Cloud 2020: Telcos’ Role, Scenarios and Forecast

Introduction: The Cloud in 2016

STL Partners developed our comprehensive ‘forward-view scenarios’ on the evolving cloud services market, and the role of telcos within this market, back in 2012[1].  Times have certainly moved on.  In 2016, the cloud has become an established part of the IT industry. The key cloud providers – Amazon.com, Microsoft, Google, Facebook – are seeing dramatic revenue growth and (at least in Amazon Web Services’ case) unexpectedly strong margins in the 25-30% range.

Estimates of server shipments and revenue suggest that, so far, the growth of the cloud is a blue-ocean phenomenon.  In other words, rather than cloud services supplanting on-premises data centres, the market for computing power is growing fast enough that the cloud is mostly additional to them. Enterprises’ consumption of computing has risen dramatically, as its price has fallen – and cloud is the preferred delivery method for the delivery of these additional data services.

Since our last major cloud report in 2012, there have been some major shifts in the market.

  • Public cloud – think Amazon Elastic Compute Cloud (EC2) – has grown enormously, and to some extent subsumed part of the private cloud segment, as the public clouds have added more and more features. For example, Amazon EC2 offers “Reserved Instances”, rather like a dedicated server – these “allow you to reserve Amazon EC2 computing capacity for 1 or 3 years, in exchange for a significant discount (up to 75%) compared to On-Demand instance pricing”[2]. EC2 also offers extensive “virtual private cloud” support, as does Microsoft Azure. This support has essentially put an end to the virtual private cloud as an industry segment.
  • Platform-as-a-service (PaaS) has, as we predicted, become less important compared with infrastructure-as-a-service (IaaS), as the latter has added more and more PaaS-like convenience.
  • Traditional managed-hosting providers, for their part, have begun to deliver managed hosting services in a “cloud-like”, programmatic, on-demand fashion, via the so-called “bare metal cloud”. Iliad’s Scaleway product is a notable example here.
  • Meanwhile, enterprise IT departments who choose to retain their own infrastructure are increasingly likely to do it by creating their own private clouds. Open-source software, like OpenStack, and open hardware like the Open Compute Project and OpenFlow, make this an increasingly attractive option.

The upshot for telcos has in general been pretty bleak.  In the volume-dominated public cloud market, they’ve failed to achieve significant scale; while the various niche cloud services markets have largely either been subsumed by the public cloud, or been served better by the open-source ecosystem. Telcos’ focus on enterprise cloud and (in most cases) on reselling VMWare’s technology as their core PaaS offering has rendered them vulnerable to severe competition. Enterprises could serve themselves better thanks to open source, while the public clouds’ engineering excellence and use of open source projects has allowed them to progress faster and address developers’ (the key buyers’) needs better.

However, as we discuss below, the big four cloud companies still only account for about half the total spending. The niche opportunities in cloud remain very real, and there are still potential opportunities for telcos who offer compelling technical and product differentiation.

STL’s cloud scenarios from 2012, revisited

In 2012, STL Partners identified three scenarios for the future of cloud, in our market overview report.

“Menacing Stormcloud”: this scenario essentially envisioned a world in which hyperscale data centre infrastructure just kept getting better. As a result, the cloud majors would eventually take over, probably also cannibalising the on-premises and private cloud markets. This would require cloud customers to bite the bullet and trust the cloud, whatever security and privacy issues might arise. Prices, but also margins, would be hammered into the ground by sheer scale economics.  In “Menacing Stormcloud”, AWS and its rivals would dominate the cloud market, and little would be left in terms of telco opportunities.

 “Cloudburst”: our second scenario postulated that the cloud was a technology bubble and the bubble would do what all bubbles do – burst. Some triggering event – perhaps a security crisis, or a major cloud customer deciding to scale out – would bring home the downside risks to the investing public and the customer base. Investors would dump the sector, bankruptcies would ensue, and interest would move on, whether to a new generation of on-premises solutions or to a revived interest in P2P systems.  In “Cloudburst”, both the cloud and the data centre in its current form would end up being much less relevant, and cloud opportunities for telcos (as well as other players) would accordingly be very limited.

“Cloud Layers”: this scenario foresaw a division between a hard core of hyperscale public cloud providers – dominated by AWS and its closest competitors – and a periphery of special-purpose, regional, private, and otherwise differentiated cloud providers.  This latter group would include telcos, CDNs, software-as-a-service providers, and enterprise in-house IT departments. We noted that this was the option that had the best chance of offering telcos a significant opportunity to address the cloud market.

Looking at the market in 2016, “Cloud Layers” has turned out to be closest to the current reality. The cloud has certainly not burst, as we postulated in our second scenario.  As far as the first “Menacing Stormcloud” scenario, public cloud majors have indeed become very dominant, but the resulting price drops this scenario envisioned have not necessarily ensued.  Even the price leader, AWS, has only returned about half the cost-savings derived from technical advances (what we would call the annual ‘Moore’s law increment’) to its customers through its pricing, capturing the rest into margin.

Further, although there have been exits from the market, the exiting providers have not been niche cloud providers or traditional managed hosting providers.  Rather, we have seen exits by players who have made unsuccessful attempts to compete in hyperscale. HP’s closure of its Helion Public Cloud product, Facebook’s closure of its Parse mobile developer PaaS, and the resounding lack of results for Verizon’s $1.4bn spent on Terremark, are cases in point.

Looking at the operators who managed to find a niche in the “Cloud Layers” scenario – such as AT&T[3], Telstra[4], or Iliad[5] – an important common factor has been their commitment to owning their technology and building in-house expertise, and using this to differentiate themselves from “big cloud”. AT&T’s network-integrated cloud strategy is driven by both using open-source software as far as possible, and investing in the key open-source projects by contributing code back to them. Iliad introduced the first full bare-metal cloud, using a highly innovative ARM-based microserver it developed in-house. Telstra is bringing much more engineering back in-house, in support of its distinctive role as the preferred partner for all the major clouds in Australia.


 

  • Executive Summary
  • Introduction: The Cloud in 2016
  • STL’s cloud scenarios from 2012, revisited
  • How much are we talking here?
  • Competitive Developments in Cloud Services, 2012-2016
  • Understanding the strategies of the non-telco cloud players
  • Most Telcos’ Cloud Initiatives Haven’t Worked
  • The Dash-for-Scale failed (because it wasn’t ‘hyperscale’)
  • Only the disruptors made any money
  • Too little investment in cloud innovation resources, and too much belief in marketing reach as a differentiator
  • Cloud innovation is demanding: the case of AT&T
  • Cloud 2.0 Scenarios 2016-2020
  • Scenario 1: Cumulonimbus – tech and Internet players’ global cloud oligopoly
  • Scenario 2: Cirro-cumulus – a core of big cloud players, plus specialists and DIY enterprises
  • Scenario 3: Disruptive 5G lightning storm fuses the Cloud with the Network
  • Conclusion

 

