The birth of a new sector: “Connected Technologies”
Mobile World Congress (MWC) is the world’s biggest showcase for the mobile telecoms industry. MWC 2023 marked the second year back to full scale after COVID disruptions. With 88k visitors, 2,400 exhibitors and 1,000 speakers it did not quite reach pre-COVID heights, but remained an enormous scale event. Notably, 56% of visitors came from industries adjacent to the core mobile ecosystem, reflecting STL’s view that we are now in a new industry with a diverse range of players delivering connected technologies.
With such scale It can be difficult to find the significant messages through the noise. STL’s research team attended the event in full force, and we each focused on a specific topic. In this report we distil what we saw at MWC 2023 and what we think it means for telecoms operators, technology companies and new players entering the industry.
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STL Partners research team at MWC 2023
The diversity of companies attending and of applications demonstrated at MWC23 illustrated that the business being conducted is no longer the delivery of mobile communications. It is addressing a broader goal that we’ve described as the Coordination Age. This is the use of connected technologies to help a wide range of customers make better use of their resources.
The centrality of the GSMA Open Gateway announcement in discussions was one harbinger of the new model. The point of the APIs is to enable other players to access and use telecoms resources more automatically and rapidly, rather than through lengthy and complex bespoke processes. It starts to open many new business model opportunities across the economy. To steal the words of John Antanaitis, VP Global Portfolio Marketing at Vonage, APIs are “a small key to a big door”.
Other examples from MWC 2023 underlining the transition of “telecommunications” to a sector with new boundaries and new functions include:
The centrality of ecosystems and partnerships, which fundamentally serve to connect different parts of the technology value chain.
The importance of sustainability to the industry’s agenda. This is about careful and efficient use of resources within the industry and enabling customers to connect their own technologies to optimise energy consumption and their uses of other scarce resources such as land, water and carbon.
An increasing interest and experimentation with the metaverse, which uses connected technologies (AR/VR, high speed data, sometimes edge resources) to deliver a newly visceral experience to its users, in turn delivering other benefits, such as more engaging entertainment (better use of leisure time and attention), and more compelling training experiences (e.g. delivering more realistic and lifelike emergency training scenarios).
A primary purpose of telco cloud is to break out the functions and technologies within the operators and network domains. It makes individual processes, assets and functions programmable – again, linking them with signals from other parts of the ecosystem – whether an external customer or partner or internal users.
The growing dialogues around edge computing and private networks –evolving ways for enterprise customers to take control of all or part of their connected technologies.
The importance of AI and automation, both within operators and across the market. The nature of automation is to connect one technology or data source to another. An action in one place is triggered by a signal from another.
Many of these connecting technologies are still relatively nascent and incomplete at this stage. They do not yet deliver the experiences or economics that will ultimately make them successful. However, what they collectively reveal is that the underlying drive to connect technologies to make better use of resources is like a form of economic gravity. In the same way that water will always run downhill, so will the market evolve towards optimising the use of resources through connecting technologies.
Table of contents
Executive Summary
The birth of a new sector: ‘Connected technologies’
Old gripes remain
So what if you are in a new industry?
You might like it
How to go from telco to connected techco
Next steps
Introduction
Strategy: Does the industry know where it’s going?
Where will the money come from?
Telcos still demanding their “fair share”, but what’s fair, or constructive?
Hope for the future
Transformation leadership: Ecosystem practices
Current drivers for ecosystem thinking
Barriers to wider and less linear ecosystem practices
Conclusion
Energy crisis sparks efficiency drive
Innovation is happening around energy
Orange looks to change consumer behaviour
Moves on measuring enablement effects
Key takeaways
Telco Cloud: Open RAN is important
Brownfield open RAN deployments at scale in 2024-25
Acceleration is key for vRAN workloads on COTS hardware
Energy efficiency is a key use case of open RAN and vRAN
Other business
Conclusion
Consumer: Where are telcos currently focused?
Staying relevant: Metaverse returns
Consumer revenue opportunities: Commerce and finance
Customer engagement: Utilising AI
Enterprise: Are telcos really ready for new business models?
Metaverse for enterprise: Pure hype?
Network APIs: The tech is progressing
…But commercial value is still unclear
Final takeaways:
Private networks: Coming over the hype curve
A fragmented but dynamic ecosystem
A push for mid-market adoption
Finding the right sector and the right business case
Edge computing: Entering the next phase
Telcos are looking for ways to monetise edge
Edge computing and private networks – a winning combination?
