Telco roadmap to net-zero carbon emissions: Why, when and how

Telcos’ role in reducing carbon emissions

There are over eighty telecoms operators globally that turn over $1 billion or more in revenues every year. As major companies, service providers (SPs) have a role to play in reducing global carbon emissions. So far, they have been behind the curve. In the Corporate Knights Global 100 of the world’s most sustainable corporations, only five of them are telcos (BT, KPN, Cogeco, Telus and StarHub) and none of them are in the top 30.

In this report, we explore the aims, visions and priorities of SPs in their journey to become more sustainable companies. More specifically, we have sought to understand the practical steps they are undertaking to reduce their carbon footprints. This includes discovering how they define, prioritise and drive initiatives as well as the governance and reporting used to determine their progress to ‘net-zero’.

Each SP’s journey is unique; we’ve explored how regional and market influences affect their journey and how different personas and influencers within the SP approach this topic. To do this, we have spoken to 40 individuals at SPs globally. Interviewees have varied, from corporate and social responsibility (CSR) representatives, to those responsible for the SP’s technology and enterprise strategies. This report reflects the strategies and ambitions we learnt about during these conversations.

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This report is informed by interviews from SPs globallytelcos carbon emissions

What do we mean by scope 1, 2 and 3?

Before diving in further, it’s important to align on the key terminology that all major SPs are drawing on to evaluate and report their sustainability efforts: in particular, how they disclose and commit to reducing their greenhouse gas emissions.

SPs divide their carbon emissions into scope 1, 2 and 3 – scope 3 is by far the most significant

For most SPs, scope 1 (e.g. emissions from the fleet of vehicles used to install equipment or perform maintenance tasks on base stations) and scope 2 (e.g. the electricity they purchase to run their networks) makes up less than 20% of their overall footprint. These emissions can be recorded and reported on accurately and there are established methodologies for doing so.

Scope 3, however, is where 80%+ of SP carbon emissions come from. This is because it captures the impact of the SP’s whole supply chain, e.g. the carbon emissions released from manufacturing the network equipment that they deploy. It also includes the carbon emissions arising from supplying customers with products and services that an SP sells, e.g. from shipping and de-commissioning consumer handsets or servers provided to enterprise customers.

Table of Contents

  • Executive Summary
  • Table of Figures
  • Introduction
    • What do we mean by scope 1, 2 and 3?
    • Where are SPs in their sustainability journey?
    • How does this differ by region?
    • What’s covered in the rest of the report?
  • Procurement and sustainable supply chain
    • Scope 1, 2 and 3: Where are procurement teams focused
    • Current priorities
    • Regional nuances
    • Best and next practices
  • Networking
  • IT and facilities
  • Enterprise products and services
  • Key recommendations and conclusion

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Consumer strategy: What should telcos do?

Globally, telcos are pursuing a wide variety of strategies in the consumer market, ranging from broad competition with the major Internet platforms to a narrow focus on delivering connectivity.

Some telcos, such as Orange France, Telefónica Spain, Reliance Jio and Rakuten Mobile, are combining connectivity with an array of services, such as messaging, entertainment, smart home, financial services and digital health propositions. Others, such as Three UK, focus almost entirely on delivering connectivity, while many sit somewhere in between, targeting a single vertical market, in addition to connectivity. AT&T is entertainment-orientated, while Safaricom is financial services-focused.

This report analyses the consumer strategies of the leading telcos in the UK and the Brazil – two very different markets. Whereas the UK is a densely populated, English-speaking country, Brazil has a highly-dispersed population that speaks Portuguese, making the barriers to entry higher for multinational telecoms and content companies.

By examining these two telecoms markets in detail, this report will consider which of these strategies is working, looking, in particular, at whether a halfway-house approach can be successful, given the economies of scope available to companies, such as Amazon and Google, that offer consumers a broad range of digital services. It also considers whether telcos need to be vertically-integrated in the consumer market to be successful. Or can they rely heavily on partnerships with third-parties? Do they need their own distinctive service layer developed in-house?

In light of the behavourial changes brought about by the pandemic, the report also considers whether telcos should be revamping their consumer propositions so that they are more focused on the provision of ultra-reliable connectivity, so people can be sure to work from home productively. Is residential connectivity really a commodity or can telcos now charge a premium for services that ensure a home office is reliably and securely connected throughout the day?

A future STL Partners report will explore telcos’ new working from home propositions in further detail.

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The UK market: Convergence is king

The UK is one of the most developed and competitive telecoms markets in the world. It has a high population density, with 84% of its 66 million people living in urban areas, according to the CIA Factbook. There are almost 272 people for every square kilometre, compared with an average of 103 across Europe. For every 100 people, there are 48 fixed lines and 41 broadband connections, while the vast majority of adults have a mobile phone. GDP per capita (on a purchasing power parity basis) is US$ 48,710, compared with US$ 65,118 in the US (according to the World Bank).

The strength of the state-funded public service broadcaster, the BBC, has made it harder for private sector players to make money in the content market. The BBC delivers a large amount of high-quality advertising-free content to anyone in the UK who pays the annual license fee, which is compulsory to watch television.

In the UK, the leading telcos have mostly eschewed expansion into the broader digital services market. That reflects the strong position of the leading global Internet platforms in the UK, as well as the quality of free-to-air television, and the highly competitive nature of the UK telecoms market – UK operators have relatively low margins, giving them little leeway to invest in the development of other digital services.

Figure 1 summarises where the five main network operators (and broadband/TV provider Sky) are positioned on a matrix mapping degree of vertical integration against the breadth of the proposition.

Most UK telcos have focused on the provision of connectivity

UK telco B2C strategies

Source: STL Partners

Brazil: Land of new opportunities

Almost as large as the US, Brazil has a population density is just 25 people per square kilometre – one tenth of the total UK average population density. Although 87% of Brazil’s 212 million people live in urban areas, according to the CIA Fact book, that means almost 28 million people are spread across the country’s rural communities.

By European standards, Brazil’s fixed-line infrastructure is relatively sparse. For every 100 people, Brazil has 16 fixed lines, 15 fixed broadband connections and 99 mobile connections. Its GDP per capita (on a purchasing power parity basis) is US$ 15,259 – about one third of that in the UK. About 70% of adults had a bank account in 2017, according to the latest World Bank data. However, only 58% of the adult population were actively using the account.

A vast middle-income country, Brazil has a very different telecoms market to that of the UK. In particular, network coverage and quality continue to be important purchasing criteria for consumers in many parts of the country. As a result, Oi, one of the four main network operators, became uncompetitive and entered a bankruptcy restructuring process in 2016. It is now hoping to to sell its sub-scale mobile unit for at least 15 billion reais (US$ 2.8 billion) to refocus the company on its fibre network. The other three major telcos, Vivo (part of Telefónica), Claro (part of América Móvil) and TIM Brazil, have made a joint bid to buy its mobile assets.

For this trio, opportunities may be opening up. They could, for example, play a key role in making financial services available across Brazil’s sprawling landmass, much of which is still served by inadequate road and rail infrastructure. If they can help Brazil’s increasingly cash-strapped consumers to save time and money, they will likely prosper. Even before COVID-19 struck, Brazil was struggling with the fall-out from an early economic crisis.

At the same time, Brazil’s home entertainment market is in a major state of flux. Demand for pay television, in particular, is falling away, as consumers seek out cheaper Internet-based streaming options.

All of Brazil’s major telcos are building a broad consumer play

Brazil telco consumer market strategy overview

Source: STL Partners

Table of contents

  • Executive Summary
  • Introduction
    • The UK market: Convergence is king
    • BT: Trying to be broad and deep
    • Virgin Media: An aggregation play
    • O2 UK: Changing course again
    • Vodafone: A belated convergence play
    • Three UK: Small and focused
    • Takeaways from the UK market: Triple play gridlock
  • Brazil: Land of new opportunities
    • The Brazilian mobile market
    • The Brazilian fixed-line market
    • The Brazilian pay TV market
    • The travails of Oi
    • Vivo: Playing catch-up in fibre
    • Telefónica’s financial performance
    • América Móvil goes broad in Brazil
    • TIM: Small, but perfectly formed?
    • Takeaways from the Brazilian market: A potentially treacherous transition
  • Index

Fixed wireless access growth: To 20% homes by 2025

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Fixed wireless access growth forecast

Fixed Wireless Access (FWA) networks use a wireless “last mile” link for the final connection of a broadband service to homes and businesses, rather than a copper, fibre or coaxial cable into the building. Provided mostly by WISPs (Wireless Internet Service Providers) or mobile network operators (MNOs), these services come in a wide range of speeds, prices and technology architectures.

Some FWA services are just a short “drop” from a nearby pole or fibre-fed hub, while others can work over distances of several kilometres or more in rural and remote areas, sometimes with base station sites backhauled by additional wireless links. WISPs can either be independent specialists, or traditional fixed/cable operators extending reach into areas they cannot economically cover with wired broadband.

There is a fair amount of definitional vagueness about FWA. The most expansive definitions include cheap mobile hotspots (“Mi-Fi” devices) used in homes, or various types of enterprise IoT gateway, both of which could easily be classified in other market segments. Most service providers don’t give separate breakouts of deployments, while regulators and other industry bodies report patchy and largely inconsistent data.

Our view is that FWA is firstly about providing permanent broadband access to a specific location or premises. Primarily, this is for residential wireless access to the Internet and sometimes typical telco-provided services such as IPTV and voice telephony. In a business context, there may be a mix of wireless Internet access and connectivity to corporate networks such as VPNs, again provided to a specific location or building.

A subset of FWA relates to M2M usage, for instance private networks run by utility companies for controlling grid assets in the field. These are typically not Internet-connected at all, and so don’t fit most observers’ general definition of “broadband access”.

