Tag: Deutsche Telekom

The three telco Metaverse strategies

The Metaverse offers opportunities beyond connectivity for telcos

The Metaverse is the increasingly accepted term for a set of interconnected virtual worlds. One way to think about the Metaverse is to see it as a 3D version of the world wide web in which organizations operate their own virtual 3D worlds, rather than 2D web sites. Represented by avatars, visitors to a virtual world can interact with other users or with avatars controlled by artificial intelligence. The term Metaverse entered the popular consciousness when Facebook renamed itself Meta in October 2021.

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The renaming of Facebook sparked a surge of interest in the Metaverse

Source: Google Trends

Whereas the existing Internet is essentially a 2D digital overlay of the world, composed of text, voice, images and video, the Metaverse will provide a 3D digital overlay. This is the way Nvidia’s CEO Jensen Huang, portrayed the Metaverse in a speech in November 2021. As a leading provider of graphics chips, Nvidia is thinking deeply about how to build a business case for the Metaverse, which could drive rapid growth in demand for its products.

For a fully immersive experience, the Metaverse will need to be accessed through virtual reality (VR) headsets, but it could also be explored by moving through 3D environments using a conventional handset, laptop or television. Indeed, it is important to stress that the fortunes of the Metaverse won’t necessarily depend on the fortunes of VR. Hundreds of millions of people already play video games in 3D, interacting with each other, without wearing headsets.

The Metaverse looks set to host both entirely fictional virtual spaces where people can socialise, play and enjoy entertainment, as well as simulations of the real world, where people can test new product designs, learn new skills or watch concerts and sports events they can’t attend in person.

The first part of this report considers how the Metaverse could create value and the obstacles that lie in its way. It also outlines the strategies of Improbable, Meta (formerly Facebook), Microsoft and Nvidia – four companies developing many of the key enabling technologies.

The second part explores the Metaverse strategies of telcos. Broadband networks and related telco services are fundamental to the smooth running of digital environments today, and will be the building blocks of the Metaverse. We believe that telcos could play a coordination role that will help prevent the Metaverse from fragmenting into silos that are unable to interoperate with each other.

Our landmark report The Coordination Age: A third age of telecoms explained how reliable and ubiquitous connectivity can enable companies and consumers to use digital technologies to efficiently allocate and source assets and resources. In the case of Metaverse, telcos can help people and businesses to interact and transact with each other safely and securely in 3D environments.

As it considers the opportunities for telcos, this report draws on the experiences and actions of SKT, Telefónica and Verizon, which are each deploying strategies to help coordinate the development of the Metaverse.

Table of Contents

  • Executive Summary
  • Introduction
  • What is the Metaverse for?
    • The lure of the virtual road
    • Corporate worlds take over from web sites
    • Dominance or democracy?
    • The non-fungible flexibility paradox
    • Facebook pursues metamorphosis
    • Microsoft has most of the pieces
  • What will the Metaverse mean for telcos?
    • Recreating the real world is challenging
    • Traffic implications for telcos
    • Opportunities for telcos
    • SK Telecom – the full stack standard bearer
    • Telefónica looks to play coordination role
    • AT&T and Verizon – connectivity plus edge
  • Conclusions
  • Index

Related Research

 

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MWC 2022: Sensing the winds of change

What did STL’s analysts find at MWC 2022?

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

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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VNFs on public cloud: Opportunity, not threat

VNF deployments on the hyperscale cloud are just beginning

Numerous collaboration agreements between hyperscalers and leading telcos, but few live VNF deployments to date

The past three years have seen many major telcos concluding collaboration agreements with the leading hyperscalers. These have involved one or more of five business models for the telco-hyperscaler relationship that we discussed in a previous report, and which are illustrated below:

Five business models for telco-hyperscaler partnerships

Source: STL Partners

In this report, we focus more narrowly on the deployment, delivery and operation by and to telcos of virtualised and cloud-native network functions (VNFs / CNFs) over the hyperscale public cloud. To date, there have been few instances of telcos delivering live, commercial services on the public network via VNFs hosted on the public cloud. STL Partners’ Telco Cloud Deployment Tracker contains eight examples of this, as illustrated below:

Major telcos deploying VNFs in the public cloud

Source: STL Partners

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Telcos are looking to generate returns from their telco cloud investments and maintain control over their ‘core business’

The telcos in the above table are all of comparable stature and ambition to the likes of AT&T and DISH in the realm of telco cloud but have a diametrically opposite stance when it comes to VNF deployment on public cloud. They have decided against large-scale public cloud deployments for a variety of reasons, including:

  • They have invested a considerable amount of money, time and human resources on their private clouddeployments, and they want and need to utilise the asset and generate the RoI.
  • Related to this, they have generated a large amount of intellectual property (IP) as a result of their DIY cloud– and VNF-development work. Clearly, they wish to realise the business benefits they sought to achieve through these efforts, such as cost and resource efficiencies, automation gains, enhanced flexibility and agility, and opportunities for both connectivityand edge compute service innovation. Apart from the opportunity cost of not realising these gains, it is demoralising for some CTO departments to contemplate surrendering the fruit of this effort in favour of a hyperscaler’s comparable cloud infrastructure, orchestration and management tools.
  • In addition, telcos have an opportunity to monetise that IP by marketing it to other telcos. The Rakuten Communications Platform (RCP) marketed by Rakuten Symphony is an example of this: effectively, a telco providing a telco cloud platform on an NFaaS basis to third-party operators or enterprises – in competition to similar offerings that might be developed by hyperscalers. Accordingly, RCP will be hosted over private cloud facilities, not public cloud. But in theory, there is no reason why RCP could not in future be delivered over public cloud. In this case, Rakuten would be acting like any other vendor adapting its solutions to the hyperscale cloud.
  • In theory also, telcos could also offer their private telcoclouds as a platform, or wholesale or on-demand service, for third parties to source and run their own network functions (i.e. these would be hosted on the wholesale provider’s facilities, in contrast to the RCP, which is hosted on the client telco’s facilities). This would be a logical fit for telcos such as BT or Deutsche Telekom, which still operate as their respective countries’ communications backbone provider and primary wholesale provider

BT and Deutsche Telekom have also been among the telcos that have been most visibly hostile to the idea of running NFs powering their own public, mass-market services on the public and hyperscale cloud. And for most operators, this is the main concern making them cautious about deploying VNFs on the public cloud, let alone sourcing them from the cloud on an NFaaS basis: that this would be making the ‘core’ telco business and asset – the network – dependent on the technology roadmaps, operational competence and business priorities of the hyperscalers.

Table of contents

  • Executive Summary
  • Introduction: VNF deployments on the hyperscale cloud are just beginning
    • Numerous collaboration agreements between hyperscalers and leading telcos, but few live VNF deployments to date
    • DISH and AT&T: AWS vs Azure; vendor-supported vs DIY; NaaCP vs net compute
  • Other DIY or vendor-supported best-of-breed players are not hosting VNFs on public cloud
    • Telcos are looking to generate returns from their telco cloud investments and maintain control over their ‘core business’
    • The reluctance to deploy VNFs on the cloud reflects a persistent, legacy concept of the telco
  • But NaaCP will drive more VNF deployments on public cloud, and opportunities for telcos
    • Multiple models for NaaCP present prospects for greater integration of cloud-native networks and public cloud
  • Conclusion: Convergence of network and cloud is inevitable – but not telcos’ defeat
  • Appendix

Related Research

 

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Building the learning telco

Organisational learning is key to telcos’ success in the Coordination Age

Developments in technology and organisational digital transformations increased the pressure on learning and development (L&D) departments in telcos. L&D departments, many of which were compliance-focused, were tasked with upgrading telcos’ entire skills inventories to ensure that workforces were fit for new ways of working (e.g. AT&T’s “Workforce Reskilling” effort announced in 2016).