Network APIs take centre stage
Final thoughts
AI and automation: Opening up access to operational data
Gathering up of end-to-end data across multiple-domains
Support for network automations
Data for external use
Key takeaways
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Nearly two years on from our first Telco Cloud Manifesto published in March 2021, we are even more convinced that going through the pain of learning how to orchestrate and manage network workloads in a cloud-native environment is essential for telcos to successfully create new business models, such as Network-as-a-Service in support of edge compute applications.
Since the first Manifesto, hyperscalers have emerged as powerful partners and enablers for telcos’ technology transformation. But telcos that simply outsource to hyperscalers the delivery and management of their telco cloud, and of the multi-vendor, virtualised network functions that run on it, will never realise the true potential of telco cloudification. By contrast, evolving and maintaining an ability to orchestrate and manage multi-vendor, virtualised network functions end-to-end across distributed, multi-domain and multi-vendor infrastructure represents a vital control point that telcos should not surrender to the hyperscalers and vendors. Doing so could relegate telcos to a role as mere physical connectivity and infrastructure providers helping to deliver services developed, marketed and monetised by others.
In short, operators must take on the ‘workload’ of transforming into and acting as cloud-centric organisations before they shift their ‘workloads’ to the hyperscale cloud. In this updated Manifesto, we outline why, and what telcos at different stages of maturity should prioritise.
Two developments have taken place since the publication of our first manifesto that have changed the terms on which telcos are addressing network cloudification:
Hyperscale cloud providers have increasingly developed capabilities and commercial offers in the area of telco cloud. To telcos uncertain about the strategy and financial implications of the next phase of their investments, the hyperscalers appear to offer a shortcut to telco cloud: the possibility of avoiding doing all the hard yards of developing the private telco cloud, and of evolving the internal skills and processes for deploying and managing multi-vendor VNFs / CNFs over it. Instead, the hyperscalers offer the prospect of getting telco cloud and VNFs / CNFs on an ‘as-a-Service’ basis – fundamentally like any other cloud service.
In April 2021, DISH announced it would build its greenfield 5G network with AWS providing much of the virtual infrastructure layer and all of the physical cloud infrastructure. In June 2021, AT&T sold its private telco cloud platform to Microsoft Azure. In both instances, the telcos involved are now deploying mobile core network functions and, in DISH’s case, all of the software-based functions of its on a hyperscale cloud. These events appear superficially to set an example validating the idea of outsourcing telco cloud to the hyperscalers. After all, AT&T had previously been a champion of the DIY approach to telco cloud but now looked as though it had thrown in the towel and gone all in with outsourcing its cloud from Azure.
Two main questions arise from these developments, which we address in detail in this second Manifesto:
Should telcos embarked or embarking on a Pathway 2 strategy outsource their telco cloud infrastructure and procure their critical network functions – in whole or in part – from one or more hyperscalers, on an as-a-Service basis?
What is the broader significance of AT&T’s and DISH’s moves? Does it represent the logical culmination of telco cloudification and, if so, what are the technological and business-model characteristics of the ‘infrastructure-independent, cloud-native telco’, as we define this new Pathway 4? Finally, is this a model that all Pathway 3 players – and even all telcos per se – should ultimately seek to emulate?
In this second Manifesto, we also propose an updated version of our pathways describing telco network cloudification strategies for different sizes and types of telco to implement telco cloud. We now have four pathways (we had three in the original Manifesto), as illustrated in the figure below.
The four telco cloud deployment pathways in STL’s Telco Cloud Manifesto 2.0
Source: STL Partners, 2023
Existing subscribers can download the Manifesto at the top of this page. Everyone else, please go here.
If you wish to speak to us about our new Manifesto, please book a call.
Table of contents
Executive Summary
Recommendations
Pathway 1: No way back
Two constituencies at operators: Cloud sceptics and cloud advocates
Pathway 2: Hyperscalers – friend or foe?
Cloud-native network functions are a vital control point telcos must not relinquish
Pathway 3: Build own telco cloud competencies before deploying on public cloud
AT&T and DISH are important proof points but not applicable to the industry as a whole
But telcos will not realise the full benefits of telco cloud unless they, too, become software and cloud businesses
Pathway 4: The path to Network-as-a-Service
Pathway 4 networks will enable Network-as-a-Service
Conclusion: Mastery of cloud-native is key for telcos to create value in the Coordination Age
Related research
Our telco cloud research aligned to this topic includes:
As telecoms operators move to more advanced, data intensive services enabled by 5G, fibre to the X (FTTX) and other value-added services, they are looking to build the capabilities to support the growing demands on the network. However, in most cases, telco operators are expanding their own capabilities in such a way that results in their costs increasing in line with their capabilities.