Figure 1: 2016 Forecasts of cloud market size through 2020
Figure 2: Forecasting the adoption of cloud
Figure 3: Our revised cloud services spending forecast: still a near-trillion dollar opportunity, even though IT spending slows
Figure 4: Our forecast in context
Figure 5: Public IaaS leads the way, with AWS and Microsoft
Figure 6: IaaS is forecast to grow as a share of the total Cloud opportunity
Figure 7: All the profit at Amazon is in AWS
Figure 8: Moore’s law runs ahead of AWS pricing, and Amazon grows margins
Figure 9: Cloud is the new driver of growth at Microsoft
Figure 10: Google is still the fourth company in the cloud
Figure 11: AT&T’s cloud line-item is pulling further and further ahead of Verizon’s
Figure 12: STL world cloud spending forecast (recap)
Figure 13: Driver/indicator/barrier matrix for Cloud 2.0 scenarios

The Future Value of Voice and Messaging

Background – ‘Voice and Messaging 2.0’

This is the latest report in our analysis of developments and strategies in the field of voice and messaging services over the past seven years. In 2007/8 we predicted the current decline in telco provided services in Voice & Messaging 2.0 “What to learn from – and how to compete with – Internet Communications Services”, further articulated strategic options in Dealing with the ‘Disruptors’: Google, Apple, Facebook, Microsoft/Skype and Amazon in 2011, and more recently published initial forecasts in European Mobile: The Future’s not Bright, it’s Brutal. We have also looked in depth at enterprise communications opportunities, for example in Enterprise Voice 2.0: Ecosystem, Species and Strategies, and trends in consumer behaviour, for example in The Digital Generation: Introducing the Participation Imperative Framework.  For more on these reports and all of our other research on this subject please see here.

The New Report


This report provides an independent and holistic view of voice and messaging market, looking in detail at trends, drivers and detailed forecasts, the latest developments, and the opportunities for all players involved. The analysis will save valuable time, effort and money by providing more realistic forecasts of future potential, and a fast-track to developing and / or benchmarking a leading-edge strategy and approach in digital communications. It contains

  • Our independent, external market-level forecasts of voice and messaging in 9 selected markets (US, Canada, France, Germany, Spain, UK, Italy, Singapore, Taiwan).
  • Best practice and leading-edge strategies in the design and delivery of new voice and messaging services (leading to higher customer satisfaction and lower churn).
  • The factors that will drive best and worst case performance.
  • The intentions, strategies, strengths and weaknesses of formerly adjacent players now taking an active role in the V&M market (e.g. Microsoft)
  • Case studies of Enterprise Voice applications including Twilio and Unified Communications solutions such as Microsoft Office 365
  • Case studies of Telco OTT Consumer Voice and Messaging services such as like Telefonica’s TuGo
  • Lessons from case studies of leading-edge new voice and messaging applications globally such as Whatsapp, KakaoTalk and other so-called ‘Over The Top’ (OTT) Players


It comprises a 18 page executive summary, 260 pages and 163 figures – full details below. Prices on application – please email contact@telco2.net or call +44 (0) 207 247 5003.

Benefits of the Report to Telcos, Technology Companies and Partners, and Investors


For a telco, this strategy report:

  • Describes and analyses the strategies that can make the difference between best and worst case performance, worth $80bn (or +/-20% revenues) in the 9 markets we analysed.
  • Externally benchmarks internal revenue forecasts for voice and messaging, leading to more realistic assumptions, targets, decisions, and better alignment of internal (e.g. board) and external (e.g. shareholder) expectations, and thereby potentially saving money and improving contributions.
  • Can help improve decisions on voice and messaging services investments, and provides valuable insight into the design of effective and attractive new services.
  • Enables more informed decisions on partner vs competitor status of non-traditional players in the V&M space with new business models, and thereby produce better / more sustainable future strategies.
  • Evaluates the attractiveness of developing and/or providing partner Unified Communication services in the Enterprise market, and ‘Telco OTT’ services for consumers.
  • Shows how to create a valuable and realistic new role for Voice and Messaging services in its portfolio, and thereby optimise its returns on assets and capabilities


For other players including technology and Internet companies, and telco technology vendors

  • The report provides independent market insight on how telcos and other players will be seeking to optimise $ multi-billion revenues from voice and messaging, including new revenue streams in some areas.
  • As a potential partner, the report will provide a fast-track to guide product and business development decisions to meet the needs of telcos (and others).
  • As a potential competitor, the report will save time and improve the quality of competitor insight by giving strategic insights into the objectives and strategies that telcos will be pursuing.


For investors, it will:

  • Improve investment decisions and strategies returning shareholder value by improving the quality of insight on forecasts and the outlook for telcos and other technology players active in voice and messaging.
  • Save vital time and effort by accelerating decision making and investment decisions.
  • Help them better understand and evaluate the needs, goals and key strategies of key telcos and their partners / competitors


The Future Value of Voice: Report Content Summary

  • Executive Summary. (18 pages outlining the opportunity and key strategic options)
  • Introduction. Disruption and transformation, voice vs. telephony, and scope.
  • The Transition in User Behaviour. Global psychological, social, pricing and segment drivers, and the changing needs of consumer and enterprise markets.
  • What now makes a winning Value Proposition? The fall of telephony, the value of time vs telephony, presence, Online Service Provider (OSP) competition, operators’ responses, free telco offerings, re-imaging customer service, voice developers, the changing telephony business model.
  • Market Trends and other Forecast Drivers. Model and forecast methodology and assumptions, general observations and drivers, ‘Peak Telephony/SMS’, fragmentation, macro-economic issues, competitive and regulatory pressures, handset subsidies.
  • Country-by-Country Analysis. Overview of national markets. Forecast and analysis of: UK, Germany, France, Italy, Spain, Taiwan, Singapore, Canada, US, other markets, summary and conclusions.
  • Technology: Products and Vendors’ Approaches. Unified Comminications. Microsoft Office 365, Skype, Cisco, Google, WebRTC, Rich Communications Service (RCS), Broadsoft, Twilio, Tropo, Voxeo, Hypervoice, Calltrunk, Operator voice and messaging services, summary and conclusions.
  • Telco Case Studies. Vodafone 360, One Net and RED, Telefonica Digital, Tu Me, Tu Go, Bluvia and AT&T.
  • Summary and Conclusions. Consumer, enterprise, technology and Telco OTT.

European Mobile: The Future’s not Bright, it’s Brutal

Summary findings and implications

Dark skies ahead

The mobile telecoms sector has performed quite strongly through the economic downturn but STL Partners’ forecast for UK, France, Germany, Spain and Italy suggests that the outlook is extremely bleak:

  • Even in the UK and Germany, the markets with the brightest future, STL Partners forecasts a respective 19% and 20% decline in mobile core services (voice, messaging and data) revenues by 2020. The UK has less far to fall simply because the market has already contracted over the last 2-3 years whereas the German market has continued to grow.
  • We forecast a decline of 34% in France over the same period.
  • In Italy and, in particular, Spain we forecast a brutal declines of 47% and 61% respectively.
  • Overall, STL Partners anticipates a reduction of 36% or €30 billion in core mobile service revenues by 2020. This equates to around €50 billion for Europe as a whole.

