How telcos can make the world a safer place

Telecoms networks can support public safety

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

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

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

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

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

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

It builds on previous STL Partners research including:

Managing an unstable world

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

Global gains in life expectancy are slowing down

health and safety

Source: United Nations – World Population Prospects

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

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

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

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

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

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

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

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

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

Table of contents

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

 

 

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Innovation leader case study: Telefónica Tech AI of Things

The origins of Telefónica Tech AI of Things

Telefónica LUCA was set up in 2016 to “enable corporate clients to understand their data and encourage a transparent and responsible use of that data”.

Before the creation of LUCA, Telefónica’s focus had been on developing assets and making acquisitions (e.g. Synergic Partners) to build strong internal capabilities around data and analytics – with some data monetisation capabilities housed within their Telefónica Digital unit (a global business unit selling products beyond connectivity, which was disbanded in 2016). Typical projects the team undertook related to using network data to make better decisioning for the network and marketing teams, and providing Telefónica Digital with external monetisation opportunities such as Smart Steps (aggregated, anonymised data for creation of vertical products) and Smart Digits (provision of consent-based data to the advertising industry).

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Creating the autonomous LUCA unit made a statement that Telefónica was serious about its strategy to offer data products to enterprise customers. Quoting from the original press release, “LUCA offered three lines of products and services:

The Business Insights area brings the value of anonymous and aggregated data on Telefónica’s networks for a wide range of clients. This includes Smart Steps, which is focused on mobility analysis solutions for more efficient planning. For example, to optimise transport networks and tourist management in cities, or in the case of a health emergency, in helping to better understand population movements and in limiting the spread of pandemics.

The analytical and external consultancy services for national and international clients will be provided by Synergic Partners, a company specialized in Big Data and Data Science which was acquired by Telefónica at the end of 2015.

Furthermore, LUCA will help its clients by providing BDaaS (Big Data as a Service) to empower clients to get the most out of their own data, using the Telefónica cloud infrastructure.”

The following table shows a timeline from the origins of LUCA in the Telefónica Digital business unit through to its merger into the Telefónica Tech AI of Things business in 2019 – illustrating the progression of its products and other major activities.

Timeline of Telefónica’s data monetisation business

Telefonica-data-monetisation-luca-AI-IoT

Source: STL Partners, Charlotte Patrick Consult

Points to note on the timeline above:

  • Telefónica stood out from its peers with the purchase of Synergic Partners in 2015 (bringing in 120 consultancy headcount). This provided not only another leg to the business with consulting capabilities, but also additional headcount to scope and sell their existing product sets.
  • Looking at the timeline, it took Telefónica two years from this purchase and the establishment LUCA to expand its portfolio. In 2018, a range of new, mainly IoT-related capabilities, were launched, built up from existing projects with individual customers.
  • Telefónica has added machine learning to its products across the timeframe, but in 2019 the development of NLP capability for use in Telefónica’s existing products, and an internal data science platform, were then productised for customers (see below discussion about its Aura product set).
  • As the number of products has expanded, the number of partnerships has also expanded, bringing specific platforms and capabilities which can be combined with Telefónica’s own data capabilities to provide added value (examples include CARTO which creates geographic visualisations of Telefónica’s data).
  • Looking at changing vertical priorities:
    • Telefónica has always been strong in the advertising sector, starting with products from O2 UK in 2012. The exact nature of what it has offered has changed over time and some capabilities have been sold, however, it still has a strong mobile marketing business and expects it data to become of more interest to brands/media agencies as the use of cookies diminishes across the next few years.
    • The retail sector offers opportunity, but has been challenging to target over the years. Although Telefónica has interesting data for retail companies, creating replicable products is challenging as the large retailers each have differing requirements and working with small cell data in-store can be expensive. The product set is therefore currently being simplified, as the pandemic has also reduced demand from retailers.

One of Telefónica’s key capabilities which is not clearly displayed in the timeline is the provision of services to the marketing teams of the various verticals it targets. These include analytics products which Telefónica has developed from its internal capabilities and other functionality such as pricing tools.

The formation of Telefónica Tech

In 2019, Telefónica LUCA became part of the newly formed, autonomous Telefónica Tech business unit. The organisation is split into two business areas: cybersecurity & cloud, and the assets from Telefónica LUCA combined with the IoT unit. The goal of Telefónica Tech is to:

  • Enable the financial markets to clearly see revenue progression. Telefónica’s stated aim is for sustained double digit growth, which it achieved with year-on-year growth of 13.6% in 2020, although the IoT and Big Data segment only grew 0.8% y-o-y in 2020, due to the impact of COVID-19 on IoT deployments, especially in retail. Showing signs of recovery, in H121 revenue growth in the IoT and Big Data segment rose to 8.1% y-o-y, and to 26% y-o-y for the whole of Telefónica Tech.
  • Coordinate innovation, particularly around post-pandemic opportunities such as remote working, e-health, e-commerce and digital transformation
  • Take advantage of global synergies and leveraging existing assets
  • Ease M&A and partnerships activity (it already has 300 partners to better reach new markets, including relations with 60 start-ups across products)
  • Build relationships with cloud providers (it has existing relationships with Microsoft, Google and SAP).

To better leverage existing assets, Telefónica LUCA was integrated with Telefónica’s IoT capabilities to create a more unified set of capabilities:

  1. IoT is seen as an enabling opportunity for AI, which can bring added value to Telefónica’s 10,000 IoT customers (with 35 million live IoT SIMs worldwide). Opportunities include provision of intelligence around “things” (for example, products to analyse sensor data) and then the addition of Business Insight services (i.e. analysis of aggregated, anonymised Telefónica data which adds further insight alongside the data coming from IoT devices).
  2. AI is now often a commodity discussion with C-Level prospects and Telefónica wishes to be seen as a strategic partner. Telefónica’s AI of Things proposition offers an execution layer and integration experts with security-by-design capabilities.
  3. Combining capabilities provides sales teams with an end-to-end value proposition, as the addition of AI is often complimentary to cloud transformation projects and the implementation of digital platforms.

There is a growing ecosystem in IoT and data which will generate more opportunities as both IoT solutions and ML/AI solutions mature, although it is not a straightforward decision for Telefónica on how to compete within this ecosystem.

Table of contents

  • Executive Summary
    • How successful has Telefónica been in data monetisation?
    • Learnings from Telefónica’s experience
    • Key success factors
    • Telefónica’s future strategy
  • Introduction
    • The origins of Telefónica Tech AI of Things
    • The formation of Telefónica Tech
  • Vision, mission and strategy
    • Scaling the business
    • Building a product set
    • Learnings from Telefónica Tech AI of Things
  • Organisational strategy
    • Where should the data monetisation team live?
    • Structure of Telefónica Tech AI of Things Team
    • External partnerships
    • Future plans
  • Data portfolio strategy
    • Tools and infrastructure
    • AI Suite
    • Vertical strategy
    • Product development beyond analytics
  • Conclusion and future moves

Related research

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A3 for enterprise: Where should telcos focus?

A3 capabilities operators can offer enterprise customers

In this research we explore the potential enterprise solutions leveraging analytics, AI and automation (A3) that telcos can offer their enterprise customers. Our research builds on a previous STL Partners report Telco data monetisation: What’s it worth? which modelled the financial opportunity for telco data monetisation – i.e. purely the machine learning (ML) and analytics component of A3 – for 200+ use cases across 13 verticals.