This is becoming an increasingly pressing issue given the commoditisation of traditional connectivity services and changing competitive dynamics from within and outside the telecoms industry. Telcos are facing stagnating or declining ARPUs within the telecoms sector as price becomes the competitive weapon and service differentiation of connectivity services diminishes.A
The competitive landscape within the telecoms industry is also becoming much more dynamic, with differences in progress made by telecoms operators adopting cloud-native technologies from a new ecosystem of vendors. At the same time, the rate of innovation is accelerating and revenue shares are being eroded due to the changes in the competitive landscape and the emergence of new competitors, including:
Greenfield operators like DISH and Rakuten;
More software-centric digital enterprise service providers that provide advanced innovative applications and services;
Content and SaaS players and the hyperscale cloud providers, such as AWS, Microsoft and Google, as well as the likes of Netflix and Disney.
We are in another transition period in the telco space. We’ve made a lot of mess in the past, but now everyone is talking about cloud-native and containers which gives us an opportunity to start over based on the lessons we‘ve learned.
VP Cloudified Production, European converged operator 1
Even for incumbents or established challengers in more closed and stable markets where connectivity revenues are still growing, there is still a risk of complacency for these telcos. Markets with limited historic competition and high barriers to entry can be prone to major systemic shocks or sudden unexpected changes to the market environment such as government policy, new 5G entrants or regulatory changes that mandate for structural separation.
Source: Company accounts, stock market data; STL Partners analysis
Note: The data for the Telecoms industry covers 165 global telecoms operators
Telecoms industry seeking hyperscaler growth
The telecoms industry’s response to threats has traditionally been to invest in better networks to differentiate but networks have become increasingly commoditised. Telcos can no longer extract value from services that exclusively run on telecoms networks. In other words, the defensive moat has been breached and owning fibre or spectrum is not sufficient to provide an advantage. The value has now shifted from capital expenditure to the network-independent services that run over networks. The capital markets therefore believe it is the service innovators – content and SaaS players and internet giants such as Amazon, Microsoft or Apple – that will capture future revenue and profit growth, rather than telecoms operators. However, with 5G, edge computing and telco cloud, there has been a resurgence in interest in more integration between applications and the networks they run over to leverage greater network intelligence and insight to deliver enhanced outcomes.
Defining telcos’ roles in the Coordination Age
Given that the need for connectivity is not going away but the value is not going to grow, telcos are now faced with the challenge of figuring out what their new role and purpose is within the Coordination Age, and how they can leverage their capabilities to provide unique value in a more ecosystem-centric B2B2X environment.
Success in the Coordination Age requires more from the network than ever before, with a greater need for applications to interface and integrate with the networks they run over and to serve not only customers but also new types of partners. This calls for the need to not only move to more flexible, cost-effective and scalable networks and operations, but also the need to deliver value higher up in the value chain to enable further differentiation and growth.
Telcos can either define themselves as a retail business selling mobile and last mile connectivity, or figure out how to work more closely with demanding partners and customers to provide greater value. It is not just about scale or volume, but about the competitive environment. At the end of the day, telcos need to prepare for the capabilities to do innovative things like dynamic slicing.
Group Executive, Product and Technology, Asia Pacific operator
Responding to the pace of change
The introduction of cloud-native technologies and the promise of software-centric networking has the potential to (again) significantly disrupt the market and change the pace of innovation. For example, the hyperscale cloud providers have already disrupted the IT industry and are seen simultaneously as a threat, potential partners and as a model example for operators to adopt. More significantly, they have been able to achieve significant growth whilst still maintaining their agile operations, culture and mindset.
With the hyperscalers now seeking to play a bigger role in the network, many telco operators are looking to understand how they should respond in light of this change of pace, otherwise run the risk of being relegated to being just the connectivity provider or the ‘dumb pipe’.
Our report seeks to address the following key question:
Can telecoms operators realistically pursue hyperscale economics by adopting some of the hyperscaler technologies and practices, and if so, how?
Our findings in this report are based on an interview programme with 14 key leaders from telecoms operators globally, conducted from June to August 2021. Our participant group spans across different regions, operator types and types of roles within the organisation.
This report is a collection of our analyst’s views of what they saw at the 2022 Mobile World Congress (MWC 2022). It comprises our analysts’ perspectives on its major themes:
How the industry is changing overall
The impact of the metaverse
New enterprise and consumer propositions
Progress towards telco cloud
Application of AI, automation and analytics (A3)
We would like to thank our partners at the GSMA for a good job done well. The GSMA say that there were 60,000 attendees this year, which is down from the 80-100k of 2019 but more than credible given the ongoing COVID-19 situation. It was nonetheless a vibrant and valuable event, and a great opportunity to see many wonderful people again face to face, and indeed, meet some great new ones.
