how to drive the world’s roads

Amazon: Telcos’ Chameleon-King Ally?

Introduction

Amazon is using an array of innovative propositions to sidestep the Android-Apple duopoly in the smartphone market and Facebook’s rapidly expanding digital commerce ecosystem. Amazon’s vast selection, unparalleled logistics, innovative bundling, laser-like focus on the customer, rapidly improving entertainment proposition and leadership in voice-controlled in-home systems mean the Seattle-based e-commerce giant is fast becoming a omnipresent convenience store that always has what you want, when you want it.

Continually reinventing itself, Amazon’s restlessness could seriously disrupt the balance of power between the major global Internet ecosystems. Although the Amazon, Apple, Facebook and Google ecosystems all originate from the PC-era, they have each managed to successfully extend their digital platforms into the smartphone and tablet markets. But not without a dramatic change in the pecking order. In fact, the advent of touch-controlled smartphones enabled Apple to become a major force in the digital consumer market, while weakening the position of its long-standing foe Microsoft.

Now these ecosystems need to navigate the tricky transition to voice-controlled digital platforms, which depend heavily on advanced speech recognition, artificial intelligence and machine learning technologies. Amazon is leading the way, having created this new market with the rollout of its Echo speaker, underpinned by the cloud-based Alexa personal assistant system.

This report analyses Amazon’s financial firepower, the Amazon Prime bundle and strategy of bundling entertainment with retail, before considering Amazon’s areas of relative weakness – the smartphone and communications markets. In this section, the report also considers whether Amazon can sustain its lead in the nascent market for voice-controlled speakers for the home.

It concludes by exploring whether Amazon has sufficient economies of scope to build the expertise in artificial intelligence that will be required to ensure the Apple-Android duopoly that exists in the smartphone market won’t also dominate the emerging smart home sector. Finally, it considers the ramifications for telcos and makes several high level recommendations.

The global e-commerce market

Online commerce continues to grow rapidly. In 2016, global retail e-commerce sales (products and services ordered via the internet) will rise almost 24% to reach $1.915 trillion in 2016, according to research firm eMarketer. As that represents just 8.7% of total retail spending worldwide, there is plenty more growth to come. eMarketer expects retail ecommerce sales will increase to $4.058 trillion in 2020, making up 14.6% of total retail spending that year (see Figure 1).

Figure 1: Retail online commerce continues to grow rapidly

The major global Internet ecosystems – Amazon, Apple, Facebook and Google – all take a slice of this market. Within their ecosystems, they act as brokers bringing buyers and sellers together, earning a commission for facilitating interactions and transactions. Google and Facebook are the leading players in online advertising, while Apple is a leading distributor of digital content: Although Apple still generates most of its revenue from devices, its App Store and iTunes service are now major contributors to its top line. Still, in online commerce, Amazon rules the roost: Its online marketplace, which offers a vast selection of products and services from millions of merchants, continues to grow rapidly.

 

  • Introduction
  • Executive Summary
  • The global e-commerce market
  • Amazon’s financial firepower
  • Key takeaways
  • Amazon Prime: The Convenience Engine
  • Eroding Google Search
  • Key takeaways
  • Why Amazon wants to entertain us
  • A push into user-generated content
  • Key takeaways
  • Amazon’s Devices: Ups and Downs
  • Navigating Google’s mobile maze
  • Amazon’s Attempts to Develop Device Platforms
  • Key takeaways
  • Communications: Amazon’s Blind Spot?
  • Conclusions and Recommendations

Understanding Fintech: Why Interest and Investment Has Exploded

Introduction

Why should telcos care about fintech? Telecoms operators have long been interested in financial services, especially consumer-facing financial services. STL Partners has discussed the relationship between telecoms and financial services in a range of prior reports, from Digital Commerce: Show Me the (Mobile) Money, to Apple Pay and Weve Fail: A Wake Up Call, and from Telco-driven Disruption: What NTT DoCoMo, KT, and Globe Got Right, to Digital Commerce 2.0: New $50bn Disruptive Opportunities for Telcos, Banks and Technology Companies.

