Personal data: Treasure or trash?

Introduction

This report analyses how the Telefónica Group is looking to reshape the digital services market so that both telcos and individuals play a greater role in the management of personal data. Today, most Internet users share large amounts of personal information with the major online platforms: Google, Facebook, Amazon, Apple, Tencent and Alibaba. In many cases, this process is implicit and somewhat opaque – the subject of the personal data isn’t fully aware of what information they have shared or how it is being used. For example, Facebook users may not be aware that the social network tracks their location and can, in some cases, trace a link between offline purchases and its online advertising.

Beyond the tactical deployment of personal data to personalise their services and advertising, the major Internet players increasingly use behavioural data captured by their services to train machine learning systems how to perform specific tasks, such as identify the subject of an image or the best response to an incoming message. Over time, the development of this kind of artificial intelligence will enable much greater levels of automation saving both consumers and companies time and money.

Like many players in the digital economy and some policymakers, Telefónica is concerned that artificial intelligence will be subject to a winner-takes-all dynamic, ultimately stifling competition and innovation. The danger is that the leading Internet platforms’ unparalleled access to behavioural data will enable them to develop the best artificial intelligence systems, giving them an unassailable advantage over newcomers to the digital economy.

This report analyses Telefónica’s response to this strategic threat, as well as examining the actions of NTT DOCOMO, another telco that has sought to break the stranglehold of the Internet platforms on personal data. Finally, it considers whether Mint, a web service that has succeeded in persuading millions of Americans to share very detailed financial information, could be a model for telco’s personal data propositions.

As well as revisiting some of the strategic themes raised in STL Partners’ 2013 digital commerce strategy report, this report builds on the analysis in three recent STL Partners’ executive briefings that explore the role of telcos in digital commerce:

In pursuit of personal cloud services

For the best part of a decade, STL Partners has been calling for telcos to give customers greater control over their personal data. In doing so, telcos could differentiate themselves from most of the major Internet players in the eyes of both consumers and regulators. But now, the entire digital economy is moving in this direction, partly because the new General Data Protection Regulation (GDPR) requires companies operating in the EU to give consumers more control and partly because of the outcry over the cavalier data management practices of some Internet players, particularly Facebook.

In a world in which everyone is talking about protecting personal data and privacy, is there still scope for telcos to differentiate themselves and strengthen their relationships with consumers?

In a strategy report published in October 2013, STL Partners argued that there were two major strategic opportunities for telcos in the digital commerce space:

  1. Real-time commerce enablement: The use of mobile technologies and services to optimise all aspects of commerce. For example, mobile networks can deliver precisely targeted and timely marketing and advertising to consumer’s smartphones, tablets, computers and televisions.
  2. Personal cloud: Act as a trusted custodian for individuals’ data and an intermediary between individuals and organisations, providing authentication services, digital lockers and other services that reduce the risk and friction in every day interactions. An early example of this kind of service is financial services web site Mint.com (profiled in this report). As personal cloud services provide personalised recommendations based on individuals’ authorised data, they could potentially engage much more deeply with consumers than the generalised decision-support services, such as Google, TripAdvisor, moneysavingexpert.com and comparethemarket.com, in widespread use today.

Back in October 2013, STL Partners saw those two opportunities as inter-related — they could be combined in a single platform. The report argued that telcos should start with mobile commerce, where they have the strongest strategic position, and then use the resulting data, customer relationships and trusted brand to expand into personal cloud services, which will require high levels of investment.

Today, telcos’ traction in mobile commerce remains limited — only a handful of telcos, such as Safaricom, Turkcell, KDDI and NTT Docomo, have really carved out a significant position in this space. Although most telcos haven’t been able or willing to follow suit, they could still pursue the personal cloud value proposition outlined in the 2013 report. For consumers, effective personal cloud services will save time and money. The ongoing popularity of web comparison and review services, such as comparethemarket.com, moneysavingexpert.com and TripAdvisor, suggests that consumers continue to turn to intermediaries to help through them cut through the “marketing noise” on the Internet. But these existing services provide limited personalisation and can’t necessarily join the dots across different aspects of an individual’s lives. For example, TripAdvisor isn’t necessarily aware that a user is a teacher and can only take a vacation during a school holiday.

STL Partners believes there is latent demand for trusted and secure online services that act primarily on behalf of individuals, providing tailored advice, information and offers. This kind of personal cloud could evolve into a kind of vendor relationship management service, using information supplied by the individual to go and source the most appropriate products and services.