In this report, we expand our analysis to include the importance of different types of AI and automation in implementing the 200+ use cases for enterprises and assess the feasibility for telcos to acquire and integrate those capabilities into their enterprise services.

We identified eight different types of A3 capabilities required to implement our 200+ use cases.

These capability types are organised below roughly in order of the number of use cases for which they are relevant (i.e. people analytics is required in the most use cases, and human learning is needed in the fewest).

The ninth category, Data provision, does not actually require any AI or automation skills beyond ML for data management, so we include it in the list primarily because it remains an opportunity for telcos that do not develop additional A3 capabilities for enterprise.

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Most relevant A3 capabilities across 200+ use cases

9-types-of-A3-analytics-AI-automation

Most relevant A3 capabilities for leveraging enterprise solutions

People analytics: This is the strongest opportunity for telcos as it uses their comprehensive customer data. Analytics and machine learning are required for segmentation and personalisation of messaging or action. Any telco with a statistically-relevant market share can create products – although specialist sales capabilities are still essential.

IoT analytics: Although telcos offering IoT products do not immediately have access to the payload data from devices, the largest telcos are offering a range of products which use analytics/ML to detect patterns or spot anomalies from connected sensors and other devices.

Other analytics: Similar to IoT, the majority of other analytics A3 use cases are around pattern or anomaly detection, where integration of telco data can increase the accuracy and success of A3 solutions. Many of the use cases here are very specific to the vertical. For example, risk management in financial services or tracking of electronic prescriptions in healthcare – which means that a telco will need to have existing products and sales capability in these verticals to make it worthwhile adding in new analytics or ML capabilities.

Real time: These use cases mainly need A3 to understand and act on triggers coming from customer behaviour and have mixed appeal to telcos. Telcos already play a significant role in a small number of uses cases, such as mobile marketing. Some telcos are also active in less mature use cases such as patient messaging in healthcare settings (e.g. real-time reminders to take medication or remote monitoring of vulnerable adults). Of the rest of the use cases that require real time automation, a subset could be enhanced with messaging. This would primarily be attractive to mobile operators, especially if they offer broader relevant enterprise solutions – for example, if a telco was involved in a connected public transport solution, then it could also offer passenger messaging.

Remote monitoring/control: Solutions track both things and people and use A3 to spot issues, do diagnostic analysis and prescribe solutions to the problems identified. The larger telcos already have solutions in some verticals, and 5G may bring more opportunities, such as monitoring of remote sites or traffic congestion monitoring.

Video analytics: Where telcos have CCTV implementations or video, there is opportunity to add in analytics solutions (potentially at the edge).

Human interactions: The majority of telco opportunities here relate to the provision of chatbots into enterprise contact centres.

Human learning: A group of low feasibility use cases around training (for example, an engineer on a manufacturing floor who uses a heads-up augmented/virtual reality (AR/VR) display to understand the resolution to a problem in front of them) or information provision (for example, providing retail customers with information via AR applications).

 

Table of Contents

  • Executive Summary
    • Which A3 capabilities should telcos prioritise?
    • What makes an investment worthwhile?
    • Next steps
  • Introduction
  • Vertical opportunities
    • Key takeaways
  • A3 technology: Where should telcos focus?
    • Key takeaways
    • Assessing the telco opportunity for nine A3 capabilities
  • Verizon case study
  • Details of vertical opportunities
  • Conclusion
  • Appendix 1 – full list of 200 use cases

 

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DataSpark: Lessons on building a new telco (data) business

Data analytics as a new business

This case study looks at DataSpark, an autonomous business unit of Singtel (www.dsanalytics.com) and evaluates the benefits of creating a separate organisational structure within a telco to provide technology and support for the development of analytics, AI and automation as a new business. It is created after conversations with Shaowei Ying, Chief Operating Officer of DataSpark. The company’s activities include both the creation of internal capabilities and data monetisation capabilities for external customers.

DataSpark was formed in 2014 at a time when not many telcos were actively exploring new data business opportunities. The unit consisted of a small group of data professionals with skills around, particularly, location data. Singtel’s CEO was a strong supporter of leveraging telco data to establish competitive differentiation and therefore tasked them with looking at various location-related external monetisation opportunities. It was considered natural to create internal use cases for the data to defray the cost of the data preparation. In particular, the same mobility intelligence was of use to radio network planners optimising their network roll out using not just congestion, but now subscribers’ mobility patterns, too.

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DataSpark’s progress to date

Telcos’ external monetisation units, such as DataSpark, are not yet large enough to split out the revenues in their reports and accounts. However, in the 2018 and 2019 Management Discussion and Analysis DataSpark’s progress was reported to include:

  • Activity to bring mobility data to sectors such as transport and out-of-home media in Singapore and Australia
  • Partnership in out-of-home advertising with large players taking a data-as-a-service solution to optimise their assets
  • Provision of insights including first party enterprise data in the consumer goods sector to deliver new use cases in advertising and retail store inventory optimisation
  • Recent support for governments in predicting spread of Covid-19, including understanding the socio-economic impact of the virus.

Service example: COVID-19 insight for the Australian local government

COVID-19 data analytics innovation

Source: DataSpark

Table of Contents

  • Executive Summary
    • Two diverging strategies for a small, independent data unit
    • Scaling up the data business as an integrated unit
  • Introduction
    • DataSpark’s progress to date
  • DataSpark’s approach to building a data unit
    • What services does it offer?
    • Go-to-market: Different approaches for internal and external customers
    • Organisational structure: Where should a data unit go?
  • How to scale a data business?
    • The immediate growth opportunities
    • Following in others’ footsteps
    • Building new capabilities for external monetisation
  • Assessing future strategies for DataSpark
    • Scenario 1: Double down on internal data applications
    • Scenario 2: Continue building an independent business

 

Read more about STL Partners’ AI & automation research at stlpartners.com/ai-analytics-research/

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Reliance Jio: Learning from India’s problem solver

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Introduction

This year marks the 25th anniversary of mobile networks in India. The huge potential of the market has attracted many players (even as recently as 2016, there were 12 mobile operators in India). But most have had their fingers burned by the complexities of this market, as well as intense competition, particularly following the entry of Reliance Jio in September 2016.

In the past four years, Reliance Jio has gone from strength to strength, becoming the leading telco in terms of mobile subscriber numbers in December 2019, dramatically expanding internet access and driving adoption of digital services across the country. It is not an exaggeration to say that Jio played a major role in the digital transformation of India to date.

Evidence of Jio’s impact on the Indian market

Source: STL Partners

Jio leads Indian telecoms

By delivering broad societal progress and value, Jio has been able to overcome many of the regulatory and political challenges that have hindered other new entrants to the Indian telecoms market. Jio is in good standing as regards its future ambitions in the digital environment, helping it to attract over USD20 billion in investment between April and July 2020 from Facebook, Google and other international investors.

In India, Reliance Jio has trialled elements of a Coordination Age approach, setting out to solve various socio-economic problems by matching supply and demand, while moving up the value chain to unlock further sources of revenue growth.

At the time of Jio’s entry, India was still predominantly a 3G market, with voice calls being the main application. Although there were a multitude of plans on offer and the retail price per minute was among the lowest in the world, mobile communications remained out of reach for many (not helped by high license and spectrum fees that translated into upward pressure on pricing).