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MWC 2022 in context of its time
It is impossible to write about MWC 2022 without putting it context of its time. It has taken place three days after the Russian invasion of Ukraine started on February 24th, 2022.
Speakers made numerous direct and indirect mentions of the war, and it was clear that a sense of sadness was felt by everyone we spoke to. This slightly offset the enthusiasm and warmth that we and many others felt on being back together in person, with our clients and the industry.
Broad support for the Ukraine was visible among many delegates and there was no Russian delegation. While totally appropriate, the Fira was a little poorer for that as one of the joys of MWC is its truly global embodiment of a vibrant industry.
We all hope for a speedy and peaceful resolution to that situation, and to see our Russian and Ukrainian colleagues again in peace soon. Sadly, as we write from and just after Barcelona, bombs and shells are falling on civilians on the same continent and the route to peace is not yet evident.
As this new and shocking war has come in Europe while COVID is still in a pandemic phase it is a reminder that change and challenge never ends. The telecoms industry responded well to COVID, and now it must again for this and all the challenges it will face in the future, which include further geopolitical risks and shocks and many more opportunities too.
The biggest opportunity for telecoms, and telcos in particular, is to build on the momentum of change rather than rest on its laurels. The threat is that it will settle for a low risk but ultimately lower value path of sticking to the same old same. We look at the evidence for telcos successfully changing their mindset in New enterprise business: Opening, if not yet changed mindsets.
Connecting technologies
This is my 11th MWC. I came looking for what’s changed and what it means. This is what I found. Andrew Collinson, Managing Director, STL Partners Research.
Cross-dressing and role play
Trying to leave the war at the door, what else did we find at the Fira? One of the mind-bending tasks of walking through the cacophony of sights and sounds of a huge industry ecosystem on display is trying to make sense of what is going on. Who is here, and what are they trying to tell me?
First impressions count. The simple things about how companies present themselves initially mean a great deal. They often show the identity they are trying to project – who or what they are trying to be seen as more than all the detail put together. The first impression I got at MWC 2022 was that almost everyone was trying to dress like someone else.
Microsoft showed photos of cell towers on its stand while all the telco CEOs talked about the “new tech order” and becoming techcos. McKinsey talked about its ‘old friends’ in the telecoms industry and talked about sustainability on its hard-edged stand, while AWS had an advert on the frontage of the Fira and a stand in the “Four Years from Now” zone.
We’re all telcos / techcos now
Source: STL Partners, AWS, Microsoft, McKinsey
It’s all about “connecting technologies”
Regular readers of STL’s material will have heard of the Coordination Age: our concept that there is a universal need for better use of resources which will be met in part by the application of connecting technologies (e.g. fibre, mobile, 5G, AI, automation, etc.).
Once upon a time, it was simply people that needed to be connected to each other. Now a huge variety of stuff needs connecting: e.g., devices, computer applications, business processes, business assets and people.
A big question in all this is whether operators have really understood how outdated their traditional operator centric view of the world has become as the industry has changed. Sure, new telecoms networks still need to be built and extended. But it isn’t just operators using licensed technologies that can do this anymore, and the value has increasingly moved to the players that can make all the stuff work: systems integrators and other technology and software players. We’ll cover operators’ mindsets more in the section titled New enterprise business: Opening, if not yet changed mindsets.
Private matters
Private networks was also a big area of focus at MWC 2022, and understandably so too as there is a lot of interest in the concept in various sectors, especially in ports and airports, mining, and manufacturing. Much of the interest for this comes from the hype around 5G which has attracted other industries to look at the technology. However, while there are some interesting developments in practice (for example Huawei and others at Shenzen port in China), many of the applications are at least as well served, and in some cases, better served by other connectivity technologies, e.g. Wi-Fi, wired connections, narrow-band IoT, and 3G / 4G, edge computing and combinations thereof. So 5G is far from the only horse in the race, and we will be looking closely at the boundary conditions and successful use cases for Private 5G in our future research.
Would you pay for “unexpected benefits”?
One great stumbling block for telcos and other business used to traditional business thinking has been “how do you make a business case for new technology?”
The classic telecoms route is to dig around for a cost-saving and revenue enhancement case and then try to bend the CFO’s ear until they give you some money to do your thing. This is fair enough, to a point.
The challenge is, what do you do when you don’t know what you are going to find and/or you can’t prove it? Or worse still, you can only prove it after everybody else in the market has proven it for you and you are then at a competitive disadvantage.
