Why the consumer IoT is stuck in the slow lane

A slow start for NB-IoT and LTE-M

For telcos around the world, the Internet of Things (IoT) has long represented one of the most promising growth opportunities. Yet for most telcos, the IoT still only accounts for a low single digit percentage of their overall revenue. One of the stumbling blocks has been relatively low demand for IoT solutions in the consumer market. This report considers why that is and whether low cost connectivity technologies specifically-designed for the IoT (such as NB-IoT and LTE-M) will ultimately change this dynamic.

NB-IoT and LTE-M are often referred to as Massive IoT technologies because they are designed to support large numbers of connections, which periodically transmit small amounts of data. They can be distinguished from broadband IoT connections, which carry more demanding applications, such as video content, and critical IoT connections that need to be always available and ultra-reliable.

The initial standards for both technologies were completed by 3GPP in 2016, but adoption has been relatively modest. This report considers the key B2C and B2B2C use cases for Massive IoT technologies and the prospects for widespread adoption. It also outlines how NB-IoT and LTE-M are evolving and the implications for telcos’ strategies.

This builds on previous STL Partners’ research, including LPWA: Which way to go for IoT? and Can telcos create a compelling smart home?. The LPWA report explained why IoT networks need to be considered across multiple generations, including coverage, reliability, power consumption, range and bandwidth. Cellular technologies tend to be best suited to wide area applications for which very reliable connectivity is required (see Figure below).

IoT networks should be considered across multiple dimensions

IoT-networks-disruptive-analysis-stl-2021
Source: Disruptive Analysis

 

Enter your details below to request an extract of the report


 

The smart home report outlined how consumers could use both cellular and short-range connectivity to bolster security, improve energy efficiency, charge electric cars and increasingly automate appliances. One of the biggest underlying drivers in the smart home sector is peace of mind – householders want to protect their properties and their assets, as rising population growth and inequality fuels fear of crime.

That report contended that householders might be prepared to pay for a simple and integrated way to monitor and remotely control all their assets, from door locks and televisions to solar panels and vehicles.  Ideally, a dashboard would show the status and location of everything an individual cares about. Such a dashboard could show the energy usage and running cost of each appliance in real-time, giving householders fingertip control over their possessions. They could use the resulting information to help them source appropriate insurance and utility supply.

Indeed, STL Partners believes telcos have a broad opportunity to help coordinate better use of the world’s resources and assets, as outlined in the report: The Coordination Age: A third age of telecoms. Reliable and ubiquitous connectivity is a key enabler of the emerging sharing economy in which people use digital technologies to easily rent the use of assets, such as properties and vehicles, to others. The data collected by connected appliances and sensors could be used to help safeguard a property against misuse and source appropriate insurance covering third party rentals.

Do consumers need Massive IoT?

Whereas some IoT applications, such as connected security cameras and drones, require high-speed and very responsive connectivity, most do not. Connected devices that are designed to collect and relay small amounts of data, such as location, temperature, power consumption or movement, don’t need a high-speed connection.

To support these devices, the cellular industry has developed two key technologies – LTE-M (LTE for Machines, sometimes referred to as Cat M) and NB-IoT (Narrowband IoT). In theory, they can be deployed through a straightforward upgrade to existing LTE base stations. Although these technologies don’t offer the capacity, throughput or responsiveness of conventional LTE, they do support the low power wide area connectivity required for what is known as Massive IoT – the deployment of large numbers of low cost sensors and actuators.

For mobile operators, the deployment of NB-IoT and LTE-M can be quite straightforward. If they have relatively modern LTE base stations, then NB-IoT can be enabled via a software upgrade. If their existing LTE network is reasonably dense, there is no need to deploy additional sites – NB-IoT, and to a lesser extent LTE-M, are designed to penetrate deep inside buildings. Still, individual base stations may need to be optimised on a site-by-site basis to ensure that they get the full benefit of NB-IoT’s low power levels, according to a report by The Mobile Network, which notes that operators also need to invest in systems that can provide third parties with visibility and control of IoT devices, usage and costs.

There are a number of potential use cases for Massive IoT in the consumer market:

  • Asset tracking: pets, bikes, scooters, vehicles, keys, wallets, passport, phones, laptops, tablets etc.
  • Vulnerable persontracking: children and the elderly
  • Health wearables: wristbands, smart watches
  • Metering and monitoring: power, water, garden,
  • Alarms and security: smoke alarms, carbon monoxide, intrusion
  • Digital homes: automation of temperature and lighting in line with occupancy

In the rest of this report we consider the key drivers and barriers to take-up of NB-IoT and LTE-M for these consumer use cases.

Table of Contents

  • Executive Summary
  • Introduction
  • Do consumers need Massive IoT?
    • The role of eSIMs
    • Takeaways
  • Market trends
    • IoT revenues: Small, but growing
  • Consumer use cases for cellular IoT
    • Amazon’s consumer IoT play
    • Asset tracking: Demand is growing
    • Connecting e-bikes and scooters
    • Slow progress in healthcare
    • Smart metering gains momentum
    • Supporting micro-generation and storage
    • Digital buildings: A regulatory play?
    • Managing household appliances
  • Technological advances
    • Network coverage
  • Conclusions: Strategic implications for telcos

 

Enter your details below to request an extract of the report


 

The Telco Cloud Manifesto

Telco cloud: A key enabler of the Coordination Age

The Coordination Age is coming

As we have set out in our company manifesto, STL Partners believes that we are entering a new ‘Coordination Age’ in which technological developments will enable governments, enterprises, and consumers to coordinate their activities more effectively than ever before. The results of better and faster coordination will be game-changing for society as resources are distributed and used more effectively than ever before leading to substantial social, economic, and health benefits.

A critical component of the Coordination Age is the universal availability of flexible, fast, reliable, low-latency networks that support a myriad of applications which, in turn, enable a complex array of communications, decisions, transactions, and processes to be completed quickly and, in many cases, automatically without human intervention.  The network remains key: without it being fit for purpose the ability to match demand and supply real-time is impossible.

Enter your details below to download the report extract

How telecoms can define a new role

Historically, telecoms networks have been created using specialist dedicated (proprietary) hardware and software.  This has ensured networks are reliable and secure but has also stymied innovation – from operators and from third-parties – that have found leveraging network capabilities challenging.  In fact, innovation accelerated with the arrival of the Internet which enabled services to be decoupled from the network and run ‘over the top’.

But the Coordination Age requires more from the network than ever before – applications require the network to be flexible, accessible and support a range of technical and commercial options. Applications cannot run independently of the network but need to integrate with it. The network must be able to impart actionable insights and flex its speed, bandwidth, latency, security, business model and countless other variables quickly and autonomously to meet the needs of applications using it.

Telco cloud – the move to a network built on common off-the-shelf hardware and flexible interoperable software from best-of-breed suppliers that runs wherever it is needed – is the enabler of this future.

 

Table of Contents

  • Executive Summary
  • Telco cloud: A key enabler of the Coordination Age
    • The Coordination Age is coming
    • How telecoms can define a new role
  • Telco cloud: The growth enabler for the telecoms industry
    • Telecoms revenue growth has stalled, traffic has not
    • Telco cloud: A new approach to the network
    • …a fundamental shift in what it means to be an operator
    • …and the driver of future telecoms differentiation and growth
  • Realising the telco cloud vision
    • Moving to telco cloud is challenging
    • Different operator segments will take different paths

Enter your details below to download the report extract

Growing B2B revenues from edge: Five new telco services

=======================================================================================

Download the additional file on the left for the PPT chart pack accompanying this report

=======================================================================================

Edge computing has sparked significant interest from telcos

Edge computing brings cloud capabilities such as data processing and storage closer to the end user, device, or the source of data. There are two main opportunity areas for telcos in edge computing. Firstly, telcos have an opportunity to provide edge computing via edge data centres at sites on the telecoms network – network edge, sometimes referred to as multi-access edge computing. Secondly, telcos can offer edge-enabled services through compute platforms at the customer premises – on-premise edge.