What was perhaps under-appreciated initially was that the need for L&D would not go away:

  • Telcos continue to operate in dynamic environments that are inherently unstable (e.g. pandemics, climate crises, new and evolving technologies);
  • Traditional telco revenue streams have remained under pressure, requiring new and innovative thinking to identify opportunities for growth.

The VUCA acronym (first coined in 1987) – standing for volatility, uncertainty, complexity, ambiguity – provides a useful framework to describe the current telco environment.

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The telco’s highly VUCA environment

learning telco

Source: STL Partners

Telcos have made changes to organisation structures in order to accommodate this reality, e.g. “flattening” the organisation and decentralising decision-making to accelerate the pace at which organisations can take action (absorb change and innovate).

Additionally, they are recognising the importance of learning to this process. Workforce skills must remain relevant and collective corporate intelligence must evolve to decide and inform winning strategies.

This type of “organisational learning” requires conscious efforts on the part of both the organisation and individual employees. It is not enough to make L&D the sole responsibility of an L&D team, or an HR department and to task them with identifying appropriate content and courses to push out to employees.

Organisations need to foster an environment where learning is encouraged and enabled in pursuit of organisational improvement, customer satisfaction, innovation and growth. After all, it is impossible to improve/do something new without learning in the first instance. Learning tools, processes and practices are required – and barriers to learning should be removed.

Learning barriers can include:

  • L&D teams creating bottlenecks to learning (e.g. restricted course access)
  • The existence of knowledge silos
  • Beliefs that “knowledge is power”
  • A lack of clear goals around using knowledge/new capabilities for improvement (i.e. learningto create behaviour change)
  • No incentives for individuals or teams to engage in learning
  • Uncertainty about processes for capturing and sharing learning
  • Fear of failure inhibiting trials in order to learn something new.

This report considers the key practices associated with organisational learning and identifies lessons from telcos who are progressing towards becoming a learning organisation.

Table of contents

  • Executive Summary
  • Introduction
  • The value of organisational learning
  • Enabling organisational learning
    • Types of learning in organisations
  • Organisational learning in practice
    • Learning as an organisational priority
    • Identifying learning purpose
    • Content-based learning
    • Person-led learning (knowledge sharing)
    • Process-led learning
    • Trial, reflection and practice
    • Recognition and rewards for learning
  • Towards learning organisations
    • Findings
    • Evaluation
  • Conclusions
  • Index

Related Research

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How telcos can make the world a safer place

Telecoms networks can support public safety

In the wake of the pandemic and multiple natural disasters, such as fire and flooding, both policymakers and people in general are placing a greater focus on preserving health and ensuring public safety. This report begins by explaining the concept of a digital nervous system – large numbers of connected sensors that can monitor events in real-time and thereby alert organizations and individuals to imminent threats to their health and safety.

With the advent of 5G, STL Partners believes telcos have a broad opportunity to help coordinate better use of the world’s resources and assets, as outlined in the report: The Coordination Age: A third age of telecoms. The application of reliable and ubiquitous connectivity to enable governments, companies and individuals to live in a safer world is one way in which operators can contribute to the Coordination Age.

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The chapters in this report consider the potential to use the data collected by telecoms networks to help counter the health and safety threats posed by:

  • Environmental factors, such as air pollution and high-levels of pollen,
  • Natural disasters, such as wildfires, flooding and earthquakes,
  • Infectious diseases
  • Violence, such as riots and shooting incidents
  • Accidents on roads, rivers and coastlines

In each case, the report considers how to harness new data collected by connected sensors, cameras and other monitors, in addition to data already captured by mobile networks (showing where people are and where they are moving to).  It also identifies who telcos will need to work with to develop and deploy such solutions, while discussing potential revenue streams.  In most cases, the report includes short case studies describing how telcos are trialling or deploying actual solutions, generally in partnership with other stakeholders.

The final chapter focuses on the role of telcos – the assets and the capabilities they have to improve health and safety.

It builds on previous STL Partners research including:

Managing an unstable world

Prior to the damage wrought by the pandemic, the world was gradually becoming a safer place for human beings. Global life expectancy has been rising steadily for many decades and the UN expects that trend to continue, albeit at a slower pace. That implies the world is safer than it was in the twentieth century and people are healthier than they used to be.

Global gains in life expectancy are slowing down

health and safety

Source: United Nations – World Population Prospects

But a succession of pandemics, more extreme weather events and rising pollution may yet reverse these positive trends. Indeed, many people now feel that they live in an increasingly unstable and dangerous world. Air pollution and over-crowding are worsening the health impact of respiratory conditions and infections, such as SARS-CoV-2. As climate change accelerates, experts expect an increase in flash flooding, wildfires, drought and intense heat. As extreme weather impacts the food and water supplies, civil unrest and even armed conflict could follow. In the modern world, the four horsemen of the apocalypse might symbolize infectious disease, extreme weather, pollution and violence.

As the human race grapples with these challenges, there is growing interest in services and technologies that could make the world a safer and healthier place. That demand is apparent among both individuals (hence the strong sales of wearable fitness monitors) and among public sector bodies’ rising interest in environment and crowd monitoring solutions.

As prevention is better than cure, both citizens and organisations are looking for early warning systems that can help them prepare for threats and take mitigating actions. For example, an individual with an underlying health condition could benefit from a service that warns them when they are approaching an area with poor air quality or large numbers of densely-packed people. Similarly, a municipality would welcome a solution that alerts them when large numbers of people are gathering in a public space or drains are close to being blocked or are overflowing.  The development of these kinds of early warning systems would involve tracking both events and people in real-time to detect patterns that signal a potential hazard or disruption, such as a riot or flooding.

Advances in artificial intelligence (AI), as well as the falling cost of cameras and other sensors, together with the rollout of increasingly dense telecoms networks, could make such systems viable. For example, a camera mounted on a lamppost could use image and audio recognition technologies to detect when a crowd is gathering in the locality, a gun has been fired, a drain has been flooded or an accident has occurred.

Many connected sensors and cameras, of course, won’t be in a fixed location – they will be attached to drones, vehicles and even bicycles, to support use cases where mobility will enhance the service. Such uses cases could include air quality monitoring, wildfire and flooding surveillance, and search and rescue.

Marty Sprinzen, CEO of Vantiq (a provider of event-driven, real-time collaborative applications) believes telecoms companies are best positioned to create a “global digital nervous system” as they have the networks and managed service capabilities to scale these applications for broad deployment. “Secure and reliable connectivity and networking (increasingly on ultrafast 5G networks) are just the beginning in terms of the value telcos can bring,” he wrote in an article for Forbes, published in November 2020. “They can lead on the provisioning and management of the literally billions of IoT devices — cameras, wearables and sensors of all types — that are integral to real-time systems. They can aggregate and analyze the massive amount of data that these systems generate and share insights with their customers. And they can bring together the software providers and integrators and various other parties that will be necessary to build, maintain and run such sophisticated systems.”