Figure 1: Mobile core Service revenues

European Mobile Core Services Revenue Forecast Chart, Oct 2012, Telco 2.0

Source: European regulators, Mobile operators, Barclays Capital, STL Partners assumptions and analysis

  • Even if our forecasts prove to be too pessimistic – and we have sought to be realistic rather than unduly negative and have built our models bottom up looking at pricing and volume trends wherever possible – the future looks much worse than other analysts and industry observers are currently forecasting. For example, a recent report by Arthur D Little and Exane BNP Paribas forecasts a 2.3% per annum decline in mobile to 2015 compared with our forecast of 4.3% per annum decline over the same period.
  • Data growth, service bundling, customer experience improvements and cost-cutting activities are valuable but fall way short of offsetting declines in voice and messaging. The game for mobile operators in Europe is changing forever: as things stand, in a few short years they will be forced to become very much more conservative businesses – more like gas and water companies. Interestingly, the capital markets already rate telecoms companies as utilities judging by their lofty dividend yields.
  • There will be casualties. Several operators will not exist in their current form by 2020. Despite the desire of regulators to have four or five network operators in their countries to encourage competition, the downward revenue pressure will favour scale economies and the pressure for many operators to merge or acquire/be acquired will be overwhelming.

Get your umbrellas ready now

We are starting to see a few European operators invest more actively in building new revenue streams – something that STL Partners has been pushing through its Telco 2.0 initiative for several years. Telefonica with Telefonica Digital, KPN, Orange, Telenor and a handful of other companies are becoming more active in ‘digital services’ and new business models. This activity urgently needs to be accelerated and prioritised if operators stand any chance of replacing the impeding revenue declines.

For future success, operators must embrace Telco 2.0 (and recognise the need for a new business model and new service offerings) whether that is as a lean ‘Telco 2.0 Happy Pipe’ or as a ‘Telco 2.0 Services Provider’. Both of these strategies require business model transformation that encompasses:

  • Major strategic choices and decisions about what the organisation should and should not do;
  • The identification, selection and development of new products and services;
  • More effective processes for bringing newly developed services to market;
  • A realignment of organisation structures to deliver the new services;
  • A redefinition of the way operators work with each other and with external partners to build value;
  • Clarification of how technology should support the Telco 2.0 business model and services;
  • A review of revenue and cost models to maximise value for consumers, partners and telcos themselves;
  • A new relationship with regulators as the industry seeks to redefine its role and value in the digital economy.

STL Partners remains committed to working with TMT players that want to make the changes identified above in three ways:

For more details of how STL Partners can help you, please contact us.

Introduction

The telecoms industry is performing quite well in a tough economic environment

At the moment, the global telecoms industry seems to be in relatively robust health – developing economies are driving subscriber growth, 4G is being rolled out, smartphones are being connected with data plans in huge numbers, service providers are selling bundled “integrated offers” to maintain revenues, and costs are being controlled with network-sharing and other strategies

But there is also a nagging concern held by industry managers and observers that all is not well ‘below the waterline’, especially in mature markets. There have been a few worrying signs from operators losing out on messaging revenues to OTT players like WhatsApp, or suffering outright reductions in revenues and subscriber numbers in markets like Spain. That said, these have been largely ascribed to poor pricing decisions or (hopefully) temporary local macroeconomic problems.

Certainly, the financial markets seem pretty convinced in the operators’ underlying ability to turn consumers’ desire for communication into ARPU. Not only that, but there is broad conviction that growing data revenues should be able to offset – plus or minus a little – slow declines in voice and messaging, especially when it is all wrapped up in a bundle.

The question is whether that assumption is really valid, or whether there are broader structural risks, or even any reality in the dystopian view that revenues could suddenly ‘fall off a cliff’? Looking at the fixed telecom industry, it is notable that voice revenues have undergone a fairly precipitous decline over the past decade, partly because of mobile substitution, partly because of competition and, in some cases such as lucrative international calls, because of competition from Skype and its peers. Meanwhile, adjacent markets such as cable have started to suffer from the popularity of alternative sources of digital TV and content. Some of the fixed operators have picked up the slack with IT services and cloud infrastructure, but others have suffered – often to the extent that they have sold out, typically to their mobile peers.

But how bright is the future really?

Will mobile operators fare any better over the next 5-10 years? In developed markets, they have to contend with market saturation, increasing competition on basic services, and tightening regulatory regimes. They also need to deal with the strategic issue of the internet-based app ecosystems such as Apple’s and Google’s, and OTT-type services from the likes of Facebook and Microsoft/Skype. There is also a possibility that the very nature of ‘core services’ like telephony might change, as voice communications starts to get embedded into apps and the web itself. Some observers even see our 100-year relationship with voice telephony diminishing in importance, as other forms of communication become more useful.

This report looks into the mobile marketplace – specifically, voice and messaging services in the main European countries. We have constructed a “what if?” scenario model, that takes some basic assumptions about voice usage and pricing, along with data revenues trends. Rather than just assuming that ARPU will remain broadly flat and then divide it up between voice and data, we’ve started looking from the bottom up. Can likely declines in voice revenues really be made up elsewhere, especially given the possible collapse of SMS and the commoditisation of mobile data? Just how big might the gap be that needs to be filled with ‘other services’ such as content resale, two-sided capability exposure, M2M, vertical industries or Telco-OTT propositions?

Taking together the five largest European mobile markets – Germany, France, UK, Italy and Spain – paints a picture that should cause some alarm. Despite the rise of smartphones and dongles, overall quarterly mobile revenues are down 10% on their peak from Q3 2009; falling from €24.7bn to €22.2bn in Q1 2012. Even accounting for seasonality, this is significant (a €10bn annualised shortfall) – and early results suggest the fall accelerated in Q2 2012, as economic and competitive factors bit deeper into sales, with recessions in several countries and new entrants such as Free in France.

Worse, if we just look at voice revenues, the market is now down 25% from its peak in Q2 2009, and that fall seems to be accelerating. While declining voice ARPU is not a huge surprise, the failure of other services to take up the slack is disappointing, especially as the source of new business – basic data connectivity – also is the most capex-hungry in terms of extra costs of new spectrum and 3G/4G build-out.

Figure 2: EU5 Mobile Services revenue already down 10% from 2009 peak

EU5 Mobile Services Revenues Chart, Telco 2.0, Oct 2012
Source: STL Partners

A set of cold-blooded forecasts for UK, France, Germany, Italy and Spain

To the best of our knowledge, nobody else has made forecasts that are both dispassionate and founded on hard data and bottom-up analysis.

Too many analyst (and we suspect internal) financial models seem to suggest that ‘It’ll be alright, somehow… telecoms operators need to harvest cash from voice and messaging, grow data and find some new revenues, but there’s plenty of options’. STL Partners is questioning the first and second premises in the statement above – about harvesting voice and messaging and growing broadband data – not because we’re pessimists, but because we think that many in the industry are not acknowledging the scale of the problems ahead and making the necessary (and often uncomfortable) decisions early enough.

Views vary widely on the outlook for mobile telecoms in Europe

It is fair to say that the fixed telecoms industry has undergone enough pain over the last decade to be under no illusions about its challenges. Operators realise that they face a continued hard slog against competition, regulation, content providers and indifferent consumers. They have increasingly focused on businesses, wholesale models and specific high-value niches like fibre-based triple-play. Deployment of FTTC/FTTH has been patchy, as they have realised that political support doesn’t equate to revenue uplift or return on capital.

Conversely, the mobile industry has pinned its hopes on LTE, data services and various collaboration and partnership business models. Some operators have essentially become Apple and Samsung resellers, offering credit-finance for expensive devices in the guise of handset subsidies. Plenty of other ideas, from mobile money to M2M to API exposure have been the subject of huge efforts. As yet, none has really moved the needle compared to the legacy telephony and SMS services that still make up a large (60%+) share of most operators’ top line revenues. The only bright spot has been plain-vanilla Internet access, initially with 3G dongle modems for PCs, and more recently for smartphone data plans. But the former has now gone largely ex-growth (thankfully, in some cases, given the traffic loads generated at low prices). And the latter faces growth challenges once most users have shifted to a smart device, as few users seem incentivised to upgrade to larger data plans so far.