Although there is an opportunity for telcos to offer new services and an enhanced customer experience to their consumer customer base, much of the edge computing opportunity for telcos is in the B2B segment. We have covered the general strategy operators are taking for edge computing in our previous report Telco edge computing: What’s the operator strategy? and through insights on our Edge Hub. Within enterprise, edge offers a chance for operators to move beyond offering connectivity services and extend into the platform and application space.

However, the market is still young; enterprises are still at an early stage of understanding the potential benefits of edge computing. There is limited availability of network edges; telcos are still deploying sites and few have begun to offer mechanisms to access the edge compute infrastructure within them. As a result, developers are only just starting to build applications to leverage this new infrastructure.

Enter your details below to request an extract of the report


Telcos are still grappling with defining the opportunity. Since adoption is so nascent, many feel that they are not able to prove the commercial case to unlock significant investment. Some operators are pushing ahead by building out edge infrastructure, securing partnerships and launching edge computing services. Nonetheless, even these operators are keeping an open mind to edge and waiting to see what unfolds as the market matures. What is clear is that, with the hyperscalers and others moving into the edge, telcos are increasingly keen to capitalise on the edge opportunity and solidify their position in the market before it’s too late.

The sweet spot opportunity for edge is highly dependent on telcos’ starting points: some have existing capabilities within B2B networking and cloud, partnerships, and strong customer relationships. But for other telcos, the B2B business is at a very early stage. Meanwhile, edge infrastructure build differs across telcos, with some choosing to partner with hyperscalers to create the hardware and software stack within edge data centres while others are opting to build their own stack.

It is therefore critical for telcos to:

  1. Assess whether they can leverage existing B2Bservices, customers and partners versus where they need to invest to fill the gaps
  2. Understand which factors may affect how successful they are in offering new edgeservices
  3. Prioritise which servicesthey could offer to B2B customers

In this report, we focus on answering the following questions:

Which B2B services can edge computing add value to? And how ready are telcos to take new edge services to market?

In order to better understand how operators are thinking about edge services and what they are looking to offer today, we interviewed eight technology and strategy leaders working in operators primarily across Europe.

To ensure an open and candid dialogue, we have anonymised their contributions. We would like to take the opportunity to thank those who participated in this research. A summary of the interviewee profiles is provided in the Appendix.

Telcos’ B2B businesses today

As consumer revenues come under increasing pressure, operators are looking to their B2B businesses to provide a new source of revenue growth. The maturity of their B2B businesses today varies from those who have a limited offering focussed primarily on phones, SIMs and basic connectivity (particularly mobile-only telcos, e.g. Three UK), to those who are providing full vertical applications or taking on the role of systems integrator (often incumbents or telcos with fixed networks, e.g. DTAG, Vodafone). Many telcos are looking for opportunities to take on more of the latter role, by expanding their B2B offerings and increasing their foothold in the value chain e.g. by offering managed services. Particularly with the arrival of 5G, they see greater potential to grow revenues through B2B services compared with B2C.

Maturity levels of telcos’ B2B business

Table of content

  • Executive Summary
  • Introduction
  • Strategic principles for B2B telco edge
    • Telcos’ B2B businesses today
    • Three telco strategies for B2B edge
    • On-premise edge and network edge are separate opportunities
    • Telcos are open to partnering with the hyperscalers for edge
  • Five types of B2B edge services
    • Edge-to-cloud networking
    • Private edge infrastructure
    • Network edge platforms
    • Multi-edge and cloud orchestration
    • Vertical solutions
  • Evaluating the opportunity: How should telcos prioritise?
    • It’s not just about technology
    • However, significant value creation does not come easy
    • Telcos should consider new business models to ensure success
  • Next steps for telcos in building B2B edge services
    • Prioritise services to monetise edge
    • Evaluate the role of partners
    • Work closely with customers given that edge is still nascent
  • Appendix
    • Interviewee overview
  • Index

Enter your details below to request an extract of the report


Reliance Jio: Learning from India’s problem solver

=======================================================================================

Download the additional file on the left for the PPT chart pack accompanying this report

=======================================================================================

Introduction

This year marks the 25th anniversary of mobile networks in India. The huge potential of the market has attracted many players (even as recently as 2016, there were 12 mobile operators in India). But most have had their fingers burned by the complexities of this market, as well as intense competition, particularly following the entry of Reliance Jio in September 2016.

In the past four years, Reliance Jio has gone from strength to strength, becoming the leading telco in terms of mobile subscriber numbers in December 2019, dramatically expanding internet access and driving adoption of digital services across the country. It is not an exaggeration to say that Jio played a major role in the digital transformation of India to date.

Evidence of Jio’s impact on the Indian market

Source: STL Partners

Jio leads Indian telecoms

By delivering broad societal progress and value, Jio has been able to overcome many of the regulatory and political challenges that have hindered other new entrants to the Indian telecoms market. Jio is in good standing as regards its future ambitions in the digital environment, helping it to attract over USD20 billion in investment between April and July 2020 from Facebook, Google and other international investors.

In India, Reliance Jio has trialled elements of a Coordination Age approach, setting out to solve various socio-economic problems by matching supply and demand, while moving up the value chain to unlock further sources of revenue growth.

At the time of Jio’s entry, India was still predominantly a 3G market, with voice calls being the main application. Although there were a multitude of plans on offer and the retail price per minute was among the lowest in the world, mobile communications remained out of reach for many (not helped by high license and spectrum fees that translated into upward pressure on pricing).

Reliance Industries recognised an opportunity to use the advent of 4G technology to build a data-first telecoms player that could support its wider aspirations to develop a globally competitive technology business in India. Accordingly, it obtained a nationwide license to operate a 4G network and encouraged take-up with a promotion that offered customers free voice calls forever.

The existing operators rushed to defend their market positions by dropping their prices resulting in a price war that destroyed value in the market and has led to consolidation and insolvencies such that, aside from Jio, only two privately-owned operators remain – with the real possibility that the market will shrink further and become a duopoly.

STL Partners covered the success of Jio’s disruptive market entry strategy in Telco-Driven Disruption: Will AT&T, Axiata, Reliance Jio and Turkcell succeed? report in 2017. This report considers Jio’s strategy in the context of the Coordination Age. It looks at what this has meant for the market and highlights the implications for operators in other developing markets.

Enter your details below to request an extract of the report


Table of Contents

  • Executive Summary
  • Introduction
  • Interventionist government shapes market
    • Mobile market overview
    • The shifting sands of policy
  • Jio overtakes the incumbents
  • The rise of Reliance Jio
    • Leveraging the strength of a conglomerate
    • Restructuring and renewal
  • Major emphasis on partnerships
    • Start-ups
    • Global technology partners
  • Competitor positions
    • Bharti Airtel faring better than Vodafone Idea
    • Competitors’ relationship with the government
  • Conclusions
    • Lessons for telcos in developing markets
  • Index

Enter your details below to request an extract of the report


Cloud gaming: What’s the telco play?

