Telecoms operators’ attempts to build new sources of revenue have been a core focus of STL Partners’ research activities over the years. We’ve looked at many telecoms case studies, adjacent market examples, new business models and technologies and other routes to explore how operators might succeed. We believe the STL stakeholder model usefully and holistically describes telcos’ main stakeholder groups and the ideal relationships that telcos need to establish with each group to achieve valuable growth. It should be used in conjunction with other elements of STL’s portfolio which examine strategies needed within specific markets and industries (e.g., healthcare) and telcos’ operational areas (e.g., telco cloud, edge, leadership and culture).
This report outlines the stakeholder model at a high level, identifying seven groups and three factors within each group that summarise the ideal relationship. These stakeholder and influencer groups include:
Management
People
Customer propositions
Partner and technology ecosystems
Investors
Government and regulators
Society
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1. Management
Growth may not always start at the top of an organisation, but to be successful, top management will be championing growth, have the capabilities to lead it, and aligning and protecting the resources needed to foster it. This is true in any organisation but especially so in those where there is a strong established business already in place, such as telecoms. The critical balance to be maintained is that the existing business must continue to succeed, and the new growth businesses be given the space, time, skills and support they need to grow. It sounds straightforward, but there are many challenges and pitfalls to making it work in practice.
For example, a minor wobble in the performance of a multi-billion-dollar business can easily eclipse the total value of a new business, so it is often tempting to switch resources back to the existing business and starve the fledgling growth. Equally, perceptions of how current businesses need to be run can wrongly influence what should happen in the new ones. Unsuitable choices of existing channels to market, familiar but ill-fitting technologies, or other business model prejudices are classic bias-led errors (see Telco innovation: Why it’s broken and how to fix it).
To be successful, we believe that management needs to exhibit three broad behaviours and capabilities.
Stable and committed long term vision for growth aligned with the Coordination Age.
Suitable knowledge, experience and openness.
Effective two-way engagement with stakeholders. (N.B. We cover the board and most senior management in this group. Other management is covered in the People stakeholder group.)
Management: Key management enablers of growth
Source: STL Partners
Stable and committed long-term vision for growth
The companies that STL has seen making more successful growth plays typically exhibit a long-term commitment to growth and importantly, learning too.
Two examples we have studied closely are TELUS and Elisa. In both cases, the CEO has held tenure in the long-term, and the company has demonstrated a clear and well managed commitment to growth.
In TELUS’s case, the primary area of growth targeted has been healthcare, and the company now generates somewhere close to 10% of its revenue from the new areas (it does not publish a number). It has been working in healthcare for over 10 years, and Darren Entwistle, its CEO, has championed this cause with all stakeholders throughout.
In Elisa’s case, the innovation has been developed in a number of areas. For example, how it couples all you can use data plans and a flat sales/capex ratio; a new network automation business selling to other telcos; and an industrial IoT automation business.
Again, CEO Veli-Matti Mattila has a long tenure, and has championed the principle of Elisa’s competitive advantage being in its ability to learn and leverage its existing IP.
…aligned with the Coordination Age
STL argues that the future growth for telcos will come by addressing the needs of the Coordination Age, and this in turn is being accelerated by both the COVID-19 pandemic and growing realisation of climate change.
Why COVID-19 and Climate change are accelerating the Coordination Age
Source: STL Partners
The Coordination Age is based on the insight that most stakeholder needs are driven by a global need to make better use of resources, whether in distribution (delivery of resources when and where needed), efficiency (return on resources, e.g. productivity), and sustainability (conservation and protection of resources, e.g. climate change).
This need will be served through multi-party business models, which use new technologies (e.g. better connectivity, AI, and automation) to deliver outcomes to their customers and business ecosystems.
We argue that both TELUS and Elisa are early innovators and pathfinders within these trends.
Suitable knowledge, experience and openness
Having the right experience, character and composition in the leadership team is an area of constant development by companies and experts of many types.
The dynamics of the leadership team matter too. There needs to be leadership and direction setting, but the team must be able to properly challenge itself and particularly its leader’s strongest opinions in a healthy way. There will of course be times when a CEO of any business unit needs to take the helm, but if the CEO or one of the C-team is overly attached to an idea or course of action and will not hear or truly consider alternatives this can be extremely risky.
AT&T / Time Warner – a salutary tale?
AT&T’s much discussed venture into entertainment with its acquisitions of DirecTV and Time Warner is an interesting case in point here. One of the conclusions of our recent analysis of this multi-billion-dollar acquisition plan was that AT&T’s management appeared to take a very telco-centric view throughout. It saw the media businesses primarily as a way to add value to its telecoms business, rather than as valuable business assets that needed to be nurtured in their own right.
Regardless of media executives leaving and other expert commentary suggesting it should not neglect the development of its wider distribution strategy for the content powerhouse for example, AT&T ploughed on with an approach that limited the value of its new assets. Given the high stakes, and the personalised descriptions of how the deal arose through the CEOs of the companies at the time, it is hard to escape the conclusion that there was a significant bias in the management team. We were struck by the observation that it seemed like “AT&T knew best”.
To be clear, there can be little doubt that AT&T is a formidable telecoms operator. Many of its strategies and approaches are world leading, for example in change management and Telco Cloud, as we also highlight in this report.
However, at the time those deals were done AT&T’s board did not hold significant entertainment expertise, and whoever else they spoke with from that industry did not manage to carry them to a more balanced position. So it appears to us that a key contributing factor to the significant loss of momentum and market value that the media deals ultimately inflicted on AT&T was that they did not engineer the dynamics or character in their board to properly challenge and validate their strategy.
It is to the board’s credit that they have now recognised this and made plans for a change. Yet it is also notable that AT&T has not given any visible signal that it made a systemic error of judgement. Perhaps the huge amounts involved and highly litigious nature of the US market are behind this, and behind closed doors there is major change afoot. Yet the conveyed image is still that “AT&T knows best”. Hopefully, this external confidence is now balanced with more internal questioning and openness to external thoughts.
What capabilities should a management team possess?
In terms of telcos wishing to drive and nurture growth, STL believes there are criteria that are likely to signal that a company has a better chance of success. For example:
Insight into the realistic and differentiating capabilities of new and relevant markets, fields, applications and technologies is a valuable asset. The useful insight may exist in the form of experience (e.g. tenure in a relevant adjacent industry such as healthcare, or delivery of automation initiatives, working in relevant geographies, etc.), qualification (e.g. education in a relevant specialism such as AI), or longer term insight (which may be indicated by engagement with Research and Development or academic activities)
[The full range of management capabilities can be viewed in the report…..]
2. People…
Table of Contents
Executive Summary
Introduction
Management
Stable and committed long-term vision for growth
…aligned with the Coordination Age
Suitable knowledge, experience and openness
Two-way engagement with stakeholders
People
Does the company have a suitable culture to enable growth?
Does the company have enough of the new skills and abilities needed?
