Consumer communications: Can telcos mount a comeback?

Introduction

Although they make extensive use of WhatsApp, Facebook Messenger, Snapchat and other Internet-based communications services, consumers still expect mobile operators to enable them to make voice calls and text messages. Indeed, communication services are widely regarded as a fundamental part of a telco’s proposition, but telcos’ telephony and messaging services are losing ground to the Internet-based competitors and are generating less and less revenue.

Should telcos allow this business to gradually melt away of should they attempt to rebuild a competitive communications proposition for consumers? How much strategic value is there in providing voice calls and messaging services?

This report explores telcos’ strategic options in the consumer communications market, building on previous STL Partners’ research reports, notably:

Google/Telcos’ RCS: Dark Horse or Dead Horse?

WeChat: A Roadmap for Facebook and Telcos in Conversational Commerce

This report evaluates telcos’ current position in the consumer market for voice calls and messaging, before considering what they can learn from three leading Internet-based players: Tencent, Facebook and Snap. The report then lays out four strategic options for telcos and recommends which of these options particular types of telcos should pursue.

Content:

  • Introduction
  • Executive Summary
  • What do telcos have to lose?
  • Key takeaways
  • Learning from the competition
  • Tencent pushes into payments to monetise messaging
  • Facebook – nurturing network effects with fast footwork
  • Snapchat – highly-focused innovation
  • Telcos’ strategic options
  • Maximise data traffic
  • Embed communications into other services
  • Differentiate on reliability, security, privacy and reach
  • Compete head-on with Internet players
  • Recommendations

Figures:

  • Figure 1: Vodafone still makes large sums from incoming calls & messages
  • Figure 2: Usage of Vodafone’s voice services is rising in emerging markets
  • Figure 3: Vodafone Europe sees some growth in voice usage
  • Figure 4: Internet-based services are overtaking telco services in China
  • Figure 5: Usage of China Mobile’s voice services is sliding downwards
  • Figure 6: China Mobile’s SMS traffic shows signs of stabilising
  • Figure 7: Vodafone’s SMS volumes fall in Europe, but rise in AMAP
  • Figure 8: Voice & messaging account for 38% of China Mobile’s service revenues
  • Figure 9: Line is also seeing rapid growth in advertising revenue in Japan
  • Figure 10: More WeChat users are making purchases through the service
  • Figure 11: About 20% of WeChat official accounts act as online shops
  • Figure 12: Line’s new customer service platform harnesses AI
  • Figure 13: Snapchat’s user growth seems to be slowing down
  • Figure 14: Vodafone Spain is offering zero-rated access to rival services
  • Figure 15: Google is integrating communications services into Maps
  • Figure 16: Xbox Live users can interact with friends and other gamers
  • Figure 17: RCS is being touted as a business-friendly option
  • Figure 18: Turkcell’s broad and growing range of digital services

Autonomous cars: Where’s the money for telcos?

Introduction

Connected cars have been around for about two decades. GM first launched its OnStar in-vehicle communications service in 1996. Although the vast majority of the 1.4 billion cars on the world’s roads still lack embedded cellular connectivity, there is growing demand from drivers for wireless safety and security features, and streamed entertainment and information services. Today, many people simply use their smartphones inside their cars to help them navigate, find local amenities and listen to music.

The falling cost of cellular connectivity and equipment is now making it increasingly cost-effective to equip vehicles with their own cellular modules and antenna to support emergency calls, navigation, vehicle diagnostics and pay-as-you-drive insurance. OnStar, which offers emergency, security, navigation, connections and vehicle manager services across GM’s various vehicle brands, says it now has more than 11 million customers in North America, Europe, China and South America. Moreover, as semi-autonomous cars begin to emerge from the labs, there is growing demand from vehicle manufacturers and technology companies for data on how people drive and the roads they are using. The recent STL Partners report, AI: How telcos can profit from deep learning, describes how companies can use real-world data to teach computers to perform everyday tasks, such as driving a car down a highway.

This report will explore the connected and autonomous vehicle market from telcos’ perspective, focusing on the role they can play in this sector and the business models they should adopt to make the most of the opportunity.

As STL Partners described in the report, The IoT ecosystem and four leading operators’ strategies, telcos are looking to provide more than just connectivity as they strive to monetise the Internet of Things. They are increasingly bundling connectivity with value-added services, such as security, authentication, billing, systems integration and data analytics. However, in the connected vehicle market, specialist technology companies, systems integrators and Internet players are also looking to provide many of the services being targeted by telcos.

Moreover, it is not yet clear to what extent the vehicles of the future will rely on cellular connectivity, rather than short-range wireless systems. Therefore, this report spends some time discussing different connectivity technologies that will enable connected and autonomous vehicles, before estimating the incremental revenues telcos may be able to earn and making some high-level recommendations on how to maximise this opportunity.