Privately held view seems to be pessimistic…

In private discussions with operator executives, we encounter a fair level of pessimism, especially about voice and SMS revenues. At our conferences, we have asked senior executives (using our anonymised voting system) about possible price and value erosion, and are often surprised by how far and fast telcos seem to think these core services will dwindle.

Figure 3: Example Telco 2.0 delegate view of 3-year voice revenue decline

Euro Mobile: The Future's Brutal - delegate views, Telco 2.0, Oct 2012
Source: Delegate Vote, New Digital Economics Executive Brainstorm, November 2011

…yet publicly, there is much less acknowledgement of the scale of the issue.

We’ve seen investment banks’ forecasts that assume that ARPUs can be (mostly) maintained through the magic of bundling, while some operators themselves paint a picture that can, charitably, be seen as rose-tinted at best:

Figure 4: Orange remains optimistic about European telecoms revenues

Euro Mobile: The Future's Brutal, Orange Forecast, Telco 2.0, October 2012
Source: FT Orange

Contents:

  • The bundling paradox
  • General trends impacting core services revenues
  • Macro-economic issues
  • Competitive & regulatory price pressure
  • The declining demand for voice telephony
  • Data growth
  • The relative mix of pre-paid vs post-paid customers
  • Lower handset subsidies
  • Definitions, assumptions & methodology
  • UK
  • Germany
  • France
  • Italy
  • Spain
  • Europe-wide summary
  • Appendix – Benchmarking prices for core services

 

  • Figure 1 – Mobile core Service revenues
  • Figure 2 – EU5 Mobile Services revenue already down 10% from 2009 peak
  • Figure 3 – Example Telco 2.0 delegate view of 3-year voice revenue decline
  • Figure 4 – Orange remains optimistic about European telecoms revenues
  • Figure 5 – Vodafone view bundling as the way to stem revenue loss
  • Figure 6 – At least 4 of the 6 general trends that impact mobile core services revenues are negative
  • Figure 7 – Developed-market mobile pricing has dropped 10%+ per annum
  • Figure 8 – French, German and Spanish mobile voice has historically had higher prices than other European countries
  • Figure 9 – STL Partners recent analysis suggests that Spain’s voice prices are nearly double those of UK and France
  • Figure 10 – Spanish voice premium is not offset by materially cheaper data charges compared with other European markets
  • Figure 11 – Despite growth over 2005-2010 period, mobile voice volumes are now flattening in more mature markets
  • Figure 12 – The underlying decline in fixed voice minutes (excluding mobile substitution) appears to be around 2% per quarter in the UK
  • Figure 13 – Smartphone penetration of mobile user base, January 2012
  • Figure 14 – EU5 mobile data revenues have grown steadily, not exponentially – and show recent signs of flattening-off as SMS declines
  • Figure 15 – The UK has shown a steady decline mobile data revenue growth rate despite increases in dongles and smartphones
  • Figure 16 – UK Mobile voice volumes (billions of minutes)
  • Figure 17 – UK Baseline Mobile Revenues down 25% from 2011 levels by 2020
  • Figure 18 – Unlike the UK, Germany mobile voice traffic is still growing strongly…
  • Figure 19 – …and mobile data usage in Germany is exploding (from a low base)
  • Figure 20 – Price pressure has meant that German mobile revenues have been flat in the recent past
  • Figure 21 – Germany Baseline Mobile Revenues down 18% from 2009 levels by 2020
  • Figure 22 – French mobile telephony volumes are still rising
  • Figure 23 – SMS and mobile data traffic volumes growing strongly
  • Figure 24 – France Baseline Mobile Revenues down 35% from 2009 levels by 2020
  • Figure 25 – Italy Baseline Mobile Revenues down 46% from 2009 levels by 2020
  • Figure 26 – Spain has been hurt especially hard by WhatsApp
  • Figure 27 – Spanish mobile voice traffic has been flat, but now faces decline
  • Figure 28 – The Spanish mobile market will fall precipitously through to 2020
  • Figure 29 – Total EU5 mobile core services revenues will fall 38% from peak by 2020
  • Figure 30 – Spain and Italy, in particular, are likely to experience a major decline in core mobile services revenues
  • Figure 31 – Mobile Voice Telephony Revenue Forecast by Country 2012-2020
  • Figure 32 – Extract from STL Partners database of 30-day SIM-only bundles
  • Figure 33 – Extract of how unit prices were calculated by STL Partners

 

Tablet Frenzy: Network Poison or Economic Palliative?

Summary: The success of the iPad2 has been seen by some as a sign of a paradigm shift in computing. With their theoretical appeal as a new portable medium for online video consumption could tablets have a significant impact on communications networks and economics? Here is Telco 2.0’s market outlook.

Below is an extract from this 18 page Telco 2.0 Analyst Note that can
be downloaded in full in PDF format by members of the Telco 2.0
Executive Briefing service using the links below.

                            Read in Full (Members only)        To Subscribe

‘Growing the Mobile Internet’ and ‘Fostering Vibrant Ecosystems: Lessons from Apple’ are also key session
themes at our upcoming ‘New Digital Economics’ Brainstorms (Palo Alto, 4-7 April and London, 11-13 May). Please use the links or email contact@telco2.net or call +44 (0) 207 247 5003 to find out more.

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Introduction: fearing the tablets’ effects?

The mobile device industry is currently awash with tablets. Catalysed by the iPad’s meteoric rise to prominence in 2010, the market has since been saturated with a broad range of similar devices such as Samsung’s Galaxy Tab. In early 2011, trade shows at CES in Las Vegas, and Mobile World Congress in Barcelona both saw the launch of countless Android-powered tablets, as well as others featuring RIM’s and HP’s own operating systems.

With the subsequent huge success and publicity of the iPad 2 launch (see iPad2: how Apple plans to dominate the ‘post PC era’), many in the technology industry are convinced that we are witnessing a new paradigm shift in computing. While the majority of debate has concerned itself with apps, content-publisher business models and the possible advent of the “post-PC era”, it is also worth stepping back and looking at the network-side implications of these new devices.

Some observers are expecting the advent of mobile-connected tablets to continue the assault on 3G and 4G network capacity, taking over where smartphones and laptops left off. Observing that tablets’ large screens are ideal for heavy-duty web and video consumption, there are certainly some doom-sayers predicting the imminent collapse of networks already suffering from congestion. For example, in July 2010, OpenWave’s CEO claimed that “There is no doubt that the iPad will be part of the data overload story when the wireless industry looks back in a few years time” . Even the FCC has used the potential tablet data threat in its efforts to gain additional spectrum rights for mobile broadband , saying “With the iPad pointing to even greater demand for mobile broadband on the horizon, we must ensure that network congestion doesn’t choke off a service that consumers clearly find so appealing or frustrate mobile broadband’s ability to keep us competitive in the global broadband economy.”

Other observers are more cautious. There are still some dissenters regarding the overall tablet story – will they really oust the netbook and laptop as the main mobile computing platforms? And even if they are game-changers, will they predominantly be used while connected to cellular networks, rather than WiFi?