Is the company’s general management collaborative, close to customers, and diverse?
Customer propositions
Nature of the current customer relationship
How far beyond telecoms the company has ventured
Investment in new sectors and needs
Partner and technology ecosystems
Successful adoption of disruptive technologies and business models
More resilient economics of scale in the core business
Technology and partners as an enabler of change
Investors
The stability of the investor base
Has the investor base been happy?
Current and forecast returns
Government and regulators
The tone of the government and regulatory environment
Current status of the regulatory situation
The company’s approach to government and regulatory relationships
This is the first report in a series outlining companies that we think are lighting the path on the journey to the Coordination Age. Its goal is to deepen understanding of the Coordination Age and to inspire innovation and engagement in this crucial transition.
What is the Coordination Age?
The Coordination Age is STL Partners’ term for the new economic and technological era that the world is transitioning to. In the Coordination Age, the over-arching need of governments, companies and individuals is to make better use of the available resources to “make the world run better”. This means managing those resources to deliver better outcomes, better experiences, and less waste.
Connected technologies, including 5G, IoT, Artificial Intelligence, automation, Cloud and Edge Computing, are key tools to the efficient use, management and distribution of those resources. Resources include time, money, carbon, goods, water, land, buildings, raw materials, energy, and so on.
Why Coordination?
Managing resources better requires multiple partners to coordinate their actions and processes to deliver outcomes for maximum efficiency and effect. There does not need to be an all powerful, central ‘coordinator’. That is often neither desirable nor possible. Instead, there will be a multitude of interconnected processes and players that achieve coordination on demand to deliver the outcomes needed within the ecosystem overall.
Coordination, transformation and technology
Much of the action of coordination will be automated – processes or parties communicating with another automatically for the sake of speed, cost and efficiency, but the whole system will be under the control of people and organisations as it is now.
The Coordination Age is the master key to the puzzle of digital transformation. While the technologies have implied what is possible, the Coordination Age shows what it is for and why transformation is necessary, and what it will take to make it work in practice in real world ecosystems – the how.
Role of this report
This is the first report in a series outlining companies that we think are lighting the path on the journey to the Coordination Age. Its goal is to deepen understanding of the Coordination Age and to inspire innovation and engagement in this crucial transition.
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The Coordination Age 100: Inspiration for change
We aim to profile 100 companies across a number of industries as inspiration for new business models, how to transform a business to succeed in the Coordination Age; and/or as potential partners for the telecom industry. The Coordination Age is well underway and many companies have been built around driving this step change in our economy, or are transforming themselves to adapt to it. Some telcos have already started on the Coordination Age path as we have looked at this in Are telcos smart enough to make money work?, The roles of 5G & private networks and Can telcos create a compelling smart home?. However, for companies not already on this path, it’s hard to know where to start and what emerging technologies, business models and ecosystems driving that are Coordination Age.
What is a Coordination Age company?
A Coordination Age company delivers better use of resources to their customers by combining different technology resources such as connectivity (IoT, 4G, 5G, Wi-Fi, etc.), cloud/edge computing, AI and machine learning, and automation
It operates in a B2B2X environment, bringing together previously siloed data, processes, companies, and customers
A Coordination Age company usually operates across physical and digital worlds, but in some cases the resources can be predominantly digital too (e.g. in financial services or entertainment)
Benefits: better use of / returns on resources
Table of content
Executive summary
Introduction – the Coordination Age and this report
What is the “Coordination Age 100”?
The Coordination Age 100: Inspiration for change
What is a Coordination Age company?
Coordination Age natives vs transformers
Ten company profiles
Coordination Age natives vs transformers
Coordination Age natives
Octopus Energy
Ocado
Booking.com
Babylon Health
Starling Bank
Upstart
Coordination Age transformers
Hitachi Rail
Rolls Royce
Orange Money/Orange Bank
Signify
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Telcos are facing a situation in which the elements that have traditionally made up and produced their core business are being ‘disaggregated’: broken up into their component parts and recombined in different ways, while some of the elements of the telco business are increasingly being provided by players from other industry verticals.
By the same token, telcos face the pressure – and the opportunity – to combine connectivity with other capabilities as part of new vertical-specific offerings.
Telco disaggregation primarily affects three interrelated aspects of the telco business:
Technology:
‘Vertical’ disaggregation: separating out of network functions previously delivered by dedicated, physical equipment into software running on commodity computing hardware (NFV, virtualisation)
‘Horizontal’ disaggregation: breaking up of network functions themselves into their component parts – at both the software and hardware levels; and re-engineering, recombining and redistributing of those component parts (geographically and architecturally) to meet the needs of new use cases. In respect of software, this typically involves cloud-native network functions (CNFs) and containerisation
Open RAN is an example of both types of disaggregation: vertical disaggregation through separation of baseband processing software and hardware; and horizontal disaggregation by breaking out the baseband function into centralised and distributed units (CU and DU), along with a separate, programmable controller (RAN Intelligent Controller, or RIC), where all of these can in theory be provided by different vendors, and interface with radios that can also be provided by third-party vendors.
Organisational structure and operating model: Breaking up of organisational hierarchies, departmental siloes, and waterfall development processes focused on the core connectivity business. As telcos face the need to develop new vertical- and client-specific services and use cases beyond the increasingly commoditised, low-margin connectivity business, these structures are being – or need to be – replaced by more multi-disciplinary teams taking end-to-end responsibility for product development and operations (e.g. DevOps), go-to-market, profitability, and technology.
Transformation from the vertical telco to the disaggregated telco
3. Value chain and business model: Breaking up of the traditional model whereby telcos owned – or at least had end-to-end operational oversight over – . This is not to deny that telcos have always relied on third party-owned or outsourced infrastructure and services, such as wholesale networks, interconnect services or vendor outsourcing. However, these discrete elements have always been welded into an end-to-end, network-based services offering under the auspices of the telco’s BSS and OSS. These ensured that the telco took overall responsibility for end-to-end service design, delivery, assurance and billing.
The theory behind this traditional model is that all the customer’s connectivity needs should be met by leveraging the end-to-end telco network / service offering. In practice, the end-to-end characteristics have not always been fully controlled or owned by the service provider.
In the new, further disaggregated value chain, different parts of the now more software-, IT- and cloud-based technology stack are increasingly provided by other types of player, including from other industry verticals. Telcos must compete to play within these new markets, and have no automatic right to deliver even just the connectivity elements.
All of these aspects of disaggregation can be seen as manifestations of a fundamental shift where telecoms is evolving from a utility communications and connectivity business to a component of distributed computing. The core business of telecoms is becoming the processing and delivery of distributed computing workloads, and the enablement of ubiquitous computing.
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Telco disaggregation is a by-product of computerisation
Telco industry disaggregation is part of a broader evolution in the domains of technology, business, the economy, and society. This evolution comprises ‘computerisation’. Computing analyses and breaks up material processes and systems into a set of logical and functional sub-components, enabling processes and products to be re-engineered, optimised, recombined in different ways, managed, and executed more efficiently and automatically.