Usually, FWA will be marketed as a specific service and package by some sort of network provider, usually including the terminal equipment (“CPE” – customer premise equipment), rather than allowing the user to “bring their own” device. That said, lower-end (especially 4G) offers may be SIM-only deals intended to be used with generic (and unmanaged) portable hotspots.
There are some examples of private network FWA, such as a large caravan or trailer park with wireless access provided from a central point, and perhaps in future municipal or enterprise cellular networks giving fixed access to particular tenant structures on-site – for instance to hangars at an airport.

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FWA today

Today, fixed-wireless access (FWA) is used for perhaps 8-9% of broadband connections globally, although this varies significantly by definition, country and region. There are various use cases (see below), but generally FWA is deployed in areas without good fixed broadband options, or by mobile-only operators trying to add an additional fixed revenue stream, where they have spare capacity.

Fixed wireless internet access fits specific sectors and uses, rather than the overall market

FWA Use Cases

Source: STL Partners

FWA has traditionally been used in sparsely populated rural areas, where the economics of fixed broadband are untenable, especially in developing markets without existing fibre transport to towns and villages, or even copper in residential areas. Such networks have typically used unlicensed frequency bands, as there is limited interference – and little financial justification for expensive spectrum purchases. In most cases, such deployments use proprietary variants of Wi-Fi, or its ill-fated 2010-era sibling WiMAX.

Increasingly however, FWA is being used in more urban settings, and in more developed market scenarios – for example during the phase-out of older xDSL broadband, or in places with limited or no competition between fixed-network providers. Some cellular networks primarily intended for mobile broadband (MBB) have been used for fixed usage as well, especially if spare capacity has been available. 4G has already catalysed rapid growth of FWA in numerous markets, such as South Africa, Japan, Sri Lanka, Italy and the Philippines – and 5G is likely to make a further big difference in coming years. These mostly rely on licensed spectrum, typically the national bands owned by major MNOs. In some cases, specific bands are used for FWA use, rather than sharing with normal mobile broadband. This allows appropriate “dimensioning” of network elements, and clearer cost-accounting for management.

Historically, most FWA has required an external antenna and professional installation on each individual house, although it also gets deployed for multi-dwelling units (MDUs, i.e. apartment blocks) as well as some non-residential premises like shops and schools. More recently, self-installed indoor CPE with varying levels of price and sophistication has helped broaden the market, enabling customers to get terminals at retail stores or delivered direct to their home for immediate use.

Looking forward, the arrival of 5G mass-market equipment and larger swathes of mmWave and new mid-band spectrum – both licensed and unlicensed – is changing the landscape again, with the potential for fibre-rivalling speeds, sometimes at gigabit-grade.

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Table of contents

  • Executive Summary
  • Introduction
    • FWA today
    • Universal broadband as a goal
    • What’s changed in recent years?
    • What’s changed because of the pandemic?
  • The FWA market and use cases
    • Niche or mainstream? National or local?
    • Targeting key applications / user groups
  • FWA technology evolution
    • A broad array of options
    • Wi-Fi, WiMAX and close relatives
    • Using a mobile-primary network for FWA
    • 4G and 5G for WISPs
    • Other FWA options
    • Customer premise equipment: indoor or outdoor?
    • Spectrum implications and options
  • The new FWA value chain
    • Can MNOs use FWA to enter the fixed broadband market?
    • Reinventing the WISPs
    • Other value chain participants
    • Is satellite a rival waiting in the wings?
  • Commercial models and packages
    • Typical pricing and packages
    • Example FWA operators and plans
  • STL’s FWA market forecasts
    • Quantitative market sizing and forecast
    • High level market forecast
  • Conclusions
    • What will 5G deliver – and when and where?
  • Index

Network convergence: How to deliver a seamless experience

Operators need to adapt to the changing connectivity demands post-COVID19

The global dependency on consistent high-performance connectivity has recently come to the fore as the COVID-19 outbreak has transformed many of the remaining non-digital tasks into online activities.

The typical patterns of networking have broken and a ‘new normal’, albeit possibly a somewhat transitory one, is emerging. The recovery of the global economy will depend on governments, healthcare providers, businesses and their employees robustly communicating and gaining uninhibited access to content and cloud through their service providers – at any time of day, from any location and on any device.

Reliable connectivity is a critical commodity. Network usage patterns have shifted more towards the home and remote working. Locations which were previously light-usage now have high demands. Conversely, many business locations no longer need such high capacity. Utilisation is not expected to return to pre-COVID-19 patterns either, as people and businesses adapt to new daily routines – at least for some time.

The strategies with which telcos started the year have of course been disrupted with resources diverted away from strategic objectives to deal with a new mandate – keep the country connected. In the short-term, the focus has shifted to one which is more tactical – ensuring customer satisfaction through a reliable and adaptable service with rapid response to issues. In the long-term, however, the objectives for capacity and coverage remain. Telcos are still required to reach national targets for a minimum connection quality in rural areas, whilst delivering high bandwidth service demands in hotspot locations (although these hotspot locations might now change).

Of course, modern networks are designed with scalability and adaptability in mind – some recent deployments from new disruptors (such as Rakuten) demonstrate the power of virtualisation and automation in that process, particularly when it comes to the radio access network (RAN). In many legacy networks, however, one area which is not able to adapt fast enough is the physical access. Limits on spectrum, coverage (indoors and outdoors) and the speed at which physical infrastructure can be installed or updated become a bottleneck in the adaptation process. New initiatives to meet home working demand through an accelerated fibre rollout are happening, but they tend to come at great cost.

Network convergence is a concept which can provide a quick and convenient way to address this need for improved coverage, speed and reliability in the access network, without the need to install or upgrade last mile infrastructure. By definition, it is the coming-together of multiple network assets, as part of a transformation to one intelligent network which can efficiently provide customers with a single, unified, high-quality experience at any time, in any place.

It has already attracted interest and is finding an initial following. A few telcos have used it to provide better home broadband. Internet content and cloud service providers are interested, as it adds resilience to the mobile user experience, and enterprises are interested in utilising multiple lower cost commodity backhauls – the combination of which benefits from inherent protection against costly network outages.Request a report extract

Network convergence helps create an adaptable and resilient last mile

Most telcos already have the facility to connect with their customers via multiple means; providing mobile, fixed line and public Wi-Fi connectivity to those in their coverage footprint. The strategy has been to convert individual ‘pure’ mobile or fixed customers into households. The expectation is that this creates revenue increase through bundling and loyalty whilst bringing some added friction into the ability to churn – a concept which has been termed ‘convergence’. Although the customer may see one converged telco through brand, billing and customer support, the delivery of a consistent user experience across all modes of network access has been lacking and awkward. In the end, it is customer dissatisfaction which drives churn, so delivering a consistent user experience is important.

Convergence is a term used to mean many different things, from a single bill for all household connectivity, to modernising multiple core networks into a single efficient core. While most telcos have so far been concentrating on increasing operational efficiency, increasing customer loyalty/NPS and decreasing churn through some initial aspects of convergence, some are now looking into network convergence – where multiple access technologies (4G, 5G, Wi-Fi, fixed line) can be used together to deliver a resilient, optimised and consistent network quality and coverage.

Overview of convergence

Source: STL Partners

As an overarching concept, network convergence introduces more flexibility into the access layer. It allows a single converged core network to utilise and aggregate whichever last mile connectivity options are most suited to the environment. Some examples are:

  • Hybrid Access: DSL and 4G macro network used together to provide extra speed and fallback reliability in hybrid fixed/mobile home gateways.
  • Cell Densification: 5G and Wi-Fi small cells jointly providing short range capacity to augment the macro network in dense urban areas.
  • Fixed Wireless Access: using cellular as a fibre alternative in challenging areas.

The ability to combine various network accesses is attractive as an option for improving adaptability, resilience and speed. Strategically, putting such flexibility in place can support future growth and customer retention with the added advantage of improving operational efficiency. Tactically, it enables an ability to quickly adapt resources to short-term changes in demand. COVID-19 has been a clear example of this need.

Table of Contents

  • Executive Summary
    • Convergence and network convergence
    • Near-term benefits of network convergence
    • Strategic benefits of network convergence
    • Balancing the benefits of convergence and divergence
    • A three-step plan
  • Introduction
    • The changing environment
    • Network convergence: The adaptable and resilient last mile
    • Anticipated benefits to telcos
    • Challenges and opposing forces
  • The evolution to network convergence
    • Everyone is combining networks
    • Converging telco networks
    • Telco adoption so far
  • Strategy, tactics and hurdles
    • The time is right for adaptability
    • Tactical motivators
    • Increasing the relationship with the customer
    • Modernisation and efficiency – remaining competitive
    • Hurdles from within the telco ecosystem
    • Risk or opportunity? Innovation above-the-core
  • Conclusion
    • A three-step plan
  • Index

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5G: Bridging hype, reality and future promises

The 5G situation seems paradoxical

People in China and South Korea are buying 5G phones by the million, far more than initially expected, yet many western telcos are moving cautiously. Will your company also find demand? What’s the smart strategy while uncertainty remains? What actions are needed to lead in the 5G era? What questions must be answered?

New data requires new thinking. STL Partners 5G strategies: Lessons from the early movers presented the situation in late 2019, and in What will make or break 5G growth? we outlined the key drivers and inhibitors for 5G growth. This follow on report addresses what needs to happen next.

The report is informed by talks with executives of over three dozen companies and email contacts with many more, including 21 of the first 24 telcos who have deployed. This report covers considerations for the next three years (2020–2023) based on what we know today.

“Seize the 5G opportunity” says Ke Ruiwen, Chairman, China Telecom, and Chinese reports claimed 14 million sales by the end of 2019. Korea announced two million subscribers in July 2019 and by December 2019 approached five million. By early 2020, The Korean carriers were confident 30% of the market will be using 5G by the end of 2020. In the US, Verizon is selling 5G phones even in areas without 5G services,  With nine phone makers looking for market share, the price in China is US$285–$500 and falling, so the handset price barrier seems to be coming down fast.