 

  • Executive Summary
  • The role of cellular connectivity
  • High level recommendations
  • Contents
  • Introduction
  • The evolution of connected cars
  • How to connect cars to cellular networks
  • What are the opportunities for telcos?
  • How much cellular connectivity do vehicles need?
  • Takeaways
  • The size of the opportunity
  • How much can telcos charge for in-vehicle connectivity?
  • How will vehicles use cellular connectivity?
  • Telco connected car case studies
  • Vodafone – far-sighted strategy
  • AT&T – building an enabling ecosystem
  • Orange – exploring new possibilities with network slicing
  • SoftBank – developing self-driving buses
  • Conclusions and Recommendations
  • High level recommendations
  • STL Partners and Telco 2.0: Change the Game 

 

  • Figure 1: Incremental annual revenue estimates by service
  • Figure 2: Autonomous vehicles will change how we use cars
  • Figure 3: Vehicles can harness connectivity in many different ways
  • Figure 4: V2X may require large numbers of simultaneous connections
  • Figure 5: Annual sales of connected vehicles are rising rapidly
  • Figure 6: Mobile connectivity in cars will grow quickly
  • Figure 7: Estimates of what telcos can charge for connected car services
  • Figure 8: Potential use cases for in-vehicle cellular connectivity
  • Figure 9: Connectivity complexity profile criteria
  • Figure 10: Infotainment connectivity complexity profile
  • Figure 11: In-vehicle infotainment services estimates
  • Figure 12: Real-time information connectivity complexity profile
  • Figure 13: Real-time information services estimates
  • Figure 14: The connectivity complexity profile for deep learning data
  • Figure 15: Collecting deep learning data services estimates
  • Figure 16: Insurance and rental services’ connectivity complexity profile
  • Figure 17: Pay-as-you-drive insurance and rental services estimates
  • Figure 18: Automated emergency calls’ connectivity complexity profile
  • Figure 19: Automated emergency calls estimates
  • Figure 20: Remote monitoring and control connectivity complexity profile
  • Figure 21: Remote monitoring and control of vehicle services estimates
  • Figure 22: Fleet management connectivity complexity profile
  • Figure 23: Fleet management services estimates
  • Figure 24: Vehicle diagnostics connectivity complexity profile
  • Figure 25: Vehicle diagnostics and maintenance services estimates
  • Figure 26: Inter-vehicle coordination connectivity complexity profile
  • Figure 27: Inter-vehicle coordination revenue estimates
  • Figure 28: Traffic management connectivity complexity profile
  • Figure 29: Traffic management revenue estimates
  • Figure 30: Vodafone Automotive is aiming to be global
  • Figure 31: Forecasts for incremental annual revenue increase by service

AI: How telcos can profit from deep learning

The enduring value of connected assets

In the digital economy, the old adage knowledge is power applies as much as ever. The ongoing advances in computing science mean that knowledge (in the form of insights gleaned from large volumes of detailed data) can increasingly be used to perform predictive analytics, enabling new services and cutting costs. At the same time, the widespread deployment of connected devices, appliances, machines and vehicles (the Internet of Things) now means enterprises can get their hands on granular real-time data, giving them a comprehensive and detailed picture of what is happening now and what is likely to happen next.

A handful of companies already have a very detailed picture of their markets thanks to far-sighted decisions to add connectivity to the products they sell. Komatsu, for example, uses its Komtrax system to track the activities of almost 430,000 bulldozers, dump-trucks and forklifts belonging to its customers. The Japan-based company has integrated monitoring technologies and connectivity into its construction and mining equipment since the late 1990s. Komatsu says the Komtrax system is standard equipment on “most Komatsu Tier-3 Construction machines” and on most small utility machines and backhoes.

Komatsu’s machines ship with GPS chips that can pinpoint their position, together with a unit that gathers engine data. They can then transmit the resulting data to a communication satellite, which relays that information to the Komtrax data centre.

The data captured by Komtrax (and other Internet of Things solutions) has value on multiple different levels:

  • It provides Komatsu with market intelligence
  • It enables Komatsu to offer value added services for customers
  • It gives detailed data on the global economy that can be used for computer modelling and to support the development of artificial intelligence

Market intelligence for Komatsu

For Komatsu, Komtrax provides valuable information about how its customers use its equipment, which can then be used to refine its R&D activities. Usage data can also help sales teams figure out which customers may need to upgrade or replace their equipment and when.

Komatsu’s sales and finance departments use the findings, for example, to offer trade-ins and sales of lighter machines where heavy ones are underused. Its leasing firm can also use the information to help find customers for its rental fleet.

Furthermore, Komatsu is linking market information directly with its production plants through Komtrax (see Figure 1). It says its factories “aggressively monitor and analyse the conditions of machine operation and abrasion of components” to enable Komatsu and its distributors to improve operations by better predicting the lifetime of parts and the best time for overhauls.