In essence, ‘telco disaggregation’ is a term that describes a moment in time at which telecoms technology, organisations, value chains and processes are being broken up into their component parts and re-engineered, under the impact of computerisation and its synonyms: digitisation, softwarisation, virtualisation and cloud.
This is part of a new wave of societal computerisation / digitisation, which at STL Partners we call the Coordination Age. At a high level, this can be described as ‘cross-domain computerisation’: separating out processes, services and functions from multiple areas of technology, the economy and society – and optimising, recombining and automating them (i.e. coordinating them), so that they can better deliver on social, economic and environmental needs and goals. In other words, this enables scarce resources to be used more efficiently and sustainably in pursuit of individual and social needs.
NFV has computerised the network; telco cloud native subordinates it to computing
In respect of the telecoms industry in particular, one could argue that the first wave of virtualisation (NFV and SDN), which unfolded during the 2010s, represented the computerisation and digitisation of telecoms networking. The focus of this was internal to the telecoms industry in the first instance, rather than connected to other social and technology domains and goals. It was about taking legacy, physical networking processes and functions, and redesigning and reimplementing them in software.
Then, the second wave of virtualisation (cloud-native – which is happening now) is what enables telecoms networking to play a part in the second wave of societal computerisation more broadly (the Coordination Age). This is because the different layers and elements of telecoms networks (services, network functions and infrastructure) are redefined, instantiated in software, broken up into their component parts, redistributed (logically and physically), and reassembled as a function of an increasing variety of cross-domain and cross-vertical use cases that are enabled and delivered, ultimately, by computerisation. Telecoms is disaggregated by, subordinated to, and defined and controlled by computing.
In summary, we can say that telecoms networks and operations are going through disaggregation now because this forms part of a broader societal transformation in which physical processes, functions and systems are being brought under the control of computing / IT, in pursuit of broader human, societal, economic and environmental goals.
In practice, this also means that telcos are facing increasing competition from many new types of actor, such as:
Computing, IT and cloud players
More specialist and agile networking providers
And vertical-market actors – delivering connectivity in support of vertical-specific, Coordination Age use cases.
Table of contents
Executive Summary
Three critical success factors for Coordination Age telcos
What capabilities will remain distinctively ‘telco’?
Our take on three pioneering cloud-native telcos
Introduction
The telco business is being disaggregated
Telco disaggregation is a by-product of computerisation
The disaggregated telco landscape: Where’s the value for telcos?
Is there anything left that is distinctively ‘telco’?
The ‘core’ telecoms business has evolved from delivering ubiquitous communications to enabling ubiquitous computing
Six telco-specific roles for telecoms remain in play
Radical telco disaggregation in action: AT&T, DISH and Rakuten
Servco, netco or infraco – or a patchwork of all three?
AT&T Network Cloud sell-off: Desperation or strategic acuity?
In the last year, businesses all around the world underwent unprecedented changes and had to adapt to the most challenging of circumstances. Priorities shifted for all stakeholders with telcos operating in an increasingly complex world and having to rethink how they do business.
The world is connected digitally now more than ever. With office closures and working from home, Zoom calls with loved ones having been the only way to socialise and to carry out online schooling, telecoms and technology have become even more relied upon industries in the last 18 months.
The idea that a strong corporate social responsibility and sustainability strategy is good for business has been around for decades. This report outlines how telcos can evolve their purpose beyond just being profit driven by aligning core strategy with sustainability initiatives and a sustainability policy, and in doing so benefit their business and add ‘society’ or ‘the world’ to their stakeholders.
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Scope of Research
The modern concept of ‘sustainability’ is composed of three components: economic, environmental and social. This is also sometimes called the ‘triple bottom line’ of business – stating that businesses should commit to measuring social and environmental impact, as well as financial performance, rather than focusing solely on profit. The ‘triple bottom line’ theory states that businesses should focus on the “three Ps”: people, profit and planet.
The three components of sustainability
Source: STL Partners
Modern discussions of ‘sustainability’ refer to the economic, environmental and social effect an organisation has on the societies or markets in which it operates. It is an umbrella term that covers issues such as diversity and inclusion, energy usage, human rights and supply chain management.
Through this research we sought to understand if there is a business value to incorporating sustainability into a telecoms operator’s purpose and strategy. Speaking to seven operators across the world, some of whom are named in this report (Telstra, Globe and Orange), we wanted to know how telcos are thinking about sustainability, and to learn more about the following:
Telcos’ perception of the impact of sustainability initiatives in wider stakeholder groups e.g. employees, customers, shareholders, society
Which sustainability issues telcos are focusing on
The business benefits of sustainability initiatives
Case studies of companies that have incorporated sustainability into their company strategy
The effect the markets in which a telco operates in has on its sustainability initiatives (e.g. developed vs developing)
To gain an idea of how sustainability affects all aspects of the business, we interviewed employees in telcos’ sustainability and CSR teams, as well as in corporate strategy and product management.
All interviewees were asked largely the same questions, covering topics including: the initial motivations for engaging with sustainability; the effect of sustainability on multiple stakeholders (including customers and employees); if being sustainable puts telcos at a competitive advantage; important sustainability issues and solutions; successes and challenges of different sustainability initiatives; adapting sustainability strategies in different regions and the selection of their term for what we are calling ‘sustainability’.
Notably, some of the telcos we reached out to were not willing to participate in interviews because they were in the process of revising, changing, or updating their position on sustainability. In itself, this tells us that sustainability is an important and topical issue that many are still figuring out how to “get right” and how to incorporate it into their company strategy.
Sustainability is a cornerstone of the Coordination Age
As we outlined in The Coordination Age: A third age of telecoms, we believe that the telecoms and the wider digital economy is in its third age, ‘The Coordination Age’, which builds on ‘The Communications Age’ and ‘The Information Age’.
The three ages of telecoms
Source: STL Partners
The Coordination Age is a result of the changing needs and demands of the world’s people, businesses, and governments, evolving technological solutions and possibilities, and the need to preserve the most habitable possible future environment for the world’s population.
To create major growth and advance as a telco, operators need to help solve some of the world’s biggest problems. We believe some of those major problems are:
A desire for greater business efficiency and productivity
The distribution and availability of human resources and services such as healthcare, education, employment, and entertainment
Mitigating climate change and minimising its effects
Reducing the amount of waste and harmful by-products polluting the environment
Concerns over employment due to automation and global economic changes
These major problems can and are starting to be addressed through sustainability initiatives set out by companies in their agendas and policies.
In addition, telcos have important and unique assets, as well as specific resources and capabilities, such as access to data, technology and their prevalence in the everyday lives of their customers, that can enable them to contribute to tackling some of the world’s problems and ‘help make our world run better’. A specific common problem is to help companies and people coordinate their resources in or near to real-time.