Sprinzen regards multi-access edge computing, or MEC, as the key to unlocking this market. He describes MEC as a new, distributed architecture that pushes compute and cloud-like capabilities out of data centres and the cloud to the edge of the network — closer to end-users and billions of IoT devices. This enables the filtering and processing of data at the edge in near real-time, to enable a rapid response to critical events.

This kind of digital nervous system could help curb the adverse impact of future pandemics. “I believe smart building applications will help companies monitor for and manage symptom detection, physical distancing, contact tracing, access management, safety compliance and asset tracking in the workplace,” Sprinzen wrote. “Real-time traffic monitoring will ease urban congestion and reduce the number and severity of accidents. Monitoring and management of water supplies, electrical grids and public transportation will safeguard us against equipment failures or attacks by bad actors. Environmental applications will provide early warnings of floods or wildfires. Food distribution and waste management applications will help us make more of our precious resources.”

Vantiq says one if its telco customers is implementing AI-enabled cameras, IoT sensors, location data and other technologies to monitor various aspects of its new headquarters building. He didn’t identify the telco, but added that it is the lead technology partner for a city that’s implementing a spectrum of smart city solutions to improve mobility, reduce congestion and strengthen disaster prevention.

Table of contents

  • Executive Summary
  • Introduction
  • Managing an unstable world
  • Monitoring air quality
    • Exploiting existing cellular infrastructure
    • Is mobile network data enough?
    • Smart lampposts to play a broad role
    • The economics of connecting environmental sensors
    • Sensors in the sky
  • Natural disasters
    • Spotting wildfires early
    • Earthquake alert systems
    • Crowdsourcing data
    • Infectious diseases
  • On street security
  • Conclusions – the opportunities for telcos
    • Ecosystem coordination – kickstarting the market
    • Devices – finding the right locations
    • Network – reliable, low cost connectivity
    • Data platform
    • Applications
  • Index

 

 

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How telcos can provide a tonic for transport

5G can help revolutionise public transport

With the advent of 5G, STL Partners believes telcos have a broad opportunity to help coordinate better use of the world’s resources and assets, as outlined in the report: The Coordination Age: A third age of telecoms. Reliable and ubiquitous connectivity can enable companies and consumers to use digital technologies to efficiently allocate and source assets and resources.

In urban and suburban transport markets, one precious resource is in short supply – space. Trains can be crowded, roads can be congested and there may be nowhere to park. Following the enormous changes in working patterns in the wake of the pandemic, both individuals and policymakers are reviewing their transport choices.

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This report explores how the concept of mobility-as-a-service (MaaS) is evolving, while outlining the challenges facing those companies looking to transform public transport. In particular, it considers how telcos and 5G could support the development and deployment of automated shuttle buses, which are now beginning to appear on the world’s roads. Whereas self-driving cars are taking much longer to develop than their proponents expected, automated shuttle buses look like a more realistic mid-term prospect. Running on relatively short set routes, these vehicles are easier to automate and can be monitored/controlled by dedicated connectivity infrastructure.

This report also examines the role of 5G connectivity in other potentially-disruptive transport propositions, such as remotely controlled hire cars, passenger drones and flying cars, which could emerge over the next decade. It builds on previous STL Partners research including:

Where is transport headed?

Across the world, transport is in a state of flux. Growing congestion, the pandemic, concerns about air quality and climate change, and the emergence of new technologies are taking the transport sector in new directions. Urban planners have long recognised that having large numbers of half-empty cars crawling around at 20km/hour looking for somewhere to park is not a good use of resources.

Experimentation abounds. Many municipalities are building bike lanes and closing roads to try and encourage people to get out of their cars. In response, sales of electric bikes and scooters are rising fast. The past 10 years has also seen a global boom (followed by a partial bust) in micro-mobility services – shared bikes and scooters. Although they haven’t lived up to the initial hype, these sharing economy services have become a key part of the transport mix in many cities (for more on this, see the STL Partners report: Can telcos help cities combat congestion?).

Indeed, these micro-mobility services may be given a shot in the arm by the difficulties faced by the ride hailing business. In many cities, Uber and Lyft are under intense pressure to improve their driver proposition by giving workers more rights, while complying with more stringent safety regulations. That is driving costs upwards. Uber had hoped to ultimately replace human drivers with self-driving vehicles, but that now looks unlikely to happen in the foreseeable future. Tesla, which has always been bullish about the prospects autonomous driving, keeps having to revise its timelines backwards.

Tellingly, the Chinese government has pushed back a target to have more than half of new cars sold to have self-driving capabilities from 2020 to 2025. It blamed technical difficulties, exacerbated by the coronavirus pandemic, in a 2020 statement issued by National Development and Reform Commission and the Ministry of Industry and Information Technology.

Still, self-driving cars will surely arrive eventually. In July, Alphabet (Google’s parent) reported that its experimental self-driving vehicle unit Waymo continues to grow. “People love the fully autonomous ride hailing service in Phoenix,” Sundar Pichai, CEO Alphabet and Google, enthused. “Since first launching its services to the public in October 2020, Waymo has safely served tens of thousands of rides without a human driver in the vehicle, and we look forward to many more.”

In response to analyst questions, Pichai added: “We’ve had very good experience by scaling up rides. These are driverless rides and no one is in the car other than the passengers. And people have had a very positive experience overall. …I expect us to scale up more through the course of 2022.”

More broadly, the immediate priority for many governments will be on greening their transport systems, given the rising public concern about climate change and extreme weather. The latest report from the Intergovernmental Panel on Climate Change calls for “immediate, rapid and large-scale reductions in greenhouse gas emissions” to stabilise the earth’s climate. This pressure will likely increase the pace at which traditional components of the transport system become all-electric – cars, motorbikes, buses, bikes, scooters and even small aircraft are making the transition from relying on fossil fuel or muscle power to relying on batteries.

The rest of this 45-page report explores how public transport is evolving, and the role of 5G connectivity and telcos can play in enabling the shift.

Table of contents

  • Executive Summary
  • Introduction
  • Where is transport headed?
    • Mobility-as-a-service
    • The role of digitisation and data
    • Rethinking the bus
    • Takeaways
  • How telcos are supporting public transport
    • Deutsche Telekom: Trying to digitise transport
    • Telia: Using 5G to support shuttle buses
    • Takeaways
  • The key challenges
    • A complex and multi-faceted value chain
    • Regulatory caution
    • Building viable business models
    • Takeaways
  • Automakers become service providers
    • Volvo to retrieve driving data in real-time
    • Automakers and tech companies team up
    • Takeaways
  • Taxis and buses take to the air
    • The prognosis for passenger drones
    • Takeaways
  • Conclusions: Strategic implications for telcos

 

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Why the consumer IoT is stuck in the slow lane

A slow start for NB-IoT and LTE-M

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

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

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

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

IoT networks should be considered across multiple dimensions

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

 

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

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

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

Do consumers need Massive IoT?