It is fair to say that telcos have found only mixed success in financial services. While certain operators have had great success in recent years providing mobile money services, there have also been many examples of telco incursions into financial services that have not paid off. On the other hand, there have been many instances of successful disruption in financial services – even technology-led digital disruption. PayPal is the foremost example of a digital business that originally found a niche doing something that banks had made quite laborious – online payments for goods between private individuals – and making it easier. But these disruptions have, to date, been limited and individual. Why, then, should telcos pay attention now?

In the last two years, the wider landscape of financial services has begun to change, as the established players have faced disruption on multiple fronts from a large number of new businesses. This has become known as fintech, and interest and investment are taking off:

Figure 1: Google Trends search on ‘fintech’, 2011 – 2016

Source: Google Trends

Fintech therefore represents a potentially huge shift in the status quo in financial services: this short report provides an overview of this shift. STL Partners will follow up with a report that considers options for telecoms operators, and makes some strategic recommendations.

 

  • Executive Summary
  • Introduction
  • Disrupting the Financial Services Industry
  • Defining fintech
  • Why fintech’s time has come
  • The state of the ecosystem: investment is accelerating
  • Key Capabilities and Service Areas
  • Fintech specific capabilities: doing the same, but differently
  • Fintech service areas: Diverse and developing
  • The Future of Fintech
  • Growth ahead
  • …but there are uncertainties around the future evolution
  • The uncertainties could still play out well for start-ups
  • Conclusion and Outlook

 

  • Figure 1: Google Trends search on ‘fintech’, 2011 – 2016
  • Figure 2: Fintech companies are disrupting financial services
  • Figure 3: Global Investment in Fintech
  • Figure 4: VC-backed Investment in Fintech, by Region
  • Figure 5: A framework for understanding fintech
  • Figure 6: Fintech start-ups within each service area

Digital Health: How Can Telcos Compete with Google, Apple and Microsoft?

Introduction

With the ever-increasing amount of data collected by smartphones, fitness monitors and smart watches, telcos and other digital players are exploring opportunities to create value from consumers’ ability to capture data on many aspects of their own health and physical activity. Connected devices leverage inbuilt sensors and associated apps to collect data about users’ activities, location and habits.

New health-focused platforms are emerging that use the data collected by sensors to advise individual users on how to improve their health (e.g. a reminder to stand up every 60 minutes), while enhancing their ability to share data meaningfully with healthcare providers, whether in-person or remotely. This market has thus far been led by the major Internet and device players, but telecoms operators may be able to act as distributors, enablers/integrators, and, in some cases, even providers of consumer health and wellness apps (e.g., Telefonica’s Saluspot).

High level drivers for the market

At a macro level, there are a number of factors driving digital healthcare.  These include:

  • Population ageing – The number of people globally who are aged over 65 is expected to triple over the next 30 years , and this will create unprecedented demand for healthcare.
  • Rising costs of healthcare provision globally – Serving an aging population, the increase globally in lifestyle and chronic diseases, and rising underlying costs, is pushing up healthcare spending – while at the same time, due to economic pressures there are more limited funds available to pay for this.
  • Limited supply of trained clinicians – Policy issues and changes in job and lifestyle preferences are limiting both educational capacity and ability to recruit and retain appropriately trained healthcare staff in most markets.
  • Shift in funding policy – In many countries, funding for healthcare is shifting away from being based on reimbursement-for-events (e.g., a practice or hospital is paid for every patient visit, for each patient they register, for each vaccination administered), to a greater emphasis on ‘value-based care’ – reimbursement based on successful patient health outcomes.
  • Increased focus on prevention in healthcare provision – in some cases funding is starting to be provided for preventative population health measures, such as weight-loss or quit-smoking programmes.
  • Development of personalised medicine – Personalised medicine is beginning to gain significant attention. It involves the delivery of more effective personalised treatments (and potentially drugs) based on an individual’s specific genomic characteristics, supported by advances in genotyping and analytics, and by ongoing analysis of individual and population health data.
  • Consumerisation of healthcare – There is a general trend for patients – or rather, consumers – to take more responsibility for their own health and their own healthcare, and to demand always-on access both to healthcare and to their own health information, at a level of engagement they choose.

The macro trends above are unlikely to disappear or diminish in the short-to-medium term; and providers, policymakers and payers  are struggling to cope as healthcare systems increasingly fall short of both targets and patients’ expectations.