Reliance Industries recognised an opportunity to use the advent of 4G technology to build a data-first telecoms player that could support its wider aspirations to develop a globally competitive technology business in India. Accordingly, it obtained a nationwide license to operate a 4G network and encouraged take-up with a promotion that offered customers free voice calls forever.

The existing operators rushed to defend their market positions by dropping their prices resulting in a price war that destroyed value in the market and has led to consolidation and insolvencies such that, aside from Jio, only two privately-owned operators remain – with the real possibility that the market will shrink further and become a duopoly.

STL Partners covered the success of Jio’s disruptive market entry strategy in Telco-Driven Disruption: Will AT&T, Axiata, Reliance Jio and Turkcell succeed? report in 2017. This report considers Jio’s strategy in the context of the Coordination Age. It looks at what this has meant for the market and highlights the implications for operators in other developing markets.

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Table of Contents

  • Executive Summary
  • Introduction
  • Interventionist government shapes market
    • Mobile market overview
    • The shifting sands of policy
  • Jio overtakes the incumbents
  • The rise of Reliance Jio
    • Leveraging the strength of a conglomerate
    • Restructuring and renewal
  • Major emphasis on partnerships
    • Start-ups
    • Global technology partners
  • Competitor positions
    • Bharti Airtel faring better than Vodafone Idea
    • Competitors’ relationship with the government
  • Conclusions
    • Lessons for telcos in developing markets
  • Index

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Telco data monetisation: What’s it worth?

Data revenue opportunities are variable

Monetisation of telco data has been an area of activity for the last six years. However, telcos’ interest levels have varied over time due to the complexity of delivering and selling such a diverse range of products, as well as highly variable revenue opportunities depending on the vertical. Telcos’ appetite to pursue data monetisation has also been heavily impacted by the fortunes of other new telco products, in particular IoT, owing to the link between many data/analytics products and IoT solutions.

This report assesses the opportunity for telcos to monetise their data and provide associated data analytics products in two parts:

  1. First, we look at the range of products and services a telco needs to create in order to deliver financial value.
  2. Then, we explore the main use cases and actual financial value of telco data analytics products across 12 verticals, plus horizontal solutions that apply to multiple verticals.

Telco data monetisation: Calculation methodology

The methodology used to model the financial value of telco data analytics is outlined in the figure below.

  • The starting point for this analysis is 210 data or data analytics use cases, spread across 12 verticals and the horizontal solutions applicable to multiple verticals.
  • We then assess how difficult it is for a telco to address each use case, based on pre-requisite supporting platforms and solutions, regulatory constraints, etc. (shown in red). This evaluation enables us to assess how likely telcos are to develop products for each use case.
  • Thirdly, we assess which types of telco are able to develop the use case (in yellow). For example, telcos in a market with particularly restrictive regulation around use of personal data are simply not able to create certain products.
  • Finally, it is necessary to understand whether the data/analytics products created for a use case can be offered as an independent, standalone product, or more likely to be provided as a bolt-on service to another, pre-existing solution. This question is primarily pertinent in the IoT space where basic data/analytics are likely to be included in the price of the IoT service.
    • For products that we expect to be sold independently, we calculate the potential revenue based on estimated pricing for the type of data product, where known, and likely volumes that a telco will sell in a year.
    • For data analytics products closely linked to IoT, we attach no monetary value.

Calculation methodology for the feasibility and value of telco data monetisation use cases

Rationale behind data monetisation potential

Source: STL Partners, Charlotte Patrick Consult

Viewing the data

Underlying the analysis in this report is a database tool including a detailed assessment of each of the 210 data monetisation use cases we have identified, with numerical analysis and charting capabilities. We know many of our readers will be interested to explore the detailed data, and so have made it available for download on the website in the form of an Excel spreadsheet.

Full use case database and analysis available on our website

Source: STL Partners

Table of Contents

  • Executive Summary
  • Introduction
    • Calculation methodology
  • What is this market worth to telcos?
  • Creating products for data monetisation
    • Telco products for the ecosystem
    • Data and analytics for IoT
    • Use of location in data monetisation
  • Maximising value in different verticals
    • Advertising and market research
    • Agriculture
    • Finance
    • Government
    • Insurance
    • Healthcare
    • Manufacturing
    • Real estate and construction
    • Retail
    • Telecom, media and technology
    • Transportation
    • Utilities
    • Horizontal solutions for all verticals
  • Conclusion and recommendations
    • How to pick a winning project
  • Index

COVID-19: Now, next and after

Executive Summary

It won’t be over by Christmas

The Coronavirus pandemic is an unprecedented event in our lifetimes. As well as the virus’s impact on health, shock and fear have rippled across the world. Everyday life is changing almost everywhere, with major impacts across the economy. It is having many of the same effects as a new world war, albeit a war against a common invisible enemy.

At the start of every world world war, people in the UK thought it would be over by Christmas. Coronavirus won’t be over by Christmas (December) 2020. Unchecked. Each person with COVID-19 infects about 3 people, on average. This means it is hugely infectious and can (re)infect populations rapidly. Hopefully, better healthcare treatments will be developed fast, and in time a vaccine too – though the World Health Organisation (WHO) believes this will take at least a year, and longer to immunise the population.

On this basis, unless several miracles happen, we think the world is likely to be dealing with some form of social distancing and other preventative and curative measures for a while. Given what we know today, here is our initial take on what telcos are doing now – and what they should do next, including four scenarios to help envisage a range of possibilities amid the current uncertainty.

Telcos and vendors can and should now do some great things

Telecoms is an essential service in today’s world. The initial focus of telcos has inevitably been on the short term crisis response: keeping the network working, adapting to new and changing patterns of customer behaviour, and trying to keep their employees and customers safe. Beyond that, telcos have been offering additional services and help to customers, and we outline some of the measures taken so far in this report (summarised below).

Beyond that, telco leaders must keep thinking and planning ahead. As a sector it is in a relatively strong position. Telecoms stocks are among those least impacted in the crisis, showing that shareholders see telecoms as a relatively safe haven with a more reliable future than many other sectors (e.g. travel, hospitality, etc.).

That’s not to say that all telcos will survive the crisis in the state they are in today. Some may be nationalised or struggle to finance debt or worse, though for the most part we imagine telcos will find state support where needed because of the importance of the service they deliver.

On a more positive note, the near term future will see an enhanced focus on addressing some big problems, such as accelerating the transformation of healthcare and making it and other critical functions such as logistics even more robust and resilient.

STL Partners believes that the crisis will further accelerate the evolution of the Coordination Age, as customers and governments will accept, change and learn new behaviours (such as online ordering, remote delivery, automated services, etc.) fast in the context of an environment in which they simply have to do so. The crisis will also place the importance of critical and sometimes limited resources (e.g. food, healthcare, communications) firmly in the spotlight, along with issues such as potential conflicts between the use of data and privacy.

It’s too early to say whether highly controlled economies like China will do better than less controlled ones. Yet the strengths of a coordinated response to a problem (such as how a national health service can organise and plan collectively) will become clearer, and is likely to shape regulation that prioritises desired outcomes in a more pragmatic way, potentially bringing regulated collaboration back into fashion somewhat compared to pure competition in some sectors.