To access the report chart pack in PPT download the additional file on the left

Drivers for cloud gaming services

Although many people still think of PlayStation and Xbox when they think about gaming, the console market represents only a third of the global games market. From its arcade and console-based beginnings, the gaming industry has come a long way. Over the past 20 years, one of the most significant market trends has been growth of casual gamers. Whereas hardcore gamers are passionate about frequent play and will pay more to play premium games, casual gamers play to pass the time. With the rapid adoption of smartphones capable of supporting gaming applications over the past decade, the population of casual/occasional gamers has risen dramatically.

This trend has seen the advent of free-to-play business models for games, further expanding the industry’s reach. In our earlier report, STL estimated that 45% of the population in the U.S. are either casual gamers (between 2 and 5 hours a week) or occasional gamers (up to 2 hours a week). By contrast, we estimated that hardcore gamers (more than 15 hours a week) make up 5% of the U.S. population, while regular players (5 to 15 hours a week) account for a further 15% of the population.

The expansion in the number of players is driving interest in ‘cloud gaming’. Instead of games running on a console or PC, cloud gaming involves streaming games onto a device from remote servers. The actual game is stored and run on a remote compute with the results being live streamed to the player’s device. This has the important advantage of eliminating the need for players to purchase dedicated gaming hardware. Now, the quality of the internet connection becomes the most important contributor to the gaming experience. While this type of gaming is still in its infancy, and faces a number of challenges, many companies are now entering the cloud gaming fold in an effort to capitalise on the new opportunity.

5G can support cloud gaming traffic growth

Cloud gaming requires not just high bandwidth and low latency, but also a stable connection and consistent low latency (jitter). In theory, 5G promises to deliver stable ultra-low latency. In practice, an enormous amount of infrastructure investment will be required in order to enable a fully loaded 5G network to perform as well as end-to-end fibre5G networks operating in the lower frequency bands would likely buckle under the load if lots of gamers in a cell needed a continuous 25Mbps stream. While 5G in millimetre-wave spectrum would have more capacity, it would require small cells and other mechanisms to ensure indoor penetration, given the spectrum is short range and could be blocked by obstacles such as walls.

Request a report extract

A complicated ecosystem

As explained in our earlier report, Cloud gaming: New opportunities for telcos?, the cloud gaming ecosystem is beginning to take shape. This is being accelerated by the growing availability of fibre and high-speed broadband, which is now being augmented by 5G and, in some cases, edge data centres. Early movers in cloud gaming are offering a range of services, from gaming rigs, to game development platforms, cloud computing infrastructure, or an amalgamation of these.

One of the main attractions of cloud gaming is the potential hardware savings for gamers. High-end PC gaming can be an extremely expensive hobby: gaming PCs range from £500 for the very cheapest to over £5,000 for the very top end. They also require frequent hardware upgrades in order to meet the increasing processing demands of new gaming titles. With cloud gaming, you can access the latest graphics processing unit at a much lower cost.

By some estimates, cloud gaming could deliver a high-end gaming environment at a quarter of the cost of a traditional console-based approach, as it would eliminate the need for retailing, packaging and delivering hardware and software to consumers, while also tapping the economies of scale inherent in the cloud. However, in STL Partners’ view that is a best-case scenario and a 50% reduction in costs is probably more realistic.

STL Partners believes adoption of cloud gaming will be gradual and piecemeal for the next few years, as console gamers work their way through another generation of consoles and casual gamers are reluctant to commit to a monthly subscription. However, from 2022, adoption is likely to grow rapidly as cloud gaming propositions improve.

At this stage, it is not yet clear who will dominate the value chain, if anyone. Will the “hyperscalers” be successful in creating a ‘Netflix’ for games? Google is certainly trying to do this with its Stadia platform, which has yet to gain any real traction, due to both its limited games library and its perceived technological immaturity. The established players in the games industry, such as EA, Microsoft (Xbox) and Sony (PlayStation), have launched cloud gaming offerings, or are, at least, in the process of doing so. Some telcos, such as Deutsche Telekom and Sunrise, are developing their own cloud gaming services, while SK Telecom is partnering with Microsoft.

What telcos can learn from Shadow’s cloud gaming proposition

The rest of this report explores the business models being pursued by cloud gaming providers. Specifically, it looks at cloud gaming company Shadow and how it fits into the wider ecosystem, before evaluating how its distinct approach compares with that of the major players in online entertainment, such as Sony and Google. The second half of the report considers the implications for telcos.

Table of Contents

  • Executive Summary
  • Introduction
  • Cloud gaming: a complicated ecosystem
    • The battle of the business models
    • The economics of cloud gaming and pricing models
    • Content offering will trump price
    • Cloud gaming is well positioned for casual gamers
    • The future cloud gaming landscape
  • 5G and fixed wireless
  • The role of edge computing
  • How and where can telcos add value?
  • Conclusions

Request STL research insights overview pack

Telco 2030: New purpose, strategy and business models for the Coordination Age

New age, new needs, new approaches

As the calendar turns to the second decade of the 21st century we outline a new purpose, strategy and business models for the telecoms industry. We first described The Coordination Age’, our vision of the market context, in our report The Coordination Age: A third age of telecoms in 2018.

The Coordination Age arises from the convergence of:

  • Global and near universal demands from businesses, governments and consumers for greater resource efficiency, availability and conservation, and
  • Technological advances that will allow near their real-time management.

Figure 1: Needs for efficient use of resources are driving economic and digital transformation

Resource availability, Resource efficiency, Resource conservation: Issues for governments, enterprises and consumers. Solutions must come from all constituents.

Source: STL Partners

Enter your details below to download the report


A new purpose for a new age

This new report outlines how telcos can succeed in the Coordination Age, including what their new purpose should be, the strategies, business models and investment approaches needed to deliver it.

It argues that faster networks which can connect tens of billions of sensors coupled with advances in analytics and process digitisation and automation means that there are opportunities for telecoms players to offer more than connectivity.

It also shows how a successful telecoms operator in the Coordination Age will profitably contribute to improving society by enabling governments, enterprises and consumers to collaborate in such a way that precious resources – labour, knowledge, energy, power, products, housing, and so forth – are managed and allocated more efficiently and effectively than ever before. This should have major positive economic and social benefits.

Moreover, we believe that the new purpose and strategies will help all stakeholders, including investors and employees, realign to deliver a motivating and rewarding new model. This is a critical role – and challenge – for all leaders in telecoms, on which the CEO and C-suite must align.

To do this, telecoms operators will need to move beyond providing core communications services. If they don’t choose this path, they are likely to be left fighting for a share of a shrinking ‘telecoms pie’.

A little history 2.0

Back in 2006, STL Partners came up with a first bold new vision for the telecoms industry to use its communications, connectivity, and other capabilities (such as billing, identity, authentication, security, analytics) to build a two-sided platform that enables enterprises to interact with each other and consumers more effectively.

We dubbed this Telco 2.0 and the last version of the Telco 2.0 manifesto we published can be found here – we feel it was prescient and that many of the points we made still resonate today. Indeed, many telecoms operators have embraced the Telco 2.0 two-sided business model over the last ten years.

This latest report builds on much of what we have learned in the previous fourteen years. We hope it will help carry the industry forwards into the next decade with renewed energy and success.