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

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

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

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

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

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

Table of Contents

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

 

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SK Telecom: Lessons in 5G, AI, and adjacent market growth

SK Telecom’s strategy

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 distribution and robot control
  • Smart office (security/access control, virtual docking, AR/VRconferencing)
  • 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:

 

Table of Contents

  • Executive Summary
  • Introduction and overview
    • Overview of SKT’s activities
  • Business strategy and structure
    • Strategy and lessons
    • 5G deployment
    • Vertical industry applications
    • AI
    • SK Telecom ‘New Business’ and other areas
  • Business performance
    • Financial results
    • Competitive environment
  • Industry and national context
    • International context

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Telco edge computing: How to partner with hyperscalers

Edge computing is getting real

Hyperscalers such as Amazon, Microsoft and Google are rapidly increasing their presence in the edge computing market by launching dedicated products, establishing partnerships with telcos on 5G edge infrastructure and embedding their platforms into operators’ infrastructure.

Many telecoms operators, who need cloud infrastructure and platform support to run their edge services, have welcomed the partnership opportunity. However, they are yet to develop clear strategies on how to use these partnerships to establish a stronger proposition in the edge market, move up the value chain and play a role beyond hosting infrastructure and delivering connectivity. Operators that miss out on the partnership opportunity or fail to fully utilise it to develop and differentiate their capabilities and resources could risk either being reduced to connectivity providers with a limited role in the edge market and/or being late to the game.

Edge computing or multi-access edge computing (MEC) enables processing data closer to the end user or device (i.e. the source of data), on physical compute infrastructure that is positioned on the spectrum between the device and the internet or hyperscale cloud.

Telco edge computing is mainly defined as a distributed compute managed by a telco operator. This includes running workloads on customer premises as well as locations within the operator network. One of the reasons for caching and processing data closer to the customer data centres is that it allows both the operators and their customers to enjoy the benefit of reduced backhaul traffic and costs. Depending on where the computing resources reside, edge computing can be broadly divided into:

  • Network edge which includes sites or points of presence (PoPs) owned by a telecoms operator such as base stations, central offices and other aggregation points on the access and/or core network.
  • On-premise edge where the computing resources reside at the customer side, e.g. in a gateway on-site, an on-premises data centre, etc. As a result, customers retain their sensitive data on-premise and enjoy other flexibility and elasticity benefits brought by edge computing.

Our overview on edge computing definitions, network structure, market opportunities and business models can be found in our previous report Telco Edge Computing: What’s the operator strategy?

The edge computing opportunity for operators and hyperscalers

Many operators are looking at edge computing as a good opportunity to leverage their existing assets and resources to innovate and move up the value chain. They aim to expand their services and revenue beyond connectivity and enter the platform and application space. By deploying computing resources at the network edge, operators can offer infrastructure-as-a-service and alternative application and solutions for enterprises. Also, edge computing as a distributed compute structure and an extension of the cloud supports the operators’ own journey into virtualising the network and running internal operations more efficiently.

Cloud hyperscalers, especially the biggest three – Amazon Web Services (AWS), Microsoft Azure and Google – are at the forefront of the edge computing market. In the recent few years, they have made efforts to spread their influence outside of their public clouds and have moved the data acquisition point closer to physical devices. These include efforts in integrating their stack into IoT devices and network gateways as well as supporting private and hybrid cloud deployments. Recently, hyperscalers took another step to get closer to customers at the edge by launching platforms dedicated to telecom networks and enabling integration with 5G networks. The latest of these products include Wavelength from AWS, Azure Edge Zones from Microsoft and Anthos for Telecom from Google Cloud. Details on these products are available in section.

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From competition to coopetition

Both hyperscalers and telcos are among the top contenders to lead the edge market. However, each stakeholder lacks a significant piece of the stack which the other has. This is the cloud platform for operators and the physical locations for hyperscalers. Initially, operators and hyperscalers were seen as competitors racing to enter the market through different approaches. This has resulted in the emergence of new types of stakeholders including independent mini data centre providers such as Vapor IO and EdgeConnex, and platform start-ups such as MobiledgeX and Ori Industries.

However, operators acknowledge that even if they do own the edge clouds, these still need to be supported by hyperscaler clouds to create a distributed cloud. To fuel the edge market and build its momentum, operators will, in the most part, work with the cloud providers. Partnerships between operators and hyperscalers are starting to take place and shape the market, impacting edge computing short- and long-term strategies for operators as well as hyperscalers and other players in the market.

Figure 1: Major telco-hyperscalers edge partnerships

Major telco-hyperscaler partnerships

Source: STL Partners analysis

What does it mean for telcos?

Going to market alone is not an attractive option for either operators or hyperscalers at the moment, given the high investment requirement without a guaranteed return. The partnerships between two of the biggest forces in the market will provide the necessary push for the use cases to be developed and enterprise adoption to be accelerated. However, as markets grow and change, so do the stakeholders’ strategies and relationships between them.

Since the emergence of cloud computing and the development of the digital technologies market, operators have been faced with tough competition from the internet players, including hyperscalers who have managed to remain agile while building a sustained appetite for innovation and market disruption. Edge computing is not an exception and they are moving rapidly to define and own the biggest share of the edge market.

Telcos that fail to develop a strategic approach to the edge could risk losing their share of the growing market as non-telco first movers continue to develop the technology and dictate the market dynamics. This report looks into what telcos should consider regarding their edge strategies and what roles they can play in the market while partnering with hyperscalers in edge computing.

Table of contents

  • Executive Summary
    • Operators’ roles along the edge computing value chain
    • Building a bigger ecosystem and pushing market adoption
    • How partnerships can shape the market
    • What next?
  • Introduction
    • The edge computing opportunity for operators and hyperscalers
    • From competition to coopetition
    • What does it mean for telcos?
  • Overview of the telco-hyperscalers partnerships
    • Explaining the major roles required to enable edge services
    • The hyperscaler-telco edge commercial model
  • Hyperscalers’ edge strategies
    • Overview of hyperscalers’ solutions and activities at the edge
    • Hyperscalers approach to edge sites and infrastructure acquisition
  • Operators’ edge strategies and their roles in the partnerships
    • Examples of operators’ edge computing activities
    • Telcos’ approach to integrating edge platforms
  • Conclusion
    • Infrastructure strategy
    • Platform strategy
    • Verticals and ecosystem building strategy

 

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ngena SD-WAN: scaling innovation through partnership

Introducing ngena

This report focusses on ngena, a multi-operator alliance founded in 2016, which offers multi-national networking services aimed at enterprise customers. ngena is interesting to STL Partners for several reasons:

First, it represents a real, commercialised example of operators working together, across borders and boundaries, to a common goal – a key part of our Coordination Age vision.

Second, ngena’s SDN product is an example of a new service which was designed around a strong, customer-centric proposition, with a strong emphasis on partnership and shared vision – an alternative articulation, if you like, of Elisa’s cultural strategy.

Third, it was born out of Deutsche Telekom, the world’s sixth-largest telecoms group by revenue, which operates in more than fifty countries. This makes it a great case study of an established operator innovating new enterprise services.