Digital healthcare will play a key role in addressing the challenges these trends present. It promises better use and sharing of data, of analytics offering deep insight on health trends for individuals and across the wider population, and of the potential for greater convenience, efficacy and reach of healthcare provisioning.

While many (if not most) of the opportunities around digital health will centre on advances in healthcare providers’ ICT systems, there is significant interest in how consumer wellness and fitness apps and devices will contribute to the digital health ecosystem. Consumer digital health and wellness is particularly relevant to two of the trends above: consumerisation of healthcare, and the shift to prevention as a focus of both healthcare providers and payers.

Fitness trackers and smartwatches, and the associated apps for these devices, as well as wellness and fitness apps for smartphone users, could open up new revenue streams for some service providers, as well as a vast amount of personal data that could feed into both medical records and analytics initiatives. The increasing use of online resources by consumers for both health information and consultation, as well as cloud-based storage of and access to their own health data, also creates opportunities to make more timely and effective healthcare interventions.  For telcos, the question is where and how they can play effectively in this market.

Market Trends and Overview

The digital healthcare market is both very large and very diverse. Digital technologies can be applied in many different segments of the healthcare market (see figure below), both to improve efficiency and enable the development of new services, such as automated monitoring of chronic conditions.

The different segments of the digital healthcare market

Source: STL Partners based on categories identified by Venture Scanner

The various segments in Figure 1 are defined as below:

Wellness

  • Mobile fitness and health apps enable consumers to monitor how much exercise they are doing, how much sleep they are getting, their diet and other aspects of their lifestyle.
  • Wearable devices, such as smart watches and fitness bands, are equipped with sensors that collect the data used by fitness and health apps.
  • Electronic health records are a digital record of data and information about an individual’s health, typically collating clinical data from multiple sources and healthcare providers.

Information

  • Services search are digital portals and directories that help individuals find out healthcare information and identify potential service providers.
  • Online health sites and communities provide consumers with information and discussion forums.
  • Healthcare marketing refers to digital activities by healthcare providers to attract people to use their services.

Interactions

  • Payments and insurance – digital apps and services that enable consumers to pay for healthcare or insurance.
  • Patient engagement refers to digital mechanisms, such as apps, through which healthcare providers can interact with the individuals using their services.
  • Doctor networks are online services that enable clinicians to interact with each other and exchange information and advice.

Research

  • Population health management refers to the use of digital tools by clinicians to capture data about groups of patients or individuals that can then be used to inform treatment.
  • Genomics: An individual’s genetic code can be collated in a digital form so it can be used to understand their likely susceptibility specific conditions and treatments.
  • Medical big data involves capturing and analysing large volumes of data from multiple sources to help identify patterns in the progression of specific illnesses and the effectiveness of particular treatment combinations.

In-hospital care

  • Electronic medical records: A digital version of a hospital or clinic’s records of a specific patient. Unlike electronic health records, electronic medical records aren’t designed to be portable across different healthcare providers.
  • Clinical admin: The use of digital technologies to improve the efficiency of healthcare facilities.
  • Robotics: The use of digital machines to perform specific healthcare tasks, such as transporting medicines or spoon-feeding a patient.

In-home care

  • Digital medical devices: All kinds of medical devices, from thermometers to stethoscopes to glucosometers to sophisticated MRI and medical imaging equipment, are increasingly able to capture and transfer data in a digital form.
  • Remote monitoring involves the use of connected sensors to regularly capture and transmit information on a patient’s health. Such tools can be used to help monitor the condition of people with chronic diseases, such as diabetes.
  • Telehealth refers to patient-clinician consultations via a telephone, chat or video call.

The wellness opportunity

This report focuses primarily primarily on the ‘wellness’ segment (highlighted in the figure below), which is experiencing major disruption as a result of devices, apps and services being launched by Apple, Google and Microsoft, but it also touches on some of these players’ activities in other segments.