For example, a major problem in delivering sustainable energy is ensuring that the variable demand of populations is coordinated with supply. Wind turbines and solar panels cannot be relied on to produce at peak capacity at exactly half-time in sporting events, when the audience goes to make a cup of tea by boiling their electric kettles. As such, supply needs to be very flexibly managed in relation to demand.
This means sharing information about those resources and demands effectively, which in turn takes modern communications in some shape or form (although connections may not always need to run through a telco network, for example Bluetooth, WiFi, etc.) Given his common need, telcos are well-equipped to help enable sustainability.
The motivating value of a compelling purpose
Protecting the future of the planet and society is a compelling purpose, and one which is progressively becoming part of our daily lives.
Our research on sustainability found that that there are a number of benefits for different stakeholders when telcos incorporate sustainability into company strategy, including increasing employee engagement. Sharing a mutual goal or purpose unites a team and creates value, which is important for business performance, and thus a business benefit of sustainability.
How a unifying purpose helps create value
Source: STL Partners
A clear unifying purpose applied successfully creates a virtuous cycle:
1. Clarity of direction: A clear purpose can provide direction for people at all levels. E.g. incorporating the UN Sustainable Development Goals, such as Goal 7 – Affordable and Clean Energy, into company strategy and developing processes around it that involve employeesat all levels.
2. Energising work: Most people work for money, to a greater or lesser extent, and a range of other drivers: status, socialcontact, etc. However, work with a clear purpose is much more energising, especially if (like sustainability) it has some broader merit or meaning. It can make work ‘worth getting up for’. All the telcos we spoke to said that their employees are motivated by the sustainability work their company does.
3. Switched on people: If a telco is full of people that care about what they are doing, and know what they are trying to do, it will be a much more enjoyable and attractive place to work for everyone. Telcos we spoke to also said that sustainabilityis beneficial for talent attraction and retention, as employees want to work for a company that they feel is making a positive impact on the world
4. and 5 – Compelling offer and support, and attracts and satisfies customers: The combination of engaged people in the company and a compelling offer will be attractive to customers. Telcos we spoke to also referenced the need to be attractive to and satisfy different types of customers through their sustainabilitywork, such as the socially conscious Generation Z, and the older generation who can be engaged through digital inclusion
6. Feeds the business: The combination of internal clarity and alignment, motivation, and external attractiveness creates a virtuous circle that benefits telcos and drive business growth.
We think that engaging with sustainability and incorporating it into company strategy is a crucial part of operating in the context of the Coordination Age, and fundamental to operating in this way successfully. To support our hypothesis that having a clear and motivating purpose (in this case sustainability) can help to enhance currant performance, engage its employees, and find and nurture new areas of growth, we interviewed telcos to better understand how they define and measure the benefits of sustainability for their business. The research conducted for this report further validates our belief that commitment to sustainability is crucial to telcos’ success and growth in the Coordination Age.
Table of Contents
Executive Summary
Context
Key findings from research
Recommendations
Next steps for research
Introduction
Scope of research
Sustainability is a cornerstone of the Coordination Age
The motivating value of a compelling purpose
Defining and contextualising sustainability
‘Corporate social responsibility’ vs. ‘sustainability’
The United Nations Sustainable Development Goals
Where are telcos focusing their efforts?
What are the business benefits of sustainability?
Employee benefits
Customers and government
Shareholder benefits
Challenges of sustainability
Conclusion
To what degree are telcos taking a holistic approach to CSR and sustainability?
Telcos face a perplexing challenge in consumer markets. On the one hand, telcos’ standing with consumers has improved through the COVID-19 pandemic, and demand for connectivity is strong and continues to grow. On the other hand, most consumers are not spending more money with telcos because operators have yet to create compelling new propositions that they can charge more for. In the broadest sense, telcos need to (and can in our view) create more value for consumers and society more generally.
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.
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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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SK Telecom is the largest mobile operator in South Korea with a 42% share of the mobile market and is also a major fixed broadband operator. It’s growth strategy is focused on 5G, AI and a small number of related business areas where it sees the potential for revenue to replace that lost from its core mobile business.
By developing applications based on 5G and AI it hopes to create additional revenue streams both for its mobile business and for new areas, as it has done in smart home and is starting to do for a variety of smart business applications. In 5G it is placing an emphasis on indoor coverage and edge computing as basis for vertical industry applications. Its AI business is centred around NUGU, a smart speaker and a platform for business applications.
Its other main areas of business focus are media, security, ecommerce and mobility, but it is also active in other fields including healthcare and gaming.
The company takes an active role internationally in standards organisations and commercially, both in its own right and through many partnerships with other industry players.
It is a subsidiary of SK Group, one of the largest chaebols in Korea, which has interests in energy and oil. Chaebols are large family-controlled conglomerates which display a high level and concentration of management power and control. The ownership structures of chaebols are often complex owing to the many crossholdings between companies owned by chaebols and by family members. SK Telecom uses its connections within SK Group to set up ‘friendly user’ trials of new services, such as edge and AI
While the largest part of the business remains in mobile telecoms, SK Telecom also owns a number of subsidiaries, mostly active in its main business areas, for example:
SK Broadband which provides fixed broadband (ADSL and wireless), IPTV and mobile OTT services
ADT Caps, a securitybusiness
IDQ, which specialises in quantum cryptography (security)
11st, an open market platform for ecommerce
SK Hynixwhich manufactures memory semiconductors
Few of the subsidiaries are owned outright by SKT; it believes the presence of other shareholders can provide a useful source of further investment and, in some cases, expertise.
SKT was originally the mobile arm of KT, the national operator. It was privatised soon after establishing a cellular mobile network and subsequently acquired by SK Group, a major chaebol with interests in energy and oil, which now has a 27% shareholding. The government pension service owns a 11% share in SKT, Citibank 10%, and 9% is held by SKT itself. The chairman of SK Group has a personal holding in SK Telecom.
Following this introduction, the report comprises three main sections:
SK Telecom’s business strategy: range of activities, services, promotions, alliances, joint ventures, investments, which covers:
Mobile 5G, Edge and vertical industry applications, 6G
AIand applications, including NUGU and Smart Homes
New strategic business areas, comprising Media, Security, eCommerce, and other areas such as mobility
Business performance
Industrial and national context.
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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.
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STL Partners has long believed that telecoms operators need to and can do more to add value to their consumer and enterprise customers and to society more generally. For the telecoms industry, the need to do more is illustrated by flat or declining revenues and rising capital expenditure and debt levels. The opportunity for telecoms to add more value is also clear. The demands of society now call for greater coordination between all players and new technology – 5G, analytics, AI, automation, cloud – is now spawning the Coordination Age.