Figure 1: How Komatsu uses data captured by its customers’ equipment

Source: Komatsu slide adapted by STL Partners

Value added services for customers

The Komtrax system can also flag up useful information for Komatsu’s customers. Komatsu enables its customers to access the information captured by their machines’ onboard units, via an Internet connection to the Komtrax data centre.

Customers can use this data to monitor how their machines are being used by their employees. For example, it can show how long individual machines are sitting idle and how much fuel they are using. Komatsu Australia, for example, says Komtrax enables its customers to track a wide range of performance indicators, including:

  • Location
  • Operation map (times of day the engine was on/off)
  • Actual fuel consumptionAverage hourly fuel consumption
  • Residual fuel level
  • High water temperature during the day’s operation
  • Dashboard cautions
  • Maintenance reminders/notifications
  • “Night Time” lock
  • Calendar lock
  • Out of Area alerts
  • Movement generated position reports
  • Actual working hours (engine on time less idle time)
  • Operation hours in each work mode (economy, power, breaker, lifting)
  • Digging hours
  • Hoisting hours
  • Travel hours
  • Hydraulic relief hours
  • Eco-mode usage hours
  • Load frequency (hours spent in four different load levels determined by pump pressures or engine torque)

 

Content:

  • Introduction
  • Executive Summary
  • The enduring value of connected assets
  • Tapping telecoms networks
  • Enabling Deep Neural Networks
  • Real world data: the raw material
  • Learning from Tesla
  • The role of telcos
  • Conclusions and Recommendations

Figures:

  • Figure 1: How Komatsu uses data captured by its customers’ equipment
  • Figure 2: Interest in deep learning has risen rapidly in the past two years
  • Figure 3: Deep learning buzz has helped drive up Nvidia’s share price
  • Figure 4: The key players in the development of deep learning technology
  • Figure 5: Mainstream enterprises are exploring deep learning
  • Figure 6: The automotive sector is embracing Nvidia’s artificial intelligence
  • Figure 7: Google Photos learns when users correct mistakes
  • Figure 8: Tesla’s Autopilot system uses models to make decisions
  • Figure 9: Tesla is collecting very detailed data on how to drive the world’s roads

Amazon: Telcos’ Chameleon-King Ally?

Introduction

Amazon is using an array of innovative propositions to sidestep the Android-Apple duopoly in the smartphone market and Facebook’s rapidly expanding digital commerce ecosystem. Amazon’s vast selection, unparalleled logistics, innovative bundling, laser-like focus on the customer, rapidly improving entertainment proposition and leadership in voice-controlled in-home systems mean the Seattle-based e-commerce giant is fast becoming a omnipresent convenience store that always has what you want, when you want it.

Continually reinventing itself, Amazon’s restlessness could seriously disrupt the balance of power between the major global Internet ecosystems. Although the Amazon, Apple, Facebook and Google ecosystems all originate from the PC-era, they have each managed to successfully extend their digital platforms into the smartphone and tablet markets. But not without a dramatic change in the pecking order. In fact, the advent of touch-controlled smartphones enabled Apple to become a major force in the digital consumer market, while weakening the position of its long-standing foe Microsoft.

Now these ecosystems need to navigate the tricky transition to voice-controlled digital platforms, which depend heavily on advanced speech recognition, artificial intelligence and machine learning technologies. Amazon is leading the way, having created this new market with the rollout of its Echo speaker, underpinned by the cloud-based Alexa personal assistant system.

This report analyses Amazon’s financial firepower, the Amazon Prime bundle and strategy of bundling entertainment with retail, before considering Amazon’s areas of relative weakness – the smartphone and communications markets. In this section, the report also considers whether Amazon can sustain its lead in the nascent market for voice-controlled speakers for the home.

It concludes by exploring whether Amazon has sufficient economies of scope to build the expertise in artificial intelligence that will be required to ensure the Apple-Android duopoly that exists in the smartphone market won’t also dominate the emerging smart home sector. Finally, it considers the ramifications for telcos and makes several high level recommendations.

The global e-commerce market

Online commerce continues to grow rapidly. In 2016, global retail e-commerce sales (products and services ordered via the internet) will rise almost 24% to reach $1.915 trillion in 2016, according to research firm eMarketer. As that represents just 8.7% of total retail spending worldwide, there is plenty more growth to come. eMarketer expects retail ecommerce sales will increase to $4.058 trillion in 2020, making up 14.6% of total retail spending that year (see Figure 1).

Figure 1: Retail online commerce continues to grow rapidly

The major global Internet ecosystems – Amazon, Apple, Facebook and Google – all take a slice of this market. Within their ecosystems, they act as brokers bringing buyers and sellers together, earning a commission for facilitating interactions and transactions. Google and Facebook are the leading players in online advertising, while Apple is a leading distributor of digital content: Although Apple still generates most of its revenue from devices, its App Store and iTunes service are now major contributors to its top line. Still, in online commerce, Amazon rules the roost: Its online marketplace, which offers a vast selection of products and services from millions of merchants, continues to grow rapidly.