And lastly, it is a unique example of a telco and technology company (in this case Cisco) coming together in a mutually beneficial creative partnership, rather than settling into traditional buyer-supplier roles.

Over the coming pages, we will explore ngena’s proposition to customers, how it has achieved what it has to date, and to what extent it has made a measurable impact on the companies that make up the alliance. The report explains STL Partners’ independent view, informed by conversations with Marcus Hacke, Founder and Managing Director, as well as others across the industry.

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Shifting enterprise needs

Enterprises throughout the world are rapidly digitising their operations, and in large part, that involves the move to a ‘multicloud’ environment, where applications and data are hosted in a complex ecosystem of private data centres, campus sites, public clouds, and so on.

Digital enterprises need to ensure that data and applications are accessible from any location, at any time, from any device, and any network, reliably and without headaches. A large enterprise such as a retail bank might have physical branches located all over the place – and the same data needs to be accessible from any branch.

Traditionally, this sort of connectivity was achieved over the wide area network (WAN), with enterprises investing in private networks (often virtual private networks) to ensure that data remained secure and reliably accessible. Traditional WAN architectures work well – but they are not known for flexibility of the sort required to support a multicloud set-up. The network topology is often static, requiring manual intervention to deploy and change, and in our fast-changing world, this becomes a bottleneck. Enterprises are still faced with several challenges:

Key enterprise networking challenges

Source: STL Partners, SD-WAN mini series

The rise of SD-WAN: 2014 to present

This is where, somewhere around 2014, software-defined WAN (SD-WAN) came on the scene. SD-WAN improves on traditional WAN by applying the principles of software-defined networking (SDN). Networking hardware is managed with a software-based controller that can be hosted in the cloud, which opens up a realm of possibilities for automation, smart traffic routing, optimisation, and so on – which makes managing a multicloud set-up a whole lot easier.

As a result, enterprises have adopted SD-WAN at a phenomenal pace, and over the past five years telecoms operators and other service providers worldwide have rushed to add it to their managed services portfolio, to the extent that it has become a mainstream enterprise service:

Live deployments of SD-WAN platforms by telcos, 2014-20 (global)

Source: STL Partners NFV Deployment Tracker
Includes only production deployments; excludes proof of concepts and pilots
Includes four planned/pending deployments expected to complete in 2020

The explosion of deployments between 2016 and 2019 had many contributing factors. It was around this time that vendor offerings in the space became mature enough for the long tail of service providers to adopt more-or-less off-the shelf. But also, the technology had begun to be seen as a “no-brainer” upgrade on existing enterprise connectivity solutions, and therefore was in heavy demand. Many telcos used it as a natural upsell to their broader suite of enterprise connectivity solutions.

The challenge of building a connectivity platform

While SD-WAN has gained significant traction, it is not a straightforward addition to an operator’s enterprise service portfolio – nor is it a golden ticket in and of itself.

First, it is no longer enough to offer SD-WAN alone. The trend – based on demand – is for it to be offered alongside a portfolio of other SDN-based cloud connectivity services, over an automated platform that enables customers to pick and choose predefined services, and quickly deploy and adapt networks without the effort and time needed for bespoke customer deployments. The need this addresses is obvious, but the barrier to entry in building such a platform is a big challenge for many operators – particularly mid-size and smaller telcos.

Second, there is the economic challenge of scaling a platform while remaining profitable. Platform-based services require continuous updating and innovation, and it is questionable whether many telecoms operators are up to have the financial strength to do so – a situation you find for nearly all IT cloud platforms.

Last – and by no means least – is the challenge of scaling across geographies. In a single-country scenario, where most operators (at least in developed markets) will already have the fixed network infrastructure in place to cover all of a potential customer’s branch locations, SD-WAN works well. It is difficult, from a service provider’s perspective, to manage network domains and services across the whole enterprise (#6 above) if that enterprise has locations outside of the geographic bounds of the service provider’s own network infrastructure. There are ways around this – including routing traffic over the public Internet, and other operators’ networks, but from a customer point-of-view, this is less than ideal, as it adds complexity and limits flexibility in the solution they are paying for.

There is a need, then, for a connectivity platform “with a passport”: that can cross borders between operators, networks and markets without issue. ngena, or the Next Generation Enterprise Network Alliance, aims to address this need.

Table of Contents

  • Executive summary
    • What is ngena?
    • Why does ngena matter?
    • Has ngena been successful?
    • What does ngena teach us about successful telco innovation?
    • What does this mean for other telcos?
    • What next?
  • Introduction
  • Context: Enterprise needs and SD-WAN
    • Shifting enterprise needs
    • The rise of SD-WAN: 2014 to present
    • The challenge of building a connectivity platform
  • ngena: Enterprise connectivity with a passport
    • A man with a vision
    • The ngena proposition
  • How successful has ngena been?
    • Growth in alliance membership
    • Growth in ngena itself
    • Making money for the partners
  • What does ngena teach us about successful innovation culture in telecoms?
    • Context: the need to disrupt and adapt in telecoms
    • Lessons from ngena
  • What does this mean for other telcos?
      • Consider how you support innovation
      • Consider how you partner for mutual benefit
      • What next?

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Telco ecosystems: How to make them work

The ecosystem business framework

The success of large businesses such as Microsoft, Amazon and Google as well as digital disrupters like Airbnb and Uber is attributed to their adoption of platform-enabled ecosystem business frameworks. Microsoft, Amazon and Google know how to make ecosystems work. It is their ecosystem approach that helped them to scale quickly, innovate and unlock value in opportunity areas where businesses that are vertically integrated, or have a linear value chain, would have struggled. Internet-enabled digital opportunity areas tend to be unsuited to the traditional business frameworks. These depend on having the time and the ability to anticipate needs, plan and execute accordingly.

As businesses in the telecommunications sector and beyond try to emulate the success of these companies and their ecosystem approach, it is necessary to clarify what is meant by the term “ecosystem” and how it can provide a framework for organising business.

The word “ecosystem” is borrowed from biology. It refers to a community of organisms – of any number of species – living within a defined physical environment.

A biological ecosystem

The components of a biological ecosystem

Source: STL Partners

A business ecosystem can therefore be thought of as a community of stakeholders (of different types) that exist within a defined business environment. The environment of a business ecosystem can be small or large.  This is also true in biology, where both a tree and a rainforest can equally be considered ecosystem environments.

The number of organisms within a biological community is dynamic. They coexist with others and are interdependent within the community and the environment. Environmental resources (i.e. energy and matter) flow through the system efficiently. This is how the ecosystem works.

Companies that adopt an ecosystem business framework identify a community of stakeholders to help them address an opportunity area, or drive business in that space. They then create a business environment (e.g. platforms, rules) to organise economic activity among those communities.  The environment integrates community activities in a complementary way. This model is consistent with STL Partners’ vision for a Coordination Age, where desired outcomes are delivered to customers by multiple parties acting together.

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Characteristics of business ecosystems that work

In the case of Google, it adopted an ecosystem approach to tackle the search opportunity. Its search engine platform provides the environment for an external stakeholder community of businesses to reach consumers as they navigate the internet, based on what consumers are looking for.

  • Google does not directly participate in the business-consumer transaction, but its platform reduces friction for participants (providing a good customer experience) and captures information on the exchange.