One story I saw and see elsewhere repeated endlessly is that of “unexpected benefits”. This was a phrase that Alison Kirkby, CEO Telia, used to describe what happened when the value of its population movement data was recognised by the Swedish Government during the COVID crisis. It had pulled together the data for one set of reasons, and suddenly this very compelling use came to light.
Another I heard from Qualcomm, which told of putting IoT driven shelf price signs in retail. Originally it was developed to help rapid repricing for consumers in store, then COVID struck a few weeks after installation. This meant people switched to online shopping and the stores were then mainly used by pickers assembling orders for delivery. The retailer found that by using the signs to help the pickers assemble their loads faster they could make the process about a third more productive. That’s a lot in retail.
This is the reality of transformational business models and technologies. It is incredibly hard to foresee what is really going to work, and how. Even after some time with a new way of working new uses continue to emerge. That’s not to say that you can’t narrow it down a bit – and this is something we spend a lot of our time working on. However, a new thing I will be asking our analysts to help figure out is “how can you tell when and where there are likely to be unexpected benefits?”
Table of Contents
Executive Summary
Introduction
MWC 2022 in context of its time
MWC 2022: Connecting technologies
Cross-dressing and role play
Would you pay for “unexpected benefits”?
Getting physical, getting heavy
Glasses are sexy (again)
Europe enviously eyes eastwards
New enterprise business: Opening, if not yet changed mindsets
Customer centricity: Starting to emerge
Becoming better partners: Talking the talk
New business models: Not quite there
The Metaverse: Does it really matter?
Can the Metaverse be trusted?
Exploding supply, uncertain quality
The non-fungible flexibility paradox
A coordinating role for telcos?
Don’t write it off, give it a go
Consumers: XR, sustainability and smarthome
Operators: Aiming for smart and sustainable
Vendors and techcos: Would you like AI with that?
More Metaverse, VR and AR
Other interesting finds: Commerce, identity, video
Telco Cloud: The painful gap between theory and practice
Brownfield operators are still on their virtualisation journey
Greenfield operators: Cloud native and automated from day one
Telcos on public could: Shall I, shant I?
AI and automation: Becoming adaptive
Looking out for good A3 use cases / case studies
Evidence of a maturing market?
Welcome signs of progress towards the Coordination Age
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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.
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As discussed in our previous research, we believe the world is now entering a “Coordination Age” in which multiple stakeholders will work together to maximize the potential of the planet’s natural and human resources. New technologies – 5G, analytics, AI, automation, cloud – are making it feasible to coordinate and optimise the allocation of resources in real-time. As providers of connectivity that generates vast amounts of relevant data, telcos can play an important role in enabling this coordination. Although some operators have found it difficult to expand beyond connectivity, the opportunity still exists and may actually be expanding.
In this report, we consider how telcos can support more efficient allocation of capital by playing in the financial services sector. Financial services (banking) sits in a “sweet spot” for operators: economies of scale are available at a national level, connected technology can change the industry.
Financial Services in the Telecoms sweet spot
Source STL Partners
The financial services industry is undergoing major disruption brought about by a combination of digitisation and liberalisation – new legislation, such as the EU’s Payment Services Directive, is making it easier for new players to enter the banking market. And there is more disruption to come with the advent of digital currencies – China and the EU have both indicated that they will launch digital currencies, while the U.S. is mulling going down the same route.
A digital currency is intended to be a digital version of cash that is underpinned directly by the country’s central bank. Rather than owning notes or coins, you would own a deposit directly with the central bank. The idea is that a digital currency, in an increasingly cash-free society, would help ensure financial stability by enabling people to store at least some of their money with a trusted official platform, rather than a company or bank that might go bust. A digital currency could also make it easier to bring unbanked citizens (the majority of the world’s population) into the financial system, as central banks could issue digital currencies directly to individuals without them needing to have a commercial bank account. Telcos (and other online service providers) could help consumers to hold digital currency directly with a central bank.
Although the financial services industry has already experienced major upheaval, there is much more to come. “There’s no question that digital currencies and the underlying technology have the potential to drive the next wave in financial services,” Dan Schulman, the CEO of PayPal told investors in February 2021. “I think those technologies can help solve some of the fundamental problems of the system. The fact that there’s this huge prevalence and cost of cash, that there’s lack of access for so many parts of the population into the system, that there’s limited liquidity, there’s high friction in commerce and payments.”