This report focuses on wellness, which is undergoing major disruption

Source: STL Partners based on categories identified by Venture Scanner

 

  • Executive summary
  • Introduction
  • High level drivers for the market
  • Market Trends and Overview
  • Market size and trends: smartwatches will overtake fitness brands
  • Health app usage has doubled in two years in the U.S.
  • Are consumers really interested in the ‘quantified self’?
  • Barriers and constraining factors for consumer digital health
  • Disruption in Consumer Digital Wellness
  • Case studies: Google, Apple and Microsoft
  • Google: leveraging Android and analytics capabilities
  • Apple: more than the Watch…
  • Microsoft: an innovative but schizophrenic approach
  • Telco Opportunities in Consumer Health
  • Recommendations for telcos

 

  • Figure 1: The different segments of the digital healthcare market
  • Figure 2: This report focuses on wellness, which is undergoing major disruption
  • Figure 3: Consumer digital health and wellness: leading products and services, 2016
  • Figure 4: Wearable Shipments by Type of Device, 2015-2020
  • Figure 5: Wearable OS Worldwide Market Share, 2015 and 2019
  • Figure 6: Take-up of different types of health apps in the U.S. market (2016)
  • Figure 7: % of health wearable and app users willing to share data US market (2016)
  • Figure 8: Elements of the ‘quantified self’, as envisioned by Orange
  • Figure 9: Less than two-third of US wearable buyers wear their acquisition long-term
  • Figure 10: Google Consumer Health and Fitness Initiatives
  • Figure 11: Snapshot of Google Fit User Interface, 2016
  • Figure 12: Google/Alphabet’s areas of focus in the digital healthcare market
  • Figure 13: Apple’s Key Digital Health and Wellness Initiatives
  • Figure 14: Apple Health app interface and dashboard
  • Figure 15: Apple’s ResearchKit-based EpiWatch App
  • Figure 16: Apple’s current areas of focus in the digital healthcare market
  • Figure 17: Microsoft Consumer Fitness/Wellness Device Initiatives
  • Figure 18: Microsoft Health can integrate data from a range of fitness trackers
  • Figure 19: Microsoft Consumer Fitness/Wellness Applications and Services
  • Figure 20: The MDLive Telehealth Proposition, August 2016
  • Figure 21: Microsoft’s areas of focus in the digital healthcare market
  • Figure 22: Telefónica’s Saluspot: Interactive online doctor consultations on-demand

Google/Telcos’ RCS: Dark Horse or Dead Horse?

Introduction

The strategic importance of digital communications services is rising fast, as these services now look set to become a major conduit for digital commerce. Messaging services are increasingly enabling interactions and transactions between consumers and businesses. Largely pioneered by WeChat in China, the growing integration of digital communications and commerce services looks like a multi-billion dollar boon for Facebook and a major headache for Amazon, eBay and Google, as outlined in the recent STL Partners report: WeChat: A Roadmap for Facebook and Telcos in Conversational Commerce.

This report analyses Google’s and telcos’ strategic position in the digital communications market, before exploring the recent agreement between leading telcos, the GSMA and Google to use the Android operating system to distribute RCS (Rich Communications Service), which is designed to be a successor to SMS and MMS. Like SMS, RCS is intended to work across networks, be network-based and be the default mobile messaging service, but it also goes far beyond SMS, by supporting rich features, such as video calling, location sharing, group chat and file sharing.

The report then undertakes a SWOT (strengths, weaknesses, opportunities and threats) analysis on the new Google supported RCS proposition, before considering what telcos need to do next to give the service any chance of seeing widespread adoption.

Google’s strategic headache

To Google’s alarm, mobile messaging looks set to become the next major digital commerce platform. In some ways, this is a logical progression of what has come before. Although neither Google nor Amazon, two of the leading digital commerce incumbents, seem well prepared for the rise of “conversational commerce”, communications and commerce have always been interwoven – physical marketplaces, for example, serve both functions. In the digital era, new communications services, such as SMS, email and mobile calls, were quickly adopted by companies looking to contact consumers. Even now, businesses continue to rely very heavily on email to communicate with consumers, and with each other, and through Gmail, Google has a strong position in this segment.

But many consumers, particularly younger people, now prefer to use mobile messaging and social networking services to communicate with friends and family and are using email, which was developed in the PC era, less and less. People are spending more and more time on messaging apps – some industry executives estimate that consumers spend 40% of their time on a mobile phone purely in a messaging app. Understandably, businesses are looking to follow consumers on to mobile messaging and social networking services. Crucially, some of these services are now enabling businesses to transact, as well as interact, with customers, cutting the likes of Amazon and Google out of the loop entirely.