Yet in many other markets, operators progress is significantly more tentative. So what is going on, and what should you do about it?

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5G technology works OK

22 of the first 24 operators to deploy are using mid-band radio frequencies.

Vodafone UK claims “5G will work at average speeds of 150–200 Mbps.” Speeds are typically 100 to 500 Mbps, rarely a gigabit. Latency is about 30 milliseconds, only about a third better than decent 4G. Mid-band reach is excellent. Sprint has demonstrated that simply upgrading existing base stations can provide substantial coverage.

5G has a draft business case now: people want to buy 5G phones. New use cases are mostly years away but the prospect of better mobile broadband is winning customers. The costs of radios, backhaul, and core are falling as five system vendors – Ericsson, Huawei, Nokia, Samsung, and ZTE – fight for market share. They’ve shipped over 600,000 radios. Many newcomers are gaining traction, for example Altiostar won a large contract from Rakuten and Mavenir is in trials with DT.

The high cost of 5G networks is an outdated myth. DT, Orange, Verizon, and AT&T are building 5G while cutting or keeping capex flat. Sprint’s results suggest a smart build can quickly reach half the country without a large increase in capital spending. Instead, the issue for operators is that it requires new spending with uncertain returns.

The technology works, mostly. Mid-band is performing as expected, with typical speeds of 100–500Mbps outdoors, though indoor performance is less clear yet. mmWave indoor is badly degraded. Some SDN, NFV, and other tools for automation have reached the field. However, 5G upstream is in limited use. Many carriers are combining 5G downstream with 4G upstream for now. However, each base station currently requires much more power than 4G bases, which leads to high opex. Dynamic spectrum sharing, which allows 5G to share unneeded 4G spectrum, is still in test. Many features of SDN and NFV are not yet ready.

So what should companies do? The next sections review go-to-market lessons, status on forward-looking applications, and technical considerations.

Early go-to-market lessons

Don’t oversell 5G

The continuing publicity for 5G is proving powerful, but variable. Because some customers are already convinced they want 5G, marketing and advertising do not always need to emphasise the value of 5G. For those customers, make clear why your company’s offering is the best compared to rivals’. However, the draw of 5G is not universal. Many remain sceptical, especially if their past experience with 4G has been lacklustre. They – and also a minority swayed by alarmist anti-5G rhetoric – will need far more nuanced and persuasive marketing.

Operators should be wary of overclaiming. 5G speed, although impressive, currently has few practical applications that don’t already work well over decent 4G. Fixed home broadband is a possible exception here. As the objective advantages of 5G in the near future are likely to be limited, operators should not hype features that are unrealistic today, no matter how glamorous. If you don’t have concrete selling propositions, do image advertising or use happy customer testimonials.

Table of Contents

  • Executive Summary
  • Introduction
    • 5G technology works OK
  • Early go-to-market lessons
    • Don’t oversell 5G
    • Price to match the experience
    • Deliver a valuable product
    • Concerns about new competition
    • Prepare for possible demand increases
    • The interdependencies of edge and 5G
  • Potential new applications
    • Large now and likely to grow in the 5G era
    • Near-term applications with possible major impact for 5G
    • Mid- and long-term 5G demand drivers
  • Technology choices, in summary
    • Backhaul and transport networks
    • When will 5G SA cores be needed (or available)?
    • 5G security? Nothing is perfect
    • Telco cloud: NFV, SDN, cloud native cores, and beyond
    • AI and automation in 5G
    • Power and heat

Telcos in healthcare: Winning in a long game, Babylon, and the impact of 5G

Introduction: telcos in healthcare

This is a summary of some of the learnings from another fascinating session at the TELUS Carrier Health Summit in Toronto, May 22nd 2019. This is an annual gathering that was hosted by TELUS Global Solutions for telcos and their partners in healthcare.

Of the hosts, Fawad Shaikh, VP TELUS Global Solutions, said it ran this years’ session because it wants “to develop an alliance of like-minded telcos in health”. David Thomas, VP TELUS Health Solutions, added that “healthcare has to be delivered locally, which is a real plus for telcos. Yet we all need to gain global scale to compete, so it is a great opportunity for non-competitive collaboration.”

About sixty people from telcos and health tech companies were there this year, and the audience was global, with representatives from Latin America, N America, Europe, the Middle East, Asia and Australasia.

STL Partners presented its research on nine telco healthcare studies, and caught up with participants, including Dr Ali Parsa, CEO and founder of Babylon Health, and Mairi Johnson, its Global Partnerships Director.

Healthcare: the problem to be solved

Healthcare is one of our favourite examples of the drive behind the Coordination Age. The explanation is simple:

The problem with healthcare in most economies is not that there isn’t great medicine and healthcare professionals. It’s getting it all delivered to the patients at the right time and at a cost that’s affordable.

This is fundamentally a coordination problem: bringing the right assets (whether physical or digital – a nurse, a treatment, or the patients’ records) together for the patient. Then maintaining the order throughout the patients’ treatment, and indeed, their lives.

All healthcare systems face multiple mounting pressures: growing and ageing populations, greater costs, skills challenges, and more pressure on funding from other sources to name a few.

There’s money in health

It’s also an area of HUGE expenditure. PWC’s Tara McCarville shared figures showing that:

  • Global healthcare spend is forecast to grow from $9.7 Trillion in 2014, to $18 Trillion in 2040, growing at 21% CAGR over the next 5 years.
  • Even so, it’s perhaps surprising that 84% of Fortune 50 companies are engaged in healthcare in some way.

Given this, it’s less surprising to note that the big tech players are seriously engaged in digital health too, with Amazon’s recent tie up with JP Morgan and Berkshire Hathaway to create the Haven Group being the most eye-catching. Others between CVS and Aetna, and Sanofi and Click Therapies involve less broadly familiar names, but are weighty nonetheless.

From a government perspective the numbers are big too. In the UK for example, which is one of the EU’s lower healthcare spenders per capita, the NHS’s annual bill is currently £154 billion, and it’s forecast to rise to £188 billion in 15 years (to 2033).

A 5% tax rise?

Without borrowing, this would lead to something like a 5% increase in overall taxation. Over 98% of UK tax funding is from ‘general taxation and national insurance’ – so mainly income tax, VAT and ongoing employment contributions.  In other words, people would have to pay.

Despite the UK’s love of the NHS, a permanent 5% tax rise would draw many concerned breaths from both politicians and the public. The need to find better solutions is genuinely pressing.

(NB Try out this calculator made by the Institute of Fiscal Studies if you fancy yourself as a policy guru. To fund healthcare, would you raise taxes, cut pensions, defence, or education?)

Figure 2: The Institute of Fiscal Studies’ (IFS) Health Budget Calculator

IFS NHS Budget Calculator
Meeting the NHS’s future funding needs would mean a 5% UK tax rise

Source: https://explore.ifs.org.uk/tools/nhs_funding/tool NB At £154bn, the Health spending category is already bigger than all those above.

The rest of the report contains:

  • The road to Babylon – one of the ways ahead?
  • Some telcos are scared by health, others are serious about it
  • 5G, Healthcare – or both?
  • Conclusions: telcos in healthcare – making a long game a good one

And includes the following figures:

  • Figure 1: How to succeed in telco health – key learnings from the Summit
  • Figure 2: The Institute of Fiscal Studies’ (IFS) Health Budget Calculator
  • Figure 3: Babyl has particular strength in Rwanda’s rural areas
  • Figure 4: A flavour of Babylon’s UK online offering
  • Figure 5: Pros and cons of telcos in healthcare
  • Figure 6: Telstra’s National Cervical Cancer Screening programme benefits
  • Figure 7: Telcos face a serious choice in Capex / Opex investments

Investing in original content: Is it worth it?

Introduction

An in-depth analysis of whether telcos can make money from original content, this executive briefing builds on previous STL reports exploring the role of telcos in entertainment and advertising:

This new report evaluates the success of AT&T, BT and Swisscom’s original content and related distribution strategies, as well as identifying lessons to be learnt. It also appraises their investment in original content, exclusive content (e.g. sport) and buying content creators (e.g. Time Warner).

Following the acquisition of Time Warner, AT&T is a content owner and content distribution colossus. What is its underlying objective for providing a wide range of over-the-top (OTT) services, including DTV Now (satellite TV service delivered over-the-top) and AT&T Watch (live and on demand content)? How will content from Time Warner’s acquisition in June 2018 be incorporated into its products?

Has BT’s head on clash with Sky in the market with live sports met expectations? Has its heavy investment in football grown its revenue take, broadband subscriptions and attracted eyeballs?

Swisscom has grown to become Switzerland’s largest TV provider, using live sports as its differentiator. What other initiatives have contributed to its market leadership and can it maintain its dominance?

The case for investing in original content

Telcos typically invest in original content to achieve three objectives:

  • to open up new sources of revenue (direct subscription sales, wholesale distribution and ads sales)
  • to increase sales of core telco services/products (e.g. fixed broadband)
  • to raise their profile, increase their relevance and build brand loyalty.

But trying to pursue all these objectives simultaneously requires some difficult compromises – maximising content revenues means distributing the content as widely as possible, which means it no longer becomes a competitive differentiator through which to sell connectivity and build loyalty to the core proposition. In any case, regulators may require telcos to make some original content, notably the rights to live sport, available to competitors.

Therefore, achieving all of these objectives requires telcos to perform a delicate balancing act between making their content widely available and integrating it with the core connectivity proposition from both a technical perspective (using a cloud-based or physical set-top box) and a commercial perspective (attractive bundles and/or zero-rating the content). They need to perform this balancing act at a time when the digital entertainment market is in upheaval – customers in many markets are migrating from traditional pay TV (one or two year contracts) to video-on-demand subscriptions (month-by-month).