In light of this ongoing disruption, this report reviews the efforts of various operators, such as Orange, Telefónica and Turkcell, to expand into consumer financial services, notably the provision of loans and insurance. A close analysis of their various initiatives offers pointers to the success criteria in this market, while also highlighting some of the potential pitfalls to avoid.
Table of contents
Executive Summary
Introduction
Potential business models
Who are you serving?
What are you doing for the people you serve?
M-Pesa – a springboard into an array of services
Docomo demonstrates what can be done
But the competition is fierce
Applying AI to lending and insurance
Analysing hundreds of data points
Upstart – one of the frontrunners in automated lending
Takeaways
From payments to financial portal
Takeaways
Turkcell goes broad and deep
Paycell has a foothold
Consumer finance takes a hit
Regulation moving in the right direction
Turkcell’s broader expansion plans
Takeaways
Telefónica targets quick loans
Growing competition
Elsewhere in Latin America
Takeaways
Momentum builds for Orange
The cost of Orange Bank
Takeaways
Conclusions and recommendations
Index
This report builds on earlier STL Partners research, including:
You are viewing a page relating to our first Telco Cloud Manifesto. It was updated in January 2023. Click here to see the new 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.
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.
Existing subscribers can download the Manifesto at the top of this page. Everyone else, please go here.
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
Globally, telcos are pursuing a wide variety of strategies in the consumer market, ranging from broad competition with the major Internet platforms to a narrow focus on delivering connectivity.
Some telcos, such as Orange France, Telefónica Spain, Reliance Jio and Rakuten Mobile, are combining connectivity with an array of services, such as messaging, entertainment, smart home, financial services and digital health propositions. Others, such as Three UK, focus almost entirely on delivering connectivity, while many sit somewhere in between, targeting a single vertical market, in addition to connectivity. AT&T is entertainment-orientated, while Safaricom is financial services-focused.
This report analyses the consumer strategies of the leading telcos in the UK and the Brazil – two very different markets. Whereas the UK is a densely populated, English-speaking country, Brazil has a highly-dispersed population that speaks Portuguese, making the barriers to entry higher for multinational telecoms and content companies.
By examining these two telecoms markets in detail, this report will consider which of these strategies is working, looking, in particular, at whether a halfway-house approach can be successful, given the economies of scope available to companies, such as Amazon and Google, that offer consumers a broad range of digital services. It also considers whether telcos need to be vertically-integrated in the consumer market to be successful. Or can they rely heavily on partnerships with third-parties? Do they need their own distinctive service layer developed in-house?
In light of the behavourial changes brought about by the pandemic, the report also considers whether telcos should be revamping their consumer propositions so that they are more focused on the provision of ultra-reliable connectivity, so people can be sure to work from home productively. Is residential connectivity really a commodity or can telcos now charge a premium for services that ensure a home office is reliably and securely connected throughout the day?
A future STL Partners report will explore telcos’ new working from home propositions in further detail.
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The UK market: Convergence is king
The UK is one of the most developed and competitive telecoms markets in the world. It has a high population density, with 84% of its 66 million people living in urban areas, according to the CIA Factbook. There are almost 272 people for every square kilometre, compared with an average of 103 across Europe. For every 100 people, there are 48 fixed lines and 41 broadband connections, while the vast majority of adults have a mobile phone. GDP per capita (on a purchasing power parity basis) is US$ 48,710, compared with US$ 65,118 in the US (according to the World Bank).
The strength of the state-funded public service broadcaster, the BBC, has made it harder for private sector players to make money in the content market. The BBC delivers a large amount of high-quality advertising-free content to anyone in the UK who pays the annual license fee, which is compulsory to watch television.
In the UK, the leading telcos have mostly eschewed expansion into the broader digital services market. That reflects the strong position of the leading global Internet platforms in the UK, as well as the quality of free-to-air television, and the highly competitive nature of the UK telecoms market – UK operators have relatively low margins, giving them little leeway to invest in the development of other digital services.
Figure 1 summarises where the five main network operators (and broadband/TV provider Sky) are positioned on a matrix mapping degree of vertical integration against the breadth of the proposition.
Most UK telcos have focused on the provision of connectivity
Source: STL Partners
Brazil: Land of new opportunities
Almost as large as the US, Brazil has a population density is just 25 people per square kilometre – one tenth of the total UK average population density. Although 87% of Brazil’s 212 million people live in urban areas, according to the CIA Fact book, that means almost 28 million people are spread across the country’s rural communities.
By European standards, Brazil’s fixed-line infrastructure is relatively sparse. For every 100 people, Brazil has 16 fixed lines, 15 fixed broadband connections and 99 mobile connections. Its GDP per capita (on a purchasing power parity basis) is US$ 15,259 – about one third of that in the UK. About 70% of adults had a bank account in 2017, according to the latest World Bank data. However, only 58% of the adult population were actively using the account.