Largely pioneered by Tencent’s WeChat/Weixin service in China, the growing integration of digital communications and commerce services could be a multi-billion dollar boon for Facebook, the leading provider of digital messaging services in much of the world. The proportion of WeChat users making purchases through the service leapt to 31% in 2016 up from 15% in 2015, according to Mary Meeker’s Global Internet Trends report 2016. Moreover, users of WeChat’s payment service now make more than 50 payments a month through the service (see Figure 1), highlighting the convenience of ordering everyday products and services through a messaging app. In March 2016, Tencent reported the combined monthly active users of the Weixin and WeChat messaging services reached 697 million at the end of 2015, representing annual growth of 39%. See WeChat: A Roadmap for Facebook and Telcos in Conversational Commerce for more on this key trend in the digital economy.

Figure 1: WeChat users find it convenient to combine payments and messaging 

Source: Mary Meeker’s Global Internet Trends 2016

 

  • Executive summary
  • Contents
  • Introduction
  • Google’s strategic headache
  • Winner takes all?
  • Google’s attempts to crack communications
  • Telcos’ long goodbye
  • RCS – a very slow burn
  • VoLTE sees broader support
  • Google and telcos: a match made in heaven?
  • A new phase in the Google-telcos relationship?
  • Building a business case
  • Conclusions
  • Strengths
  • Weaknesses
  • Opportunities
  • Threats
  • Next steps
  • Lay the foundations
  • What will Google do next?

 

  • Figure 1: WeChat users find it convenient to combine payments and messaging
  • Figure 2: Using Weixin Pay to complete a transaction in a fast food outlet
  • Figure 3: Leading communications & media sharing apps by downloads
  • Figure 4: Deutsche Telekom’s RCS app’s features include location sharing
  • Figure 5: All-IP communications services are gaining some traction with operators
  • Figure 6: Google Places aims to connect businesses and consumers
  • Figure 7: SWOT analysis of operators’ IP communications proposition
  • Figure 8: TOWS analysis for telcos in all-IP communications

Can Telcos Entertain You? Vodafone and MTN’s Emerging Market Strategies (Part 2)

Telcos and the entertainment opportunity

In most emerging markets, which are the focus of this report, mobile networks are fast becoming the primary distribution channel for entertainment content. Although television is popular all over the world, in much of sub-Saharan Africa and developing Asia, terrestrial television coverage is patchy, while cable TV is rare. Satellite television is broadly available, but fewer than half of households can afford to buy a television, meaning many people only watch TV in bars, cafes or in the houses of friends.

In Kenya, for example, only 28% of households have a television, according to the World Bank development indicators, while in Tanzania that figure is just 15%. In some major developing markets, television has a stronger grip – in Nigeria, 40% of households have a TV and 47% of households in India. For sub-Saharan Africa, as a whole, television penetration is about 25% and in South Asia, 36%.

For many people in these regions, purchasing a versatile smartphone, which can be used for communications, information access, commerce and entertainment, is a higher priority than acquiring a television. The advent of sub US$40 smartphones means more and more people can now afford mobile devices with decent screens capable of displaying multimedia and processors that can run apps and full Internet browsers. In India, 220 million smartphones were in use at the end of 2015, according to one estimate , while Ericsson has forecast that the number of smartphones in use in Sub-Saharan Africa will leap to 690 million in 2021 from 170 million at the end of 2015 (see Figure 1).

 Figure 1: Predicted smartphone growth in developing regions

 Source: Ericsson Mobility Report, November 2015

In emerging markets, most Internet users don’t own a television (see Figure 2) and many rely entirely on a smartphone for digital entertainment. Moreover, a scarcity of fixed line infrastructure means much of the entertainment content is delivered over mobile networks. Mobile trade group the GSMA estimates that 3G networks, which are typically fast enough to transmit reasonable video images, reach about three quarters of the planet’s people. Mobile network supplier Ericsson has forecast that mobile broadband networks (3G and/or 4G) will cover more than 90% of the world’s population by 2021.