Figure 1: The Coordination Age – new paradigm, new telco purpose
Source: STL Partners
Operators have the credibility, skills and relationships to contribute more in the Coordination Age. But the opportunity will not drop into their laps. Improved networks are not, of themselves, the driver of new value: it accrues to the provider of services that run on the network and it is up to operators to develop platforms and services that exploit ubiquitous, high-bandwidth connectivity.
So far, operators have found moving beyond connectivity challenging. There are a handful of success stories; most attempts to develop vertical solutions have failed to move the needle. In this report, we draw on successes and failures from within and outside telecoms to outline 8 core guiding principles for ambitious leaders within the telecoms industry who are determined to help their organisations to deliver more than connectivity.
The Coronavirus pandemic is an unprecedented event in our lifetimes. As well as the virus’s impact on health, shock and fear have rippled across the world. Everyday life is changing almost everywhere, with major impacts across the economy. It is having many of the same effects as a new world war, albeit a war against a common invisible enemy.
At the start of every world world war, people in the UK thought it would be over by Christmas. Coronavirus won’t be over by Christmas (December) 2020. Unchecked. Each person with COVID-19 infects about 3 people, on average. This means it is hugely infectious and can (re)infect populations rapidly. Hopefully, better healthcare treatments will be developed fast, and in time a vaccine too – though the World Health Organisation (WHO) believes this will take at least a year, and longer to immunise the population.
On this basis, unless several miracles happen, we think the world is likely to be dealing with some form of social distancing and other preventative and curative measures for a while. Given what we know today, here is our initial take on what telcos are doing now – and what they should do next, including four scenarios to help envisage a range of possibilities amid the current uncertainty.
Telcos and vendors can and should now do some great things
Telecoms is an essential service in today’s world. The initial focus of telcos has inevitably been on the short term crisis response: keeping the network working, adapting to new and changing patterns of customer behaviour, and trying to keep their employees and customers safe. Beyond that, telcos have been offering additional services and help to customers, and we outline some of the measures taken so far in this report (summarised below).
Beyond that, telco leaders must keep thinking and planning ahead. As a sector it is in a relatively strong position. Telecoms stocks are among those least impacted in the crisis, showing that shareholders see telecoms as a relatively safe haven with a more reliable future than many other sectors (e.g. travel, hospitality, etc.).
That’s not to say that all telcos will survive the crisis in the state they are in today. Some may be nationalised or struggle to finance debt or worse, though for the most part we imagine telcos will find state support where needed because of the importance of the service they deliver.
On a more positive note, the near term future will see an enhanced focus on addressing some big problems, such as accelerating the transformation of healthcare and making it and other critical functions such as logistics even more robust and resilient.
STL Partners believes that the crisis will further accelerate the evolution of the Coordination Age, as customers and governments will accept, change and learn new behaviours (such as online ordering, remote delivery, automated services, etc.) fast in the context of an environment in which they simply have to do so. The crisis will also place the importance of critical and sometimes limited resources (e.g. food, healthcare, communications) firmly in the spotlight, along with issues such as potential conflicts between the use of data and privacy.
It’s too early to say whether highly controlled economies like China will do better than less controlled ones. Yet the strengths of a coordinated response to a problem (such as how a national health service can organise and plan collectively) will become clearer, and is likely to shape regulation that prioritises desired outcomes in a more pragmatic way, potentially bringing regulated collaboration back into fashion somewhat compared to pure competition in some sectors.
True leaders think ahead
Despite all the near term focus that a crisis brings, the challenge of addressing future problems should not just be dropped. We recommend that telcos and vendors shouldn’t abandon their longer term ambitions to develop new services and solutions in order to deal with the crisis. By analogy, the countries that are doing best in the COVID-19 response today are those that were best prepared for a viral pandemic, i.e. those that have planned how to scale up testing and hospital capacity, and have previously outlined a pandemic response strategy. Likewise, the telcos that will do best will continue to offer resilient support to their communities, and develop new solutions for customer problems.
Perhaps the best that could happen is that telcos and other service providers could ultimately find this crisis a stimulant to accelerate internal and business model change. For this to happen, the change needs to come from the top, and leaders in telecoms need to set the example of looking to do everything possible to help deal with the crisis, while maintaining a strong forward looking outlook.
STL Partners will continue to research how to do that realistically in the new context. We believe that Coronavirus will change how services evolve. For example, some 5G capital investments are likely to proceed with greater caution in the near term. Our initial thoughts on this is that, rather than bin all development, telcos should use this as an opportunity to better develop their understanding of customer needs, and develop the non-network capabilities and offerings to support consumers and other sectors to prepare the ground better for when 5G does arrive.
Short-term: Some smart offers to copy
Telcos are broadly offering customer support in four ways:
Supporting healthcare, government and other critical care customers: prioritising communications and resources for first line responders and healthcare facilities, offering population movement statistics, participating in national tests, and providing other services (e.g. bulk SMS updates to patients and healthcare communities)
Business customers: support for home working such as increased capacity on collaboration services, support on business continuity
Consumer customers: quite a wide range of offers, varying from suspending data bundle usage caps, to providing free calls for pensioners, free calls to the worst hit countries, waiving roaming charges and late payment relief for COVID-19 impacted customers
Shops and customer premise visits: a range of measures to ensure customer and employee safety, including shutting shops entirely, keeping some open, and introducing social distancing
Mid term: Adjust, but don’t forget the future
For the next few months, humans will interact differently. People and businesses will want to survive, and will be keen to return to ‘normal’ – but they won’t be able to.
Thus new habits, such as home working, and work and social video conferencing, will become more deeply embedded behaviours. New support structures to care remotely for the isolated will evolve, potentially with lasting effects. Telcos will need to support these behaviours with appropriate service and capacity, and with considerate offers as they have started to do as the crisis bites. Telcos should not behave like or risk being seen as profiteers during the crisis. Such action would be wrong – and a PR disaster.
They will need to continue to focus on the needs of critical sectors such as healthcare, government, security and logistics, and maintain a close relationship with government to assist the centralised efforts to combat COVID-19 and support the pandemic relief effort.
Long term: Four possible scenarios
When the future is as uncertain as it is now, scenarios are a useful way to envisage possible alternatives and enrich planning. We’ve therefore outlined four scenarios for the recovery stage:
Scenario 1:Back to (almost) normal. A cautiously optimistic scenario in which all economies recover reasonably swiftly without much impact on the global order. Global trade recovers gradually, and activities like 5G investments are merely delayed at the outset.
Scenario 2:Fragmented recovery. A moderately pessimistic scenario in which some economies are much more significantly damaged than others. Recovery takes longer and global initiatives are less successful because of lower collaboration. 5G take-up is patchy, nation by nation.
Scenario 3:Weak and distanced. The most pessimistic scenario in which nations have become much more insular and distrustful, and economic and social recovery is much slower. Economic realities have significantly delayed 5Ginvestments in most nations.
Scenario 4:Stronger than before. The most optimistic scenario. Collaboration and cooperation are enhanced, and the broadly successful response and recovery to the crisis has refocused strategic thoughts on the importance of resilience in the long-term. 5G is close to the trajectory it would have been on before the crisis and accelerating fast.