A vast middle-income country, Brazil has a very different telecoms market to that of the UK. In particular, network coverage and quality continue to be important purchasing criteria for consumers in many parts of the country. As a result, Oi, one of the four main network operators, became uncompetitive and entered a bankruptcy restructuring process in 2016. It is now hoping to to sell its sub-scale mobile unit for at least 15 billion reais (US$ 2.8 billion) to refocus the company on its fibre network. The other three major telcos, Vivo (part of Telefónica), Claro (part of América Móvil) and TIM Brazil, have made a joint bid to buy its mobile assets.
For this trio, opportunities may be opening up. They could, for example, play a key role in making financial services available across Brazil’s sprawling landmass, much of which is still served by inadequate road and rail infrastructure. If they can help Brazil’s increasingly cash-strapped consumers to save time and money, they will likely prosper. Even before COVID-19 struck, Brazil was struggling with the fall-out from an early economic crisis.
At the same time, Brazil’s home entertainment market is in a major state of flux. Demand for pay television, in particular, is falling away, as consumers seek out cheaper Internet-based streaming options.
All of Brazil’s major telcos are building a broad consumer play
Source: STL Partners
Table of contents
Executive Summary
Introduction
The UK market: Convergence is king
BT: Trying to be broad and deep
Virgin Media: An aggregation play
O2 UK: Changing course again
Vodafone: A belated convergence play
Three UK: Small and focused
Takeaways from the UK market: Triple play gridlock
Brazil: Land of new opportunities
The Brazilian mobile market
The Brazilian fixed-line market
The Brazilian pay TV market
The travails of Oi
Vivo: Playing catch-up in fibre
Telefónica’s financial performance
América Móvil goes broad in Brazil
TIM: Small, but perfectly formed?
Takeaways from the Brazilian market: A potentially treacherous transition
Index
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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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Overview of SKT’s activities
Network coverage
SK Telecom has been one of the earliest and most active telcos to deploy a 5G network. It initially created 70 5G clusters in key commercial districts and densely populated areas to ensure a level of coverage suitable for augmented reality (AR) and virtual reality (VR) and plans to increase the number to 240 in 2020. It has paid particular attention to mobile (or multi-access) edge computing (MEC) applications for different vertical industry sectors and plans to build 5G MEC centres in 12 different locations across Korea. For its nationwide 5G Edge cloud service it is working with AWS and Microsoft.
In recognition of the constraints imposed by the spectrum used by 5G, it is also working on ensuring good indoor 5G coverage in some 2,000 buildings, including airports, department stores and large shopping malls as well as small-to-medium-sized buildings using distributed antenna systems (DAS) or its in-house developed indoor 5G repeaters. It also is working with Deutsche Telekom on trials of the repeaters in Germany. In addition, it has already initiated activities in 6G, an indication of the seriousness with which it is addressing the mobile market.
NUGU, the AI platform
It launched its own AI driven smart speaker, NUGU in 2016/7, which SKT is using to support consumer applications such as Smart Home and IPTV. There are now eight versions of NUGU for consumers and it also serves as a platform for other applications. More recently it has developed several NUGU/AI applications for businesses and civil authorities in conjunction with 5G deployments. It also has an AI based network management system named Tango.
Although NUGU initially performed well in the market, it seems likely that the subsequent launch of smart speakers by major global players such as Amazon and Google has had a strong negative impact on the product’s recent growth. The absence of published data supports this view, since the company often only reports good news, unless required by law. SK Telecom has responded by developing variants of NUGU for children and other specialist markets and making use of the NUGU AI platform for a variety of smart applications. In the absence of published information, it is not possible to form a view on the success of the NUGU variants, although the intent appears to be to attract young users and build on their brand loyalty.
It has offered smart home products and services since 2015/6. Its smart home portfolio has continually developed in conjunction with an increasing range of partners and is widely recognised as one of the two most comprehensive offerings globally. The other being Deutsche Telekom’s Qivicon. The service appears to be most successful in penetrating the new build market through the property developers.
NUGU is also an AI platform, which is used to support business applications. SK Telecom has also supported the SK Group by providing new AI/5G solutions and opening APIs to other subsidiaries including SK Hynix. Within the SK Group, SK Planet, a subsidiary of SK Telecom, is active in internet platform development and offers development of applications based on NUGU as a service.