While Telco 2.0 feels that tablets are indeed important in the medium term, we are concerned that 2011 may see the hype bubble pricked a bit, as the world’s gadget-enthusiast segment gets saturated before the mass-market really grasps what to do with a touchscreen device that isn’t pocketable. The rhetoric about the imminent death of the PC seems to fit poorly with data points such as Apple’s own rising laptop sales, paralleling the iPad’s growth.

The bitter pill of mobile data traffic

Telco 2.0 has talked about the mobile broadband “capacity crunch” and the challenging economics of 3G/4G networks on numerous occasions over the past few years. We have considered the role of offload, traffic management, two-sided approaches to “slicing and dicing” network capacity in both fixed and mobile domains, and the need for sensible pricing plans for mobile data. We have watched the explosion of smartphones and the typical data volumes grow to 100’s of megabytes per month per user – even 1GB+ for certain devices such as high-end Android phones.

In 2010, we identified a variety of new mobile broadband business models involving new device categories, evolution of the wholesaling/MVNO concept, and “priority connectivity” for certain applications, plus new non-subscription revenues from sponsored or third-party paid wireless data sessions in Mobile, Fixed and Wholesale Broadband Business Models. While all these are attractive, we also identified likely pricing pressure on mobile data plans – despite some offerings such as 3G dongle modem tariffs already being positioned often at too-low rates.

The net conclusion is that mobile capacity will need massive enhancement anyway – likely through a combination of both a move to more-efficient networks (HSPA+ and LTE, especially), and ways of moving to smaller cells and offload (WiFi and femtocells) – adding capacity by “densifying” the networks. All this is pretty much “baked in”, irrespective of the growth of additional new device categories.

Figure 1: Mobile networks need much more capacity, despite new revenue models

Global Mobile Broadband Access Revenues

Source: Telco 2.0 EMEA Brainstorm, April 2010

The last two years have seen increasing concern – and in some cases panic – among mobile operators about the effects of exploding data traffic on their networks. The emergence of tablets is adding to the sense of worry. Although some of the existing problems can be attributed to the extra signalling load, in other cases congestion is indeed being driven by sheer volumes of traffic, especially in “busy hours” or “busy cells”. For example, 4-10pm in regions with a lot of mobile laptop dongles tends to be a peak period. A growing shift to video traffic, driven by web TV streaming sites, social networks and adult content, has arisen as a particular point of concern. Various analyses have put video at 50-70% of total mobile data traffic already, consumed both on smartphones but also especially laptops with larger screens and batteries. Again, tablets are looked at as potential accelerators of this trend – with the vision of iPads being used to watch live TV via cellular networks while users are “out and about” a stereotypical fear.

Some operators have already tried to head off the problem with phones, with for example T-Mobile UK suggesting to its smartphone users that “If you want to download, stream and watch video clips, save that stuff for your home broadband.” as part of its fair-use policy. However, many recognise that much of the problem has been brought by operators on themselves – especially through the mis-selling and mis-pricing of laptop data plans as being direct substitutes for home DSL and cable broadband, which clearly cannot have the same restrictions on video.

Tablets are potentially something of a quandary for operators – as a new category, there is no pre-existing expectation about exactly how data plans should be priced and managed – and few clear points on how much traffic they might be expected to generate. But conversely, if tablets are to be truly mobilised products rather than just WiFi-centric nomadic ones, they need to be usable without arbitrary restrictions or off-putting contract pricing.

(A quick note on signalling traffic: at the moment, it seems unlikely that tablets are going to major generators of load in this regard. Unlike smartphones, they are not “always-on”, running background tasks over the cellular network, or creating massive problems at the radio level through “fast dormancy” for power control. Irrespective of the precise applications used, they are likely to be similar to laptops/dongles, being online for lengthier sessions rather than ultra-frequent “pings” of servers.)

To work out whether or not tablets are a genuine source of concern for operators, Telco 2.0 has developed a simple analytical framework, bringing together sales volumes, operators’ role, traffic demands, data plans and the means for mitigation of network congestion. The following sections discuss each of these in turn.

Figure 2: Assessing tablets’ impact on mobile data networks

Tablet Forecast Schematic

Source: Telco 2.0

Tablet demand

Telco 2.0 does not itself forecast shipments of specific computing product categories. However, we are in agreement that the overall tablet sector will grow strongly through 2011 and beyond, although we are slightly more bearish than some observers who proclaim “the death of the PC”, asserting that tablets will inevitably become the main portable computing format. Our view is that tablets will (largely) complement smartphones and notebooks, rather than massively substituting for either – although the smaller netbook PC format is more threatened. Research firm Disruptive Analysis has noted that typical tablet battery capacity – a proxy for processing or display, capability and therefore ability to “do stuff” – is mid-way between the two other device categories, reflecting a distinct role and market-space for tablets.

Figure 3: Device battery power diversity suggests different use cases for tablets, smartphones & laptops rather than outright substitution

Tablet, Smartphone, PC Battery Capaciity

Source: Telco 2.0, Disruptive Analysis

Depending on the exact definition of “tablet” (itself an imprecise term), around 17-20m devices shipped in 2010, of which about 15-16m were Apple iPads. Android-powered devices started making significant in-roads in Q4, gaining perhaps a 20% market share.

  • In January 2011, research firm IDC reported shipments of 17m tablets in 2010, forecasting 45m and 71m unit sales in 2011 and 2012 respectively.
  • Investment bank Goldman Sachs expects shipments of tablets such as the Apple iPad to more than double over the next year, going from 16m in 2010 to 35m in 2011. It expects 40% of that 35m to cannibalise PC shipments, with 20% cannibalising notebook sales and 80% cannibalising netbooks.
  • Research firm Ovum has forecast 150m tablet shipments in 2015
  • A more bullish prediction from iSuppli puts 2015 sales of tablets at 242m, although 39m of these will be full PCs in capability terms, masquerading in a tablet-style form-factor.
  • Apple is believed to have sold around one million iPad2’s on its opening weekend.

To read the rest of the article, including:

  • Telco 2.0’s Tablet Market Outlook for 2011 and 2015
  • Network Capacity Impact of Tablets
  • Forecast Global Traffic from tablets
  • Tablet Data Plan Pricing
  • Conclusion


…and the figures…

  • Figure 1: Mobile networks need much more capacity, despite new revenue models
  • Figure 2: Assessing tablets’ impact on mobile data networks
  • Figure 3: Device battery power diversity suggests different use cases for tablets, smartphones & laptops rather than outright substitution
  • Figure 4: High growth for tablets to 2015, but not all will be cellular-connected
  • Figure 5: Forecast global mobile data traffic from tablets, 2010-2015
  • Figure 6: Forecast mobile data traffic by device type, 2010-15 (Cisco VNI)
  • Figure 7: Selected mobile operator-supplied tablet 24-month contracts

Members of the Telco 2.0TM Executive Briefing Subscription Service can access and download a PDF of the full report here.
Non-Members, please see here for how to subscribe. Alternatively, please email
contact@telco2.net or call +44 (0) 207 247 5003 for further details.
‘Growing the Mobile Internet’ and ‘Lessons from Apple: Fostering vibrant content ecosystems’ are also featured at our AMERICAS and EMEA Executive Brainstorms and Best Practice Live! virtual events.