True leaders think ahead

Despite all the near term focus that a crisis brings, the challenge of addressing future problems should not just be dropped. We recommend that telcos and vendors shouldn’t abandon their longer term ambitions to develop new services and solutions in order to deal with the crisis. By analogy, the countries that are doing best in the COVID-19 response today are those that were best prepared for a viral pandemic, i.e. those that have planned how to scale up testing and hospital capacity, and have previously outlined a pandemic response strategy. Likewise, the telcos that will do best will continue to offer resilient support to their communities, and develop new solutions for customer problems.

Perhaps the best that could happen is that telcos and other service providers could ultimately find this crisis a stimulant to accelerate internal and business model change. For this to happen, the change needs to come from the top, and leaders in telecoms need to set the example of looking to do everything possible to help deal with the crisis, while maintaining a strong forward looking outlook.

STL Partners will continue to research how to do that realistically in the new context. We believe that Coronavirus will change how services evolve. For example, some 5G capital investments are likely to proceed with greater caution in the near term. Our initial thoughts on this is that, rather than bin all development, telcos should use this as an opportunity to better develop their understanding of customer needs, and develop the non-network capabilities and offerings to support consumers and other sectors to prepare the ground better for when 5G does arrive.

Short-term: Some smart offers to copy

Telcos are broadly offering customer support in four ways:

  • Supporting healthcare, government and other critical care customers: prioritising communications and resources for first line responders and healthcare facilities, offering population movement statistics, participating in national tests, and providing other services (e.g. bulk SMS updates to patients and healthcare communities)
  • Business customers: support for home working such as increased capacity on collaboration services, support on business continuity
  • Consumer customers: quite a wide range of offers, varying from suspending data bundle usage caps, to providing free calls for pensioners, free calls to the worst hit countries, waiving roaming charges and late payment relief for COVID-19 impacted customers
  • Shops and customer premise visits: a range of measures to ensure customer and employee safety, including shutting shops entirely, keeping some open, and introducing social distancing

Mid term: Adjust, but don’t forget the future

For the next few months, humans will interact differently. People and businesses will want to survive, and will be keen to return to ‘normal’ – but they won’t be able to.

Thus new habits, such as home working, and work and social video conferencing, will become more deeply embedded behaviours. New support structures to care remotely for the isolated will evolve, potentially with lasting effects. Telcos will need to support these behaviours with appropriate service and capacity, and with considerate offers as they have started to do as the crisis bites. Telcos should not behave like or risk being seen as profiteers during the crisis. Such action would be wrong – and a PR disaster.

They will need to continue to focus on the needs of critical sectors such as  healthcare, government, security and logistics, and maintain a close relationship with government to assist the centralised efforts to combat COVID-19 and support the pandemic relief effort.

Long term: Four possible scenarios

When the future is as uncertain as it is now, scenarios are a useful way to envisage possible alternatives and enrich planning. We’ve therefore outlined four scenarios for the recovery stage:

  • Scenario 1: Back to (almost) normal. A cautiously optimistic scenario in which all economies recover reasonably swiftly without much impact on the global order. Global trade recovers gradually, and activities like 5G investments are merely delayed at the outset.
  • Scenario 2: Fragmented recovery. A moderately pessimistic scenario in which some economies are much more significantly damaged than others. Recovery takes longer and global initiatives are less successful because of lower collaboration. 5G take-up is patchy, nation by nation.
  • Scenario 3: Weak and distanced. The most pessimistic scenario in which nations have become much more insular and distrustful, and economic and social recovery is much slower. Economic realities have significantly delayed 5Ginvestments in most nations.
  • Scenario 4: Stronger than before. The most optimistic scenario. Collaboration and cooperation are enhanced, and the broadly successful response and recovery to the crisis has refocused strategic thoughts on the importance of resilience in the long-term. 5G is close to the trajectory it would have been on before the crisis and accelerating fast.

Introduction

World War C

The Coronavirus pandemic sweeping the world in 2020 is a truly disruptive ‘black swan’ event. It is impacting people’s lives in almost every nation and will continue to do so for many years ahead.

STL Partners, like all our customers and partners, families and friends, is feeling the impact already. We are lucky enough to be able to continue to work because the nature of our work is relatively unaffected by virtual working. Many in the global economy are not so lucky, and many others have been even more directly impacted by the illness. Our thoughts and best wishes are with you all.

Our job is to try to help others make better decisions to shape the future of their businesses. We believe that COVID-19 will change the global economy in a way that will impact all previous strategies and plans. This analysis is therefore intended to help preparations and planning for the next few months and years. Yet certainty is in short supply, and the situation is changing all the time. We do not claim to have all the answers and will update our analysis when it makes sense.

The scale and speed of this pandemic is unprecedented in the lives of the few alive today under the age of 102. Even so, when the so-called “Spanish Flu” swept the world in 1918, road and air travel were relative novelties, information spread slowly and its distribution was highly limited.

Today, the virus has spread much faster – but so too has news, information and research relating to it. The primary challenges for economies and societies as a whole are:

  • Supporting the frontline medical battle for the lives of the severely infected.
  • How the available information can be used to manage the disease to best effect by governments and authorities.
  • How other technological and economic developments such as globalised food chains and online information and entertainment services can help to sustain the rest of the population until the virus and the fear and disruption it has brought are defeated, or at least brought under control.
  • Operational and financial support to maintain economies and employment wherever possible.

Coronavirus and the Coordination Age

STL Partners has written at length about the Coordination Age – our view that the world economy now needs on-demand solutions enabled by the emergence of new technologies like AI, virtualisation, 5G, etc. These solutions must deliver outcomes (e.g. in healthcare) in a resource efficient way.

This age impacts all industries, but in the forefront are healthcare and logistics, which are also those most under test by Coronavirus. Succeeding against COVID-19 will require a massive and sustained effort of coordination, in this case mostly orchestrated by governments and health authorities.

Telcos and the telecoms industry will not solve this, but they can be major enablers of success. They can also have a major role in helping societies deal with the crisis and rebuilding and reshaping themselves after it has passed. This report starts to sketch out how this might happen.

Three stages and three questions for telcos

To simplify the analysis of what could happen, we’ve split the near future into three stages, and have structured the report correspondingly:

  • Now: shock and lockdown. Dealing with the initial global spread of the pandemic.
  • Next: finding a new, temporary normal. Coping with the longer-term impacts of social isolation, healthcare, and economic damage.
  • After: rebuilding and reshaping. What will be the lasting changes, what will need to be rebuilt?

In each case, we outline our best views on the ‘certainties’ – or at least more certain outcomes, and explore different scenarios where uncertainty is currently prime.

Throughout, we address three questions about what actions telcos and the industry should take:

  • What do telcos need to do to survive?
  • What can telcos do to help their customers?
  • How can telcos help the immediate response, then rebuild and reshape society?

Now: Shock and lockdown

The problems that need to be solved

A health crisis is a hard reminder of the need to serve the greater good of our societies. We need other people and organisations to survive and thrive, especially in today’s highly globalised and connected world. In this regard, there is an over-riding responsibility for those in positions of power to direct that power in service of the integrity of society and the economy – how we exchange goods and services to maintain our lives.

In such moments, the pursuit of competitive gains which is the normal function of companies and markets becomes secondary to the overall well-being of the society and the economy that supports it. This is a fundamental – albeit temporary – suspension of ‘business as usual’.