The broker could analyse a combination of declared, observed and inferred data in a way that is completely transparent to the individual. This data should be used primarily to save consumers time and give them relevant information that will enrich their lives. Instead of just putting the spotlight on the best price, as comparison web sites do, personal cloud services should put the spotlight on the ‘right’ product or service for the individual.

Ideally, a mature personal cloud service will enrich consumers’ lives by enabling them to quickly discover products, services and places that are near perfect or perfect for them. Rather than having to conduct hours of research or settle for second-best, the individual should be able to use the service to find exactly the right product or service in a few minutes. For example, an entertainment service might alert you to a concert by an upcoming band that fits closely with your taste in music, while a travel site will know you like quiet, peaceful hotels with sea views and recommend places that meet that criteria.

As a personal cloud service will need to be as useful as possible to consumers, it will need to attract as many merchants and brands as possible. In 2013, STL Partners argued that telcos could do that by offering merchants and brands a low risk proposition: they will be able to register to have their products and services included in the personal cloud for free and they will only have to pay commission if the consumer actually purchases one of their products and services. In the first few years, in order to persuade merchants and brands to actually use the site the personal cloud will have to charge a very low commission and, in some cases, none at all.

Since October 2013, much has changed. But the personal cloud opportunity is still valid and some telcos continue to explore how they can get closer to consumers. One of the most prominent of these is Madrid-based Telefónica, which has operations in much of Europe and across Latin America. The next chapter outlines Telefónica’s strategy in the personal data domain.

Contents:

  • Executive Summary
  • Recommendations for telcos
  • Introduction
  • In pursuit of personal cloud services
  • Telefonica’s personal data strategy
  • Questioning the status quo
  • Backing blockchains
  • Takeaways
  • What is Telefónica actually doing?
  • The Aura personal assistant
  • Takeaways
  • Telefonica’s external bets
  • Investment in Wibson
  • Partnership with People.io
  • The Data Transparency Lab
  • Takeaways
  • Will Telefónica see financial benefits?
  • Takeaways
  • What can Telefónica learn from DOCOMO?
  • DOCOMO’s Evolving Strategy
  • Takeaways
  • Mint – a model for a telco personal data play?
  • Takeaways

Figures:

  • Figure 1: Telefónica’s tally of active users of the major apps
  • Figure 2: Telefónica’s view of digital market openness in Brazil
  • Figure 3: Investors’ valuation of Internet platforms implies long-term dominance
  • Figure 4: Key metrics for Telefónica’s four platforms
  • Figure 5: How Wibson intends to allow individuals to trade their data
  • Figure 6: Telefónica’s digital services business is growing steadily
  • Figure 7: Telefónica’s pay TV business continues to expand
  • Figure 8: DOCOMO’s Smart Life division has struggle to grow
  • Figure 9: NTT DOCOMO’s new strategy puts more emphasis on enablers
  • Figure 10: DOCOMO continues to pursue the concept of a personal assistant
  • Figure 11: DOCOMO is using personal data to enable new financial services
  • Figure 12: Mint provides users with advice on how to manage their money
  • Figure 13: Intuit sees Mint as a strategically important engagement tool

Blockchain for telcos: Where is the money?

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Introduction

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

Blockchain to make money

Blockchain to save money or do something new

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

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

Contents:

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

 

RCS: Walking the commerce tightrope

Introduction

Thanks initially to WeChat in China and now Facebook in the west, mobile messaging is fast becoming a key platform for digital commerce, mounting a challenge to Google Search, Amazon’s Marketplace and other two-sided platforms.

As explained in our June 2016 report, Google/Telcos’ RCS: Dark Horse or Dead Horse?, many of the world’s largest telcos are working with Google to develop and deploy multimedia communications services using the RCS specification. Like SMS, RCS is intended to work across networks, be network-based and be the default mobile messaging service, but it also goes far beyond SMS, by supporting rich features, such as video calling, location sharing, group chat and file sharing.  Proponents of RCS believe it can ultimately offer greater reach, reliability, privacy and security than online messaging services, such as WhatsApp, Facebook Messenger and WeChat.

The rollout of RCS-based services was one of the strategic options explored in STL Partners’ April 2017 report, Consumer communications: Can telcos mount a comeback?, which made different recommendations for different kinds of telcos. It argued that strong incumbent telcos in markets where the Internet players are also strong, such as AT&T, Verizon, BT and Deutsche Telekom, should seek to differentiate their communications proposition through reliability, security, privacy and reach, while also embedding communications into other services.