New Strategy Report: Mobile, Fixed and Wholesale Broadband Business Models

Best Practice Innovation, ‘Telco 2.0′ Opportunities, Forecasts and Future Scenarios

Summary:  a new 249 page Telco 2.0 Strategy Report on the future of broadband, including analysis of the latest new ideas in broadband business model innovation, new ‘Telco 2.0’ Opportunities, global forecasts, four future strategic scenarios, and a detailed ‘Use Case’ describing a new Managed Offload ‘Use Case’.  (March 2010, Future Networks Stream)

The report covers:

  • Best practice innovation, and detailed assessment of ‘Telco 2.0′ opportunities, in Mobile Broadband, Advanced New Wholesale, and Fixed Retail Broadband Business Models
  • Four scenarios for broadband market players: ‘Telco 2.0 Player’, ‘Happy Piper’, ‘Device Specialist’, and ‘Government Department’
  • Telco 2.0’s forecasts for the Broadband Access market
  • An advanced and detailed ‘Use Case’ for a specific Telco 2.0 Opportunity, ‘Managed Offload of Mobile Broadband to Fixed Networks’
  • Conclusions and recommendations for Telcos and other Broadband Service providers (BSPs) and their partners

 

 cover%20image%20mfbbm%20mar%202010.png   

The report is a ‘must read’ for CxOs, strategists and broadband product managers seeking to develop their business strategies and position their products, both within Telcos and BSPs and for the community of business partners and vendors.

Read in Full (Members only)   To Subscribe click here

This report is now availalable to members of our Future Networks Stream. Below is an introductory extract and list of contents from this 249 page strategy Report that can be downloaded in full in PDF format by members of the Future Networks Stream here

For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003 

Report Details

  • 249 pages
  • 90 charts, tables and forecasts
  • Manuscript format
  • Detailed outline and contents below
  • Published: 25th March 2010

The rest of this page contains:

  • Overview and Report Content       
  • Who is the report for?
  • Contents, Figures and Forecasts
  • Downloads (Table of Contents, PDF Version of this Page)
  • Fit with other Broadband Reports

Report Overview & Content

Introduction

Broadband continues to grow in both market penetration and sophistication, with the addition of fibre and mobile access as key enablers.

Figure 1. Global broadband access lines, 2000-2020

personal%20mobile%20growth%20mar%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

However, while speeds and mobility are improving, there are complex challenges to the business model for service providers. These include:
  • Maturing products and business models
  • Convergence of fixed and mobile technology and product offerings
  • Greater state intervention in deploying and controlling broadband access
  • A more complex broadband ecosystem
  • New consumer behaviour and higher expectations

See here for an extract from the overview of the report on the main themes and challenges that it addresses. Among these challenges are:

  • What are the realistic prospects for non-subscription models for fixed and mobile broadband, such as prepaid / transactional / free / “comes with data”, bundled with device purchase, “sliced and diced”, etc.?
  • A critical analysis of whether operators can charge content / Internet companies for access to ‘their pipes’, and in what circumstances this may be commercially and operationally feasible.
  • What is the changing role of Government in the broadband marketplace?
  • Is Mobile Broadband substitional or synergistic with Fixed?

Overall, new business models will be necessary to help justify extra infrastructure investment as end-user spending on broadband access reaches market saturation.

Figure 2: Next-generation broadband will need new revenue sources

fbbm%20four%20skittles%20mar%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models
The report covers the impact of key factors such as DPI, QoS. Net Neutrality, LTE, Fibre, IPTV, Video demand, mobile broadband, convergence, LLU, MVNOs, Machine-to-Machine, Cloud Computing, and regulation. It explores both developed and developing markets.

Broadband Best Practice Innovation and ‘Telco 2.0′ Opportunities

Following the introduction and market overview, the report contains chapters of detailed analysis of best practice innovation (e.g. pricing, propositions, technologies, etc.) and ‘Telco 2.0′ new business model opportunities in:

  • Fixed Retail Broadband
  • Mobile Retail Broadband
  • Advanced Wholesale Broadband business models.

The ‘Telco 2.0′ propositions are based on the ‘two-sided’ telecoms business model theory that broadband capacity can sold to “upstream” media or application providers. The report examines theoretical use cases and some compelling potential business models.

Figure 3: the Two-Sided Telecoms Business Model
2sbm%20fbbm%20report%20mar%2023%202010.png

Source: Telco 2.0 Analysis

(NB. Further detail on the ‘two-sided’ telecoms business model can be found here.)

‘Managed Mobile Offload’ Use Case

Taking one of the specific opportunities identified, the report details a ‘Use Case’ for offloading excess mobile traffic to fixed operators. This represents a wholesale opportunity for fixed BSPs and an opportunity for Mobile BSPs to manage the rising costs of carrying large volumes of (primarily video) data traffic.

Figure 4: Forms of managed offload from fixed/cable operators

fbbm%20offload%20mar%2023%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

Future Scenarios

The report describes four possible scenarios for broadband service providers and the benefits and risks of pursuing each strategy.

Figure 5: Potential scenarios for BSPs

fbbm%20four%20scenarios%20mar%2023%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

Forecasts and Conclusions

The report is completed by global forecasts for each of the core business models for broadband service providers (detailed below), conclusions, and an overview of the relative attractiveness of the scenarios.

Who is the report for?

Telecoms Operators’ and other Broadband Service Providers’:

  • Strategy departments
  • Central research libraries & market research functions
  • CTO office, Strategic Marketing, Business Development
  • Wholesale Departments
  • Government & Regulatory Affairs depts
  • Network architects & planners
  • Broadband services marketing departments (fixed, cable and mobile)

Vendor audiences:

  • Marketing / business development / strategy functions
  • Fixed broadband access equipment vendors
  • Wireless network radio & transport vendors
  • IP core suppliers
  • Fixed-broadband terminal suppliers
  • Mobile broadband device suppliers
  • Policy management, DPI & control specialists
  • Billing & OSS suppliers
  • Silicon and “enabler” providers

Regulators and other Government departments

Investors

Consultants & integrators

Report Contents

Executive Summary

Part 1: Background to the Broadband Industry

  • Market adoption of broadband and the four scenarios
  • Fibre and next-generation access: the missing business model
  • Video: killer app, or network-killer?
  • Mobile broadband: Hype & realism
  • Convergence of fixed / mobile broadband
  • Evolving regulation: help or hindrance?
  • Government & ‘National Broadband’
  • Broadband in the developing world
  • The vendor landscape

Part 2: Fixed retail broadband business models

  • Retail broadband scenario options
  • Cable vs ADSL vs Fibre – same models, or fundamentally different?
  • Pricing options: capping and tiering, application-specific caps and tiers, specific zero-rated / unmetered sites & services
  • Video: providers: the power-brokers? Triple-play / IPTV.
  • Incremental services, cross-network Internet services, prepay fixed broadband    
  • Fibre
  • Future value-add services? Smart grids, telemedicine and ‘The Cloud’
  • The impact of local-loop unbundling and structural separation

Part 3: Mobile Broadband Retail Business Models

  • Mobile broadband computing
  • Smartphone business models
  • M2M broadband business models
  • Do revenues reflect costs?
  • Wholesale mobile broadband and MVNOs
  • Enablers and technologies

Part 4: Advanced broadband wholesale business models

  • Bulk broadband wholesale models
  • Creating next-gen wholesale
  • Telco-Telco wholesale 2.0
  • Broadband capacity ‘slice and dice’
  • Marketing & selling wholesale

Part 5: Use Case: Managed Offload of Mobile Broadband

Part 6: Forecasts and Conclusions

A full table of contents and figures can be downloaded here.