Telcos have a long history of providing support in times of crisis, and the COVID-19 pandemic is the broadest and most systemic global crisis of our times. The fundamental functions and sectors that the industry needs to support are:

  • Healthcare – sustaining and protecting the healthcare system in a time of critical demand and pressure
  • Logistics – ensuring that supply and delivery chains are enabled to operate and deliver the goods (e.g. food and medical supplies) and services (e.g. water, power, hygiene) required for the healthy function of society
  • Government – ensuring that governments and responsible authorities are enabled to function and make decisions to best manage, control and mitigate the impact of the virus and the accompanying fear and disruption
  • General communications – ensuring that the public, businesses and others can stay in touch with each other to provide information, economic, medical and emotional support, and maintain employment.

Immediate actions

Following airline safety advice

The classic airline safety advice is to fit your own oxygen mask before attempting to help others.

We expect that telcos will be putting in place their contingency plans for dealing with the COVID-19 pandemic – though of course, the exact circumstances cannot have been foreseen.

Clearly, maintaining the core functions of telecommunications networks will be the priority – doubling down on enabling and protecting data and voice communications across the network, especially to mission-critical establishments like hospitals, and  other healthcare and state facilities.

This may require operators to scale up network capacity at key points, although early data suggests most traffic growth from home-working and home-schooling may come at historical off-peak times. There is likely to be a shift from mobile to fixed broadband in many cases, with mobile use being concentrated in residential areas rather than urban centres and transport corridors. Mobile voice traffic is likely to rise substantially (in Spain, a 50% rise has been reported) as people speak to elder relatives and connect to conference calls and other services. Encouraging customers to shift usage to fixed-line telephony (which usually has extra capacity) could be wise.

Most cloud and enterprise facilities have been engineered to be highly resilient, but there is also likely to be increased demand in the distributed consumption of data in many societies as social isolation measures move populations into home-working environments and away from traditional daytime centres of communications localised on business.

How telcos can support and are supporting their customers

Many telcos are putting in place wider measures to support their customers.

Figure 1: How telcos are supporting their customers
overview telco coronavirus actions
Telco responses to Coronavirus

Source: Operator announcements, STL Partners

For healthcare, government and other critical support customers:

  • Prioritising connectivity for frontline healthcareresponders (AT&T, Verizon and others)
  • Offering bulk text upgrades to patients and healthcarecommunities (Vodafone)
  • Offering insights on population movements and statistics (Vodafone, Deutsche Telekom, Telefonica)
  • Collaborating in other hospital and healthcaretrials and programmes (China Mobile, China Telecom, TELUS)
  • Extending free hospital Wi-Fi (Globe)
  • Free-rating data on healthcaresites and apps

For these sectors and business more broadly, additional:

  • Conferencing lines, VPN capacity, and capacity / licenses for collaborationtools (BT)
  • Other home-working security(BT, NTT)
  • Cut price access to digital marketing services and conferencing for small businesses (Telstra)

For consumer customers, telco measures include:

  • Additional free data in bundles (Telefónica, Telstra, Dialog)
  • Removing caps on some limited data bundles (AT&T, Sprint, T-Mobile, TELUS, Telstra, Dialog)
  • Additional entertainmentcontent in some packages (Telefónica, TELUS, Dialog)
  • Free or reduced tariff calls to the countries most impacted by COVID-19(Verizon, Sprint, T-Mobile)
  • Free landline calls for pensioners (Telstra)
  • Free medical hotline service (Dialog)
  • Free data packages for families with school children without internet access or no data charges on educational services (Du, Etisalat, Dialog)
  • Waiving fees / suspension of service for non or late payment for impacted customers, or extending payment terms / credit (AT&T, Verizon, Telstra, Dialog)
  • Waiving all or some roamingfees for overseas customers (TELUS)
  • Encouraging the use of digital cash and health apps (Globe)

And in terms of shops and customer premises visits, telcos are taking a range of measures from:

  • Closing shops, or keeping some open to provide critical equipment (AT&T, Sprint, T-Mobile, DTAG, TELUS)
  • Possibly stopping or limiting customer premises visits, or continuing but with new isolation/protection procedures in place (AT&T, Globe)

NB This is illustrative and not an exhaustive or comprehensive list. Please see our blog for links to some of the companies’ policies and articles relating to them at the time of research.

STL Partners is conducting a rapid survey of telco responses which can be found here. We will be updating and freely sharing what operators tell us over the next few weeks with details of the measures used so that other telcos can review what they can copy or learn from these measures to support their customers.

Help your employees

Again, many telcos in directly impacted environments have asked employees that can to work from home. We would also hope telcos are putting in place additional health measures to protect those employees that do need to make physical contact with customers and others, such as health advice and screening.

Starting to look ahead

Which sectors will be most affected?

The impact of the COVID-19 pandemic across the economy is very hard to predict at this stage, although there are certain sectors that are clearly already under immediate pressure, such as:

  • Consumer leisure and mass transport: cruise lines, passenger airlines, hotels and tourism as people shun travel and self-isolate
  • Consumer service industries such as cafes, bars, restaurants, gyms, hairdressers
  • Entertainment and mass gatherings such as sporting events, festivals, conferences and events, concerts, museums.

Wider impacts are anticipated in demand for other consumer goods and services, such as cars, clothes and other non-food and everyday items, and this knocks on to the value chains of those industries too.

This pattern is evident looking at the impact on FT.com share indices over the last month in Figure 2. Indeed, of the major sectors, telecommunications was the least devalued on the 16th March when we looked at this data (a day on which there was a 10% drop in global financial indicators).

Figure 2: Financial markets rate telecoms as one of the sectors of the economy least hit by Coronavirus
coronavirus impact on industries
Coronavirus impact on industries

NB Oil and gas sectors have recently faced additional pressures from an industry price war. Source: STL Partners, FT.com

Moody’s credit rating agency paints a similar picture of their estimated impact of the pandemic on the credit worthiness of industries by sector as shown in Figure 3.

Figure 3: Moody’s credit rating impact of Coronavirus by industry

moody's covid-19 impact chart

Source: Moody’s

At this early stage it’s very hard to be sure of what the overall impact of the COVID-19 pandemic will be on each sector. But there’s certainly some consistency between the logic of what is causing the impacts, and the degree to which markets and market rate-setters are reflecting likely changes in future value.

For telcos, the questions are: how can they support all sectors effectively during the crisis, and how can they help them recover and rebuild in due course. We will explore this a little further in subsequent sections.

Table of contents

  • Executive Summary
    • It won’t be over by Christmas
    • Telcos and vendors can and should now do some great things
    • True leaders think ahead
    • Short-term: Some smart offers to copy
    • Mid term: Adjust, but don’t forget the future
    • Long term: Four possible scenarios
  • Introduction
    • World War C
    • Coronavirus and the Coordination Age
    • Three stages and three questions for telcos
  • Now: Shock and lockdown
    • The problems that need to be solved
    • Immediate actions
    • Starting to look ahead
  • Next: Finding a new, temporary normal
    • Identify possible turning points
    • The problems that need to be solved
    • Mid-term actions
    • Planning and contingencies
    • Telcos and the rise of the surveillance society
  • After: Rebuild and reshape
      • Scenario-planning: Looking back from 2025
      • Scenario 1: Back to (almost) normal
      • Scenario 2: Fragmented recovery
      • Scenario 3: Weak and distanced
    • Scenario 4: Stronger than before


5G regulation: Ensuring successful industrial transformation

How should governments regulate 5G?