 

  • Introduction
  • Executive Summary
  • The global e-commerce market
  • Amazon’s financial firepower
  • Key takeaways
  • Amazon Prime: The Convenience Engine
  • Eroding Google Search
  • Key takeaways
  • Why Amazon wants to entertain us
  • A push into user-generated content
  • Key takeaways
  • Amazon’s Devices: Ups and Downs
  • Navigating Google’s mobile maze
  • Amazon’s Attempts to Develop Device Platforms
  • Key takeaways
  • Communications: Amazon’s Blind Spot?
  • Conclusions and Recommendations

Can Telcos Entertain You? Vodafone and MTN’s Emerging Market Strategies (Part 2)

Telcos and the entertainment opportunity

In most emerging markets, which are the focus of this report, mobile networks are fast becoming the primary distribution channel for entertainment content. Although television is popular all over the world, in much of sub-Saharan Africa and developing Asia, terrestrial television coverage is patchy, while cable TV is rare. Satellite television is broadly available, but fewer than half of households can afford to buy a television, meaning many people only watch TV in bars, cafes or in the houses of friends.

In Kenya, for example, only 28% of households have a television, according to the World Bank development indicators, while in Tanzania that figure is just 15%. In some major developing markets, television has a stronger grip – in Nigeria, 40% of households have a TV and 47% of households in India. For sub-Saharan Africa, as a whole, television penetration is about 25% and in South Asia, 36%.

For many people in these regions, purchasing a versatile smartphone, which can be used for communications, information access, commerce and entertainment, is a higher priority than acquiring a television. The advent of sub US$40 smartphones means more and more people can now afford mobile devices with decent screens capable of displaying multimedia and processors that can run apps and full Internet browsers. In India, 220 million smartphones were in use at the end of 2015, according to one estimate , while Ericsson has forecast that the number of smartphones in use in Sub-Saharan Africa will leap to 690 million in 2021 from 170 million at the end of 2015 (see Figure 1).

 Figure 1: Predicted smartphone growth in developing regions

 Source: Ericsson Mobility Report, November 2015

In emerging markets, most Internet users don’t own a television (see Figure 2) and many rely entirely on a smartphone for digital entertainment. Moreover, a scarcity of fixed line infrastructure means much of the entertainment content is delivered over mobile networks. Mobile trade group the GSMA estimates that 3G networks, which are typically fast enough to transmit reasonable video images, reach about three quarters of the planet’s people. Mobile network supplier Ericsson has forecast that mobile broadband networks (3G and/or 4G) will cover more than 90% of the world’s population by 2021.

 Figure 2: Device ownership among Internet users in selected markets

 Source: Ericsson

The reliance on cellular infrastructure in developing countries has enabled mobile operators to take on a central role in the provision of online entertainment. The fact that many people rely almost solely on mobile networks for entertainment is presenting mobile operators with a major opportunity to boost their relevance and revenues. Given the capacity constraints on mobile networks and the implications for cellular tariffs, entertainment services need to be optimised to ensure that the costs of bandwidth don’t become prohibitive for consumers. Mobile operators’ understanding and real-time knowledge of their networks means they are in a good position to both manage the optimisation and package connectivity and content (regulation permitting) into one service bundle with a predictable and transparent tariff.

Although the network effects and economies of scale and scope enjoyed by YouTube and Facebook mean that both these players have strong positions in much of developing Asia, Latin America, the Middle East and Africa, some emerging market telcos have also built a solid foundation in the fast growing online entertainment sector. In Africa and India, for example, the leading telcos enable third party content providers to reach new customers through the telcos’ dedicated entertainment platforms, including web portals, individual apps and app stores selling music, TV and games. In return for supporting content offerings with their brands, networks, messaging, billing and payment systems, these telcos typically earn commission and capture valuable behavioural data.

 

  • Introduction
  • Executive Summary
  • Telcos and the entertainment opportunity
  • Roles in the online entertainment value chain
  • Further disruption ahead
  • Vodafone India faces up to new competition
  • The land-grab in India’s online entertainment market
  • Vodafone India combines content and connectivity
  • Takeaways – greater differentiation required
  • Music Gives MTN an Edge
  • Takeaways – music could be a springboard
  • Conclusions

 