Not all content is equal

Ownership of sports rights should guarantee an audience linked to the size of the fanbase. Investing in original content, such as dramas, is far riskier. For every series of The Crown, a Netflix hit airing its third series in 2019, there is Marco Polo that cost US$200 million, cancelled after two series and an abject failure. Telco shareholders would baulk at taking such risks, given many have qualms about BT’s investment in Premier League rights (32 matches a season, 2019-22), which are equivalent to £9.2 million per game.

Alternatively, telcos could purchase a content developer/media company with a back catalogue of proven programming, as AT&T has done by buying Time Warner in June 2018. Investment in original content is a differentiator for pay TV providers (e.g. Sky) as well as over-the-top players (e.g. Netflix). Netflix has dramatically increased its investment in original content from its early foray with the House of Cards. During 2018 Netflix invested about US$6.8 billion in original content, including films, simultaneously screening some films at cinemas (e.g. Coen brothers’ The Ballad of Buster Scruggs).

However, the audience for expensively-created content is finite. They are binge watching fewer shows. In the USA, according to Hub Entertain Research, viewers watched an average of 4.4 favourite shows in 2018, compared to 5.2 in 2016. These viewers increasingly find out about favourite shows through advertisements and watch them on an video-on-demand service.

More and more competition

Although they benefit from economies of scale and scope, the major global online players are not oblivious to the risks of creating original content. Amazon somewhat mitigates the risk by using co-production. Amazon is working with pay TV companies (e.g. Sky / Sky Atlantic) as well as public service broadcasters (BBC). The co-production of content with Sky provides Amazon with the rights to show series outside Sky’s footprint. For the BBC, a junior partner in the relationship, it gets to air the co-produced programmes after Amazon has shown them (e.g. the final three series of Ripper Street). Apple is also investing US$1 billion in original content, which will be distributed by its new streaming service[1]. The new service, business model unknown, will also be accessible on non-Apple products. New Samsung, Sony, LG and Vizio TVs will support Apple iTunes movies and TV shows[2].

It is not just the major Internet platforms that are competing with telcos for eyeballs. Major content rights owners are also taking their first steps to launch direct-to-consumer services. The Disney Play streaming service will launch in late 2019, once its existing distribution agreement with Netflix comes to an end. New sports streaming services are vying for attention, e.g. DAZN owns the rights to English Premier League (EPL) in Germany, Switzerland, Austria and Japan, as well as combat sports (e.g. Matchroom Boxing and UFC) and other sports. Many sports federations also provide direct-to-consumer streaming services, alongside the sale of linear TV sports rights. These include The National Hockey League’s NHL.TV and National Football League’s GamePass in the USA, and the English Football League (EFL)’s iFollow service in the UK. Consumers outside the UK can also pay to stream EFL matches.

The importance of multiple content distribution models

But it is not just about having the right content: consumers also want the right commercial proposition. Pay TV providers recognise that not all consumers are willing to sign-up to 12- or 18-month contracts. Falling pay TV subscription rates, and a realisation that one-size doesn’t fit all has seen the emergence of month-to-month skinny pay TV packages. These offers may or may not be packaged with broadband connectivity.

Those that do subscribe to traditional pay TV will not subscribe to a second pay TV subscription, but many households are willing to subscribe to more than one additional over-the-top service. Half of the video-on-demand (SVOD) subscribers in the UK subscribe to more than one VOD service (Amazon, Netflix, NOW TV), and 71% of households with a VOD service also have a pay TV subscription (according to GfK SVOD Tracker).

There are essentially four key roles in the content value chain, identified and discussed by STL partners in previous reports. These roles are programme, package, platform and pipe. Traditionally, telcos’ primary objective is to sell as many pipes as possible. To that end, they offer packages of content (generally TV channels), which are sold on a subscription basis or offered for no fee, supported by advertising. A platform is used to distribute the channels, films and other content created and curated by another entity.

Telco content distribution models

four ways to monetise original content: pay TV, bundling and OTT

Source: STL Partners

Telco revenue from content and related services

An in-depth analysis of telcos’ return on investment in sports or film rights or original content is tricky. Telcos are not in the habit of revealing content revenue data. Figure 5 summarises the main metrics that need to be considered to evaluate the effectiveness of telcos’ investment in content.

The revenues that telcos can generate from content consist primarily of:

  1. Sale of the content to consumers
  2. Sale of banner, video and TV ads that sit / roll alongside the content
  3. Wholesale of content via third-party platforms
  4. Net additions of broadband / mobile pipes, increased ARPU/C and reduction in user/connection churn, increase in broadband / mobile pipe revenue.

Measuring return on investments in content

measuring original content ROI through direct sales, advertisement, wholesale and connectivity

Source: STL Partners

In the rest of this report, we evaluate AT&T, BT and Swisscom against these criteria.

Contents:

  • Executive Summary
  • Introduction
  • The case for investing in original content
  • More and more competition
  • The importance of multiple content distribution models
  • Telco revenue from content and related services
  • Swisscom sells content with strings attached
  • Investing in rights holders to secure original content
  • It is about the packaging, as well as the content
  • Limited advertising
  • Enriching the viewer experience
  • Mixed financial results
  • BT and its big bet on live sport
  • BT TV reaches an inflexion point
  • BT TV – getting more expensive
  • Is BT Sport changing direction?
  • BT’s broader branding strategy
  • BT as a content aggregator
  • BT Sport is available to rivals’ pay TV customers
  • Is BT making a financial return?
  • Is there a case for continued investment?
  • AT&T takes on Netflix
  • King of content?
  • DirecTV Now: A lackluster start
  • Takeaways: Walking a tightrope between old and new
  • A shaky financial performance to date
  • Conclusions

Figures:

  1. The differing strategies of Swisscom, BT and AT&T
  2. AT&T’s Entertainment Group is dragging down the broader business
  3. Rating the different elements of telcos’ original content strategy
  4. Telco content distribution models
  5. Measuring return on investments in content
  6. Swisscom’s TV subscriptions and market share
  7. Summary of Swisscom’s TV products
  8. Cost and availability of Teleclub Sport
  9. The growth in Swisscom’s TV Connections and Bundles
  10. Swisscom’s content strategy hasn’t arrested the decline in wireline revenues
  11. Swisscom’s ballpark annual revenue run rate from TV
  12. BT TV packages, February 2019 compared to end 2015
  13. BT has bought more low-grade matches and is paying less per game
  14. How BT tries to monetise its sports content
  15. A breakdown of BT’s brands and target segments
  16. BT Sport App packages across its multiple brands
  17. How BT is using content partnerships to broaden its offering
  18. BT Sport has helped to drive a major uplift in annual revenue
  19. BT’s Consumer Division has struggled to increase profitability
  20. BT’s TV and broadband customers are now flatlining
  21. Growth in BT TV and BT Sport connections has tailed off
  22. BT’s consumer fixed line revenue has been fairly flat
  23. BT Sport residential and commercial revenue estimates 2018 and 2022
  24. AT&T’s telecom, media and entertainment businesses (February 2019)
  25. AT&T’s pay TV and SVOD services (as of February 2019)
  26. The Entertainment Group’s revenues are slipping
  27. AT&T’s traditional pay TV business is in decline
  28. AT&T’s broadband connections are fairly flat
  29. AT&T’s Entertainment Group is seeing its top line squeezed
  30. AT&T is combining inventory to help increase ad spend

[1] Apple TV will be launched in 2019 https://www.fool.com/investing/2018/12/15/apples-original-content-ambitions-are-growing.aspx,  https://www.macworld.co.uk/news/apple/apple-streaming-service-3610603/

[2] Content can be streamed from an Apple device using Apple’s AirPlay wireless streaming protocol stack, which will be integrated into TVs.

Why fibre is on fire again

Introduction

Fibre to the home is growing at a near-explosive rate

Every company faces the problems of mature markets, disappointing revenues and tough decisions on investment. Everyone agrees that fibre delivers the best network experience, but until recently most companies rejected fibre as too costly.

Now, 15 of the world’s largest phone companies have decided fibre to the home is a solution. Why are so many now investing so heavily?

Here are some highlight statistics:

  • On 26th July 2018, AT&T announced it will pass 5 million locations with fibre to the home in the next 12 months, after reaching 3 million new locations in the last year.[1] Fibre is now a proven money-maker for the US giant, bringing new customers every quarter.
  • Telefónica Spain has passed 20 million premises – over 70% of the addressable population – and continues at 2 million a year.
  • Telefónica Brazil is going from 7 million in 2018 to 10 million in 2020.
  • China’s three giants have 344 million locations connected.[2]
  • Worldwide FTTH connections grew 23% between Q1 2017 and Q1 2018.[3]
  • In June 2018, China Mobile added 4.63 million broadband customers, nearly all FTTH.[4]
  • European FTTH growth in 2017 was 20%.[5]
  • In India, Mukesh Ambani intends to connect 50 million homes at Reliance Jio.[6]


Even the most reluctant carriers are now building, including Deutsche Telekom and British Telecom. In 2015, BT Openreach CTO Peter Bell said FTTH was “impossible” for Britain because it was too expensive.[7] Now, BT is hiring 3,500 engineers to connect 3 million premises, with 10 million more homes under consideration.[8]

Credit Suisse believes that for an incumbent, “The cost of building fibre is less than the cost of not building fibre.”

Contents:

  • Executive Summary
  • Introduction
  • Fibre to the home is growing at a near-explosive rate
  • Why the change?
  • Strategies of leading companies
  • Frontrunners
  • Moving toward rapid growth
  • Relative newcomer
  • The newly converted
  • Alternate carriers
  • Naysayers
  • U.S. regionals: CenturyLink, Frontier and Windstream
  • The Asian pioneers
  • Two technologies to consider
  • Ten-gigabit equipment
  • G.fast
  • The hard question: How many will decide to go wireless only?