While Google leverages a technical platform, this is not a requirement for an ecosystem framework. Nespresso built an ecosystem around its patented coffee pod. It needed to establish a user-base for the pods, so it developed a business environment that included licensing arrangements for coffee machine manufacturers.  In addition, it provided support for high-end homeware retailers to supply these machines to end-users. It also created the online Nespresso Club for coffee aficionados to maintain demand for its product (a previous vertically integrated strategy to address this premium coffee-drinking niche had failed).

Ecosystem relevance for telcos

Telcos are exploring new opportunities for revenue. In many of these opportunities, the needs of the customer are evolving or changeable, budgets are tight, and time-to-market is critical. Planning and executing traditional business frameworks can be difficult under these circumstances, so ecosystem business frameworks are understandably of interest.

Traditional business frameworks require companies to match their internal strengths and capabilities to those required to address an opportunity. An ecosystem framework requires companies to consider where those strengths and capabilities are (i.e. external stakeholder communities). An ecosystem orchestrator then creates an environment in which the stakeholders contribute their respective value to meet that end. Additional end-user value may also be derived by supporting stakeholder communities whose products and services use, or are used with, the end-product or service of the ecosystem (e.g. the availability of third party App Store apps add value for end customers and drives demand for high end Apple iPhones). It requires “outside-in” strategic thinking that goes beyond the bounds of the company – or even the industry (i.e. who has the assets and capabilities, who/what will support demand from end-users).

Many companies have rushed to implement ecosystem business frameworks, but have not attained the success of Microsoft, Amazon or Google, or in the telco arena, M-Pesa. Telcos require an understanding of the rationale behind ecosystem business frameworks, what makes them work and how this has played out in other telco ecosystem implementations. As a result, they should be better able to determine whether to leverage this approach more widely.

Table of Contents

  • Executive Summary
  • The ecosystem business framework
  • Why ecosystem business frameworks?
    • Benefits of ecosystem business frameworks
  • Identifying ecosystem business frameworks
  • Telco experience with ecosystem frameworks
    • AT&T Community
    • Deutsche Telekom Qivicon
    • Telecom Infra Project (TIP)
    • GSMA Mobile Connect
    • Android
    • Lessons from telco experience
  • Criteria for successful ecosystem businesses
    • “Destination” status
    • Strong assets and capabilities to share
    • Dynamic strategy
    • Deep end-user knowledge
    • Participant stakeholder experience excellence
    • Continuous innovation
    • Conclusions
  • Next steps
    • Index

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Network convergence: How to deliver a seamless experience

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

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

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

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

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

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

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

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

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Network convergence helps create an adaptable and resilient last mile

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

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

Overview of convergence

Source: STL Partners

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

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

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

Table of Contents

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

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Telco edge computing: What is the operator strategy?

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Edge computing can help telcos to move up the value chain

The edge computing market and the technologies enabling it are rapidly developing and attracting new players, providing new opportunities to enterprises and service providers. Telco operators are eyeing the market and looking to leverage the technology to move up the value chain and generate more revenue from their networks and services. Edge computing also represents an opportunity for telcos to extend their role beyond offering connectivity services and move into the platform and the application space.

However, operators will be faced with tough competition from other market players such as cloud providers, who are moving rapidly to define and own the biggest share of the edge market. Plus, industrial solution providers, such as Bosch and Siemens, are similarly investing in their own edge services. Telcos are also dealing with technical and business challenges as they venture into the new market and trying to position themselves and identifying their strategies accordingly.

Telcos that fail to develop a strategic approach to the edge could risk losing their share of the growing market as non-telco first movers continue to develop the technology and dictate the market dynamics. This report looks into what telcos should consider regarding their edge strategies and what roles they can play in the market.

Following this introduction, we focus on:

  1. Edge terminology and structure, explaining common terms used within the edge computing context, where the edge resides, and the role of edge computing in 5G.
  2. An overview of the edge computing market, describing different types of stakeholders, current telecoms operators’ deployments and plans, competition from hyperscale cloud providers and the current investment and consolidation trends.
  3. Telcos challenges in addressing the edge opportunity: technical, organisational and commercial challenges given the market
  4. Potential use cases and business models for operators, also exploring possible scenarios of how the market is going to develop and operators’ likely positioning.
  5. A set of recommendations for operators that are building their strategy for the edge.

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What is edge computing and where exactly is the edge?

Edge computing brings cloud services and capabilities including computing, storage and networking physically closer to the end-user by locating them on more widely distributed compute infrastructure, typically at smaller sites.

One could argue that edge computing has existed for some time – local infrastructure has been used for compute and storage, be it end-devices, gateways or on-premises data centres. However, edge computing, or edge cloud, refers to bringing the flexibility and openness of cloud-native infrastructure to that local infrastructure.

In contrast to hyperscale cloud computing where all the data is sent to central locations to be processed and stored, edge computing local processing aims to reduce time and save bandwidth needed to send and receive data between the applications and cloud, which improves the performance of the network and the applications. This does not mean that edge computing is an alternative to cloud computing. It is rather an evolutionary step that complements the current cloud computing infrastructure and offers more flexibility in executing and delivering applications.

Edge computing offers mobile operators several opportunities such as:

  • Differentiating service offerings using edge capabilities
  • Providing new applications and solutions using edge capabilities
  • Enabling customers and partners to leverage the distributed computing network in application development
  • Improving networkperformance and achieving efficiencies / cost savings

As edge computing technologies and definitions are still evolving, different terms are sometimes used interchangeably or have been associated with a certain type of stakeholder. For example, mobile edge computing is often used within the mobile network context and has evolved into multi-access edge computing (MEC) – adopted by the European Telecommunications Standards Institute (ETSI) – to include fixed and converged network edge computing scenarios. Fog computing is also often compared to edge computing; the former includes running intelligence on the end-device and is more IoT focused.

These are some of the key terms that need to be identified when discussing edge computing:

  • Network edge refers to edge compute locations that are at sites or points of presence (PoPs) owned by a telecoms operator, for example at a central office in the mobile network or at an ISP’s node.
  • Telco edge cloud is mainly defined as distributed compute managed by a telco  This includes running workloads on customer premises equipment (CPE) at customers’ sites as well as locations within the operator network such as base stations, central offices and other aggregation points on access and/or core network. One of the reasons for caching and processing data closer to the customer data centres is that it allows both the operators and their customers to enjoy the benefit of reduced backhaul traffic and costs.
  • On-premise edge computing refers to the computing resources that are residing at the customer side, e.g. in a gateway on-site, an on-premises data centre, etc. As a result, customers retain their sensitive data on-premise and enjoy other flexibility and elasticity benefits brought by edge computing.
  • Edge cloud is used to describe the virtualised infrastructure available at the edge. It creates a distributed version of the cloud with some flexibility and scalability at the edge. This flexibility allows it to have the capacity to handle sudden surges in workloads from unplanned activities, unlike static on-premise servers. Figure 1 shows the differences between these terms.