Building on those two reports, this executive briefing analyses the progress of RCS over the past two years, considering the development of business tools for the specification, while outlining Facebook Messenger’s, WhatsApp’s and Apple’s simultaneous push into the market for so-called conversational commerce, in which messaging and transactions are increasingly interwoven. It concludes by updating the strengths, weaknesses, opportunities and threats (SWOT) analysis in the June 2016 report and the subsequent recommendations for telcos.

RCS: What has changed in the past two years?

New networks, more interoperability and rising usage

The RCS (Rich Communications Services) specification, the heir apparent to SMS, has been around for a decade. Whereas SMS’s functionality is limited by its usage of old-school mobile technology, RCS employs Internet protocols to provide a raft of features similar to those available from leading chat apps. However, up until now, RCS has had little impact on the mobile messaging market – WhatsApp, Facebook Messenger, WeChat, Apple’s iMessage and other chat apps have been accumulating hundreds of millions of users, diminishing the role of mobile operators in this key pillar of the communications market.

But RCS, which is steered by the GSMA, seems to be finally gaining some traction: In 2017, RCS launches almost doubled from 30 to 55 and have the potential to double again in 2018, according to the GSMA. In December 2017, for example, América Movil, Telefónica, Oi and AT&T launched RCS messaging services to subscribers across Latin America. Although it will only work on handsets running Android, GSMA Intelligence estimates approximately 60% of subscribers across the Latin American region will be able to get access to the RCS messaging service. América Movil and Telefónica also plan to launch RCS Messaging in the UK, Germany, Spain, Austria and Central and Eastern Europe. As a result of these launches, GSMA Intelligence expects the number of active monthly RCS users to grow to 350 million by the end of 2018, from 159 million at the start of the year. However, for a messaging service, daily active users are a far more important metric than monthly active users.

To support RCS, telcos either need to embed an Internet multimedia subsystem (IMS) into their networks or used a cloud-based system that sits outside the network. The latter option requires less upfront capex and enables a quicker deployment. In Latin America, the operators are using the Jibe RCS Cloud from Google and the Jibe RCS Hub, thereby ensuring interoperability so that subscribers can send RCS messages across networks. Subscribers from other networks connected to the hub will also be able to send RCS messages regardless of their geographic location. Operators’ RCS networks are also being interconnected in other parts of the Americas and Europe. América Móvil, Rogers Communications and Sprint have interconnected their networks across the Americas, while Deutsche Telekom, Telenor Group, Telia Company and Vodafone Group have interconnected in Europe, enabling subscribers in these regions to access advanced RCS across 22 networks in 17 countries.

Contents:

  • Executive Summary
  • Introduction
  • RCS: What has changed in the past two years?
  • New networks, more interoperability and rising usage
  • Consistency is king
  • Vodafone’s sustained support for RCS
  • Google is finally prioritising RCS
  • Android Messages overshadows Allo
  • Android device makers mostly on board
  • What will Apple do?
  • Competing for the business messaging market
  • Facebook pushes into business messaging
  • The Facebook brand loses its lustre
  • How will RCS fare in the business market?
  • Veon tries a different route
  • Conclusions and Recommendations

Figures:

  • Figure 1: Recommendations for telcos in mobile messaging
  • Figure 2: The companies supporting the RCS Universal Profile
  • Figure 3: RCS now has a feature set designed for business-to-person usage
  • Figure 4: Vodafone is using RCS to promote its new pet tracking service
  • Figure 5: The iPhone accounts for less than one-fifth of the smartphones in use today
  • Figure 6: The pros and cons of Apple’s strategic options for iMessage
  • Figure 7: SMS still leads the Internet-based services in some metrics
  • Figure 8:  Using Facebook Messenger to book an in-store appointment
  • Figure 9: Almost 1.5 billion people access Facebook every day
  • Figure 10: The emerging ecosystem around RCS messaging-as-a-platform
  • Figure 11: Next steps for telcos in all-IP communications
  • Figure 12: China Mobile’s SMS traffic per customer has stabilised
  • Figure 13: Messaging is generating less and less revenue for China Mobile

Will a big bet on banking pay for Orange – and other telcos?