Other recent reports on the Coordination Age:

Table of contents

  • Executive Summary
  • Introduction
  • Industry context: End of the last cycle
    • The telecoms industry is seeking growth
    • Society is facing some major social and economic challenges
    • Addressing society’s (and the telecoms industry’s) challenges
  • The Coordination Age
    • Right here, right now
    • How would the Coordination Age work in healthcare, for example?
  • New opportunities for telcos?
    • The telecoms industry’s new role in the Coordination Age
    • Telcos need an updated purpose
    • This will help to realign stakeholders
    • A new purpose can be the foundation of new strategy too
    • Investment priorities need to reflect the purpose
    • New operational models will also follow
  • Conclusions: What will Telco 2030 look like?

Enter your details below to download the report


Three new telco business models: Soft-net, Cloud-net, Compute-net

Introduction

This report outlines three new telecoms business models that builds on previous research where we have outlined our vision of an emerging third age of telecoms called the Coordination Age. This is based on a global need to improve the efficiency of resource utilisation is manifesting in industries and individuals as a desire to “make the world work better”. We discuss this concept in detail in the following reports:

We believe that three new business models for telcos are emerging as part of the Coordination Age.

  • The Soft-Net: the core business remains connectivity, but the softwarisation of the network through SDN / NFV enables the network to adapt and scale to support new, advanced connectivity services. This includes third-party digital and networked-compute services that depend on the physical network connectivity the Soft-Net provides.
  • The Cloud-Net: also connectivity-focused, but with the production, delivery and consumption of services increasingly effected via the cloud (i.e. cloud-native). SDN and virtualisation enable capacity and services to be spun up, managed and delivered on demand over any physical network and device.
  • The Compute-Net: the core business is to provide distributed, networked, compute- and software-based services, often for specific enterprise verticals. These depend on SDN and NFV to deliver the ultra-fast, low-latency compute, throughput and routing capabilities required.

The three new models represent distinct strategic options for telcos looking to either: optimise and evolve their existing connectivity business; create new value from cloud-based, ‘horizontal’ platforms; or expand into new vertical markets – or a combination of all three approaches. This is illustrated here:

Interdependence between the three future telco business models

Source: STL Partners

In other words:

  • The Soft-Net operates the physical and virtualised infrastructure that delivers flexible, advanced connectivity in support of Cloud-Net and Compute-Net services (as well as well as legacy communications and connectivity services, delivered in a more scalable and cost-effective way)
  • The Cloud-Net delivers flexible, on-demand connectivity over hybrid infrastructure (including that owned by multiple Soft-Nets) in support of the increasingly complex and variable networking requirements of globally distributed, digital enterprises
  • The Compute-Net delivers vertically focused, compute-enabled processes and outcomes across all areas of industry and society. In doing so, it relies on networking and cloud platform services supplied by the Soft-Net and Cloud-Net, which may or may not be vertically integrated as part of its own organisation.

The three telecoms business models link to NFV / SDN strategies

One of the distinguishing features of these models is the different modes of telco engagement in NFV and SDN they are potentially driven by. In previous analyses, we have identified three pathways towards NFV and SDN deployment. This is how they link to the three business models:

Figure 1: The three future telco business models and corresponding NFV pathways

Source: STL Partners, NFV / SDN deployment pathways: Three telco futures

In the rest of this report, we define these telecoms business models in more detail and illustrate how they present a pragmatic framework for telcos to focus their technology investments and develop valuable new Coordination Age services.

Contents:

  • Executive Summary
  • Introduction
  • Three telco futures and Telco 2.0
  • Chapter 1: Three telecoms business models for the Coordination Age
  • Three new business models: but why ‘telco’?
  • Business model analysis: Telcos’ vs competitors’ strengths
  • Relationship between the Soft-Net, Cloud-Net and Compute-Net business models
  • Chapter 2: Roles of the Soft-Net, Cloud-Net and Compute-Net in a ‘driverless car-as-a-service’ ecosystem
  • A driverless car-as-a-service business involves coordination of data, processes and events across a broad supply chain
  • Soft-Nets provide the mainly wireless connectivity
  • Cloud-Nets provide the hybrid, on-demand wide-area networking
  • Compute-Nets design and coordinate the ecosystem
  • Conclusions
  • The Coordination Age: A new purpose for telecoms, and three models for realising it
  • Key takeaways for telcos

Figures:

  1. The three future telco business models and corresponding NFV pathways
  2. The Telco 2.0 infrastructure and service stack
  3. Interdependence between the three future telco business models
  4. Two examples of the three new business models
  5. The three new business models overview
  6. Telcos face some fierce competition as they move up the stack
  7. Telco expansion across the three business models
  8. Advantages and disadvantages of vertical integration
  9. Mapping the Soft-Net, Cloud-Net and Compute-Net roles in a driverless car environment
  10. Types of data and corresponding compute-based services in a driverless car-as-a-service ecosystem

Why CFOs must start to drive telecoms business model change

The telecoms operator’s conundrum – how to break the service innovation status quo

Telco CFOs need to upweight telecoms R&D investments to drive differentiating service innovations. If they don’t, telcos will recede further into the category of low yield, low growth commodities.

The relationship between a company’s financial and commercial model is complex:

  • The financial model determines the commercial model of a company – what commercial goals it is able to pursue and how it is able to pursue them
  • But the commercial model also feeds directly back into the financial model of the business and determines how resources are allocated

The interrelatedness of commercial and financial models means that change is sometimes difficult – a ‘chicken and egg’ situation occurs in which each model relies on change in the other before it can change.

Contact us to access this report


This ‘chicken and egg’ situation is apparent within the telecoms industry:

  • Business owners within operators want their organisation to become more agile, more flexible, more innovative which implies having resources that can be (re)deployed quickly, but they find it hard to secure budget owing to the huge and slow capital investment programmes involved in upgrading networks
  • Finance departments at the same organisations want to deploy resources efficiently to maximise returns and capital investment in the existing business model (infrastructure that drives connectivity revenue) has a much stronger ROI than speculative operating expenditure in platforms and services that have (so far) proved unsuccessful

The result is status quo: the same financial model drives the same commercial model at a time when returns for core services are reducing every year.

 

We start by mapping out the relationship between financial and commercial models…

In this framework, we use R&D operating expenditure (vertical axis) as a proxy for service innovation. We recognise that this is not perfect as service innovation requires much more than R&D. Nevertheless, it is probably fair to say that service innovation is unlikely to be sustained without material R&D expenditure.

Capital investment (horizontal axis) is a proxy for infrastructure build – developing assets which will generate returns over a long period of time such as buildings, manufacturing plants, telecoms networks.

Telcos are classic ‘Moat builders’, making money from capital investment in infrastructure and putting little into telecoms R&D investments.

The Internet giants and tech players typically start out as ‘service differentiators’, keeping capital investment light and instead focusing on flexible operating expenditure to drive service innovation. Increasingly however, they are investing capital in cloud computing infrastructure, to construct moats to protect their services – giving them cheaper distribution and better customer experience than smaller competitors.

A framework for understanding capex versus R&D spending

Source: STL Partners

…which reveals that telcos are moat builders and are radically out-invested in service innovation by tech players

Historically, for telecoms operators service innovation resulted from network capital investment because voice and messaging services were integrated into there were no alternative sources for communications – a customer had to use the service provider by the telecoms operator:

  • Telcos effectively outsourced innovation to Network Equipment Players (NEPs)
  • There was no need to invest significantly in R&D

Now, services are independent of the network (thanks to the internet) – telco customers can use communication (and other) services provided by dozens of third-parties and value has shifted to companies (such as the internet giants and tech companies) that invest in service innovation.

Telcos still invest only in infrastructure but value is increasingly in network-independent services so they are missing out on value-creation and are instead competing on price on the only commodity service that third-parties cannot substitute: connectivity.