The old regulatory models are less relevant for 5G

Regulators in different markets around the world have a tried and tested formula for making spectrum available for new networks and for regulating the operators that run those networks. They have successfully used this formula for 2G, 3G, and 4G.

However, 5G is different and may require a different approach for both licensing spectrum and for regulating mobile network operators’ services. As we outline in the section 5G benefits industry and society, unlike its predecessors, 5G is not simply a faster pipe which therefore benefits individual end-users. Instead, it has been designed with new capabilities that can have a profound effect on enterprises and entire industries.

These capabilities and how they compare to LTE and to other wireless technologies are outlined in the Appendix. Because 5G can create so much value to all constituents of society, STL Partners contends that the focus of governments and regulators should be in ensuring that:

  1. It is rolled out as quickly as possible;
  2. Regulation is sufficiently flexible and focussed to reflect the needs of different industries and of consumers;
  3. Mobile network operators are encouraged to deliver more value to their existing customers and potentially new ones by contributing to cross-industry activity that benefit governments, enterprises, and consumers.

Put simply, our analysis suggests that the upside from rapid 5G deployment far outweighs the short-term benefits of high spectrum licensing fees. From a pure economic perspective, 5G should contribute an additional $1.4 trillion of Gross Domestic Product globally in 20301. The higher rates of employment, corporate profits, and consumer spending associated with this increased GDP will translate into significant increases in receipts of corporation and income taxes, national insurance contributions, and sales tax for governments as well as enhanced national competitiveness.

These annual inflows to the public purse will be far bigger than the one-off payment from licensing spectrum. But these benefits only accrue if 5G is deployed quickly and effectively so that its full potential is realised by industry in each market. A slow 5G rollout risks enterprises investing in workaround solutions that do not require 5G and do not generate the same value.

Spectrum licensing: Auctions vs beauty contests

A focus on short-term auction fees could be counter-productive as it may inhibit operators’ ability to invest aggressively in rolling out 5G. But as we show in graphic below, it is easy to administer, shows the regulator is ‘doing a good job’, and results in higher short-term economic benefits. We believe that governments need to look at the longer-term sustainable benefits of 5G deployment and, potentially, opt for spectrum licensing ‘beauty contests’ – in which spectrum is allocated on a detailed raft of requirements such as rollout speed and network performance – rather than auctions. Such an approach may require input beyond the telecommunications regulator. For example, the treasury, health and social welfare, business, transport and energy ministries might also be needed to evaluate whether a spectrum beauty contest offers a better social and economic return than a spectrum auction.

And it’s not all about money, globally 5G could result in 1 billion patients with improved access to healthcare globally in 20302. Governments, therefore, need to evaluate the social benefits of 5G as well as the economic ones. But managing a regulatory approach for 5G via input from different government departments is complex and may require management at the highest level.

The 5G spectrum licensing conundrum

5G spectrum licensing conundrum

Recognising that not all markets are the same

While we have outlined above a bias towards spectrum beauty contests over auctions for 5G, it is important to note that the right approach will vary by country. Based on what we have already seen from the 5G deployments and announcements in 2018 and 2019, there is a clear delineation between countries in their 5G rollout speed. We have segmented markets into three types in Figure 2:

  1. Leaders: countries where all operators are pushing ahead aggressively with 5G deployment (in part owing to the role of the regulator in the way they have managed spectrum licensing);
  2. Followers: countries where 5G rollout is patchier and many operators are reluctant to deploy 5G and are essentially doing it under duress, in other words, they worry that they will suffer if they don’t deploy and their competitors do so they do enough to be seen to be ‘keeping up’;
  3. Laggards: (developing) countries where the current network deployment focus of operators is LTE rather than 5G.

The table below outlines reasons why segments are operating at different 5G rollout speeds and offers suggestions for how governments might wish to stimulate operator 5G investment in each segment.

5G spectrum licensing country segmentation5G spectrum licensing segmentation

Table of contents

  • Preface
  • Executive Summary
  • How should governments regulate 5G?
  • The old regulatory models are less relevant for 5G
    • Spectrum licensing: auctions vs beauty contests
    • Recognising that not all markets are the same
    • Local vs national regulatory issues
    • Principles and options for 5G regulation relating to industrial IoT
  • 5G benefits industry and society
    • Introduction: 5G is estimated to add c.$1.4 trillion to global GDP in 2030
    • Healthcare benefits
    • Manufacturing benefits
    • Telecoms industry energy efficiency benefits
  • Telcos (may) need encouragement to invest in 5G
    • Lower revenues, lower profits
    • 5G per se won’t change the game for operators
    • Fast 5G network deployment needs to be encouraged
  • Appendix
    • Comparing apples with apples: how to compare nascent 5G with established 4G
    • It’s not all about LTE: 5G must be compared to all available technology
    • 5G deployment: 5G will mature over the next ten years

Table of Figures

  • Figure 1: The 5G spectrum licensing conundrum
  • Figure 2: 5G spectrum licensing country segmentation
  • Figure 3: Managing national and local mobile networks and services
  • Figure 4: 5G will contribute around USD1.4 trillion to global GDP by 2030
  • Figure 5: Global impact of 5G on healthcare (annual cost savings USD Billions)
  • Figure 6: Benefits from 5G to global manufacturing (USD Billions) by use case
  • Figure 7: Annual global emissions from mobile networks under 4 scenarios (metric tonnes of CO2)
  • Figure 8: Global mobile services revenues 2009-2022 (USD Trillions)
  • Figure 9: Global mobile operators EBITDA margins 2007-2017
  • Figure 10: 4G rollout did not produce sustainable revenue increase
  • Figure 11: Mature 5G benchmarked against the capabilities of mature 4G
  • Figure 12: 5G can address some key shortcomings with existing technologies
  • Figure 13: Forecast of 5G deployment in major regions

Key Questions for The Future of the Network, Part 2: Forthcoming Disruptions

We recently published a report, Key Questions for The Future of the Network, Part 1: The Business Case, exploring the drivers for network investment.  In this follow-up report, we expand the coverage into two separate areas through which we explore 5 key questions:

Disruptive network technologies

  1. Virtualisation & the software telco – how far, how fast?
  2. What is the path to 5G? And what will it be used for?
  3. What is the role of WiFi & other wireless technologies?

External changes

  1. What are the impacts of government & regulation on the network?
  2. How will the vendor landscape change & what are the implications of this?

In the extract below, we outline the context for the first area – disruptive network technologies – and explore the rationales and processes associated with virtualisation (Question 1).

Critical network-technology disruptions

This section covers three huge questions which should be at the top of any CTO’s mind in a CSP – and those of many other executives as well. These are strategically-important technology shifts that have the potential to “change the game” in the longer term. While two of them are “wireless” in nature, they also impact fixed/fibre/cable domains, both through integration and potential substitution. These will also have knock-on effects in financial terms – directly in terms of capex/opex costs, or indirectly in terms of services enabled and revenues.

This is not intended as a round-up of every important trend across the technology spectrum. Clearly, there are many other evolutions occurring in device design, IoT, software-engineering, optical networking and semiconductor development. These will all intersect in some ways with telcos, but there are so many “logical hops” away from the process of actually building and running networks, that they don’t really fit into this document easily. (Although they do appear in contexts such as drivers of desirable 5G network capabilities).