Smart solutions for enterprises
SKT continues to experiment with and trial new applications which build on its 5G and AI applications for individuals (B2C), businesses and the public sector. During 2019 it established B2B applications, making use of 5G, on-prem edge computing, and AI, including:
Smart factory(real time process control and quality control)
Smart hospital (NUGUfor voice command for patients, AR-based indoor navigation, facial recognition technology for medical workers to improve security, and investigating possible use of quantum cryptography in hospital network)
Smart cities; e.g. an intelligent transportation system in Seoul, with links to vehicles via 5Gor SK Telecom’s T-Map navigation service for non-5G users.
It is too early to judge whether these B2B smart applications are a success, and we will continue to monitor progress.
Acquisition strategy
SK Telecom has been growing these new business areas over the past few years, both organically and by acquisition. Its entry into the security business has been entirely by acquisition, where it has bought new revenue to compensate for that lost in the core mobile business. It is too early to assess what the ongoing impact and success of these businesses will be as part of SK Telecom.
Acquisitions in general have a mixed record of success. SK Telecom’s usual approach of acquiring a controlling interest and investing in its acquisitions, but keeping them as separate businesses, is one which often, together with the right management approach from the parent, causes the least disruption to the acquired business and therefore increases the likelihood of longer-term success. It also allows for investment from other sources, reducing the cost and risk to SK Telecom as the acquiring company. Yet as a counterpoint to this, M&A in this style doesn’t help change practices in the rest of the business.
However, it has also shown willingness to change its position as and when appropriate, either by sale, or by a change in investment strategy. For example, through its subsidiary SK Planet, it acquired Shopkick, a shopping loyalty rewards business in 2014, but sold it in 2019, for the price it paid for it. It took a different approach to its activity in quantum technologies, originally set up in-house in 2011, which it rolled into IDQ following its acquisition in 2018.
SKT has also recently entered into partnerships and agreements concerning the following areas of business:
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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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
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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.
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5G: A catalyst for change
In some ways, the challenge/opportunity for mobile operators has been present for the last 5-10 years: limited incremental revenue growth in voice, messaging, and data.
However, 5G is a catalyst for real change. There are internal pressures from the investments being made that mean operators must create new revenue streams. More positive reasons relate to increased demand for telco-driven services and the technological changes that telcos have implemented which will help the commercial side to adapt. Below are some of the main reasons why 5G has created a resurgent need to change business models.
Making returns on network investments: It’s a given that 5G cannot be delivered without significant investment by the operators: be it in spectrum acquisition, upgrading the RAN and core network, managing a more distributed architecture of small cells, etc. Telcos can focus on ensuring that network runs efficiently to maintain margins, however many will need to look to new services. Data usage will surge, but the price customers will pay for each gigabyte will decline at a disproportionate rate.
Building on telco cloud and edge computing platforms: Telcos have started to invest in developing their networks to become more like the cloud platforms that underpin the large cloud providers’ services. In fact, it’s a key part of the 5G core. Part of this has been the move towards SDN, network virtualisation and integrating edge computing. This flexible platform will allow telcos to innovate quickly and create new differentiated services on top if they have the desire to change their financial and operational models.
Unlocking an enterprise business: Before 5G, mobile operators’ enterprise businesses have involved selling SIMs to enterprise customers with some forays into value-added services, such as cloud storage, mobile device management and M2M communications. Enterprises are genuinely interested in 5G and the capabilities it brings. For some, 5G has become an umbrella term for technological innovation. This is a good thing for the mobile industry, as it means enterprises will open doors to telcos and be keen to engage them for new solutions.
Creating business value: 5G’s unique capabilities will enable use cases that solve real problems, particularly in industrial transformation. This last point is exemplified by research STL Partners previously conducted on the business value 5G brings to certain verticals by enhancing productivity, increasing output, creating efficiencies, etc. However, much of this value is extracted by the applications, solutions and services on top of the underlying network.
Figure 2: 5G enabled use cases could increase GDP by $1.5 trillion by 2030
Source: STL Partners
Table of Contents
Executive Summary
Introduction
5G: A catalyst for chang
Guiding principles for mobile operators seeking to move beyond connectivity
Select priority verticals and how you will compete in the them
Adopt a new approach to resource allocation: less CapEx and more OpEx
Material OpEx should focus on building new skills, assets, capabilities, relationships
Establish senior management commitment and independence for the new venture
Focus on commercial as well as technological differentiation in order to disrupt verticals
De-emphasise network integration – at least to start with
Recognise that M&A will be needed for market entry in most cases
Realise that organic growth can work in exceptional operator or market circumstances
Conclusion
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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
Source: STL Partners
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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.
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.
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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?
Telcos’ relationship to project scope
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