Figure 1: Edge computing types

definition of edge computing

Source: STL Partners

Network infrastructure and how the edge relates to 5G

Discussions on edge computing strategies and market are often linked to 5G. Both technologies have overlapping goals of improving performance and throughput and reducing latency for applications such as AR/VR, autonomous vehicles and IoT. 5G improves speed by increasing spectral efficacy, it offers the potential of much higher speeds than 4G. Edge computing, on the other hand, reduces latency by shortening the time required for data processing by allocating resources closer to the application. When combined, edge and 5G can help to achieve round-trip latency below 10 milliseconds.

While 5G deployment is yet to accelerate and reach ubiquitous coverage, the edge can be utilised in some places to reduce latency where needed. There are two reasons why the edge will be part of 5G:

  • First, it has been included in the 5Gstandards (3GPP Release 15) to enable ultra-low latency which will not be achieved by only improvements in the radio interface.
  • Second, operators are in general taking a slow and gradual approach to 5G deployment which means that 5G coverage alone will not provide a big incentive for developers to drive the application market. Edge can be used to fill the network gaps to stimulate the application market growth.

The network edge can be used for applications that need coverage (i.e. accessible anywhere) and can be moved across different edge locations to scale capacity up or down as required. Where an operator decides to establish an edge node depends on:

  • Application latency needs. Some applications such as streaming virtual reality or mission critical applications will require locations close enough to its users to enable sub-50 milliseconds latency.
  • Current network topology. Based on the operators’ network topology, there will be selected locations that can meet the edge latency requirements for the specific application under consideration in terms of the number of hops and the part of the network it resides in.
  • Virtualisation roadmap. The operator needs to consider virtualisation roadmap and where data centre facilities are planned to be built to support future network
  • Site and maintenance costs. The cloud computing economies of scale may diminish as the number of sites proliferate at the edge, for example there is a significant difference in maintaining 1-2 large data centres to maintaining 100s across the country
  • Site availability. Some operators’ edge compute deployment plans assume the nodes reside in the same facilities as those which host their NFV infrastructure. However, many telcos are still in the process of renovating these locations to turn them into (mini) data centres so aren’t yet ready.
  • Site ownership. Sometimes the preferred edge location is within sites that the operators have limited control over, whether that is in the customer premise or within the network. For example, in the US, the cell towers are owned by tower operators such as Crown Castle, American Tower and SBA Communications.

The potential locations for edge nodes can be mapped across the mobile network in four levels as shown in Figure 2.

Figure 2: possible locations for edge computing

edge computing locations

Source: STL Partners

Table of Contents

  • Executive Summary
    • Recommendations for telco operators at the edge
    • Four key use cases for operators
    • Edge computing players are tackling market fragmentation with strategic partnerships
    • What next?
  • Table of Figures
  • Introduction
  • Definitions of edge computing terms and key components
    • What is edge computing and where exactly is the edge?
    • Network infrastructure and how the edge relates to 5G
  • Market overview and opportunities
    • The value chain and the types of stakeholders
    • Hyperscale cloud provider activities at the edge
    • Telco initiatives, pilots and plans
    • Investment and merger and acquisition trends in edge computing
  • Use cases and business models for telcos
    • Telco edge computing use cases
    • Vertical opportunities
    • Roles and business models for telcos
  • Telcos’ challenges at the edge
  • Scenarios for network edge infrastructure development
  • Recommendation
  • Index

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Cloud gaming: What is the telco play?

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Drivers for cloud gaming services

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

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

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

5G can support cloud gaming traffic growth

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

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A complicated ecosystem

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

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

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

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

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

What telcos can learn from Shadow’s cloud gaming proposition

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

Table of Contents

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

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5G: Bridging hype, reality and future promises

The 5G situation seems paradoxical

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

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

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

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

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

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5G technology works OK

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

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

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

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

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

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

Early go-to-market lessons

Don’t oversell 5G

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

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

Table of Contents

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

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Cloud gaming: New opportunities for telcos?

Gaming is following video to the cloud

Cloud gaming services enable consumers to play video games using any device with a screen and an Internet connection – the software and hardware required to play the game are all hosted on remote cloud services. Some reviewers say connectivity and cloud technologies have now advanced to a point where cloud gaming can begin to rival the experience offered by leading consoles, such as Microsoft’s Xbox and Sony’s PlayStation, while delivering greater interactivity and flexibility than gaming that relies on local hardware. Google believes it is now feasible to move gaming completely into the cloud – it has just launched its Stadia cloud gaming service. Although Microsoft is sounding a more cautious note, it is gearing up to launch a rival cloud gaming proposition called xCloud.

This report explores cloud gaming and models the size of the potential market, including the scale of the opportunity for telcos. It also considers the potential ramifications for telecoms networks. If Stadia, xCloud and other cloud gaming services take off, consumer demand for high-bandwidth, low latency connectivity could soar. At the same time, cloud gaming could also provide a key test of the business rationale for edge computing, which involves the deployment of compute power and data storage closer to the end users of digital content and applications. This allows the associated data to be processed, analysed and acted on locally, instead of being transmitted long distances to be processed at central data centres.

This report then goes on to outline the rollout of cloud gaming services by various telcos, including Deutsche Telekom in Germany and Sunrise in Switzerland, while also considering Apple’s strategy in this space. Finally, the conclusions section summarises how telcos around the world should be preparing for mass-market cloud gaming.

This report builds on previous executive briefings published by STL Partners, including:

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What is cloud gaming?

Up to now, keen gamers have generally bought a dedicated console, such as a Microsoft Xbox or Sony PlayStation, or a high-end computer, to play technically complex and graphically rich games. They also typically buy a physical copy of the game (a DVD), which they install on their console or in an optical disc drive attached to their PC. Alternatively, some platforms, such as Steam, allow gamers to download games from a marketplace.

Cloud gaming changes that paradigm by running the games on remote hardware in the cloud, with the video and audio then streamed to the consumer’s device, which could be a smartphone, a connected TV, a low-end PC or a tablet. The player would typically connect this device to a dedicated handheld controller, similar to one that they would use with an Xbox or a PlayStation.

There is also a half-way house between full cloud gaming and console gaming. This “lite” form of cloud gaming is sometimes known as “command streaming”. In this case, the game logic and graphics commands are processed in the cloud, but the graphics rendering happens locally on the device. This approach lowers the amount of bandwidth required (sending commands requires less bandwidth than sending video) and is less demanding from a latency perspective (no encoding/ decoding of the video stream). But the quality of graphics will be limited to the capabilities of the graphic processing unit on the end-user’s device. For keen players that want to play graphically rich games, command streaming wouldn’t necessarily eliminate the need to buy a console or a powerful PC.

As well as relocating and rejigging the computing permutations, cloud gaming opens up new business models. Rather than buying individual games, for example, the consumer could pay for a Netflix-style subscription service that would enable them to play a wide range of online video games, without having to download them. Alternatively, cloud gaming services could use a pay-as-you-go model, simply charging consumers by the minute or hour.

Today, these cloud gaming subscriptions can be relatively expensive. For example, Shadow, an existing cloud gaming service charges US$35 a month in the U.S., £32 a month in the U.K. and €40 a month in France and Germany (but there are significant discounts if the subscriber commits to 12 months). Shadow can support graphics resolution of 4K at 60 frames per second and conventional HD at 144 frames per second, which is superior to a typical console specification. It requires an Internet connection of at least 15 Mbps. Shadow is compatible with Windows 7/8/10, macOS, Android, Linux (beta), iOS (beta) and comes with a Windows 10 license, which can be used for other PC applications.