Instead, the focus once again is on unanswered questions that link innovation with “disruption” of how networks are conceived and deployed. As described below, network-virtualisation has huge and diverse impacts across the CSP universe. 5G will likely have a large gap versus today’s 4G architecture, too. This is very different to changes which are mostly incremental.

The mobile and software focus of this section is deliberate. Fixed-network technologies – fast-evolving though they are – generally do not today cause “disruption” in a technical sense. As the name suggests, the current newest cable-industry standard, DOCSIS3.1, is an evolution of 3.0, not a revolution. There is no 4.0 on the drawing-boards, yet. But the relative ease of upgrade to “gigabit cable” may unleash more market-related disruptions, as telcos feel the need to play catch-up with their rivals’ swiftly-escalating headline speeds.

Fibre technologies also tend to be comparatively incremental, rather than driving (or enabling) massive organisational and competitive shifts. In fixed networks there are other important drivers – competition, network unbundling, 4K television, OTT-style video and so on – as well as important roles for virtualisation, which covers both mobile and fixed domains. For markets with high use of residential “OTT video” services such as Netflix – especially in 4K variants – the push to gigabit-range speeds may be faster than expected. This will also have knock-on impacts on the continued improvement of WiFi, defending against ever-faster cellular WiFi networks. Indeed, faster gigabit cable and FTTH networks will be necessary to provide backhaul for 4.5G and 5G cellular networks, both for normal cell-towers and the expected rapid growth of small-cells.

The questions covered in more depth here examine:

  • Virtualisation & the “software telco”: How fast will SDN and NFV appear in commercial networks, and how broad are their impacts in both medium and longer terms? 
  • What is the path from 4G to 5G? This is a less-obvious question than it might appear, as we do yet even have agreed definitions of what we want “5G” to do, let alone defined standards to do it.
  • What is the role of WiFi and other wireless technologies? 

All of these intersect, and have inter-dependencies. For instance, 5G networks are likely to embrace SDN/NFV as a core component, and also perhaps form an “umbrella” over other low-power wireless networks.

A fourth “critical” question would have been to consider security technology and processes. Clearly, the future network is going to face continued challenges from hackers and maybe even cyber-warfare, against which we will need to prepare. However, that is in many ways a broader set of questions that actually reflect on all the others – virtualisation will bring its own security dilemmas, as (no doubt) will 5G. WiFi already does. It is certainly a critical area that bears consideration at a strategic level within CSPs, although it is not addressed here as a specific “question”. It is also a huge and complex area that deserves separate study.

Non-disruptive network technologies

As well as being prepared to exploit truly disruptive innovations, the industry also needs to get better at spotting non-disruptive ones that are doomed to failure, and abandoning them before they incur too much cost or distraction. The telecoms sector has a long way to go before it embraces the start-up mentality of “failing fast” – there are too many hypothetical “standards” gathering dust on a metaphorical shelf, and never being deployed despite a huge amount of work. Sometimes they get shoe-horned into new architectures, as a way to breathe life into them – but that often just encumbers shiny new technologies with the failures of the past.

For example, over the past 10+ years, the telecom industry has been pitching IMS (IP Multimedia Subsystem) as the future platform for interoperating services. It is finally gaining some adoption, but essentially only as a way to implement VoIP versions of the phone system – and even then, with huge increases in complexity and often higher costs. It is not “disruptive” except insofar as sucking huge amounts of resources and management attention, away from other possible sources of genuine innovation. Few developers care about it, and the “technology politics” behind it have helped contribute to the industry’s problems, not the solutions. While there is growth in the deployment of IMS (e.g. as a basis for VoLTE – voice on LTE, or fixed-line VoIP) it is primarily an extra cost, rather than a source of new revenue or competitive advantage. It might help telcos reduce costs by retiring old equipment or reclaiming spectrum for re-use, but that seems to be the limit of its utility and opportunity.

Figure 1: IMS-based services (mostly VoIP) are evolutionary not disruptive

Source: Disruptive Analysis

A common theme in recent years has been for individual point solutions for technical standards to seem elegant “in isolation”, but actually fail to take account of the wider market context. Real-world “offload” of mobile data traffic to WiFi and femtocells has been minimal, because of various practical and commercial constraints – many of which have been predictable. Self-optimising networks (where radio components configured, provisioned and diagnosed themselves automatically) suffered from apathy by vendors – as well as fears from operator staff that they might make themselves redundant. A whole slew of attempts at integrating WiFi with cellular have also had minimal impact, because they ignored the existence of private WiFi and user behaviour. Some of these are now making a return, engineered into more holistic solutions like HetNets and SDN. Telcos execs need to ensure that their representatives on standards bodies, or industry fora, are able to make pragmatic decisions with multiple contributory inputs, rather than always pursue “engineering purity”.

Virtualisation & the “software telco” – how far, how fast?

Spurred by rapid advances in standardised computing products and cloud platforms, the idea of virtualisation is now almost ubiquitous across the telecom sector. Yet the specialised nature of network equipment means that “switching to the cloud” is a lot more complicated than is the case for enterprise IT. But change is happening – the industry is now slowly moving from inflexible, non-scalable network elements or technology sub-systems, to ones which are programmable, running on commercial hardware, and which can “spin up” or down in terms of capacity. We are still comparatively early in this new cycle, but the trend now appears to be inexorable. It is being driven both by what is becoming possible – and also the threats posed by other denizens of the “cloud universe” migrating towards the telecoms industry and threatening to replace aspects unilaterally.

Two acronyms cover the main developments:

  • Software-defined networks (SDN) change the basic network “plumbing” – rather than hugely-complex switches and routers, transmitting and processing data streams individually, SDN puts a central “controller” function in charge of more flexible boxes. These can be updated more easily, have new network-processing capabilities enabled, and allow (hopefully) for better reliability and lower costs.
  • Network function virtualisation (NFV) is less about the “big iron” parts of the network, instead focusing on the myriad of other smaller units needed to do more specific tasks relating to control, security, optimisation and so forth. It allows these supporting functions to be re-cast in software, running as apps on standard servers, rather than needing a variety of separate custom-built boxes and chips.

Figure 2: ETSI’s vision for NFV

                                                                                    Source: ETSI & STL Partners

And while a lot of focus has been placed on operators’ own data-centres and “data-plane” boxes like routers and assorted traffic-processing “middle-boxes” even, that is not the whole story. Virtualisation also extends to the other elements of telco kit: “control-plane” elements used to oversee the network and internal signalling, billing and OSS systems, and even bits of the access and radio network. Tying them all together – and managing the new virtual components – brings new challenges in “orchestration”.

But this begs a number of critical subsidiary questions.