Introduction
World War C
The Coronavirus pandemic sweeping the world in 2020 is a truly disruptive ‘black swan’ event. It is impacting people’s lives in almost every nation and will continue to do so for many years ahead.
STL Partners, like all our customers and partners, families and friends, is feeling the impact already. We are lucky enough to be able to continue to work because the nature of our work is relatively unaffected by virtual working. Many in the global economy are not so lucky, and many others have been even more directly impacted by the illness. Our thoughts and best wishes are with you all.
Our job is to try to help others make better decisions to shape the future of their businesses. We believe that COVID-19 will change the global economy in a way that will impact all previous strategies and plans. This analysis is therefore intended to help preparations and planning for the next few months and years. Yet certainty is in short supply, and the situation is changing all the time. We do not claim to have all the answers and will update our analysis when it makes sense.
The scale and speed of this pandemic is unprecedented in the lives of the few alive today under the age of 102. Even so, when the so-called “Spanish Flu” swept the world in 1918, road and air travel were relative novelties, information spread slowly and its distribution was highly limited.
Today, the virus has spread much faster – but so too has news, information and research relating to it. The primary challenges for economies and societies as a whole are:
Supporting the frontline medical battle for the lives of the severely infected.
How the available information can be used to manage the disease to best effect by governments and authorities.
How other technological and economic developments such as globalised food chains and online information and entertainment services can help to sustain the rest of the population until the virus and the fear and disruption it has brought are defeated, or at least brought under control.
Operational and financial support to maintain economies and employment wherever possible.
Coronavirus and the Coordination Age
STL Partners has written at length about the Coordination Age – our view that the world economy now needs on-demand solutions enabled by the emergence of new technologies like AI, virtualisation, 5G, etc. These solutions must deliver outcomes (e.g. in healthcare) in a resource efficient way.
This age impacts all industries, but in the forefront are healthcare and logistics, which are also those most under test by Coronavirus. Succeeding against COVID-19 will require a massive and sustained effort of coordination, in this case mostly orchestrated by governments and health authorities.
Telcos and the telecoms industry will not solve this, but they can be major enablers of success. They can also have a major role in helping societies deal with the crisis and rebuilding and reshaping themselves after it has passed. This report starts to sketch out how this might happen.
Three stages and three questions for telcos
To simplify the analysis of what could happen, we’ve split the near future into three stages, and have structured the report correspondingly:
Now: shock and lockdown. Dealing with the initial global spread of the pandemic.
Next: finding a new, temporary normal. Coping with the longer-term impacts of social isolation, healthcare, and economic damage.
After: rebuilding and reshaping. What will be the lasting changes, what will need to be rebuilt?
In each case, we outline our best views on the ‘certainties’ – or at least more certain outcomes, and explore different scenarios where uncertainty is currently prime.
Throughout, we address three questions about what actions telcos and the industry should take:
What do telcos need to do to survive?
What can telcos do to help their customers?
How can telcos help the immediate response, then rebuild and reshape society?
Now: Shock and lockdown
The problems that need to be solved
A health crisis is a hard reminder of the need to serve the greater good of our societies. We need other people and organisations to survive and thrive, especially in today’s highly globalised and connected world. In this regard, there is an over-riding responsibility for those in positions of power to direct that power in service of the integrity of society and the economy – how we exchange goods and services to maintain our lives.
In such moments, the pursuit of competitive gains which is the normal function of companies and markets becomes secondary to the overall well-being of the society and the economy that supports it. This is a fundamental – albeit temporary – suspension of ‘business as usual’.
Telcos have a long history of providing support in times of crisis, and the COVID-19 pandemic is the broadest and most systemic global crisis of our times. The fundamental functions and sectors that the industry needs to support are:
Healthcare – sustaining and protecting the healthcare system in a time of critical demand and pressure
Logistics – ensuring that supply and delivery chains are enabled to operate and deliver the goods (e.g. food and medical supplies) and services (e.g. water, power, hygiene) required for the healthy function of society
Government – ensuring that governments and responsible authorities are enabled to function and make decisions to best manage, control and mitigate the impact of the virus and the accompanying fear and disruption
General communications – ensuring that the public, businesses and others can stay in touch with each other to provide information, economic, medical and emotional support, and maintain employment.
Immediate actions
Following airline safety advice
The classic airline safety advice is to fit your own oxygen mask before attempting to help others.
We expect that telcos will be putting in place their contingency plans for dealing with the COVID-19 pandemic – though of course, the exact circumstances cannot have been foreseen.
Clearly, maintaining the core functions of telecommunications networks will be the priority – doubling down on enabling and protecting data and voice communications across the network, especially to mission-critical establishments like hospitals, and other healthcare and state facilities.
This may require operators to scale up network capacity at key points, although early data suggests most traffic growth from home-working and home-schooling may come at historical off-peak times. There is likely to be a shift from mobile to fixed broadband in many cases, with mobile use being concentrated in residential areas rather than urban centres and transport corridors. Mobile voice traffic is likely to rise substantially (in Spain, a 50% rise has been reported) as people speak to elder relatives and connect to conference calls and other services. Encouraging customers to shift usage to fixed-line telephony (which usually has extra capacity) could be wise.
Most cloud and enterprise facilities have been engineered to be highly resilient, but there is also likely to be increased demand in the distributed consumption of data in many societies as social isolation measures move populations into home-working environments and away from traditional daytime centres of communications localised on business.
How telcos can support and are supporting their customers
Many telcos are putting in place wider measures to support their customers.
Figure 1: How telcos are supporting their customers
Telco responses to Coronavirus
Source: Operator announcements, STL Partners
For healthcare, government and other critical support customers:
Prioritising connectivity for frontline healthcareresponders (AT&T, Verizon and others)
Offering bulk text upgrades to patients and healthcarecommunities (Vodafone)
Offering insights on population movements and statistics (Vodafone, Deutsche Telekom, Telefonica)
Collaborating in other hospital and healthcaretrials and programmes (China Mobile, China Telecom, TELUS)
Extending free hospital Wi-Fi (Globe)
Free-rating data on healthcaresites and apps
For these sectors and business more broadly, additional:
Conferencing lines, VPN capacity, and capacity / licenses for collaborationtools (BT)
Other home-working security(BT, NTT)
Cut price access to digital marketing services and conferencing for small businesses (Telstra)
For consumer customers, telco measures include:
Additional free data in bundles (Telefónica, Telstra, Dialog)
Removing caps on some limited data bundles (AT&T, Sprint, T-Mobile, TELUS, Telstra, Dialog)
Additional entertainmentcontent in some packages (Telefónica, TELUS, Dialog)
Free or reduced tariff calls to the countries most impacted by COVID-19(Verizon, Sprint, T-Mobile)
Free landline calls for pensioners (Telstra)
Free medical hotline service (Dialog)
Free data packages for families with school children without internet access or no data charges on educational services (Du, Etisalat, Dialog)
Waiving fees / suspension of service for non or late payment for impacted customers, or extending payment terms / credit (AT&T, Verizon, Telstra, Dialog)
Waiving all or some roamingfees for overseas customers (TELUS)
Encouraging the use of digital cash and health apps (Globe)
And in terms of shops and customer premises visits, telcos are taking a range of measures from:
Closing shops, or keeping some open to provide critical equipment (AT&T, Sprint, T-Mobile, DTAG, TELUS)
Possibly stopping or limiting customer premises visits, or continuing but with new isolation/protection procedures in place (AT&T, Globe)
NB This is illustrative and not an exhaustive or comprehensive list. Please see our blog for links to some of the companies’ policies and articles relating to them at the time of research.