Figures:

  • Figure 1: Paris area fibre coverage – Orange has covered most of the capital
  • Figure 2: European fibre growth
  • Figure 3: Top five European incumbents, stock price July 2016 – July 2018
  • Figure 4: DT CEO Tim Höttges and Bavarian Prime Minister Dr. Markus Söder announce a deal to fibre nearly all of Bavaria, part financed by the government

[1] https://www.fastnet.news/index.php/11-fib/715-at-t-fiber-run-rate-going-from-3m-to-5m-year

[2] https://www.fastnet.news/index.php/8-fnn/713-china-1-1b-4g-400m-broadband-328m-fibre-home-rapid-growth

[3] http://point-topic.com/free-analysis/world-broadband-statistics-q1-2018/

[4] https://www.chinamobileltd.com/en/ir/operation_m.php

[5] http://www.ftthcouncil.eu/documents/PressReleases/2018/PR%20Market%20Panorama%20-%2015-02-2018-%20FINAL.pdf

[6] https://www.fastnet.news/index.php/11-fib/703-india-unreal-jio-wants-50m-ftth-in-1100-cities

[7] G.fast Summit May 2015

[8] https://www.theguardian.com/business/2018/feb/01/bt-openreach-hire-3000-engineers-drive-to-fill-broadband-not-spots

SDN / NFV: Early Telco Leaders in the Enterprise Market

Introduction

This report builds on a number of previous analyses of the progress and impact of SDN (Software-Defined Networking) and NFV (Network Functions Virtualization), both in the enterprise market and in telecoms more generally. In particular, this briefing aims to explore in more detail the market potential and dynamics of two new SDN / NFV-based enterprise services that were discussed as part of an analysis of revenue opportunities presented by ‘telco cloud’ services.

These two services are ‘Network as a Service’ (NaaS) and ‘enterprise virtual CPE’ (vCPE). ‘Network as a Service’ refers to any service that enables enterprise customers to directly configure the parameters of their corporate network, including via a user-friendly portal or APIs. This particularly involves the facility to scale up or down the bandwidth available on network links – either on a near-real-time or scheduled basis – and to establish new network connections on demand, e.g. between business sites and / or data centers. Examples of NaaS include AT&T’s Network On Demand portfolio and Telstra’s PEN service, both of which are discussed further below.

‘Enterprise virtual CPE’, as the name suggests, involves virtualizing dedicated networking equipment sited traditionally at the enterprise premises, so as to offer equivalent functionality in the form of virtual network appliances in the cloud, delivered over COTS hardware. Virtual network functions (VNFs) offered in this form typically include routing, firewalls, VPN, WAN optimization, and others; and the benefit to telcos of offering vCPE is that it provides a platform to easily cross- and upsell additional functionality, particularly in the areas of application and network performance and security.

The abbreviation ‘vCPE’ is also used for consumer virtual CPE, which involves replacing complicated routers, TV set-top boxes and gateway equipment used in the home with simplified devices running equivalent functions from the cloud. For the purposes of this report, when we use the term ‘vCPE’, we refer to the enterprise version of the term, unless otherwise stated.

The reason why this report focuses on NaaS and vCPE is that more commercial services of these types have been launched or are planned than is the case with any other SDN / NFV-dependent enterprise service. Consequently, the business models are becoming more evident, and it is possible to make an assessment of the revenue potential of these services.

Our briefing ‘New Revenue Growth from Telco Cloud’ (published in April 2016) modeled the potential impact of SDN / NFV-based services on the revenues of a large illustrative telco with a significant presence in both fixed and mobile, and enterprise and consumer, segments in a developed market similar to the UK. This concluded that such a telco introducing all of the SDN / NFV services that are expected to become commercially mature over the period 2017 to 2021 could expect to generate a monthly revenue uplift of some X% (actual figures available in full report) by the end of 2021 compared with the base case of failing to launch any such service.

Including only revenues directly attributable to the new services (as opposed to ‘core revenues’ – e.g. from traditional voice and data services – that are boosted by reduced churn and net customer additions deriving from the new services), vCPE and NaaS represent the two largest sources of new revenue: Y and Z percentage points respectively out of the total X% net revenue increase deriving from SDN / NFV, as illustrated in Figure 1 (Figure not shown – actual figures available in full report).

Figure 1: Telco X – Net new revenue by service category (Dec 2021)

Figure not shown – available in full report

Source: STL Partners analysis

In terms of NaaS and vCPE specifically, the model assumes that Telco X will begin to roll out these services commercially in January and February 2017 respectively. This is a realistic timetable for some in our view, as several commercial NaaS and vCPE offerings have already been launched, and future launches have been announced, by telcos across North America, Europe and the Asia-Pacific region.

In the rest of this briefing, we will:

  • present the main current and planned NaaS and vCPE services
  • analyze the market opportunities and competitive threats they are responding to
  • analyze in more detail the different types and combinations of NaaS and vCPE offerings, and their business models
  • assess these services’ potential to grow telco revenues and market share
  • and review how these offerings fit within operators’ overall virtualization journeys.

We will conclude with an overall assessment of the prospects for NaaS and vCPE: the opportunities, and also the risks of inaction.

  • Executive Summary
  • Introduction
  • Current and planned NaaS and vCPE products
  • Opportunities and threats addressed by NaaS and vCPE
  • NaaS and vCPE: emerging offers and business models
  • Revenue growth potential of NaaS and vCPE
  • Relationship between SDN / NFV deployment strategy and operator type
  • Conclusion: NaaS and vCPE – a short-term window of opportunity to a long-term virtual future

 

  • Figure 1: Telco X – Net new revenue by service category (Dec 2021)
  • Figure 2: Leading current and planned commercial NaaS and vCPE services
  • Figure 3: Cumulative NaaS and vCPE launches, 2013-16
  • Figure 4: Verizon SD-WAN as part of Virtual Network Services vCPE offering
  • Figure 5: COLT’s cloud-native VPN and vCPE
  • Figure 6: Evolution of vCPE delivery modes
  • Figure 7: SD-WAN-like NaaS versus SD-WAN
  • Figure 8: Base case shows declining revenues
  • Figure 9: Telco X – Telco Cloud services increase monthly revenues by X% on the base case by Dec 2021
  • Figure 10: NaaS and vCPE deployments by operator type and overall SDN / NFV strategy
  • Figure 11: Progression from more to less hybrid deployment of NaaS and vCPE across the telco WAN

Telco NFV & SDN Deployment Strategies: Six Emerging Segments

Introduction

STL Partners’ previous NFV and SDN research

This report continues the analysis of three previous reports in exploring the NFV (Network Functions Virtualization) and SDN (Software Defined Networking) journeys of several major telcos worldwide, and adds insights from subsequent research and industry discussions.

The first two reports that STL Partners produced contained detailed discussion of the operators that have publicly engaged most comprehensively with NFV: Telefónica and AT&T.

Telefónica embarked on an ambitious virtualization program, dubbed ‘UNICA’, toward the start of 2014; but its progress during 2014 and 2015 was impeded by internal divisions, lack of leadership from top management, and disagreement over the fundamental technology roadmap. As a result, Telefónica has failed to put any VNFs (Virtualized Network Functions) into production; although it continues to be a major contributor to industry efforts to develop open NFV standards.

By contrast, AT&T’s virtualization program, the User-Defined Network Cloud (UDNC) – launched at the same time as Telefónica’s, in February 2014 – has already contributed to a substantial volume of live NFV deployments, including on-demand networking products for enterprise customers and virtual EPC (Enhanced Packet Core) supporting mobile data and connected car services. AT&T’s activities have been driven from board level, with a very focused vision of the overall transformation that is being attempted – organizational as much as technological – and the strategic objectives that underlie it: those of achieving the agility, scalability and cost efficiency required to compete with web-scale players in both enterprise and consumer markets.

The third report in the series – ‘7 NFV Hurdles: How DTAG, NTT, Verizon, Vodafone, Swisscom and Comcast have tackled them’  – extended the analysis to the SDN and NFV deployment efforts of several other major operators. The report arrived at a provisional model for the stages of the SDN / NFV transformation process, outlined in Figure 1 below.

Figure 1: The SDN-NFV Transformation Process

The transformation process outlined in the chart suggests that elaborating the overall SDN architecture should ideally precede the NFV process: logically if not always chronologically. This is because it is essential to have a vision of the ‘final’ destination, even if – or especially as – operators are navigating their way through a shifting myriad of technology choices, internal change programs, engagements with vendor and open-source ecosystems, priorities and opportunities for virtualization, legacy system migration models, and processes for service and business remodeling.

The focus of this report

This report re-examines some of the analysis undertaken on the players above, along with some additional players, to derive a more fine-grained understanding of the virtualization journeys of different types of telco.

We examine these journeys in relation to five dimensions and the analysis focuses on the choices operators have made in these areas, and how things have turned out so far. This, in turn, allows us to pinpoint six telco segments for SDN and NFV deployment.

There is no ‘one size fits all’ approach to SDN and NFV. However, because the operators we examine have a similar rationale for engaging in SDN- and NFV-led transformation and display sufficient commonality in their approach to deployment, STL Partners has been able to make three core best-practice implementation recommendations.

 

  • Executive summary
  • Contents
  • Introduction
  • STL Partners’ previous NFV and SDN research
  • The focus of this report
  • Virtualization journeys: 6 telco segments
  • The Story So Far: AT&T and Telefónica
  • ‘NFV Business Model Transformation Pioneers’: BT, China Mobile, NTT and Verizon
  • ‘Smart Piper Incumbent’: AT&T and Deutsche Telekom
  • ‘Fly Blind Incumbent’: Telefónica and Swisscom
  • ‘Agile Adopter’: Tele2
  • ‘Utilitarian adopters’: Vodafone and SingTel
  • ‘Cableco 2.0’: Comcast and Liberty Global
  • Conclusion and Best Practice Recommendations

How BT beat Apple and Google over 5 years

BT Group outperformed Apple and Google

Over the last five years, the share price of BT Group, the UK’s ex-incumbent telecoms operator, has outperformed those of Apple and Google, as well as a raft of other telecoms shares. The following chart shows BT’s share price in red and Apple’s in in blue for comparison.