Introduction

This report analyses Orange’s launch of Orange Bank at the end of 2017, examining the strategy behind the new services, considering why Orange decided to launch a bank independently and exploring the ways in which the business model could be relevant to other telcos.

In examining the business case, the report looks at what Orange learnt from its previous mobile money initiatives, what its long-term strategy is, why it chose to launch a new banking service and how it was aided or impeded by regulatory changes in the industry.

The report is structured into the following sections:

  • The first part of the report outlines consumer behaviour changes and regulatory intervention in the payments industry. This explains why the current climate is aiding the launch of new mobile banking services by telcos and other innovative players.
  • The second section considers the strength of the banks’ position in the consumer payments market, and how leveraging customer data and digital services can provide opportunities in this area, with a particular focus on telcos.
  • The third and final section examines the Orange Bank proposition in detail, mobile money strategies from operators in developed and developing markets, and how Orange’s approach can inform similar telco strategies, while also suggesting ways for telcos to differentiate themselves from the competition.

How consumer financial services is changing

Smartphones drive fintech adoption

Digital financial services, part of the broader fintech trend[1], have been gaining traction among consumers for some time. By some measures, about one quarter[2] of the global population are already using some kind of fintech innovation, while fintech start-ups have secured $45 billion in funding since 2015.

In France, for example, 793.4 million online banking payments were made last year, according to the European Central Bank, an increase from 586.2 million in 2014. Ernst & Young (EY) predicts the number of customers going online to open an account in France will surge nearly six-fold to 17 million in the next ten years. In addition, there has been an increase in bank licences being issued to non-traditional banks in international markets. In the UK, for example, there has been a steady influx of licences issued since the financial regulators relaxed rules for new entrants in 2013, according to the Bank of England. Overall, there has been a shift in industry perspectives about the feasibility of launching new banking products and competing with the incumbents.

Fintech providers are benefitting from the global adoption of smartphones, which is growing at an extraordinary pace: today there are about 4 billion smartphone connections, nearly double the figure of three years ago[3]. As consumers are increasingly using smartphones for many aspects of their lives, brands, tech companies and whole industries are finding they are required to innovate to stay relevant, and banking is no exception to this rule. In many cases, incumbent financial services players have been slow to adapt to the rise of the smartphones, opening up an opportunity for newer, more agile players, such as challenger banks or mobile operators wielding new technologies and innovative banking concepts.

Contents:

  • Executive Summary
  • Technology and regulation rock banking
  • Recommendations and takeaways
  • Introduction
  • How consumer financial services is changing
  • Smartphones drive fintech adoption
  • New regulation to shake up payments industry
  • Banks under pressure to innovate
  • Orange Bank, a mobile-first proposition
  • Incumbents’ response to Orange Bank
  • Telcos’ track record in financial services
  • The developing world
  • The developed world
  • Conclusions and Recommendations
  • Orange Bank looks promising
  • Telcos have multiple options in the banking market
  • Recommendations and takeaways

Figures:

  • Figure 1: Orange Bank provides customers with a breakdown of their spending
  • Figure 2: Orange Bank is clearly differentiated from existing banking services
  • Figure 3: Many reviews of the Orange Bank App are critical
  • Figure 4: The global mobile money industry is still expanding quickly

[1] Fintech is defined by STL Partners as “technology that improves and disrupts financial services”, as outlined in Fintech: Definition and Landscape Overview, June 2016

[2] Frost & Sullivan, AI and Big Data Technologies Transforming Financial Services, September 2017

[3] GSMA Intelligence, 2017

Consumer IoT: How telcos can create new value

Introduction: Trust is a must for consumer IoT – but is consumer IoT a must for telcos?

Lack of trust is a major barrier to mass-market consumer IoT adoption

There was an expectation two to three years ago that take-up of consumer Internet of Things (IoT) services was set to accelerate, and that we would soon witness the success of mass market consumer IoT offers in areas such as energy management (linked to roll-outs of smart metering), home automation and security, and health and wellness applications (linked to wearables such as smart watches, fitness trackers and medical condition sensors). It was also widely expected that telcos would play a leading role in this market.

Although growth has occurred in these product areas, it has generally been below expectations. Everett M. Rogers’ diffusion of innovations theory shows how the different stages of public acceptance a new product goes through, with successive groups of consumers adopting the new technology (shown in blue), so its market share (yellow) eventually reaches saturation level. Looking at this theory, STL believes that consumer IoT is still in the “early adopter” stage.