  • Figure 1: Predicted smartphone growth in developing regions
  • Figure 2: Device ownership among Internet users in selected markets
  • Figure 3: How the key roles in online content are changing
  • Figure 4: How future-proof are telcos’ entertainment portfolios?
  • Figure 5: Vodafone India curates a wide range of infotainment content
  • Figure 6: Smartphone adoption in India will more than double in the next five years
  • Figure 7: Vodafone Mobile TV enables customers to subscribe to channels
  • Figure 8: The new Vodafone Play app combines TV, films and music
  • Figure 9: Vodafone India offers an app that makes it easy to track data usage
  • Figure 10: Vodafone’s Mobile TV app hasn’t attracted a strong following
  • Figure 11: Competitive and regulatory pressures are pushing down prices
  • Figure 12: In 3G, Vodafone India has kept pace with market leader Airtel
  • Figure 13: Vodafone India’s growth in data traffic compared with that of other telcos
  • Figure 14: Vodafone’s performance in India this decade
  • Figure 15: MTN’s Telco 2.0 strategy is focused on digital services
  • Figure 16: MTN’s growing array of digital services
  • Figure 17: MTN Play has been localised for each of MTN’s operations
  • Figure 18: The Ugandan version of MTN Play caters for local tastes
  • Figure 19: MTN bundles in some data traffic with each music plan
  • Figure 20: MTN’s digital services are particularly strong in Nigeria
  • Figure 21: MTN tops a list of most admired brands in Africa in 2015

Can Telcos Entertain You? (Part 1)

Telcos and the entertainment opportunity

As telecoms networks are the primary distribution channels for the digital economy, all telcos are in the entertainment business to a certain extent. With more than 3.2 billion people worldwide now connected to the Internet, according to the ITU, entertainment is increasingly delivered online and on-demand over telecoms and cable networks. The major Internet ecosystems – Amazon, Apple, Facebook and Google – are looking to dominate this market. But telcos could also play a pivotal role in an emerging new world order, either by providing enablers or by delivering their own differentiated entertainment offerings.

Many telcos have long flirted with offering their own entertainment services, typically as a retaliatory response to cable television providers’ push into communications. But these flings are now morphing into something more serious: connectivity and entertainment are becoming increasingly intertwined in telcos’ portfolios. Television, in particular, is shifting from the periphery, both in terms of telcos’ revenues and top management focus, onto centre stage. Some of the world’s largest telcos are beginning to invest in securing exclusive drama and sports content, even going as far as developing their own programming. This push is part of telcos’ broader search for ways to remain relevant in the consumer market, as usage of telcos’ voice and messaging services is curbed by over-the-top alternatives.

The central strategic dilemma for telcos is whether they should be selling services directly to the consumer or whether they should be providing enablers to other players (such as Amazon, Google, Netflix and Spotify) who might be prepared to pay for the use of dedicated content delivery networks, messaging, distribution, authentication, billing and payments. In many respects, this is not a new dilemma: Operators have tried to become content developers and distributors in the past, building portals, selling ringtones and games, and establishing app stores. What is new is the size of the table stakes: The expansion of broadband coverage and capacity has put the focus very much on increasingly high definition and immersive television and video. Creating this kind of content can be very expensive, prompting some of the largest telcos to invest billions of dollars, rather than tens of millions, in their entertainment proposition.

It isn’t just telcos undergoing a strategic rethink. The spread of broadband, the proliferation of connected digital devices and the shift to a multimedia Internet are shaking up the entertainment industry itself. Mobile and online entertainment accounts for US$195 billion (almost 11%) of the US$1.8 trillion global entertainment market today . And that proportion is growing. By some estimates, that figure is on course to rise to more than 13% of the global entertainment market, which could be worth US$2.2 trillion in 2019.

For incumbents in the media industry, this is a seismic shift. Cable television companies, for example, have had to rethink their longstanding business model, which involved selling big bundles of television channels encompassing the good, the bad and the ugly. Individual customers typically only watch a small fraction of the cable TV channels they are paying for, prompting a growing number of them to seek out more cost-effective and more targeted propositions from over-the-top players.

Cable companies have responded by offering more choice and expanding across the entertainment value chain. For example, Comcast, a leading US cableco, offers an increasingly broad range of TV packages, ranging from US$16 a month (for about 10 local channels) to US$80 a month (for about 140 channels bundled with high speed Internet access). Moreover, Comcast is making its TV services more flexible, enabling customers to download/record video content to watch on mobile devices and PCs at their convenience. Even so, Comcast has been shedding cable TV subscriptions for most of the past decade. But the cableco’s vertical-integration strategy has more than compensated. Growth in Comcast’s NBCUniversal television and film group, which owns a major Hollywood studio, together with rising demand for high-speed Internet access, has kept the top line growing.

Roles in the online entertainment value chain

Other cablecos and telcos are following a similar playbook to Comcast, increasingly involving themselves in all four of the key roles in the online content value chain, identified by STL Partners. These four key roles are:

  1. Programme: Content creation: producing drama series, movies or live sports programmes.
  2. Package: Packaging programmes into channels or music into playlists and then selling these packages on a subscription basis or providing them free, supported by advertising.
  3. Platform: Distributing TV channels, films or music created and curated by another entity.
  4. Pipe: Providing connectivity, either to the Internet or to a walled content garden.