R&D and Capex % of Revenue, 2017

Source: Company accounts, STL Partners analysis

Proof point: Internet players are vastly more valuable than telecoms operators

Revenue and Market Capitalisation 2017. Telco v Internet

Source: Company accounts, stock market data, STL Partners analysis

Seven internet giants’ market capitalisation is bigger than 165 telecoms operators combined because:

Service innovation + moats  Revenue + profit growth  Future value creation

In other words, telcos’ current business model (financial and commercial models) are not deemed to be strong value creators.

The result is that capital markets demand that operators hand profits back to investors in the form of high-dividend yields so that they can invest in higher-growth companies.

In the rest of this report, we outline why CFOs need to drive business model change that will enable telcos to compete more effectively as ‘Service differentiators’, and four steps they should take to start this process – fundamentally increasing telecoms R&D investments.

Contact us to access this report


Network AI: The state of the art

Introduction

This report is part of a series exploring how telecoms operators can leverage artificial intelligence (AI) to improve their business operations, from customer experience to new services. Previous reports on AI in telecoms include:

This report explores the applications of AI for network operations, detailing the prerequisites and stages to implementing AI and automation in networks, real-world examples of what some telcos have done already, and their potential value across different application areas.

We divide the applications for AI in telecoms networks into three main categories:

  • Fault detection, prediction and resolution: speeding up the process of identifying and resolving network faults, including predictive maintenance. This also includes identifying and mitigating network security risks, although security is a highly specialised field that merits its own report, so we do not cover it in detail here.
  • Network optimisation: optimising the use of network resources to mitigate the impact of network faults and adapt to or anticipate changes in demand. This is also the foundation for automated service provisioning in software defined networks, while insights on network usage and traffic could be valuable for new service creation.
  • Network planning and upgrades: optimising new infrastructure planning as well as the transition from legacy to next generation network solutions.

The first area is critical for all telcos, since service impairments are an inevitable element of running a network. The second is of immediate value for telcos that are still in the process of expanding existing network coverage and density, since it can enable operators to use their existing resources more efficiently. However, it is also increasingly tied into the first area of fault detection, since a large part of the fault resolution process is finding ways to re-route traffic from underperforming to underused assets, a process that is made easier with the adoption of SDN and NFV – processes can only be automated if they are software-based.

Compared with the first two categories, using AI for smarter network planning and upgrades is a nascent field. This is partially because many Tier 1 operators, who are leading the charge in adoption of AI elsewhere in network and business operations, completed the bulk of 4G deployments and have not yet fully embarked on 5G deployments. However, this report also looks at some innovative applications of image recognition models for network expansion in emerging markets.

While most of the data used for training and informing AI systems across network operations comes from operators’ own networks, telcos are also beginning to tap into new data sources to further refine their decision-making, such as using drones and image recognition to inspect towers, weather patterns and social media data.

Laying the foundations for AI in telecoms networks

Before jumping into how telcos are implementing AI for fault detection and resolution and in network operations, it is important to clarify what we mean by AI, and lay out the pre-requisites for any meaningful use of the technology.

What counts as AI? From automation to advanced AI

The term AI is nebulous – everyone has a different definition for it. Is it when a computer can make a faster, more accurate decision than a human?  Is it when a process is fully automated? Is it when the computer learns and continuously improves its decisions in real-time?

Wherever people draw the line between manual processes, (big) data analytics, automation and machine learning (ML) / AI, no company goes directly from manual to AI in one go. The transition is gradual. In this report we therefore use a broad definition of AI in this report, as outlined in Figure 1.

Figure 1: Not all AI is equal

Rules-based automation to machine learning

Source: STL Partners

Two transitions are happening in parallel as operators move from left to right on Figure 1. First, there is a shift towards increasingly intelligent analytics techniques, from rules-based automation, where policies outline if-then sequences of actions for the computer, to machine learning supported automation, where models are trained to fulfil an intent (a goal) based on guidelines from experts and historical data.

The second transition that occurs in the move towards more sophisticated AI systems relates to decision-making. In rules-based automation, computers don’t have any decision-making power, they can only take pre-defined actions in specific circumstances. Making the transition from telling computers how to do something to what you want them to do means giving computers decision-making power. Telcos can do this gradually, by requiring humans to verify and approve recommended decisions before they are implemented. But in the promised future 5G and ‘sliceable’ networks, human approval for routine decisions would require more network engineers than operators could profitably employ, or drastically slow down network operations. This is not just a technical issue for telcos but also a cultural one that demands clarity from management teams on the evolving role of network engineers.

Contents:

  • Executive Summary
  • Making the shift from manual operations to autonomous, intelligent networks
  • Recommendations
  • Introduction
  • Laying the foundations for AI in telecoms networks
  • What counts as AI? From automation to advanced AI
  • AI works at two levels for network operations
  • Data: The bridge between rules-based automation and ML
  • Fault detection, prediction and resolution
  • What is it worth?
  • How does it work?
  • Real-world example of a recommendation model: AT&T Tower Outage and Network Analyzer
  • Next step: From fixed to self-learning policies
  • Optimising network capacity
  • What are self-optimising networks worth?
  • Use case overview
  • How to do it
  • From self-optimising to knowledge-defined networks
  • AI for network planning
  • Telefónica case study
  • Driving automation internally versus partnering with vendors
  • Reasons for developing solutions internally
  • Reasons for partnering with a vendor
  • Vendor profiles
  • How AI fits with SDN/NFV
  • Conclusions and recommendations

Figures:

  • Figure 1: Not all AI is equal
  • Figure 2: Rules-based automation versus machine learning
  • Figure 3: A snapshot of rules-based automation versus machine learning
  • Figure 4: Overview of automation and AI in network operations
  • Figure 5: Telemetry is faster and uses less compute power than SNMP
  • Figure 6: Elisa growth of automated trouble ticket handling
  • Figure 7: Tupl results for automatic customer complaints resolution AI platform
  • Figure 8: Implementing fixed policies for fault detection and resolution
  • Figure 9: Visualisation of network alert clustering tool
  • Figure 10: A self-healing network
  • Figure 11: Elisa self-optimising network results
  • Figure 12: Elisa maintained flat capex intensity throughout 4G deployment
  • Figure 13: Finland 4G network performance, August 2018
  • Figure 14: Self-organising network example use cases
  • Figure 15: Numerous applications of machine learning and AI for 5G networks
  • Figure 16: Break self-optimising networks down into mini loops
  • Figure 17: The knowledge-defined network
  • Figure 18: Facebook TCO savings over traditional multilayer planning
  • Figure 19: Telefónica image recognition for network planning
  • Figure 20: Ciena Blue Planet overview
  • Figure 21: Google SDN layers
  • Figure 22: Overview of cross-industry initiatives relating to network AI and automation
  • Figure 23: Telefónica network automation roadmap
  • Figure 24: Overview of SK Telecom Advanced Next Generation OSS (TANGO)

Telco edge computing: Turning vision into practice

The emerging opportunity for edge compute

There is ongoing interest in the telecoms industry about edge computing. The key rationale behind this is that telcos – through their distributed network assets – are in a unique position to push workloads closer to devices, reducing latency and/or data volumes over to the cloud, and thereby enabling new experiences and use cases, while enhancing existing ones.

After years of centralising workloads in the public cloud there is complementary demand emerging for more distributed compute. This is good news for telcos as it shows that the time is ripe for them to turn their ambition to edge computing. Telcos can exploit their own connectivity, unique network APIs and an existing distributed real-estate. Telcos are in a unique position to play a strong role in distributed and edge computing ecosystems.