 Figure 2: Device ownership among Internet users in selected markets

 Source: Ericsson

The reliance on cellular infrastructure in developing countries has enabled mobile operators to take on a central role in the provision of online entertainment. The fact that many people rely almost solely on mobile networks for entertainment is presenting mobile operators with a major opportunity to boost their relevance and revenues. Given the capacity constraints on mobile networks and the implications for cellular tariffs, entertainment services need to be optimised to ensure that the costs of bandwidth don’t become prohibitive for consumers. Mobile operators’ understanding and real-time knowledge of their networks means they are in a good position to both manage the optimisation and package connectivity and content (regulation permitting) into one service bundle with a predictable and transparent tariff.

Although the network effects and economies of scale and scope enjoyed by YouTube and Facebook mean that both these players have strong positions in much of developing Asia, Latin America, the Middle East and Africa, some emerging market telcos have also built a solid foundation in the fast growing online entertainment sector. In Africa and India, for example, the leading telcos enable third party content providers to reach new customers through the telcos’ dedicated entertainment platforms, including web portals, individual apps and app stores selling music, TV and games. In return for supporting content offerings with their brands, networks, messaging, billing and payment systems, these telcos typically earn commission and capture valuable behavioural data.

 

  • Introduction
  • Executive Summary
  • Telcos and the entertainment opportunity
  • Roles in the online entertainment value chain
  • Further disruption ahead
  • Vodafone India faces up to new competition
  • The land-grab in India’s online entertainment market
  • Vodafone India combines content and connectivity
  • Takeaways – greater differentiation required
  • Music Gives MTN an Edge
  • Takeaways – music could be a springboard
  • Conclusions

 

  • Figure 1: Predicted smartphone growth in developing regions
  • Figure 2: Device ownership among Internet users in selected markets
  • Figure 3: How the key roles in online content are changing
  • Figure 4: How future-proof are telcos’ entertainment portfolios?
  • Figure 5: Vodafone India curates a wide range of infotainment content
  • Figure 6: Smartphone adoption in India will more than double in the next five years
  • Figure 7: Vodafone Mobile TV enables customers to subscribe to channels
  • Figure 8: The new Vodafone Play app combines TV, films and music
  • Figure 9: Vodafone India offers an app that makes it easy to track data usage
  • Figure 10: Vodafone’s Mobile TV app hasn’t attracted a strong following
  • Figure 11: Competitive and regulatory pressures are pushing down prices
  • Figure 12: In 3G, Vodafone India has kept pace with market leader Airtel
  • Figure 13: Vodafone India’s growth in data traffic compared with that of other telcos
  • Figure 14: Vodafone’s performance in India this decade
  • Figure 15: MTN’s Telco 2.0 strategy is focused on digital services
  • Figure 16: MTN’s growing array of digital services
  • Figure 17: MTN Play has been localised for each of MTN’s operations
  • Figure 18: The Ugandan version of MTN Play caters for local tastes
  • Figure 19: MTN bundles in some data traffic with each music plan
  • Figure 20: MTN’s digital services are particularly strong in Nigeria
  • Figure 21: MTN tops a list of most admired brands in Africa in 2015

Can Telcos Entertain You? (Part 1)

Telcos and the entertainment opportunity

As telecoms networks are the primary distribution channels for the digital economy, all telcos are in the entertainment business to a certain extent. With more than 3.2 billion people worldwide now connected to the Internet, according to the ITU, entertainment is increasingly delivered online and on-demand over telecoms and cable networks. The major Internet ecosystems – Amazon, Apple, Facebook and Google – are looking to dominate this market. But telcos could also play a pivotal role in an emerging new world order, either by providing enablers or by delivering their own differentiated entertainment offerings.

Many telcos have long flirted with offering their own entertainment services, typically as a retaliatory response to cable television providers’ push into communications. But these flings are now morphing into something more serious: connectivity and entertainment are becoming increasingly intertwined in telcos’ portfolios. Television, in particular, is shifting from the periphery, both in terms of telcos’ revenues and top management focus, onto centre stage. Some of the world’s largest telcos are beginning to invest in securing exclusive drama and sports content, even going as far as developing their own programming. This push is part of telcos’ broader search for ways to remain relevant in the consumer market, as usage of telcos’ voice and messaging services is curbed by over-the-top alternatives.