Clearly, virtually all telcos and cablecos play the pipe role, providing connectivity for online content. Many also operate platforms, essentially reselling television on behalf of others. But now a growing number, including BT, Telefónica and Verizon, are creating packages and even developing their own programming. The pipe and package roles present opportunities to capture behavioural data that can then be used to further hone the entertainment proposition and make personalised recommendations and offers. At the same time, the package and programme roles are becoming increasingly important as the platforms with the best content, the best channels and the best recommendations are likely to attract the most traffic.

Figure 1 illustrates how the package and platform roles, in particular, are increasingly converging, as consumers seek out services that can help them find and discover entertainment that suits their particular tastes. Google’s YouTube platform, for example, increasingly promotes its many channels (packages) to better engage consumers, help them discover content and help viewers navigate their way through the vast amount of video on offer.

By venturing into packaging and programming, telcos are hoping to differentiate their platforms from those of the major global online players – Amazon, Apple, Facebook, Google and Netflix – which benefit from substantial economies of scale and scope. But pursuing such a strategy can involve compromises.
In many cases, regulators force telcos to also make their programming and packaging available on third party TV platforms, including those of direct competitors. In the UK, for example, BT has to wholesale its BT Sports channels to other TV platforms, including that of arch rival Sky. Figure 2 shows how BT’s platform, packaging and programming is intertwined with that of third parties, creating a complex, multi-faceted market in which BT content is available through BT TV/BT Broadband and through other platforms and pipes.

 Figure 1: How the key roles in online content are changing

 Source: STL Partners analysis

Figure 2: BT has to provide standalone packaging & programming, as well as a platform

 Source: STL Partners analysis

 

  • Introduction
  • Executive Summary
  • Telcos and the entertainment opportunity
  • Roles in the online entertainment value chain
  • Further disruption ahead
  • BT – betting big on sport
  • Takeaways – sport gives BT a broad springboard
  • Telefónica – leveraging languages
  • Takeaways – Telefónica could lead Hispanic entertainment
  • Verizon – acquiring and accumulating expertise
  • Takeaways – Verizon needs bigger and better content
  • Conclusions
  • Annex: Recommendations for telcos & cablecos in entertainment

 

  • Figure 1: How the key roles in online content are changing
  • Figure 2: BT has to provide standalone packaging & programming, as well as a platform
  • Figure 3: How future-proof are telcos’ entertainment portfolios?
  • Figure 4: The extras and upgrades to the free BT TV and BT Sports offer
  • Figure 5: The differences between BT TV’s free and premium packages
  • Figure 6: BT’s app enables consumers to watch premium content on handsets
  • Figure 7: BT Sport has driven broadband net-adds, but the rights bill is also rising
  • Figure 8: In the UK, BT is still behind the Sky TV platform but on a par with YouTube
  • Figure 9: How BT Sport creates value for BT
  • Figure 10: Telefónica offers a selection of bolt-ons to cater for different tastes
  • Figure 11: Acquisitions boosted Telefónica’s pay TV business in 2015
  • Figure 12: Pay TV and fibre broadband are the growth engines in Spain
  • Figure 13: Telefónica TV’s position versus that of Netflix and YouTube in Spain
  • Figure 14: Verizon’s three-tier strategy envisages providing platforms and solutions
  • Figure 15: Verizon was attracted by AOL’s growing platforms business
  • Figure 16: Verizon’s go90 is designed to be a content and social hybrid
  • Figure 17: AOL ranks sixth in terms of online visitors in the US
  • Figure 18: Verizon’s new go90 app has had a fairly positive response from users
  • Figure 19: AOL video trails far behind Internet rivals YouTube and Netflix in terms of usage
  • Figure 20: How future-proof are telcos’ entertainment portfolios?

Apple Pay & Weve Fail: A Wake Up Call

Mobile payments: Now is the time

After many years of trials, pilots and uncertainty, the mobile industry is now making a major push to enable consumers to use their mobile phones to complete transactions in stores and other merchant venues. This year is shaping up to be a pivotal year with a number of major launches of commercial mobile payment services involving device makers, mobile operators, the payment networks and retailers.

Crucially, Apple’s move to add Near Field Communications (NFC) – a short-range communications technology – to iPhone 6 has vindicated the telecoms industry’s ongoing push to make NFC a de facto standard for mobile proximity payments. Although sceptics (including Apple executives) have previously derided the cost and complexity of the technology, Vodafone, Orange, China Mobile and other major telcos have continued to develop digital commerce propositions based on the technology.

Apple’s U-turn on NFC has changed the sentiment around the technology dramatically and given the industry a clear sense of direction. Just a year ago, research firms, such as Gartner and Juniper, scaled back their forecasts for the use of mobile handsets to complete transactions in-store, primarily because Apple didn’t include a NFC chip in the iPhone 5.

The widespread use of NFC in stores will add fuel to the mobile payments market which is already growing rapidly.  Some analysts are predicting mobile phones will be used to make transactions totalling more than US$721 billion worldwide by 2017 up from US$235 billion in 2013 (see Figure 1). Note, these figures include both remote/online and proximity/in-store transactions.