Figure 1:  BT’s Share Price over 5 Years

Source: www.stockcharts.com

Now of course, over a longer period, Apple and Google have raced way ahead of BT in terms of market capitalisation, with Apple’s capital worth $654bn and Google $429bn USD compared to BT’s £35bn (c$53bn USD).

And, with any such analysis, where you start the comparison matters. Nonetheless, BT’s share price performance during this period has been pretty impressive – and it has delivered dividends too.

The total shareholder returns (capital growth plus all dividends) of shares in BT bought in September 2010 are over 200% despite its revenues going down in the period.

So what has happened at BT, then?

Sound basic financials despite falling revenues

Over this 5 year period, BT’s total revenues fell by 12%. However, in this period BT has also managed to grow EBITDA from £5.9bn to £6.3bn – an impressive margin expansion.   This clearly cannot go on for ever (a company cannot endlessly shrink its way to higher profits) but this has contributed to positive capital markets sentiment.

Figure 2: BT Group Revenue and EBITDA 2010/11 – 2014/15

[Figure 2]

Source: BT company accounts, STL Partners

BT pays off its debts

BT has also managed to reduce its debt significantly, from £8.8bn to £5.1bn over this period.

Figure 3: BT has reduced its debts by more than a third (£billions)

 

Source: BT company accounts, STL Partners

Margin expansion and debt reduction suggests good financial management but this does not explain the dramatic growth in firm value (market capitalisation plus net debt) from just over £20bn in March 2011 to circa £40bn today (based on a mid-September 2015 share price).

Figure 4: BT Group’s Firm Value has doubled in 5 Years

Source: BT company accounts, STL Partners

  • Introduction: BT’s Share Price Miracle
  • So what has happened at BT, then?
  • Sound basic financials despite falling revenues
  • Paying off its debts
  • BT Sport: a phenomenal halo effect?
  • Will BT Sport continue to shine?
  • Take-Outs from BT’s Success

 

  • Figure 1: BT’s Share Price over 5 Years
  • Figure 2: 5-Year Total Shareholder Returns Vs Revenue Growth for leading telecoms players
  • Figure 3: BT Group Revenue and EBITDA 2010/11-2014/15
  • Figure 4: BT has reduced its debts by more than a third (£billions)
  • Figure 5: BT Group’s Firm Value has doubled in 5 Years
  • Figure 6: BT Group has improved key market valuation ratios
  • Figure 7: BT ‘broadband and TV’ compared to BT Consumer Division
  • Figure 8: Comparing Firm Values / Revenue Ratios
  • Figure 9: BT Sport’s impact on broadband

BT/EE: Huge Regulatory Headache and Trigger for European Transformation

UK Cellular: The Context

The UK is a high-penetration market (134%), and has for the most part been considered a high-competition one, with 5 MNOs and numerous resellers/MVNOs. However, since the Free.fr and T-Mobile USA price disruptions, the UK has ceased to be one of the cheaper markets among rich countries and now seems a little expensive by French standards, while the EE joint venture effectively means a move down from 5 operators to 4. There has been considerable concern that a price disruption was in the offing since BT acquired 2.6GHz spectrum, perhaps via a “Free-style” BT deployment, or alternatively via BT leasing the spectrum to a third party, possibly Virgin Media or TalkTalk. However, it is not as obvious that there is a big target for price disruption as it was in France pre-Free or the US pre-T-Mobile, as Figure 1 shows. The UK operators are only slightly dearer than the French average, with one exception, and the market is more competitive.

Figure 1: The UK is a slightly dearer cellular market than France

Source: STL Partners, themobileworld.com

The following chart summarises the current status of the operators.

Figure 2: UK mobile market overview, 2012-2014

Source: Company Accounts, STL Partners analysis

One reason to pick EE over O2 is immediately clear – EE has substantially better ARPU, is increasing it, and is at least holding onto customers. A deeper look into the company shows that the 4G network is just recruiting customers fast enough to compensate for churn away from the two legacy networks. Overall, the market is just growing.

Figure 3: UK cellular subscriber growth, 2012-2014

Source: Company Accounts, STL Partners analysis

O2 is the cheapest of the four 4G operators and is discounting hard to win share. Meanwhile, Vodafone UK starts to look like a squeezed third operator, losing customers and ARPU at the same time, and fourth operator 3UK looks remarkably strong. In terms of profitability, Figure 4 shows that Vodafone is just managing to hold its margins, while O2 is growing at constant margins, EE is improving its margins, and 3UK is powering ahead, improving its margins, ARPU, and subscriber base at the same time.

Figure 4: 3UK is a remarkably strong fourth operator

Source: Company Accounts, STL Partners analysis

 

  • UK Cellular: The Context
  • Meanwhile, in the Retail ISP Market
  • The Business Case for BT+EE
  • An affordable deal?
  • Valuation and leverage
  • Synergy: operational cost savings
  • Synergy: marketing, customer data and cross-sales
  • Synergy: quad-play revenue
  • Can a BT-EE merger be acceptable to the Regulator?
  • The Spectrum Position
  • The Vertical Integration Problem
  • The Move towards Convergence and the Fixed Squeeze Potential Scenarios
  • Conclusion: big bets, tests, and signals
  • BT: betting big
  • The market: three big decisions
  • The regulator and the regulatory environment: a big test
  • Sending important signals

 

  • Figure 1: The UK is a slightly dearer cellular market than France
  • Figure 2: UK mobile market overview, 2012-2014
  • Figure 3: UK cellular subscriber growth, 2012-2014
  • Figure 4: 3UK is a remarkably strong fourth operator
  • Figure 5: UK consumer wireline overview
  • Figure 6: FTTC is mostly benefiting the “major independent” ISPs
  • Figure 7: BT Sport has peaked as a driver of broadband net-adds, but the football rights bills keep coming
  • Figure 8: Content costs are eating around 70% of wholesale fibre revenue at BT
  • Figure 9: BT Sport’s impact on its market valuation
  • Figure 10: BT-EE would blow through the 2013 regulatory cap on spectrum allocations, but not the proposed cap post-2.3/3.4GHz auctions
  • Figure 11: Although BT-EE is just compliant with the 2.3/3.4GHz cap, it looks suspiciously dominant
  • Figure 12: Fibre-rich MNOs break away from the herd of mediocrity in Europe Figure 13: Vodafone – light on fibre across the EU

Will AT&T shed copper, fibre-up, or buy more content – and what are the lessons?

Looking Back to 2012

In version 1.0 of the Telco 2.0 Transformation Index, we identified a number of key strategic issues at AT&T that would mark it in the years to come. Specifically, we noted that the US wireless segment, AT&T Mobility, had been very strong, powered by iPhone data plans, that by contrast the consumer wireline segment, Home Solutions, had been rather weak, and that the enterprise segment, Business Solutions, faced a massive “crossing the chasm” challenge as its highly valuable customers began a technology transition that exposed them to new competitors, such as cloud computing providers, cable operators, and dark-fibre owners.

Figure 1: AT&T revenues by reporting segment, 2012 and 2014

AT&T revenues by reporting segment, 2012 and 2014

Source: Telco 2.0 Transformation Index

We noted that the wireless segment, though strong, was behind its great rival Verizon Wireless for 4G coverage and capacity, and that the future of the consumer wireline segment was dependent on a big strategic bet on IPTV content, delivered over VDSL (aka “fibre to the cabinet”).

In Business Solutions, newer products like cloud, M2M services, Voice 2.0, and various value-added networking services, grouped in “Strategic Business Services”, had to scale up and take over from traditional ones like wholesale circuit voice and Centrex, IP transit, classic managed hosting, and T-carriers, before too many customers went missing. The following chart shows the growth rates in each of the reporting segments over the last two years.

Figure 2: Revenue growth by reporting segment, 2-year CAGR

Revenue growth by reporting segment, 2-year CAGR

Source: Telco 2.0 Transformation Index

Out of the three major segments, wireless, consumer wireline, and business solutions, we can see that wireless is performing acceptably (although growth has slowed down), business solutions is in the grip of its transition, and wireline is just about growing. Because wireless is such a big segment (see Figure 1), it contributes a disproportionate amount to the company’s top line growth. Figure 2 shows revenue in the wireline segment as an index with Q2 2011 set to 100.

Figure 3: Wireline overall is barely growing…

AT&T Wireline Revenue

 Source: Telco 2.0 Transformation Index

Back in 2012, we summed up the consumer wireline strategy as being all about VDSL and TV. The combination, plus voice, makes up the product line known as U-Verse, which we covered in the Telco 2.0 Transformation Index. We were distinctly sceptical, essentially because we believe that broadband is now the key product in the triple-play and the one that sells the other elements. With cable operators routinely offering 100Mbps, and upgrades all the way to gigabit speeds in the pipeline, we found it hard to believe that a DSL network with “up to” 45Mbps maximum would keep up.

 

  • Executive Summary
  • Contents
  • Looking Back to 2012
  • The View in 2014
  • The DirecTV Filing
  • Getting out of consumer wireline
  • The business customers: jewel in the crown of wireline
  • Conclusion

 

  • Figure 1: AT&T revenues by reporting segment, 2012 and 2014
  • Figure 2: Revenue growth by reporting segment, 2-year CAGR
  • Figure 3: Wireline overall is barely growing…
  • Figure 4: It’s been a struggle for all fixed operators to retain customers – except high-speed cablecos Comcast and Charter
  • Figure 5: AT&T is 5th for ARPU, by a distance
  • Figure 6: AT&T’s consumer wireline ARPU is growing, but it is only just enough to avoid falling further behind
  • Figure 7: U-Verse content sales may have peaked
  • Figure 8: For the most important speed band, the cable option is a better deal
  • Figure 9: Revenue – only cablecos left alive…
  • Figure 10: Broadband “drives” bundles…
  • Figure 11: …or do bundles drive broadband?