At those prices, Shadow is a niche offering. But Google is now looking to take cloud gaming mainstream by setting subscription charges at around US$10 a month – comparable to a Spotify or Netflix subscription, although the user will have to pay additional fees to buy most games. Google says its new Stadia cloud gaming service is accessible from any device that can run YouTube in HD at 30/60 frames per second (fps), as long as it has a fast enough connection (15–25Mbps). The consumer then uses a dedicated controller that can connect directly to their Wi-Fi, bypassing the device with the screen. All the processing is done in Google’s cloud, which then sends a YouTube video-stream to the device: the URL pinpoints which clip of the gameplay to request and receive.

In other words, Stadia will treat games as personalised YouTube video clips/web-pages that a player or viewer can interact with in real time. As a result, the gamer can share that stream easily with friends by sending them the URL. With permission from the gamer, the friend could then jump straight into the gameplay using their own device.

What is cloud gaming?

Table of contents

  • Executive Summary
  • Introduction
  • What is cloud gaming?
    • Why consumers will embrace cloud gaming
  • Ramifications for telecoms networks
    • Big demands on bandwidth
    • Latency
    • Edge computing
    • The network architecture underpinning Google Stadia
  • How large is the potential market?
    • Modelling the U.S. cloud gaming market
    • New business models
  • Telcos’ cloud gaming activities
    • Microsoft hedges its bets
    • Apple takes a different tack
  • Conclusions
    • Telcos without their own online entertainment offering
    • Telcos with their own online entertainment offering

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Telco innovation: Why it is broken and how to fix it

Telcos have tried innovating in many verticals

Incumbent telecommunications providers have seen their margins fall as basic telecommunications services, both fixed and mobile, have been increasingly commoditised. The need to provide differentiated services to counteract this trend is widely recognised in the industry, yet despite considerable investment and many attempts, too often new services launched by operators have failed to deliver the anticipated results. Yet some, especially in mobile banking and related services, have proved successful. Why is this so?

This report focuses on product and service innovation for customers, rather than on innovation in sales, marketing, finance, operations or networks. It addresses the introduction of new and innovative services and not the repackaging of existing communications services, for example in new pricing and service bundles (see Figure 2).

It looks at examples from a range of services, covering most of the new types of services introduced by MNOs over the past decade. These include:

  • Messaging: RCS and its competitors
  • Mobile financial and insurance services: Orange Money / Orange Bank, Millicom/Tigo’s joint ventures
  • Health: O2 Telehealth, Telenor’s Tonic health service
  • Smart home: AT&T’s Digital Life, Deutsche Telekom’s Qivicon
  • Lifestyle: Turkcell’s range of apps and Vodacom’s Mezzanine

We have covered many of these individually in previous reports, looking at how they were developed and have evolved over time, and whether and why they are (or we expect them to be) successful.

This report seeks to identify the common factors that led to success or failure, in order to establish some best practices for telcos in innovation. While we recognise that there are often several causes of success and failure, in some cases a single failure can undo much good work.

Previous reports this one builds on include:

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Product development or true diversification: How ambitious should telcos be?

Historically, telcos have aimed to find new customers for existing telecoms services, where the their market is not yet saturated, or expanding geographically to achieve scale. However, most telecoms markets are now nearly saturated – at least in the areas that telcos can profitably reach – so true service innovation, corresponding to the right hand side on the figure below, is now a crucial component for long term revenue growth.

The seven telco innovations discussed in this report are shown on the figure below. It is worth noting the progression Orange has made in building on its experience with its mobile money service to providing full banking services. This is highlighted in the diagram by the arrow, and is discussed more fully in the body of this report.

Most telcos innovation falls in the product development category on the Ansoff matrix

Telco innovations plotted on the Ansoff matrix

Source: STL Partners. For more on market development opportunity, see STL Partners report Making big beautiful: Multinational telcos need the telco cloud

In theory, one of the most effective ways of maximising the chances of success, and achieving the scale required to make a significant impact on revenues and profitability, is for operators to select services that target a large part of their existing customer base.

However, our analysis of the telco innovations in this report shows that there is actually little correlation between the distance from telcos’ core customer base and level of success. This because by tying new products and services too closely to their existing customer bases, telcos are actually limiting their ability to scale. While this approach is intended to help them compete more effectively against their peers, by increasing loyalty for core telecoms services, in reality, any telco-driven product development innovation is likely to compete with network agnostic service providers. So while it may make sense to offer something only to existing customers at the start, to truly scale telcos need to reach a wider market.

Orange is a good example of this transition. While its mobile money services in Africa remain tied to its telecoms customer base, its move into full-fledge banking in France is separate from telecoms services. As it rolls out full banking services across its footprint, this separation is likely to become more entrenched.

Many of the examples discussed in the main body of the report, including AT&T’s Digital Life, Orange Money and O2’s Telehealth venture were set up as separate businesses, which allowed their initial development to progress well. But this was not enough on their own to make them successful.

How successful have telcos been?

Comparing telcos’ investments into service innovations shows that, too often, they have made bets on areas that seem like natural opportunities for new services, but failed to gain traction because they didn’t do a rigorous enough assessment of the conditions for success.

To succeed in innovation, telcos must evaluate proposed new services or products much more painstakingly across three areas:

  1. User needs and requirements: that the product or service meets a real user need. This breaks down into two points:
    • The product or servicemust be easy to use and fit into users’ lifestyles.
    • And at the right price point. Most consumer products need a free tier to encourage customers to try and engage before paying (if ever). In some cases, the end user might not be the payer, so if that is the case then telcos need to identify the payer and ensure the product is relevant and valuable for them, too.
  2. Market structure and characteristics: clear vision of where the ROI is coming from. There are two main options for ROI – increased customer loyalty and new revenue.
    • For loyalty, telcos need a clear means of measuring whether the product or service is improving retention.
    • If telcos are seeking to build new revenue, they need to be realistic about how long it will take to achieve profitability and the size of the opportunity. Too often, telcos give up because they deem a new venture not valuable enough compared with the core business..
  3. Business structure: deciding on whether to develop something in house, to set up a joint venture, or acquire, and what the relationship is with the core business. The further away a new product or service is from the core business, the more independence it needs to develop and grow.

In this report, we compare the approaches of seven telco innovations, drawing on in-depth analysis from previous STL Partners reports, summarised in the table below.

Strategy is more important that degree of difficult for successful innovation

Assessment of quality of strategy and execution for telco innovationsSource: STL Partners

Our analysis shows that the difficulty of the innovation, i.e. whether it is product development or diversification into a new vertical, is less important to success than doing the difficult strategy and planning work outlined above.

For instance, while RCS is very closely tied to telcos’ existing customers and services, the necessary cooperation between telcos to bring it to market in a way that is valuable to consumers and potential enterprise customers was unrealistic from the start. By constrast, Tonic’s health insurance proposition is very different from Telenor’s core telecoms services, but Tonic’s clear vision and strategy, and ability to adapt to customer needs, have underpinned its early success in Bangladesh.

Read the full report to see a detailed assessment of each innovation across the three categories.

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