Figure 1: Global mobile payment transaction forecasts

Figure 1 - Global mobile payment transaction forecasts

Source: Gartner; Goldman Sachs (via Statista)

Although most consumers are happy paying in store using either cash or payment cards, there are two major reasons why mobile payments are gaining momentum in an increasingly digital economy:

  • Consumers will want to be able to receive and redeem offers, vouchers and loyalty points using their smartphones. A mobile payment service would enable them to do this in a straightforward way.
  • Mobile payments will generate valuable transaction data that could and should (with the consumer’s permission) be used to make highly personalised recommendations and offers.

In other words, mobile payments are an essential element of a compelling integrated digital commerce proposition.

The role of telcos

Although the big picture for mobile payments is improving, telcos are in danger of being side-lined in developed countries in this strategically important sector. (NB See the STL Partners Strategy Report, Digital Commerce 2.0: New $50bn Disruptive Opportunities for Telcos, Banks and Technology Players for a detailed study of how telcos could disrupt the key digital commerce brokers: Amazon, Google, Apple and Facebook.) In recent weeks, telcos’ efforts to lead the development of the mobile payments market suffered two major setbacks. Firstly, Apple’s fully formed mobile payments solution, called Apple Pay, effectively cuts telcos out of the mobile payments business in the Apple ecosystem.

Secondly, it emerged that Weve, the ground-breaking mobile commerce joint venture between U.K. mobile operators, has pulled back from plans to facilitate payments (in addition to its existing role of delivering targeted offers to UK mobile users).  As a rare example of a well thought through collaborative venture between mobile operators, Weve had been a promising initiative that could provide a playbook for collaboration among mobile operators in other developed markets. But Weve’s change of course suggests that mobile operators are still struggling to collaborate effectively in the digital commerce market.

Rewriting the Mobile Payments Playbook

The Apple Pay proposition

Unveiled along with the iPhone 6 and the Apple Watch in September, Apple Pay is an end-to-end mobile payments proposition developed by Apple. On the device side, the basic technical architecture is similar to that advocated by major telcos via the industry group the GSMA – the short-range wireless technology Near Field Communications (NFC) is used to transfer payment data from the device to the point of sale terminal, while a secure element (a segregated memory chip) is used to protect sensitive information from being hacked or corrupted by third-party apps. However, rather than using telcos’ SIM cards as a secure element, Apple has added its own dedicated piece of hardware to the iPhone 6 and bolstered security further with a fingerprint scanner.

Already used to organise boarding passes, tickets, coupons and other collateral, Apple’s Passbook acts as the primary interface for the Apple Pay service. In other words, Passbook is now a fully-fledged mobile wallet. Thanks to its iTunes service, Apple already has hundreds of millions of consumers’ credit and debit card details on file. These consumers can add a compatible payment card stored on iTunes to Passbook simply by entering the card security code. Alternatively, they can use the iPhone camera to scan a payment card into a handset or type in the details manually. If the consumer stores more than one card, Passbook allows them to change the default payment card that appears when they are about to make a transaction.

 

Figure 2: Apple has made it easy to add payment cards to Passbook

Figure 2 - Apple has made it easy to add payment cards to Passbook

Source: Apple

To make a payment in a store, the consumer simply holds their iPhone next to a NFC-enabled reader (attached to a point of sale terminal) with their finger on the handset’s Touch ID – the fingerprint reader embedded into the latest iPhones (see Figure 3). Unlike some mobile payment solutions, the consumer doesn’t need to open an app or enter a PIN code. The iPhone vibrates and beeps once the payment information has been sent. In this case, the payment information is protected by three layers of security: More than any existing mainstream mobile payments solution, including the SIM-secured NFC payments touted by telcos. These three layers are

  • Rather than transferring actual payment card details, Apple Pay transfers so-called tokens: a device-specific account number, together with a one-time security code.
  • These tokens are encrypted and stored on a secure element inside the iPhone – memory that is ring-fenced from access by any app other than Passbook. They aren’t stored on Apple’s servers, so are protected from online hacking.
  • The payment only happens if the Touch ID system recognises the consumer’s fingerprint, proving the consumer’s was in the store.

Figure 3: The consumer is authenticated via iPhone’s fingerprint scanner

Figure 3: The consumer is authenticated via the iPhone's fingerprint scanner

Source: Apple

If the consumer is using an Apple Watch, which also has a NFC chip and a secure element, they hold the face of the watch near the reader and double-click a button on the side of the watch. As the range of NFC is just a few centimetres, consumers will have to hold the face of their watch against the reader. This step doesn’t sound very intuitive and may cause confusion in stores.

Again, a vibration and beep confirm the transfer of the payment information. Note, the watch needs to have been linked to an iPhone with a compatible payment card stored in a Passbook app. Although Apple Watch isn’t equipped with the Touch ID fingerprint scanner in the iPhone, it does have alternative security mechanisms built in. Apple Watch is equipped with a biosensor that can detect when the watch is taken off and lock its payment function, according to a report by NFC World. Apparently, consumers will have to enter a code to re-enable the payment function when they put the handset back on.  These extra steps suggest making payments using Apple Watch will be more cumbersome and potentially less secure than using an iPhone 6 to make a payment.