STL Partners is conducting a rapid survey of telco responses which can be found here. We will be updating and freely sharing what operators tell us over the next few weeks with details of the measures used so that other telcos can review what they can copy or learn from these measures to support their customers.
Help your employees
Again, many telcos in directly impacted environments have asked employees that can to work from home. We would also hope telcos are putting in place additional health measures to protect those employees that do need to make physical contact with customers and others, such as health advice and screening.
Starting to look ahead
Which sectors will be most affected?
The impact of the COVID-19 pandemic across the economy is very hard to predict at this stage, although there are certain sectors that are clearly already under immediate pressure, such as:
Consumer leisure and mass transport: cruise lines, passenger airlines, hotels and tourism as people shun travel and self-isolate
Consumer service industries such as cafes, bars, restaurants, gyms, hairdressers
Entertainment and mass gatherings such as sporting events, festivals, conferences and events, concerts, museums.
Wider impacts are anticipated in demand for other consumer goods and services, such as cars, clothes and other non-food and everyday items, and this knocks on to the value chains of those industries too.
This pattern is evident looking at the impact on FT.com share indices over the last month in Figure 2. Indeed, of the major sectors, telecommunications was the least devalued on the 16th March when we looked at this data (a day on which there was a 10% drop in global financial indicators).
Figure 2: Financial markets rate telecoms as one of the sectors of the economy least hit by Coronavirus
Coronavirus impact on industries
NB Oil and gas sectors have recently faced additional pressures from an industry price war. Source: STL Partners, FT.com
Moody’s credit rating agency paints a similar picture of their estimated impact of the pandemic on the credit worthiness of industries by sector as shown in Figure 3.
Figure 3: Moody’s credit rating impact of Coronavirus by industry
Source: Moody’s
At this early stage it’s very hard to be sure of what the overall impact of the COVID-19 pandemic will be on each sector. But there’s certainly some consistency between the logic of what is causing the impacts, and the degree to which markets and market rate-setters are reflecting likely changes in future value.
For telcos, the questions are: how can they support all sectors effectively during the crisis, and how can they help them recover and rebuild in due course. We will explore this a little further in subsequent sections.
Table of contents
Executive Summary
It won’t be over by Christmas
Telcos and vendors can and should now do some great things
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
For the report chart pack download the additional file on the left
5G is catalysing demand for customisation
The arrival of 5G has catalysed a huge amount of interest in enterprise, government and “vertical” use-cases for cellular networks. Cellular technology is becoming ever more important and applicable for businesses, for diverse use-cases from factory automation, to better hospitality guest-services, to replacement of legacy two-way radios.
Some of this fits in with STL’s view of the Coordination Age, and the shift towards connectivity becoming part of wider, society-level or economy-level applications and solutions. However, in many ways it is more of an evolution of traditional enterprise use of private wireless solutions, but updated with newer and more-performant 5G radios. The future battleground is whether such coordination requires external services (and thus SPs), or whether the capabilities are best-delivered in-house on private networks.
For various reasons of cost, performance, accountability or guaranteed coverage, there is a drive towards greater customisation and control, often beyond that currently deliverable by traditional MNOs.
However, there is significant confusion between three things:
Mobile network services and applications sold to, or used by, industrial and enterprise customers
Mobile networks optimised, extended or virtualised for industrial and enterprise requirements
Mobile networks built exclusively for, or owned by, industrial companies and other enterprises
This report is a joint exercise between STL Partners and affiliate Disruptive Analysis, which has covered this sector in depth for almost 20 years. Its founder Dean Bubley runs workshops on private cellular and neutral-host networks, as well as undertaking private projects and speaking engagements advising operators, vendors, regulators and investors on business models, spectrum policy and market dynamics.
What is a private mobile network?
This report primarily focuses on the third category – private mobile networks – although there is some overlap with the second, especially when techniques like network-slicing enter the discussion. There are different models of “private” too – from completely standalone networks that are entirely isolated from public mobile networks, to ones which use some dedicated infrastructure / management, alongside shared radio- or core-network elements provided by an MNO. They can be nationwide networks (for example, for utility grids), or highly localised, such as to a factory or hotel.
There are also various hybrids and nuances of all of this, such as private networks where certain functions are installed by, outsourced to, or managed by, telcos. It may be possible for users or devices to roam between private and public networks, for instance when a truck leaves a logistics facility with a local private network, and switches to the telco while it’s on the road.
Various government bodies – ranging from police forces to local council authorities – are also interested in creating private or shared 4G / 5G networks. Over the next 3-4 years, we can expect a wide diversity of approaches, and some very vague and fluid definitions from the industry.
Three building blocks for private networks
There are three main enablers (and numerous secondary drivers) behind the private network concept:
Availability of spectrum
Small cells and distributed radios
The move from 4G to 5G
A critical element in this is access to suitable spectrum for creating private networks. In recent years, many governments and regulatory authorities have started to make localised mobile licences available, suitable for covering enterprise sites, or wider areas such as cities. While private Wi-Fi and other networks have long been created with (free) unlicensed spectrum, this does not give the protections against contention and interference that more formal licensing enables. Other localised spectrum licenses have been given for point-to-point fixed links, temporary outside broadcast & events, or other purposes – but not cellular networks for normal mobile users. There are also discussions ongoing about making more national or wide-area spectrum available, suitable for mobile use in certain specialised verticals such as utilities.
Small cells and other types of enterprise-grade radio network (RAN) equipment are critical building- blocks for private mobile infrastructure, particularly indoors or on small/medium campus sites. They need to be low-cost, easy to install and operate, and ideally integrated with other IT and networking systems. While small cells have been around for 20 years or more, they have often been hard to deploy and manage. We are also seeing further innovation around distributed/cloud RAN which further increases the options for campus and in-building coverage systems.
5G – or more accurately the 5G era – changes the game in a number of ways. Firstly, IoT use-cases are becoming far more important, especially as analogue equipment and business processes become more connected and intelligent. Secondly, 5G brings new technical challenges, especially around the use of higher-frequency spectrum that struggles to go through walls – which highlights the paradox of telcos providing public network services on private property. Finally, with the advent of cloud-based and virtualised functions such as core networks, it is becoming easier to deploy and operate smaller infrastructures.