A Practical Guide to Implementing Telco 2.0

 

Detailed table of contents

Section

Sub-sections

Part One: Identifying Telco 2.0 Opportunities

Developing the Right Telco 2.0 Strategy

  • Applying Porter’s thinking to the current telecoms market
  • Generic Telco 2.0 strategic options
  • Telco 2.0 strategies: how they drive shareholder returns
  • Which Telco 2.0 strategy for your organisation
  • Strategy comparison case studies: A Telco 2.0 Happy Piper (Vodafone UK) versus Telco 2.0 Service Player (O2)

Identifying & Prioritising Telco 2.0 Innovations

  • A taxonomy of Telco 2.0 opportunities
  • From isolated innovations to an integrated platform
  • Two approaches to identifying Telco 2.0 innovations
  • Approaches
  • Case study:  The STL Partners Innovation Scouting Service
  • Evaluating the potential opportunities: a structured approach to screening

Part Two: Implementing Telco 2.0 Opportunities

Introduction

  • A framework for innovation and business model transformation for telecoms

Service Offerings: Bringing Telco 2.0 Propositions to Market

  • A 12-stage end-to-end process for service development
    1. 1. Customer intentions and draft press release
    2. 2. Detailed value proposition and use cases
    3. 3. Fast validation with users
    4. 4. Capabilities assessment and own/partner role definitions
    5. 5. Revenue and cost models
    6. 6. Evaluation and business case
    7. 7. Competition and regulation
    8. 8. Technology and build process
    9. 9. Proof of Concept and final build
    10. 10. Sales and marketing
    11. 11. Launch
    12. 12. Evaluation and continuous development
  • Case studies: Vodafone 360, O2 Priority Moments
  • Checklists and templates for each stage

Value Network: Internal – Getting the Organisation Right to Deliver Telco 2.0 Innovation

  • Centralised versus decentralized organization structures
  • Integrating Telco 2.0 into the core organisation versus creating an independent unit
  • Case studies on different approaches: Telefonica and KPN

Value Network: External – Partnering to Grow the Pie

  • Evaluating closed versus open business models
  • Collaborating with other operators – when and how to do it
  • Working with other service providers – start-ups, established vendors and ‘OTT players’
  • Determining when to collaborate and when to compete

Technology: Prioritising Activities to Support Business Transformation

  • Understanding the developing demands on IT resources
  • Priority new functional area: Customer data
  • Approaches to IT transformation: Big Bang versus Continuous Improvement
  • Evaluating IT transformation approaches: a structured screening methodology
  • Case studies on IT transformation approaches: Vodafone and Telefonica

Finance: Optimising the Telco 2.0 Revenue & Cost Model

  • Revenue drivers: key revenue models and sources of revenue
  • Cost drivers: key types of cost and cost models
  • A framework for guiding decisions about revenue and cost management
  • Implications of new business models on financial and operational metrics

Marketplace: Managing the Regulatory Environment

  • Making the case against net neutrality…
  • …and for the ability to collaborate with other telecoms players to build value
  • Recommended next steps for CEOs

Strategy 2.0: Lessons from Vodafone’s success in European SMB Communications

Summary:  Vodafone have been quietly stealing a march in the European SMB communications market with a well executed strategy centred on its OneNet cloud-based product. We look at how, including comparisons with BT, Telenor, and others. (May 2012, Executive Briefing Service)

Vodafone Voice Analysis May 2012

  Read in Full (Members only)  Buy a single user license online  To Subscribe click here

Below is an extract from this 24 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service here. Non-members can subscribe here, buy a Single User license for this report online here for £795 (+VAT for UK buyers), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

We’ll also be discussing our findings at the London (12-13 June) New Digital Economics Brainstorm where we’ll be joined by Bob Brace, Vodafone’s Head of Cloud and Unified Comms, in the Cloud 2.0 stream.

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Introduction – Challenges and Opportunities in Voice and Unified Communications

Although voice minutes of use are still rising slowly worldwide, it is increasingly the case that the predictions of falling revenues from traditional services are becoming a reality, and sooner than expected. A combination of regulatory pressures, price competition between operators, and disruptive competition from new entrants is crushing margins. 

Figure 1: Skype Punishes Carriers on International Voice

Skype Punishes Carriers on International Voice

Source: TeleGeography

Most worryingly, the continued huge growth in volumes at Skype and the popularity of alternative messaging options like WhatsApp, BlackBerry Messenger, and Apple’s iMessenger show that the disruption is disproportionately affecting the most profitable segments of the traditional telecoms bundle – international and SMS respectively. 

Increasingly, small and medium-sized businesses (SMBs), another key line of business, are turning to the growing numbers of independent VoIP providers. And, more broadly, voice, messaging, and video conferencing features are being disaggregated and diversified, showing up in all kinds of software, hardware, and Web service contexts – exactly as we predicted in 2007.

Again as we predicted, voice is more and more being delivered as part of a broader communications product. In the enterprise, this typically manifests itself as a “unified communications” (unicomms or UC) application, integrating telephony, voicemail, e-mail, and often also instant messaging, presence-and-availability, teleconferencing, and collaboration tools. This can be delivered on-premises, for example by an Asterisk system or an integrated hardware appliance like the ones Cisco sells, as a Web service (like Huddle or Salesforce Chatter), as a hosted/cloud-based network service, or as a telecomms operator service (like IP-Centrex).

In this context, some operators are not just surviving but succeeding. There is not only crisis here, but also opportunity. Cisco forecasts that there is a world market for $20bn of hosted unified-comms services, making up about 40% of the total “managed” UC market. Vodafone expects a 25% CAGR over the next four years in both UC and cloud services for SMBs and enterprises, with a total European market of $15bn in 2015. As for the broader communications market, BT estimates that the total UK SMB communications market is worth some £29bn from 4.8 million customers.

Figure 2: Cisco estimates $20bn of hosted unified communications, $50bn “managed”

Cisco Estimates $20bn of Hosted Unified Communications
Source: Cisco Systems, STL Partners

The drivers are clear – SMB customers are keen to get rid of the costs of owning and managing local PBXes on the one hand, to enjoy the (perceived) low, low prices of VoIP, and also to upgrade their communications services from the early 1990s GSM feature set plus the late 1990s BlackBerry e-mail service to something more in keeping with the age of Google +, the Apple iPhone, and Skype. 

At the same time, operators are in search of new sources of revenue to replace the business and international voice and SMS cash cows. As always, they also need to find applications that sell-through their basic connectivity products. Hardware vendors are keen to extend their own businesses, which are challenged by the availability of open-source software and cloud-based services. And the software and Internet service players are trying, in their turn, to defend against the remorseless drift towards “free”.

In this note, we will discuss three European operators’ response to the challenge and the results, and we will also discuss how the vigorous Voice 2.0 disruptor ecosystem relates to the SMB core market. We will start with an example of success – Vodafone.

Figure 3: Why SMB & enterprise UC is a priority at Vodafone

Why SMB & Enterprise UC is a Priority at Vodafone
Source: Vodafone interim report

Vodafone: clear definitions and responsibilities pay off

In the UK, this space is dominated by two players, Vodafone and the ex-incumbent BT. Their results contrast dramatically. 

Vodafone is aggressively promoting a cloud-based UC package, OneNet, to its SMB customers in the six biggest European markets, and looking to roll it out across the wider Vodafone Group. 

Meet Vodafone OneNet: Unified Comms in the Cloud for SMBs

OneNet is a cloud-based unicomms product, which offers single numbers for both fixed and mobile telephony, advanced call management, multi-ring and hunt groups, and voicemail integrated with push e-mail across mobile devices, fixed phones, and VoIP softphones, with a single bill and central account management via a Web interface and a smartphone app. Vodafone also offer Office 365 from Microsoft as an extra cost option and later this year (2012) will offer integration between One Net and Microsoft Lync enabling “click to call from Microsoft applications and the ability to answer an incoming call to a mobile number in Lync.

OneNet Express is a lightweight version of the product for small businesses, offering virtual landline numbers and some call management features, as well as the account management service, for mobile lines only. Both versions of the product are delivered as pure network services, running in Vodafone’s core network.

A Note on the Accounts

Although Vodafone is increasingly keen to boast about its performance in the SMB and enterprise markets, it doesn’t yet provide a line-of-business analysis in its accounts. However, we’ve constructed a roughly comparable data series, based on the growth figures Vodafone does provide, its own statement that 31% of its European revenue is from business customers, and its geographical segment breakdowns. 

A caveat must be introduced in that Vodafone Global Enterprises (VGE), the large enterprise & government business roughly analogous to BT Global Services, is included in the Vodafone series while BTGS is broken out in the BT accounts. BT does not provide a breakdown of BTGS revenue detailed enough to create an identical BT series. However, as we will soon see, it is unlikely that Global Services have contributed enough growth to falsify the conclusion we are about to draw.

In the six OneNet markets (Germany, Italy, Spain, the UK, the Czech Republic, and Portugal) through 2011, revenue growth averaged 4.8%, and it is worth noting that there is substantial momentum. Q1 saw sequential growth of 2.4%, Q2 4.85%, and Q3 7.38%. In the market and economic context, this is a spectacular performance.

Figure 4: Vodafone Is Doing Far Better In The UK

Vodafone is Doing Far Better in the UK
Source: STL Partners, Vodafone, BT

In the last 7 quarters, Vodafone’s revenue from UK business customers grew in 6 of them. It beat BT in every one of the quarters we looked at. Not only is it growing quite quickly, while BT’s is shrinking dramatically, it is almost three times as big in absolute terms (although some of this will be down to the differences in segment allocation). 