This report is now availalable to members of our Future Networks Stream. Below is an introductory extract and list of contents from this 249 page strategy Report that can be downloaded in full in PDF format by members of the Future Networks Stream here

For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003 

Key Figures and Forecasts

  • Global broadband access lines, 2000-2020
  • Global broadband access lines by technology, 2005-10
  • Global fixed broadband by region, mid-2009
  • Global broadband traffic          
  • Ultra-fast broadband availability in developed markets
  • Global mobile broadband computing users
  • Examples of government broadband-related stimulus plans
  • How uptake of broadband impacts GDP
  • Global fixed broadband lines
  • Wholesale within global fixed broadband, 2010
  • The Global Online Video Market ($Billions)
  • European fibre penetration forecast 2013
  • Mobile broadband active user base
  • Global 3G data traffic by device type, mid-2009
  • Global mobile broadband computing users
  • Vodafone UK mobile broadband pricing trends
  • Traffic volumes for mobile broadband vs. revenues
  • Fixed and mobile broadband wholesale revenues
  • Global mobile broadband computing subscribers
  • Forecast broadband wholesale revenues by category
  • Global retail broadband subscribers 2005-2020
  • Global average retail charges for broadband 2005-2020
  • Broadband Retail Market Value 2005-2020
  • Percentage of broadband lines supplied via bulk wholesale 2005-2020
  • Average global wholesale prices 2005-2020
  • Global bulk wholesale access market 2005-2020
  • Global slice-and-dice revenues per line 2005-2020
  • Global slice-and-dice incremental wholesale access revenues 2005-2020
  • Global active users of broadband without a subscription 2005-2010
  • Active broadband users including ‘comes with data’
  • Global non-subscription upstream revenues per user per year 2005-2020
  • Global ‘comes with data’ broadband access 2005-2020
  • Global wholesale revenues 2005-2020
  • Global broadband access market 2005-2020
  • Breakdown of global wholesale revenues 2005-2020

Downloads

Fit with other Telco 2.0 Broadband Reports

This report is one of the Future Broadband Business Models Report Series of in-depth analyses of the Broadband market.

Companion Reports:

  • Beyond bundling: winning the new $250Bn delivery game” examines the structural opportunities and potential technical strategies for the next 10 years, including the more infrastructure-oriented aspects of wholesale such as IP data transit, renting-out of fibre/towers and local-loop unbundling, and identifies an overall $250Bn opportunity over this period.
  • The impact of video on broadband business models” analyses the development of online video, identifies possible market winners and losers, and sets out three interlocking scenarios depicting the evolution of the market. In each scenario, the role of Broadband Service Providers is examined, possible threats and opportunities revealed, and strategic options are discussed.

This report is now availalable to members of our Future Networks Stream. Below is an introductory extract and list of contents from this 249 page strategy Report that can be downloaded in full in PDF format by members of the Future Networks Stream here

For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003 

Mobile & Fixed Broadband Business Models: Four Strategy Scenarios

Summary: an introduction to the four strategy scenarios we see playing out in the market – ‘Telco 2.0 Player’, ‘Happy Piper’, ‘Device Specialist’, and ‘Government Department’ – part of a major new report looking at innovation in mobile and fixed broadband business models. (March 2010, Foundation 2.0, Executive Briefing Service, Future of the Networks Stream).

Introduction

This is an extract from the Overview section of the Telco 2.0 report ‘Mobile and Fixed Broadband Business Models: Best Practice, ‘Telco 2.0′ Opportunities, Forecasts and Future Scenarios‘.

The extract includes:

  • Overview of the three macroscopic broadband market trends
  • The five recurrent themes
  • Defining Telcos and Broadband Service Providers (BSPs) in the future
  • Market adoption of broadband
  • An Introduction to the four scenarios

A PDF version of this page can be downloaded here.

Overview

This section of the report provides a backdrop to the rest of the study. It highlights the key trends and developments in the evolution of broadband, which fundamentally underpin the other aspects of business model innovation discussed in the subsequent chapters. It also introduces Telco 2.0’s main ‘end-game scenarios’ for broadband service providers (BSPs), and gives a round-up of some of the key background statistics.

There are three main macroscopic trends in the broadband market:

1.   A focus on improving the reach and profitability of existing low/mid-speed broadband in developed countries, especially with the advent of inexpensive mobile data, and new methods of monetising the network through wholesale options, value-added services and better segmentation;

2.   Deployment of next-generation very high-speed broadband, and the building of business models and services to support this investment, typically involving video services and/or state backing for nationally-critical infrastructure projects;

3.   Continued steady rollout of broadband in developing markets, balancing theoretical gains in social and economic utility against the practical constraints of affordability, PC/device penetration and the need for substantial investment.

Cutting across all three trends are five recurrent themes:

Maturing products and business models

  • The global broadband market is maturing fast. In developed countries, baseline penetration rates are starting to level off as saturation approaches. Coupled with price erosion and increasing capacity demands, this deceleration is pressuring margins, especially in the recession;
  • The pivotal role of video in driving both costs and revenues, given its huge requirement for bandwidth, especially in high-definition (HD) format.
  • An awareness of the need for retail and wholesale business model evolution, as revenue growth plateaus and current attempts at bundling voice and/or IPTV (fixed) or content (mobile) show only patchy success.

Convergence of fixed and mobile technology and product offerings

  • The impact of mobile broadband, either as a substitute or a complement to fixed broadband. This goes hand-in-hand with the advent of more powerful personal devices such as smartphones and netbooks.

Greater state intervention in deploying and controlling broadband access

  • Intensifying regulation, focusing on areas such as facilities and service-based competition, unbundling and structural separation, Net Neutrality, spectrum policy and consumer advocacy;
  • Increasing government intervention in areas, such as broadband roll-out and strategy, outside the (traditional) scope of the regulatory authorities. This is conducted either through subsidy and stimulus programmes, or broader initiatives relating to national efforts on energy, health, education and the like;
  • A growing belief that broadband networks should also support ‘infrastructure’ services which may not be delivered by the public Internet – for example, remote metering and ‘smart grid’ connectivity, support for healthcare or e-government, or education services. A major battle over the next 10 years will be whether these are delivered as ‘Telco services’, ‘Internet services’ or as distinct and separately-managed network services by providers using wholesale access to a Telco network.

A more complex broadband ecosystem

The increasing role of major equipment vendors in facilitating new business models, either through managed services / outsourcing / transformation, direct engagement with governments on strategic architecture issues, or supply of key ‘platform’ components. However, many vendors are torn between protecting the legacy heavily-centralised models of their existing Telco customers, and exploring new targets within public-sector or Internet domains.

New consumer behaviour and higher expectations

Changing user behaviour as broadband becomes a basic expectation (or a government-mandated right) rather than a premium service, with the mass uptake of new applications and the added benefits of mobility.

Defining Telcos and BSPs in the future

One of the largest challenges in identifying Telco business models for the forthcoming era of next-generation access is the question of what actually defines a Telco, or a Broadband Service Provider (BSP).