The central strategic dilemma for telcos is whether they should be selling services directly to the consumer or whether they should be providing enablers to other players (such as Amazon, Google, Netflix and Spotify) who might be prepared to pay for the use of dedicated content delivery networks, messaging, distribution, authentication, billing and payments. In many respects, this is not a new dilemma: Operators have tried to become content developers and distributors in the past, building portals, selling ringtones and games, and establishing app stores. What is new is the size of the table stakes: The expansion of broadband coverage and capacity has put the focus very much on increasingly high definition and immersive television and video. Creating this kind of content can be very expensive, prompting some of the largest telcos to invest billions of dollars, rather than tens of millions, in their entertainment proposition.

It isn’t just telcos undergoing a strategic rethink. The spread of broadband, the proliferation of connected digital devices and the shift to a multimedia Internet are shaking up the entertainment industry itself. Mobile and online entertainment accounts for US$195 billion (almost 11%) of the US$1.8 trillion global entertainment market today . And that proportion is growing. By some estimates, that figure is on course to rise to more than 13% of the global entertainment market, which could be worth US$2.2 trillion in 2019.

For incumbents in the media industry, this is a seismic shift. Cable television companies, for example, have had to rethink their longstanding business model, which involved selling big bundles of television channels encompassing the good, the bad and the ugly. Individual customers typically only watch a small fraction of the cable TV channels they are paying for, prompting a growing number of them to seek out more cost-effective and more targeted propositions from over-the-top players.

Cable companies have responded by offering more choice and expanding across the entertainment value chain. For example, Comcast, a leading US cableco, offers an increasingly broad range of TV packages, ranging from US$16 a month (for about 10 local channels) to US$80 a month (for about 140 channels bundled with high speed Internet access). Moreover, Comcast is making its TV services more flexible, enabling customers to download/record video content to watch on mobile devices and PCs at their convenience. Even so, Comcast has been shedding cable TV subscriptions for most of the past decade. But the cableco’s vertical-integration strategy has more than compensated. Growth in Comcast’s NBCUniversal television and film group, which owns a major Hollywood studio, together with rising demand for high-speed Internet access, has kept the top line growing.

Roles in the online entertainment value chain

Other cablecos and telcos are following a similar playbook to Comcast, increasingly involving themselves in all four of the key roles in the online content value chain, identified by STL Partners. These four key roles are:

  1. Programme: Content creation: producing drama series, movies or live sports programmes.
  2. Package: Packaging programmes into channels or music into playlists and then selling these packages on a subscription basis or providing them free, supported by advertising.
  3. Platform: Distributing TV channels, films or music created and curated by another entity.
  4. Pipe: Providing connectivity, either to the Internet or to a walled content garden.

Clearly, virtually all telcos and cablecos play the pipe role, providing connectivity for online content. Many also operate platforms, essentially reselling television on behalf of others. But now a growing number, including BT, Telefónica and Verizon, are creating packages and even developing their own programming. The pipe and package roles present opportunities to capture behavioural data that can then be used to further hone the entertainment proposition and make personalised recommendations and offers. At the same time, the package and programme roles are becoming increasingly important as the platforms with the best content, the best channels and the best recommendations are likely to attract the most traffic.

Figure 1 illustrates how the package and platform roles, in particular, are increasingly converging, as consumers seek out services that can help them find and discover entertainment that suits their particular tastes. Google’s YouTube platform, for example, increasingly promotes its many channels (packages) to better engage consumers, help them discover content and help viewers navigate their way through the vast amount of video on offer.

By venturing into packaging and programming, telcos are hoping to differentiate their platforms from those of the major global online players – Amazon, Apple, Facebook, Google and Netflix – which benefit from substantial economies of scale and scope. But pursuing such a strategy can involve compromises.
In many cases, regulators force telcos to also make their programming and packaging available on third party TV platforms, including those of direct competitors. In the UK, for example, BT has to wholesale its BT Sports channels to other TV platforms, including that of arch rival Sky. Figure 2 shows how BT’s platform, packaging and programming is intertwined with that of third parties, creating a complex, multi-faceted market in which BT content is available through BT TV/BT Broadband and through other platforms and pipes.