Telcos’ excitement around edge is fuelled by new differentiation and revenue opportunities leveraging the dynamic application developer ecosystem which hitherto has been dominated by ever more sophisticated and technically advanced public clouds and proofs-of-concept (POCs). Furthermore, underlying trends in cloud computing are increasingly promising for distributed (edge) computing:

  • Hybrid and multi-cloud models and technologies will continue to facilitate more distributed compute scenarios beyond hyperscale-only and on-premise-only.
  • Lightweight compute models will enable the deployment of cloud-workloads on a smaller footprint (e.g. train AI models in the cloud and execute them at the edge, such as in a smartphone or a connected car). For example, containers and “serverless” compute models make it possible to run workloads more efficiently and elastically than virtual machines.
  • The adoption of more platform-agnostic deployment models (such as containers) will facilitate the shifting and moving of workloads within distributed and edge cloud environments.
  • Proliferation of edge gateways and IoT devices will drive processing and analytics outside the datacentre and closer to the customer (premises).
  • Regarding security, a more distributed computing model is well-suited to defending against certain types of attacks (e.g. DDOS). Furthermore, if/when breaches do occur, these can be quarantined to an edge “cloudlet”, limiting the potential damage and undermining the economics of an attack.

Our findings in this report are informed by a research programme STL Partners has conducted since January 2018, supported by and in cooperation with Aricent. For this research, STL Partners has conducted interviews with both telcos and technology companies, globally about their views and current efforts related to edge computing. Overall, the research forms part of STL Partners’ ongoing research work and consulting assignments around telco edge cloud.

Key questions arising for telcos

Notwithstanding the strategic opportunity, telcos face some big questions in formulating edge initiatives. These include:

“What is the business case for telco edge – where is the money?”

“Will massive demand for low-latency compute drive demand from core/central to edge compute?”

“How can we compete with the big cloud players – won’t they expand and control the edge too?”

“How should we play in Enterprise edge – should we offer edge services on customer premises?”

“How can we architect and charge for different edge services – those requiring expensive, specialised hardware for accelerated computing to process machine learning/AI workloads?”

“What edge services should we offer and through what distribution channels?”

These are (real examples of) questions that telcos must address in defining and delivering edge services. This report provides a framework to tackle these (and other) questions in a structured way. We will revisit these questions (and the answers) throughout the report.

5G: Why Verizon thinks differently – and what to do about it

Introduction

Verizon’s path

Verizon is deploying 5G as quickly as it practically can, already planning to have over 1,000 base stations by the end of 2018. CEO Lowell McAdam told investors he wants to quickly reach 30 million homes, while Goldman Sachs estimated Verizon planned to spend US$20 billion for this initial phase to 2021/22 – although there is no publicised schedule. Verizon’s investments include the acquisition of XO Communications for US$1.8 billion, which has fibre in 45 of the 50 largest cities, which Verizon sees as vital infrastructure for its 5G build.

The base stations will support mobile 5G as soon as the handsets are ready. Leading mobile chip vendor Qualcomm expects a limited number of mobile phone chips to be available by the end of 2018. Sufficient chips for phones in volume are expected by mid-year 2019.[1] Taiwan’s MediaTek, the number two 4G chipmaker, says it will “hit the 5G chip market with a bang in 2019”.[2]

Verizon is building a state-of-the-art network in 800MHz of spectrum at 28GHz using existing towers and new small cells, delivering a peak speed of 10 gigabits per second or lower. A consumer in a good location should get a true gigabit in both directions, with mobile network latency of between 5 ms and 20 ms.[3]

This will probably be the largest fast 5G network built before the next decade. The Chinese operators will mostly be using frequencies below 6GHz, which will be 65% to 85% slower.

Verizon’s large fixed opportunity

In two-thirds of the US, Verizon sells wireless but is not the incumbent wireline carrier. With limited unbundling at present, it cannot offer a landline (or equivalent) service to over 70 million of its wireless customers. It therefore cannot offer quadruple play for higher revenue, lower churn and better margins.

Yet in half the US, there is only one choice for decent broadband: the cable company. Over half of US cable has been upgraded to gigabit download speeds, and over three-quarters of the country will be offered gigabit cable by the end of 2019.[4] Faster speeds contributed to the 2.7 million broadband subscriptions cable added in 2017.

Figure 1: Cable is dominating US broadband

Cable dominates US broadband

Source: Leichtman Research based on company filings

In many places, the telephone companies have not upgraded decade-old DSL lines and are not competitive with their cable counterparts.  In 2017, US telephone companies lost 625,000 broadband subscriptions.

McAdam expects to quickly win 10– 20% of the new market Verizon can address. Dean Bubley notes it is very difficult to persuade reasonably happy customers to switch, but cable service in the US is notoriously bad. Verizon’s long-term goal is 40– 50%, consistent with its results where it has FIOS fibre to the home. CFO Matt Ellis believes, “When you look at other cities outside of the ILEC footprint, offering consumer services using 5G is, we think, going to have a lot of upside for the company.”[5]

Contents:

  • Executive summary
  • The contentions of Verizon and other proponents
  • Doubts about proponents’ claims
  • Crucial questions to resolve
  • Introduction
  • Verizon’s path
  • Verizon’s large fixed opportunity
  • Verizon’s cost estimates
  • What carriers should consider based on Verizon’s choice
  • Two crucial questions for predicting when you will need mmWave
  • Will there be a large first-mover advantage?
  • AT&T is divided on 5G
  • Two carriers’ planning for uncertainty
  • Preparing for 5G: contingency scenarios
  • 5G: Vendor insight
  • Risks to this analysis
  • Technology appendix
  • Advances in 4G LTE and mid-band 5G also deliver enormous capacity

Figures:

  • Figure 1: Cable is dominating US broadband
  • Figure 2: NTT DOCOMO capex by generation and traffic demand
  • Figure 3: Verizon finds 5G requires fewer cells than 4G in some locations
  • Figure 4: Samsung test data comparing LTE 1.8GHz versus 5G GHz
  • Figure 5: Wireless traffic growth to 2021
  • Figure 6: Samsung indoor and outdoor mmWave CPE

[1] http://bit.ly/2JR2bVK

[2] http://bit.ly/2la0q8c

[3] End-to-end latency for a user will depend on how far their data request needs to go into the network and the Internet. If the signal has to go from one side of the US to the other it will take longer than a locally or edge hosted service.

[4]  https://www.fastnet.news/index.php/cable/641-gigabit-broadband-downstream-available-to-50m-u-s-homes

[5] https://www.verizon.com/about/investors/jp-morgan-global-technology-media-and-communications-conference-2018

Uber and Tesla: What telcos should do

Introduction

This report analyses the market position and strategies of Tesla and Uber, two of four Internet-based disruptors that might be able to break into the top tier of consumer Internet players, which is made up of Amazon, Apple, Facebook or Google. The other two challengers – Spotify and Netflix – were the subject of the recent STL Partners report: Can Netflix and Spotify make the leap to the top tier?

Tesla, Uber, Spotify and Netflix are defined by three key factors, which set them aside from their fellow challengers:

  • Rapid rise: They have become major mainstream players in a short space of time, building world-leading brands that rival those of much older and more established companies.
  • New thinking: Each of the four have challenged the conventions of the industries in which they operate, driving disruption and forcing incumbents to re-evaluate their business models.
  • Potential to challenge the dominance of Amazon, Apple, Facebook or Google: This rapid success has allowed the companies to gain dominant positions in their relative sectors, which they could use as a springboard to diversify their business models into parallel verticals. By pursuing these economies of scope, they are treading the path taken by the big four Internet companies.