  • Executive Summary
  • Introduction
  • Does the network matter? And will it face “disruption”?
  • Raising questions
  • Overview: Which disruptions are next?
  • Critical network-technology disruptions
  • Non-disruptive network technologies
  • Virtualisation & the “software telco” – how far, how fast?
  • What is the path to 5G? And what will it be used for?
  • What is the role of WiFi & other wireless technologies?
  • What else needs to happen?
  • What are the impacts of government & regulation?
  • Will the vendor landscape shift?
  • Conclusions & Other Questions
  • STL Partners and Telco 2.0: Change the Game
  • Figure 1: New services are both network-integrated & independent
  • Figure 2: IMS-based services (mostly VoIP) are evolutionary not disruptive
  • Figure 3: ETSI’s vision for NFV
  • Figure 4: Virtualisation-driven services: Cloud or Network anchored?
  • Figure 5: Virtualisation roadmap: Telefonica
  • Figure 6: 5G timeline & top-level uses
  • Figure 7: Suggested example 5G use-cases
  • Figure 8: 5G architecture will probably be virtualised from Day 1
  • Figure 9: Key 5G Research Initiatives
  • Figure 10: Cellular M2M is growing, but only a fraction of IoT overall
  • Figure 11: Proliferating wireless options for IoT
  • Figure 12: Forthcoming IoT-related wireless technologies
  • Figure 13: London bus with free WiFi sponsored by ice-cream company
  • Figure 14: Vendor landscape in turmoil as IT & network domains merge

 

‘Under-The-Floor’ (UTF) Players: threat or opportunity?

Introduction

The ‘smart pipe’ imperative

In some quarters of the telecoms industry, the received wisdom is that the network itself is merely an undifferentiated “pipe”, providing commodity connectivity, especially for data services. The value, many assert, is in providing higher-tier services, content and applications, either to end-users, or as value-added B2B services to other parties. The Telco 2.0 view is subtly different. We maintain that:

  1. Increasingly valuable services will be provided by third-parties but that operators can provide a few end-user services themselves. They will, for example, continue to offer voice and messaging services for the foreseeable future.
  2. Operators still have an opportunity to offer enabling services to ‘upstream’ service providers such as personalisation and targeting (of marketing and services) via use of their customer data, payments, identity and authentication and customer care.
  3. Even if operators fail (or choose not to pursue) options 1 and 2 above, the network must be ‘smart’ and all operators will pursue at least a ‘smart network’ or ‘Happy Pipe’ strategy. This will enable operators to achieve three things.
  • To ensure that data is transported efficiently so that capital and operating costs are minimised and the Internet and other networks remain cheap methods of distribution.
  • To improve user experience by matching the performance of the network to the nature of the application or service being used – or indeed vice versa, adapting the application to the actual constraints of the network. ‘Best efforts’ is fine for asynchronous communication, such as email or text, but unacceptable for traditional voice telephony. A video call or streamed movie could exploit guaranteed bandwidth if possible / available, or else they could self-optimise to conditions of network congestion or poor coverage, if well-understood. Other services have different criteria – for example, real-time gaming demands ultra-low latency, while corporate applications may demand the most secure and reliable path through the network.
  • To charge appropriately for access to and/or use of the network. It is becoming increasingly clear that the Telco 1.0 business model – that of charging the end-user per minute or per Megabyte – is under pressure as new business models for the distribution of content and transportation of data are being developed. Operators will need to be capable of charging different players – end-users, service providers, third-parties (such as advertisers) – on a real-time basis for provision of broadband and maybe various types or tiers of quality of service (QoS). They may also need to offer SLAs (service level agreements), monitor and report actual “as-experienced” quality metrics or expose information about network congestion and availability.

Under the floor players threaten control (and smartness)

Either through deliberate actions such as outsourcing, or through external agency (Government, greenfield competition etc), we see the network-part of the telco universe suffering from a creeping loss of control and ownership. There is a steady move towards outsourced networks, as they are shared, or built around the concept of open-access and wholesale. While this would be fine if the telcos themselves remained in control of this trend (we see significant opportunities in wholesale and infrastructure services), in many cases the opposite is occurring. Telcos are losing control, and in our view losing influence over their core asset – the network. They are worrying so much about competing with so-called OTT providers that they are missing the threat from below.

At the point at which many operators, at least in Europe and North America, are seeing the services opportunity ebb away, and ever-greater dependency on new models of data connectivity provision, they are potentially cutting off (or being cut off from) one of their real differentiators.
Given the uncertainties around both fixed and mobile broadband business models, it is sensible for operators to retain as many business model options as possible. Operators are battling with significant commercial and technical questions such as:

  • Can upstream monetisation really work?
  • Will regulators permit priority services under Net Neutrality regulations?
  • What forms of network policy and traffic management are practical, realistic and responsive?

Answers to these and other questions remain opaque. However, it is clear that many of the potential future business models will require networks to be physically or logically re-engineered, as well as flexible back-office functions, like billing and OSS, to be closely integrated with the network.
Outsourcing networks to third-party vendors, particularly when such a network is shared with other operators is dangerous in these circumstances. Partners that today agree on the principles for network-sharing may have very different strategic views and goals in two years’ time, especially given the unknown use-cases for new technologies like LTE.

This report considers all these issues and gives guidance to operators who may not have considered all the various ways in which network control is being eroded, from Government-run networks through to outsourcing services from the larger equipment providers.

Figure 1 – Competition in the services layer means defending network capabilities is increasingly important for operators Under The Floor Players Fig 1 Defending Network Capabilities

Source: STL Partners

Industry structure is being reshaped

Over the last year, Telco 2.0 has updated its overall map of the telecom industry, to reflect ongoing dynamics seen in both fixed and mobile arenas. In our strategic research reports on Broadband Business Models, and the Roadmap for Telco 2.0 Operators, we have explored the emergence of various new “buckets” of opportunity, such as verticalised service offerings, two-sided opportunities and enhanced variants of traditional retail propositions.
In parallel to this, we’ve also looked again at some changes in the traditional wholesale and infrastructure layers of the telecoms industry. Historically, this has largely comprised basic capacity resale and some “behind the scenes” use of carriers-carrier services (roaming hubs, satellite / sub-oceanic transit etc).

Figure 2 – Telco 1.0 Wholesale & Infrastructure structure

Under The Floor (UTF) Players Fig 2 Telco 1.0 Scenario

Source: STL Partners

Content

  • Revising & extending the industry map
  • ‘Network Infrastructure Services’ or UTF?
  • UTF market drivers
  • Implications of the growing trend in ‘under-the-floor’ network service providers
  • Networks must be smart and controlling them is smart too
  • No such thing as a dumb network
  • Controlling the network will remain a key competitive advantage
  • UTF enablers: LTE, WiFi & carrier ethernet
  • UTF players could reduce network flexibility and control for operators
  • The dangers of ceding control to third-parties
  • No single answer for all operators but ‘outsourcer beware’
  • Network outsourcing & the changing face of major vendors
  • Why become an under-the-floor player?
  • Categorising under-the-floor services
  • Pure under-the-floor: the outsourced network
  • Under-the-floor ‘lite’: bilateral or multilateral network-sharing
  • Selective under-the-floor: Commercial open-access/wholesale networks
  • Mandated under-the-floor: Government networks
  • Summary categorisation of under-the-floor services
  • Next steps for operators
  • Build scale and a more sophisticated partnership approach
  • Final thoughts
  • Index

 

  • Figure 1 – Competition in the services layer means defending network capabilities is increasingly important for operators
  • Figure 2 – Telco 1.0 Wholesale & Infrastructure structure
  • Figure 3 – The battle over infrastructure services is intensifying
  • Figure 4 – Examples of network-sharing arrangements
  • Figure 5 – Examples of Government-run/influenced networks
  • Figure 6 – Four under-the-floor service categories
  • Figure 7: The need for operator collaboration & co-opetition strategies