 Figure 1: How the key roles in online content are changing

 Source: STL Partners analysis

Figure 2: BT has to provide standalone packaging & programming, as well as a platform

 Source: STL Partners analysis

 

  • Introduction
  • Executive Summary
  • Telcos and the entertainment opportunity
  • Roles in the online entertainment value chain
  • Further disruption ahead
  • BT – betting big on sport
  • Takeaways – sport gives BT a broad springboard
  • Telefónica – leveraging languages
  • Takeaways – Telefónica could lead Hispanic entertainment
  • Verizon – acquiring and accumulating expertise
  • Takeaways – Verizon needs bigger and better content
  • Conclusions
  • Annex: Recommendations for telcos & cablecos in entertainment

 

  • Figure 1: How the key roles in online content are changing
  • Figure 2: BT has to provide standalone packaging & programming, as well as a platform
  • Figure 3: How future-proof are telcos’ entertainment portfolios?
  • Figure 4: The extras and upgrades to the free BT TV and BT Sports offer
  • Figure 5: The differences between BT TV’s free and premium packages
  • Figure 6: BT’s app enables consumers to watch premium content on handsets
  • Figure 7: BT Sport has driven broadband net-adds, but the rights bill is also rising
  • Figure 8: In the UK, BT is still behind the Sky TV platform but on a par with YouTube
  • Figure 9: How BT Sport creates value for BT
  • Figure 10: Telefónica offers a selection of bolt-ons to cater for different tastes
  • Figure 11: Acquisitions boosted Telefónica’s pay TV business in 2015
  • Figure 12: Pay TV and fibre broadband are the growth engines in Spain
  • Figure 13: Telefónica TV’s position versus that of Netflix and YouTube in Spain
  • Figure 14: Verizon’s three-tier strategy envisages providing platforms and solutions
  • Figure 15: Verizon was attracted by AOL’s growing platforms business
  • Figure 16: Verizon’s go90 is designed to be a content and social hybrid
  • Figure 17: AOL ranks sixth in terms of online visitors in the US
  • Figure 18: Verizon’s new go90 app has had a fairly positive response from users
  • Figure 19: AOL video trails far behind Internet rivals YouTube and Netflix in terms of usage
  • Figure 20: How future-proof are telcos’ entertainment portfolios?

MWC 2016: IoT & Enterprise

IoT Enthusiasm Hits a Peak…

MWC demonstrated beyond a doubt that the IoT merits its recently-awarded reigning spot at the top of the Gartner hype cycle. The vendors present at MWC were more than keen to demonstrate their IoT solutions, using the full range of established and emerging network standards. Notable IoT announcements from operators at the show included AT&T announcing another round of lucrative connected-car deals; and Deutsche Telekom and SKT announcing a major IoT-focused strategic alliance (the Next Generation Enterprise Network Alliance). SKT even showed a range of Android-based devices for dogs, although it couldn’t run to an actual dog to demonstrate them.

There were significant announcements from ARM about low-power chips, from the Linux Foundation about device operating systems, and from Actility, Jasper, Gemalto, and Cisco about service platforms. We also noted that the special relationship between Nokia and Intel touches on the IoT – the two tech vendors took part in a (Narrow Band) NB-IoT trial with Vodafone.

According to one analyst firm, we’re now up to 300 identifiable IoT “platforms” – a testament both to the creative energy being applied to IoT development, and to the potentially crippling degree of fragmentation affecting it. For the industry to progress on IoT, a shakeout – and clearer winners on the standardisation of technologies and platforms – must be coming up somewhere along the line.

The fight between the platforms, however, is not the only important story. There’s also a big question about the level of the IoT stack at which the most value will accrue. The candidates: IoT devices, the network, the service-enablement platform, the data layer, or individual apps? This cuts across the question of which vendor’s platform will ‘win’. There will certainly be multiple IoT platforms that find traction, with some particularly suited to specific verticals and use cases, but understanding where operators and others can most effectively monetise the IoT opportunity is a fundamental question that most players still seem unclear on.

 

  • Executive Summary
  • IoT Enthusiasm Hits a Peak…
  • Identifying IoT value – IT vendor strategies, cognitive computing
  • NB-IoT: the LPWAN option that suits telcos, but does it suit customers?
  • …But the ’50 Billion Connected Device by 2020′ Dream Is Over

 

  • Figure 1: Selected telco involvement in key LPWAN projects
  • Figure 2: This used to say “50bn connected devices”. Now it doesn’t.