Figure 1: Rogers’ diffusion of innovations theory

Source: Rogers, E. (1962) Diffusion of innovations, image from Wikipedia

In addition to this, telcos have tended to play a peripheral part in the market thus far, limited largely to providing the wireless and broadband connectivity supporting third-party products developed by players focused on adjacent vertical markets. Already the focus of telcos’ IoT strategies seems to have been redirected to enterprise and industrial IoT applications, along with the rapidly maturing connected car and smart cities markets, judging from the wave of new product and partnership announcements in these areas at recent trade shows, such as this year’s Mobile World Congress (MWC). Despite this, we believe that consumer IoT could still represent a large addressable market for telcos, based on data presented in chapter 3.

There are many reasons for the levelling of the expected consumer IoT growth curve, some of which we will explore in this report. In terms of definitions, we are limiting the term ‘consumer IoT’ to ‘consumer-centric’ applications and services, whether these are deployed primarily in the home (such as home automation and security) or on the person (e.g. wearables, and health and wellness). We will not directly discuss connected car / autonomous vehicle and smart cities applications, even though they relate to consumer services and experiences, as the dynamics of these services and their technological challenges are quite distinct. In addition, we will only tangentially discuss healthcare IoT, as it is far from clear what sort of ‘consumer’ business model will be established in this sector (as opposed to a public service model); although it is likely that remote health and social care will play an increasingly central role in a prospective ‘second wave’ of consumer IoT services, based on trustworthy processing of intimate personal data to enable really useful services.

In addition, we make a distinction between ‘connected’ devices and homes, on the one hand, and ‘smart’ devices / homes and IoT services, on the other. A home is not smart, nor an IoT service present, until the connected devices or ‘things’ involved, and the data they generate, are integrated as part of an app that the user controls. As shown in Figure 2, in the existing IoT business model, this involves delivery of the data from multiple devices and sensors to a cloud-based service, enabling collection, aggregation and analysis of the data, and remote and automated performance of actions on those devices based on the analysis and on the user’s preferences.

Contents:

  • Executive Summary: Trust is king
  • Introduction: Trust is a must for consumer IoT – but is consumer IoT a must for telcos?
  • Lack of trust is a major barrier to mass-market consumer IoT adoption
  • Building trust with customers must be at the forefront of telcos’ consumer IoT offer and brand
  • Consumer IoT 1.0: opportunities and threats for telcos; telco strengths and weaknesses
  • Opportunities: The addressable market for telcos is potentially huge
  • Threats: do consumers buy it?
  • Established telco strengths can help offset the risks
  • Weaknesses: IoT exemplifies the challenges of digital innovation in general
  • Conclusion: consumer IoT is a huge challenge but also a huge opportunity that plays into telcos’ strengths
  • Deutsche Telekom’s consumer IoT platform and services
  • Deutsche Telekom and the Qivicon platform
  • Efforts to address the data security and privacy issues of consumer IoT 1.0
  • Avast: telcos can play a role as part of a cross-industry approach
  • Orange: transparency over use of data is key
  • Atomite: consumer consent and rewards for sharing data with third parties
  • Telefónica’s AURA: cognitive intelligence but an immature business model
  • Consumer IoT 2.0: A move to a (data) sharing economy
  • GDPR: A change in the rules that looks set to change business models
  • Databox: “privacy-aware data analytics platform”
  • IoT and the personal data economy: putting ‘me’ at the centre of my internet of things
  • Conclusion: Telcos need to be in the consumer IoT 1.0 game to win in consumer IoT 2.0
  • A massive potential market, with a large slice of the pie available to telcos…
  • … but do the risks outweigh the potential benefits?
  • Telcos need to play the consumer IoT 1.0 game to reach consumer IoT 2.0

Figures:

  • Figure 1: Rogers’ diffusion of innovations theory
  • Figure 2: Consumer IoT 1.0
  • Figure 3: Consumer concerns about connected devices
  • Figure 4: Strengths, weaknesses, opportunities and threats for telcos in consumer IoT
  • Figure 5: Connected home installed base and penetration EU and North America, 2013–19
  • Figure 6: Companies most trusted with personal data
  • Figure 7: The Qivicon consumer IoT platform
  • Figure 8: Orange ‘Trust Badge’ – what personal and usage data is collected, and why
  • Figure 9: Key functionality of the Meeco personal data portal