In fixed networks, especially with new fibre deployment, the situation is becoming ever more complex because of the number of levels at which wholesaling can take place. If an incumbent ADSL operator buys, packages and rebrands wholesale dark fibre capacity from a municipally-owned fibre network, which one is the BSP? Or are they both BSPs?

The situation is a lot easier in mobile, where there still remains a fairly clear definition of a mobile operator, or a mobile virtual network operator (MVNO) – although in future network-sharing and outsourcing may also blur the boundaries in this market.

It is possible that there isn’t an appropriate strict definition, so a range of proxy definitions will start to apply – membership of bodies like the GSMA, possession of a ‘mobile network code’, access to certain number ranges, ownership of spectrum and so forth. In an era where Google buys dark fibre leases, Ericsson manages cellular networks, investment consortia contract to run a government-sponsored infrastructure and  mobile operators offer ‘over the top’ applications – it all becomes much less clear.

In this report, BSPs are taken as a broad class to include:

  • Owners of physical broadband access network infrastructure – taken as either physical cabling or fibre (wireline) or spectrum and radio cells (mobile). Telco 2.0 does not include rights-of-way owners or third-party cell-tower operators in this definition;
  • Owners of broadband access networks built using wholesale capacity on another provider’s wires or fibres, but with their own active electronics, E.g. basing a network on unbundled loops or dark fibre;
  • Providers of retail broadband access, perhaps bundled with other services, using bitstream, ethernet access or MVNO models based on wholesale from another network operator.

These definitions exclude 2G-only (non-broadband) mobile operators and MVNOs, PSTN or cable TV access provided without broadband connectivity and non-retail access providers, such as microwave backhaul operators and content delivery networks (CDNs) Etc.

Market adoption of broadband


The global broadband access market has grown from fewer than 10 million lines in 1999, to more than half a billion at the end of 2009, predominantly through the growth of DSL-based solutions, as well as cable and other technologies. Although growth has started to slow in percentage terms, there remains significant scope for more homes and businesses to connect, especially in developing economies, such as China. Older fixed broadband services in more industrialised economies will gradually be replaced with fibre.

The other major area of change is in wireless. Since 2007, there has been rapid growth, with the uptake of mobile broadband for ‘personal’ use with either smartphones or laptops, often in addition to users’ existing fixed lines. This category of access will grow faster than fixed connections, reaching more than one billion active individual users and almost two billion devices by 2020 (see Figure 1). Although a strong fixed/mobile overlap will remain, there will also be a growing group of users whose only broadband access is via 3G, 4G or similar technologies.

There are a number of complexities in the data:

  • Almost all fixed broadband connections are ‘actively used’. The statistics do not count copper lines capable of supporting broadband, but where the service is not provisioned;
  • Conversely, many notional ‘mobile broadband’ connections (E.g. 3G SIMs in HSPA-capable devices) are, in fact, not used actively for high-speed data access. The data in this report attempts to estimate ‘real’ users or subscribers, rather than those that are theoretically-capable, but dormant;
  • At present, most broadband usage is based on subscriptions, either through monthly contracts or regular pre-paid plans (mostly on mobile). Going forward, Telco 2.0 expects to see may non-subscription access customers who have either temporary accounts (similar to the WiFi single-use model) or have other forms of subsidised or bundled access as described later in the report;
  • Lastly, the general assumption is that fixed broadband can be shared by multiple people or devices in a home or office, but mobile broadband tends to be personal. This is starting to change with the advent of ‘shared mobile access’ on devices like Novatel’s MiFi, as well as the use of WiMAX and, sometimes, 3G broadband for fixed wireless access.

Figure 1. Global broadband access lines, 2000-2020

personal%20mobile%20growth%20mar%202010.png

Source: Telco 2.0 analysis  

Breaking the data out further shows the recent growth trends by access type (see Figure 2). Mobile use has exploded with the growth of consumer-oriented 3G modems (dongles) and popular smartphones, such as the Apple iPhone and various other manufacturers’ recent devices. DSL growth has continued in some markets, such as Eastern Europe and China. Conversely, cable modem growth, entrenched in North America, has been slow as there has been limited roll out of new cable TV networks.

Figure 2: Global broadband access lines by technology, 2005-10

fbbm%20bar%20chart%20extract%20mar%2024%202010.png

Source: Telco 2.0 analysis  

It is important to note the importance of Asia in the overall numbers (see Figure 3). Although many examples in this report focus on developed markets in Europe and North America, it is also important to consider the differences elsewhere. Fibre is already well-established in several Asian markets, such as Japan and Singapore, while future growth in markets, such as India, may well turn out to be mobile-driven.

An alternative way of looking at the industry dynamics is through levels of data traffic. This metric is critically important in determining future business models, as often data expands to fill capacity available – but without a direct link between revenue and costs. In future, fixed broadband access will start to become dominated by video traffic. Connecting an HDTV display directly to the Internet could consume 5GB of data per hour, orders of magnitude above even comparatively-intense use of PC-based services, such as YouTube or Facebook.

Figure 3: Global fixed broadband by region, mid-2009
 

fbbm%20extract%20pice%20chart%20mar%2024%202010.png

Source: Broadband Forum

The dynamics of mobile traffic growth (see Figure 4) are somewhat different, and likely to be dominated by a sustained rise in the device/user numbers for the next few years, rather than specific applications. Nevertheless, the huge ramp-up in aggregated data consumption will put pressure on networks, especially given probable downward pressure on pricing and the natural constraints of cellular network architectures and spectrum. The report looks in depth at the options for ‘offloading‘ data traffic from cellular devices onto the fixed network.

Figure 4: Global broadband traffic

fbbm%20traffic%20growth%20chart%20extract%2024%20mar%202010.png

Source: Cisco Systems   

Note: EB = Exabyte. 1 Exabyte = 1,000 Petabytes = 1 million Terabytes

The Four Scenarios

Given the broad diversity of national markets in terms of economic development, regulation, competition and technology adoption, it is difficult to create simplistic categories for the BSPs of the future. Clearly, there is a big distance between an open access, city-owned local fibre deployment in Europe versus a start-up WiMAX provider in Africa, or a cable provider in North America.

Nevertheless, it is worth attempting to set out a few scenarios, at least for BSPs in developed markets for which market maturity might at least be in sight (see Figure 5 below). While recognising the diversity in the real world, these archetypes help to anchor the discussion throughout the rest of the report.  The four we have explored (and which are outlined in summary below) are:

  • Telco 2.0 Broadband Player
  • The Happy Piper
  • Government Department
  • Device specialist

There are also a few others categories that could be considered, but which are outside the scope of this report. Most obvious is ‘Marginalised and unprofitable’, which clearly is not so much a business model as a route towards acquisition or withdrawal. The other obvious group is ‘Greenfield BSP in emerging market’, which is likely to focus on basic retail connectivity offers, although perhaps with some innovative pricing and bundling approaches.

It is also important to recognise that a given operator may be a BSP in either or both mobile and fixed domains, and possibly in multiple geographic markets. Hybrid operators may move towards ‘hybrid end-games’ in their various service areas.


Figure 5: Potential scenarios for BSPs

fbbm%20four%20scenarios%20mar%2023%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

For more details on the scenarios, please see the new Telco 2.0 Strategy Report ‘Mobile and Fixed Broadband Business Models – Best Practice Innovation, ‘Telco 2.0’ Opportunities, Forecasts and Future Scenarios‘, email contact@telco2.net, or call +44 (0) 207 247 5003.