Some of the specialised skills requirements for building/running cellular networks can be reduced with automation, although this is still a significant obstacle for enterprises. This will drive significant demand for new tiers and types of managed services provider for private cellular – some of which will be satisfied by telcos, but which will also targeted by many others from towerco’s to systems integrators to cloud/Internet players.
It is worth stressing that this concept is not new. Private cellular networks have existed in small niches for 10-20 years. Railways have a dedicated version of 2G called GSM-R. Military squads and disaster- response teams can carry small localised base stations and controllers in their vehicles or even backpacks. Remote mines or oil-exploration sites have private wireless networks of various types. The author of this report first saw cellular small-cells in 2000, and worked on projects around enterprise adoption of private 2G as early as 2005.
Private and vertical cellular networks: Threats and opportunities aims to clarify the concept of “private” networks. It explores the domain of business-focused cellular networks, where the enterprise has some degree of ownership or control over the infrastructure – and, sometimes, the radio network itself. The report then sets out the motivations and use cases for private networks, as well as the challenges and obstacles faced.
This report is a joint exercise between STL Partners and affiliate Disruptive Analysis, which has covered this sector in depth for almost 20 years. Its founder Dean Bubley runs workshops on private cellular and neutral-host networks, as well as undertaking private projects and speaking engagements advising operators, vendors, regulators and investors on business models, spectrum policy and market dynamics. Please see deanbubley.com or @disruptivedean on Twitter for details and inquiries.
Table of contents
Executive Summary
Introduction
Public vs. non-public networks
Private network vs. private MVNO vs. slices
Motivations & use-cases for private networks
Business drivers for private cellular
Technical use-cases for private cellular
Industrial sites & IIoT
Enterprise/public in-building coverage
Neutral host networks (NHN)
Fixed 4G / 5G networks
Regulatory & spectrum issues
Other regulatory considerations
Building private networks – technology
Architectural choices, technology standards & industry bodies
The emerging private networks value chain
Conclusions & Recommendations
How large is the private network opportunity?
Challenges and obstacles for private networks
What is the implication for traditional telcos and MNOs?
Digital twins are an enabler of the Coordination Age, in which a global need to improve the efficiency of resource use, combined with supply-side technologies like the Internet of Things (IoT), 5G and AI, is driving a revolutionary change in the way that economies work.
In this change, the fundamental mechanism needed is coordination – the organisation of multiple parties and assets to deliver a desired end-goal. Examples of this need can be found in all sectors of the economy and all areas of life, such as healthcare, manufacturing, the smart home, smart transport, etc.
To make this happen in practice a number of practical challenges need to be addressed:
Physical and digital assets need to be able to work together more easily
Authorised users need better real-time remote insight on and control of distributed assets
Certain things and processes need to be able to act with greater autonomy (albeit within clear rules)
More realistic and reliable models/simulations are needed to test and evaluate different solutions and scenarios
Digital twins are a means towards all these ends, providing a mechanism whereby processes and things can become interoperable and intelligent on demand to authorised users.
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Blockchain applications are valuable because they decentralise control. This offers a new way to reduce friction and speed up adoption of solutions that require collaboration between various players, but where no one wants to cede control to a single entity.
Collaborative ecosystems are only going to become more important in the Coordination Age, so mastery of blockchain technology can enable telcos to successfully address their customers’ changing needs.
But telcos are still figuring out what to use blockchain for
Based on an interview programme with telcos and technology partners, our research shows that one of the key barriers to adoption is finding valid use cases that are worth taking beyond the PoC stage.
Part of the challenge of knowing which applications are most worthwhile is that there are few large scale, real-world implementations of blockchain. This means that its key value proposition – that it can ease collaboration by removing the need for a centrally controlling authority, instead distributing power across all participants within an ecosystem – still needs to be proven.
Without many successful examples of blockchain-supported applications, it is difficult to know which ones are likely to succeed in telecoms. Telcos are therefore unsure of where to focus their time and investments.In practice, applications that leverage blockchain’s ability to broker trust through transparency and decentralisation are still at an early stage of development.
In this report, we look at a broader range of applications where blockchain is being tested to see if it can deliver better results than other technologies.
We explore 36 use cases across six categories, based on key blockchain capabilities:
Tracking / registry: Recording information and data in an immutable and transparent way, whereby no party has asymmetric power over the data
Data access / transfer: Enabling ease of transferring data between multiple parties
Identity /authentication: Managing identities and permissions for authentication or verification
Transactions: Enabling (real-time) payments and transactions
Settlements: Revenue settlement by recording movement of goods/revenues or use of services/assets
Token exchange: Virtual currency/tokens with intrinsic value traded between multiple parties
Key takeaways
Tracking / registry and data access / authentication are the two biggest categories in terms of use cases, reflecting the relative maturity of blockchain technology in addressing these pain points.
While enterprises are prepared to rely on the distributed ledger and shared consensus mechanisms of blockchain technology to support business processes, the regulatory and reputational risks of using cryptocurrency or tokens to exchange real-world value are still too high.
Therefore, there are fewer emerging use cases around transactions, token exchange, and to some degree settlements, and they will likely take longer to develop into viable commercial solutions.
Identity / authentication is one of the most technologically advanced application areas where blockchain is enabling enterprises to develop truly novel solutions for consumers, IoT, and to ease commercial partnerships. However, the business model is still untested at scale and/or not directly related to telcos’ core operations, so these applications can be difficult to justify as priority investment areas.
Overview of 36 telecoms blockchain applications
For each of these use cases, this report covers:
For each use case, the report covers:
The current problem or pain point
How blockchain can help solve the problem
Which of the following blockchain characteristics are most relevant to the use case
Security: Decentralisation makes tampering with records or DDOS attacks extremely difficult
Cost efficiency: Shared ledgers can disintermediate middlemen
Traceability: Immutable, transparent record
Business process speed: Automation through smart contracts
Token value: Holding real-world value in digital assets, such as loyalty points
Neutral and equal: Shared ownership through consensus mechanisms
Confidentiality: Blockchain can enable collaboration without having to publicise sensitive information (particularly in a consortium/private application)
Type of blockchain most suited to the use case (public, permissioned public, or permissioned private)
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
Meeting the NHS’s future funding needs would mean a 5% UK tax rise
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
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:
The three future telco business models and corresponding NFV pathways
The Telco 2.0 infrastructure and service stack
Interdependence between the three future telco business models
Two examples of the three new business models
The three new business models overview
Telcos face some fierce competition as they move up the stack
Telco expansion across the three business models
Advantages and disadvantages of vertical integration
Mapping the Soft-Net, Cloud-Net and Compute-Net roles in a driverless car environment
Types of data and corresponding compute-based services in a driverless car-as-a-service ecosystem