This report explores how improvements in digital technologies and consumer electronics are changing the automotive market, enabling Tesla and Uber to rethink personal transport almost from the bottom up. In particular, it considers how self-driving vehicles could become a key platform within the digital economy, offering a range of commerce services linked to transportation and logistics. The report also explores how the high level of regulation in transportation, as in telecoms, is complicating Uber’s efforts to build economies of scale and scope.

The final section provides a high-level overview of the opportunities for telcos as the automobile becomes a major computing and connectivity platform, including partnership strategies, and the implications for telcos if Uber or Tesla were able to make the jump to become a tier one player.

The report builds on the analysis in two previous STL Partners’ executive briefings that explore how artificial intelligence is changing the automotive sector:

Self-driving disruption

Uber, the world’s leading ride-hailing app, and Tesla, the world’s leading producer of all-electric vehicles, could evolve to become tier one players in the digital economy, as the car could eventually become a major control point in the digital value chain. Both companies could use the disruption caused by the arrival of self-driving cars to become a broad digital commerce platform akin to that of Amazon or Google.  As well as matching individuals with journeys, Uber is gearing up to use self-driving vehicles to connect people with shops, restaurants, bars and many other merchants and service providers.  With a strong brand, Tesla could potentially play a similar role in the premium end of the market as Apple has done in the PC, tablet and smartphone sectors.

However, Uber and Tesla are just two of the scores of technology and automotive companies jostling for a preeminent position in a future in which the car is a major computing and connectivity platform. As well as investing heavily in the development of self-driving technologies, many of these companies are splurging on M&A to get the skills and competences they will need in the personal transportation market of the future.  For example, Intel bought Mobileye, a maker of autonomous-driving systems, for US$15.3 billion in March 2017. Delphi, a big auto parts maker, bought nuTonomy, an autonomous vehicle start-up, for US$450 million, and has since reinvented itself as an autonomous vehicle company called Aptiv.

Self-driving vehicles will change the world and the way people live in a myriad of different ways, just as cars themselves transformed society during the 20th century. Some shops, hotels and restaurants could become mobile, while car parks, garages and even traffic lights could eventually become obsolete, potentially heralding new business opportunities for many kinds of companies, including telcos. But the most important change for Uber and Tesla will be a widespread shift from owning cars to sharing cars.

Contents:

  • Executive Summary
  • How Uber and Tesla are creating new opportunities for telcos
  • Uber’s and Tesla’s future prospects
  • Lessons for telcos
  • Introduction
  • Self-driving disruption
  • Making car ownership obsolete
  • From here to autonomy
  • The convergence of car rental, taxi-hailing and car making
  • Business models beyond transport
  • Opportunities for telcos
  • Uber: At the bleeding edge
  • Uber’s chequered history
  • Uber looks beyond the car
  • Uber’s strengths and weaknesses: From fame to notoriety
  • Tesla: All electric dreams
  • Tesla’s strengths and weaknesses: Beautiful but small
  • Conclusions and lessons for telcos
  • The future of Uber and Tesla
  • The future of connected cars
  • Lessons from Uber and Tesla

Figures:

  • Figure 1: Self-driving vehicles will become commonplace by 2030
  • Figure 2: The two different routes to self-driving vehicles
  • Figure 3: The first self-driving cars could appear within two years
  • Figure 4: Money is pouring into ride hailing and self-driving companies
  • Figure 5: Waymo is way ahead with respect to self-driving disengagements
  • Figure 6: Uber’s vision of a “vertiport” serving a highway intersection
  • Figure 7: Uber believes VTOL can be much cheaper than helicopters
  • Figure 8: Uber’s strengths, weaknesses, opportunities and threats (SWOT) analysis
  • Figure 9: Growth in Tesla’s automotive revenues has been subdued
  • Figure 10: Tesla’s strengths, weaknesses, opportunities and threats
  • Figure 11: Tesla loses money most quarters
  • Figure 12: Tesla is having to cut back on capex

Blockchain for telcos: Where is the money?

If you don’t subscribe to our research yet, you can download the free report as part of our sample report series.

Introduction

Looking at existing players in the industry, there are two business approaches to blockchain.

Blockchain to make money

Blockchain to save money or do something new

In this report, we look at how these business models apply for telcos seeking to participate in blockchain ecosystems for digital identity and IoT.

We will also present this report in a webinar on Tuesday, June 19th – register here

Contents:

  • Overview of existing blockchain business models
  • Telco monetisation models in:
  • Digital identity
  • IoT
  • Conclusion & recommendations

 

BBVA: Traditional retail bank embraces digital disruption

Introduction

Why are we doing non-telco case studies?

Digital transformation is a phenomenon that is affecting every sector. Many industries have been through a transformation process far more severe than we have seen in telecoms, while others began the process much earlier in time. We believe that there are valuable lessons telcos can learn from these sectors, so we have decided to find and examine the most interesting and useful case studies.

Traditional banking is being disrupted by fintech. This disruption has not happened overnight, but its speed has accelerated in recent years as consumers and enterprises have become more confident using digital tools to manage their finances. Although the fintech market is currently highly fragmented, with fintech companies typically focussing on one or two specific financial products, this can still have an enormous impact on the traditional banking value chain, which relies on a diversified portfolio to create profit. In addition, there is the threat that a digital native company, such as Amazon or Google, will enter the mainstream banking market through a series of acquisitions.

BBVA’s chairman, Francisco Gonzalez, foresaw this threat early-on, and has worked tirelessly to restructure the bank to be competitive in the era of digital banking. This transformation has involved significant changes in leadership, technology, business processes, and the bank’s portfolio. Like telcos, traditional banks are large organisations with legacy technology and processes, and turning the ship around is challenging. Therefore, there are many ways that BBVA’s experience can inform telcos’ own digital transformation strategies.

General outline of STL Partners’ case study transformation index

We intend to complete more case studies in the future from other industry verticals, with the goal of creating a ‘case study transformation index’, illustrating how selected companies have overcome the challenge of digital disruption. In these case studies we are examining five key areas of transformation, identifying which have been the most challenging, which have generated the most innovative solutions, and which can be considered successes or failures. These five areas are:

  • Market
  • Proposition
  • Value Network
  • Technology
  • Finances

We anticipate that some of these five sections will overlap, and some will be more pertinent to certain case studies than others. But central to the case studies will be analysis of how the transformation process is relevant to the telco industry and the lessons that can be learned to help operators on the path to change.

How digital disruption is threatening banking

Retail banks rely on a two-sided business model

Retail banks make money by using deposits in current or savings accounts made by one group of customers (depositors) to finance loans to other customers (borrowers). The borrower not only pays the bank back its loan, but also interest on top – in effect, paying the bank for the service of providing the loan. The bank pays the depositor a lower interest on savings, and makes money on the spread between the two rates of interest.

Retaining depositors is a vital part of retail banks’ business model

Source: STL Partners

While this is highly simplified, this is the fundamental business model of all traditional retail banks, whose main source of income is created through managing a diversified portfolio of financial products across savings and loans. Banks also make money from applying charges when customers use credit or debit cards, or charging its customers fees such as ATM fees, overdraft fees, late payment fees, penalty fees.