In Europe more broadly, the same picture is visible even more strongly, with the SMB segment growing at 5-8%% in major markets like Germany and Italy, and accounting for most of the growth in final ARPU. Although Vodafone’s south European interests are in the firing line of the economic crisis, this line of business has been remarkably robust. In the last three months of 2011, service revenue in Italy shrank almost 5 per cent – but revenue from SMBs and enterprises rose 1.9%. At the same time, service revenue in Germany grew 0.3%, but the OneNet target markets grew 5%. In Q2, service revenue in Italy was down 4.1%, but enterprise was up 5.8%, and OneNet itself was growing at 70% annually. In Germany, at the other end of the European economic spectrum, enterprise was up 6.6% year on year compared with total service revenue at 1.2%.

Figure 5: OneNet Markets Doing Rather Nicely, Thanks

OneNet Markets Doing Rather Nicely, Thanks
Source: Vodafone interim results presentation, November 2011

To read the note in full, including the following additional analysis…

  • BT: Incumbent or Innovator?
  • BT Voice: Volumes Shrinking…
  • Two other European operator plays
  • Telenor: The Same Factors, the Same Success?
  • So, How Did Vodafone Do It?
  • Compare and Contrast: Vodafone 360
  • The Disruptors: Twilio, Tropo, and friends
  • The Future: beyond hunt groups
  • Conclusions & Recommendations
  • 1: Service design
  • 2: Organisational focus
  • 3: Channels to market
  • 4: Cloud and software power
  • The Telco 2.0™ Initiative

…and the following figures…

  • Figure 1: Skype Punishes Carriers on International Voice
  • Figure 2: Cisco estimates $20bn of hosted unified communications, $50bn “managed”
  • Figure 3: Why SMB & enterprise UC is a priority at Vodafone
  • Figure 4: Vodafone Is Doing Far Better In The UK
  • Figure 5: OneNet Markets Doing Rather Nicely, Thanks
  • Figure 6: Enterprise & SMB Outgrowing Vodafone Group Revenues in last two quarters
  • Figure 7: BT Group strategic priorities
  • Figure 8: BT Organisational Structure – an SMB might touch all of these
  • Figure 9: BT Global Services revenues year-on-year
  • Figure 10: BT losing call volume in the UK…
  • Figure 11: A simple proposition
  • Figure 12: Enterprise revenue in Turkey growing 33% sequentially
  • Figure 13: Cisco’s view of SMB, Developer, and Enterprise Requirements

Members of the Telco 2.0 Executive Briefing Subscription Service can download the full 24 page report in PDF format hereNon-Members, please subscribe here, buy a Single User license for this report online here for £795 (+VAT for UK buyers), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Technologies and industry terms referenced: SMBs, strategy, voice, unified communications, channel marketing, partners, business model, Vodafone, BT, Telenor, Twilio, Tropo, VOIP.

 

‘Under-The-Floor’ (UTF) Players: threat or opportunity?

Introduction

The ‘smart pipe’ imperative

In some quarters of the telecoms industry, the received wisdom is that the network itself is merely an undifferentiated “pipe”, providing commodity connectivity, especially for data services. The value, many assert, is in providing higher-tier services, content and applications, either to end-users, or as value-added B2B services to other parties. The Telco 2.0 view is subtly different. We maintain that:

  1. Increasingly valuable services will be provided by third-parties but that operators can provide a few end-user services themselves. They will, for example, continue to offer voice and messaging services for the foreseeable future.
  2. Operators still have an opportunity to offer enabling services to ‘upstream’ service providers such as personalisation and targeting (of marketing and services) via use of their customer data, payments, identity and authentication and customer care.
  3. Even if operators fail (or choose not to pursue) options 1 and 2 above, the network must be ‘smart’ and all operators will pursue at least a ‘smart network’ or ‘Happy Pipe’ strategy. This will enable operators to achieve three things.
  • To ensure that data is transported efficiently so that capital and operating costs are minimised and the Internet and other networks remain cheap methods of distribution.
  • To improve user experience by matching the performance of the network to the nature of the application or service being used – or indeed vice versa, adapting the application to the actual constraints of the network. ‘Best efforts’ is fine for asynchronous communication, such as email or text, but unacceptable for traditional voice telephony. A video call or streamed movie could exploit guaranteed bandwidth if possible / available, or else they could self-optimise to conditions of network congestion or poor coverage, if well-understood. Other services have different criteria – for example, real-time gaming demands ultra-low latency, while corporate applications may demand the most secure and reliable path through the network.
  • To charge appropriately for access to and/or use of the network. It is becoming increasingly clear that the Telco 1.0 business model – that of charging the end-user per minute or per Megabyte – is under pressure as new business models for the distribution of content and transportation of data are being developed. Operators will need to be capable of charging different players – end-users, service providers, third-parties (such as advertisers) – on a real-time basis for provision of broadband and maybe various types or tiers of quality of service (QoS). They may also need to offer SLAs (service level agreements), monitor and report actual “as-experienced” quality metrics or expose information about network congestion and availability.

Under the floor players threaten control (and smartness)

Either through deliberate actions such as outsourcing, or through external agency (Government, greenfield competition etc), we see the network-part of the telco universe suffering from a creeping loss of control and ownership. There is a steady move towards outsourced networks, as they are shared, or built around the concept of open-access and wholesale. While this would be fine if the telcos themselves remained in control of this trend (we see significant opportunities in wholesale and infrastructure services), in many cases the opposite is occurring. Telcos are losing control, and in our view losing influence over their core asset – the network. They are worrying so much about competing with so-called OTT providers that they are missing the threat from below.

At the point at which many operators, at least in Europe and North America, are seeing the services opportunity ebb away, and ever-greater dependency on new models of data connectivity provision, they are potentially cutting off (or being cut off from) one of their real differentiators.
Given the uncertainties around both fixed and mobile broadband business models, it is sensible for operators to retain as many business model options as possible. Operators are battling with significant commercial and technical questions such as:

  • Can upstream monetisation really work?
  • Will regulators permit priority services under Net Neutrality regulations?
  • What forms of network policy and traffic management are practical, realistic and responsive?

Answers to these and other questions remain opaque. However, it is clear that many of the potential future business models will require networks to be physically or logically re-engineered, as well as flexible back-office functions, like billing and OSS, to be closely integrated with the network.
Outsourcing networks to third-party vendors, particularly when such a network is shared with other operators is dangerous in these circumstances. Partners that today agree on the principles for network-sharing may have very different strategic views and goals in two years’ time, especially given the unknown use-cases for new technologies like LTE.

This report considers all these issues and gives guidance to operators who may not have considered all the various ways in which network control is being eroded, from Government-run networks through to outsourcing services from the larger equipment providers.

Figure 1 – Competition in the services layer means defending network capabilities is increasingly important for operators Under The Floor Players Fig 1 Defending Network Capabilities

Source: STL Partners

Industry structure is being reshaped

Over the last year, Telco 2.0 has updated its overall map of the telecom industry, to reflect ongoing dynamics seen in both fixed and mobile arenas. In our strategic research reports on Broadband Business Models, and the Roadmap for Telco 2.0 Operators, we have explored the emergence of various new “buckets” of opportunity, such as verticalised service offerings, two-sided opportunities and enhanced variants of traditional retail propositions.
In parallel to this, we’ve also looked again at some changes in the traditional wholesale and infrastructure layers of the telecoms industry. Historically, this has largely comprised basic capacity resale and some “behind the scenes” use of carriers-carrier services (roaming hubs, satellite / sub-oceanic transit etc).

Figure 2 – Telco 1.0 Wholesale & Infrastructure structure

Under The Floor (UTF) Players Fig 2 Telco 1.0 Scenario

Source: STL Partners

Content

  • Revising & extending the industry map
  • ‘Network Infrastructure Services’ or UTF?
  • UTF market drivers
  • Implications of the growing trend in ‘under-the-floor’ network service providers
  • Networks must be smart and controlling them is smart too
  • No such thing as a dumb network
  • Controlling the network will remain a key competitive advantage
  • UTF enablers: LTE, WiFi & carrier ethernet
  • UTF players could reduce network flexibility and control for operators
  • The dangers of ceding control to third-parties
  • No single answer for all operators but ‘outsourcer beware’
  • Network outsourcing & the changing face of major vendors
  • Why become an under-the-floor player?
  • Categorising under-the-floor services
  • Pure under-the-floor: the outsourced network
  • Under-the-floor ‘lite’: bilateral or multilateral network-sharing
  • Selective under-the-floor: Commercial open-access/wholesale networks
  • Mandated under-the-floor: Government networks
  • Summary categorisation of under-the-floor services
  • Next steps for operators
  • Build scale and a more sophisticated partnership approach
  • Final thoughts
  • Index

 

  • Figure 1 – Competition in the services layer means defending network capabilities is increasingly important for operators
  • Figure 2 – Telco 1.0 Wholesale & Infrastructure structure
  • Figure 3 – The battle over infrastructure services is intensifying
  • Figure 4 – Examples of network-sharing arrangements
  • Figure 5 – Examples of Government-run/influenced networks
  • Figure 6 – Four under-the-floor service categories
  • Figure 7: The need for operator collaboration & co-opetition strategies

Customer Experience 2.0: Back to the Future of Voice (BT Presentation)

Customer Experience: Back to the Future of Voice. Colin Lees of BT on the future of the UK voice service and the transformation of BT’s service platform. Presentation from EMEA Brainstorm, November 2011. (November 2011, Executive Briefing Service, Cloud & Enterprise ICT Stream)

Download presentation here.

Links here for more on New Digital Economics brainstorms and Transformation, Strategy, and Technology, or call +44 (0) 207 247 5003.