Societal changes have driven digital banking adoption

Digital disruption in banking has taken much longer than in other industries, for example, publishing and media, despite attempts from banks themselves to persuade more customers to use online services. For traditional banks, moving customers to digital channels for most of their banking needs could significantly cut the cost of maintaining and staffing a large network of physical branches. However, when online banking services were first launched in the 1980s and 90s, consumer concerns about security and a lack of confidence in managing accounts themselves online meant that adoption was slow.

Since then the market has changed: For example, in 2000, 80% of banks in the U.S. were offering internet banking services. The launch of the iPhone seven years later caused a paradigm shift, triggering a wave of enormous development and widespread adoption of digital services accessible online and via smartphone apps. Ten years on, consumers are much more confident using digital financial services, and, although younger consumers are leading adoption, older generations are also increasingly using these services.

To read on about how BBVA responded to a changing market, please login and download the report, or contact us to subscribe.

Contents:

  • Executive Summary
  • Six lessons telcos can learn from BBVA
  • BBVA in STL Partners’ transformation index
  • Introduction
  • Why are we doing non-telco case studies?
  • General outline of STL Partners’ case study transformation index
  • How digital disruption is threatening banking 
  • Retail banks rely on a two-sided business model
  • Societal changes have driven digital banking adoption
  • Challenger banks and fintechs are changing the game
  • BBVA’s story
  • Phase one: Investing in technology to catalyse change
  • Phase two: Organisational change
  • Conclusions
  • BBVA in STL Partners’ transformation index
  • Appendix

Figures:

  • Figure 1: BBVA is rated as “Green” (good) in the STL Partners’ Transformation Index
  • Figure 2: Retaining depositors is a vital part of retail banks’ business model
  • Figure 3: The digital banking generation gap is closing
  • Figure 4: The sharing economy has taken off
  • Figure 5: BBVA’s global presence
  • Figure 6: Telcos need to virtualise their core to deliver cloud business models
  • Figure 7: Digital experience needs to be distributed across the organisation for transformation to succeed
  • Figure 8: BBVA’s leadership team is structured to accelerate digital transformation
  • Figure 9: Traditional banks need to adopt agile processes to compete with digital-native competitors
  • Figure 10: Ecosystem markets need new business models
  • Figure 11: BBVA’s co-opetition strategy involves acquisitions, investments and open APIs
  • Figure 12: BBVA’s shares are performing well
  • Figure 13: More smart and mobile device owners in Turkey use their devices for digital banking services than any other country surveyed
  • Figure 14: Turkey leads the way in four out of seven digital banking services
  • Figure 15: Turkish respondents are the most open to automated digital banking services
  • Figure 16: Less than 60% of Turkish adults had a bank account in 2014
  • Figure 17: Turkey is an attractive emerging market for investment
  • Figure 18: BBVA is rated as “Green” (good) in the STL Partners’ Transformation Index

NFV/SDN deployment pathways: Three telco futures

Introduction: Three pathways to virtualisation

The aim of this report is to set out and analyse three strategic pathways to the implementation of Network Functions Virtualisation (NFV) and Software-Defined Networking (SDN) taken by different telcos, and types of telco. We are calling these approaches ‘Technology Evolution’, ‘Service-led Innovation’ and ‘Organisational Transformation’.

We originally formulated the pathways as part of an analysis of the challenges that telcos were confronting as they embarked on their journey to implement NFV and SDN. The analysis was developed during a consulting project undertaken for Cisco Systems in the second half of 2016. In the present report, we are seeking to re-examine the pathways in the light of the experiences of telcos in 2017 – their challenges and successes – as they have continued to develop and deploy NFV / SDN across their networks.

Pathways and operator examples

Our analysis of the three pathways in the project for Cisco was built on a substantial body of STL research and industry knowledge on NFV and SDN, along with conversations with senior executives at 14 telcos from across the world, which we assigned to one or more of the three approaches. A brief definition of the pathways and the types of operator that typically adhere to them is provided below:

Figure 1: Pathways to virtualisation

Source: STL Partners

It should be noted that the pathways are not mutually exclusive or rigid, i.e. operators – and different business units within operators – can straddle more than one category, and the different approaches to virtualisation are overlapping to some extent. In addition, there is something of a natural progression from one pathway to another. For example, completing large-scale virtualisation programmes (Technology Evolution) then puts operators in a position to develop new use cases addressing customer needs (Service-led Innovation).

We aim to bring out the interplays and progression between these three broad approaches in the present analysis by focusing on three operators that exemplify some of the tensions and contradictions inherent to each of the pathways, insofar as NFV and SDN ultimately embody a transformative dynamic that is disruptive of existing business models and corporate cultures.

We should also note that not all of the examples discussed in the present analysis were included in the previous study undertaken for Cisco and that the material included here is derived from public-domain information, supplemented by conversations with the telcos themselves where they have been willing to share their experiences.

Contents

  • Executive Summary
  • Introduction: Three pathways to virtualisation
  • Pathways and operator examples
  • Vodafone: Technology evolution towards the software-enabled network
  • Colt: Customer-led innovation of the ‘Network Cloud’
  • Deutsche Telekom: Organisational transformation towards the ‘network-enabled compute service provider’
  • Conclusion: The three fundamental strategic choices for telcos around SDN / NFV

Monetising IoT: Four steps for success

Introduction

The internet of things (IoT) will revolutionise all industries, not just TMT. In addition to the benefits of connecting previously unconnected objects to monitor and control them, the data that IoT will make available could play a pivotal role in other major technological developments, such as big data analytics and autonomous vehicles.

It seems logical that, because IoT relies on connectivity, this will be a new growth opportunity for telcos. And indeed, as anyone who has attended MWC in the last few years can testify, most if not all major telcos are providing some kind of IoT service.

But IoT is not a quick win for telcos. The value of IoT connectivity is only a small portion of the total estimated value of the IoT ecosystem, and therefore telcos seeking to grow greater value in this area are actively moving into other layers, such as platforms and vertical end solutions.

Figure 1: Telcos are moving beyond IoT connectivity

Telcos are moving beyond IoT connectivity

Source: STL Partners

Although telco IoT strategies have evolved significantly over the past five years, this is a complicated and competitive area that people are still figuring out how to monetise. To help our clients overcome this challenge we are publishing a series of reports and best practice case studies over the next 12 months designed to help individual operators define their approach to IoT according to their size, market position, geographic footprint and other key characteristics such as appetite for innovation.

This report is the first in this series. The findings it presents are based upon primary and secondary research conducted between May and September 2017 which included:

  • A series of anonymous interviews with operators, vendors and other key players in the IoT ecosystem
  • A brainstorming session held with senior members from telco strategy teams at our European event in June 2017
  • An online survey about telcos’ role in IoT, which ran from May to June 2017

Contents:

  • Executive Summary
  • Introduction
  • A four-step process to monetise IoT
  • Step 1: Look beyond connected device forecasts
  • Step 2: Map out your IoT strategy
  • Step 3: Be brave and commit
  • Step 4: Develop horizontal capabilities to serve your non-core verticals
  • Result: The T-shaped IoT business model
  • IoT data is a secondary opportunity
  • Conclusion

Figures:

  • Figure 1: Telcos are moving beyond IoT connectivity
  • Figure 2: IoT verticals and use-cases
  • Figure 3: Four possible roles within the IoT ecosystem
  • Figure 4: Telcos can play different roles in different verticals
  • Figure 5: IoT connectivity can be simplified into four broad categories
  • Figure 6: As the IoT field matures, use-cases become more complex
  • Figure 7: The technical components of an IoT platform
  • Figure 8: The T-shaped IoT business model