 

Figure 4: You double-click a button to confirm a payment with Apple Watch

Figure 4 - You double-click a button to confirm a payment with Apple Watch

Source: Apple

Apple Pay can also be used to make online payments in compatible apps and this is how many consumers are likely to try the service initially. Apple said that several merchants, including Disney, Starbucks, Target and Uber, have adapted their apps to accept Apple Pay transactions (see Figure 5). In this case, the consumer selects Apple Pay and then places their finger on the Touch ID interface. Note, enabling online payments is an area that has been neglected by many telcos in developed countries targeting this market, but support for remote payments is an essential component of any holistic digital commerce solution  – consumers won’t want to use different digital wallets online and offline.

 

Figure 4: Various apps allow consumers to make payments via Apple Pay

 

Figure 5 - Various apps allow consumers to make payments via Apple Pay

 Source: Apple

If a consumer loses their iPhone, then they can use the Find My iPhone service to put their device into “lost mode” or they can opt to wipe the handset. The next time the iPhone goes online, it will be frozen or wiped, depending on the option the consumer selected. Note, this feature negates one of the advantages of using a SIM card, which can also be wiped remotely by a telco, as a secure element.

Although the consumer’s most recent purchases will be viewable in Passbook, Apple says it won’t save consumer’s transaction information. This is in stark contrast to the approach taken by Apple’s own iTunes service and Amazon, for example, which uses a consumer’s transaction history to make personalised product and service recommendations. With Apple Pay, it seems a consumer will only be able to check historic transactions by looking at their bank statements.

The big guns in the U.S. financial services industry are supporting Apple Pay – consumers can use credit and debit cards from the three major payment networks, American Express, MasterCard and Visa, issued by a range of leading banks, including Bank of America, Capital One Bank, Chase, Citi and Wells Fargo, representing 83% of credit card purchase volume in the US, according to Apple, which says additional banks, including Barclaycard, Navy Federal Credit Union, PNC Bank, USAA and U.S. Bank, are also planning to sign up. This is a much greater level of participation than that achieved by Softcard (formerly known as Isis), the mobile commerce joint venture between U.S. telcos AT&T Mobile, Verizon Wireless and T-Mobile USA (see next section for more on Softcard).

Apple says that more than 220,000 bricks and mortar stores will accept Apple Pay transactions. Some of the participating retailers include leading brands, such as McDonalds, Stables, Subway, ToysRUs and Walgreens. However, the retailers in the Merchant Customer Exchange (MCX) consortium, which is developing its own mobile commerce proposition, have not signed up to accept Apple Pay. These retailers include major players, such as WalMart, Best-Buy, 7-11, Gap and Sears. (See next section for more on MCX). Although only a handful of apps are supporting Apple Pay today, that number is likely to grow rapidly, as many consumers will find it easier to press the Touch ID than to type in a password.

To access the rest of this 28 page Telco 2.0 Report in full, including…

  • Introduction
  • Executive Summary
  • Mobile payments: Now is the time
  • Rewriting the Mobile Payments Playbook
  • The Apple Pay proposition
  • Will Apple Pay be a success? 
  • The implications of Apple Pay for telcos
  • The Weve U-Turn
  • How Weve broke new ground
  • Weve’s shareholders break ranks
  • Weve pulls back
  • Conclusions and recommendations

…and the following report figures…

  • Figure 1: Forecasts for the value of mobile proximity payments in the U.S 
  • Figure 2: Apple has made it easy to add payment cards to Passbook
  • Figure 3: The consumer is authenticated via the iPhone’s fingerprint scanner
  • Figure 4: You double-click a button to confirm a payment with Apple Watch
  • Figure 5: Various apps allow consumers to make payments via Apple Pay
  • Figure 6: MCX’s approach to security
  • Figure 7: Apple’s shrinking share of the global smartphone market
  • Figure 8: The Softcard wallet enables consumers to filter offers by their location
  • Figure 9: The virtuous circle Weve was aiming to create
  • Figure 10: Everything Everywhere’s Cash on Tap app is clunky to use

 

Google’s Big, Big Data Battle

The challenges to Google’s core business 

Although Google is the world’s leading search engine by some distance, its pre-eminence is more fragile than its first appears. As Google likes to remind anti-trust authorities, its competitors are just a click away. And its primary competitors are some of the most powerful and well-financed companies in the world – Apple, Amazon, Facebook and Microsoft. As these companies, as well as specialist service providers, accumulate more and more data on consumers, Google’s position as the leading broker of online advertising is under threat in several, inter-related, ways:

  1. Google’s margins are being squeezed, as competition intensifies. Increasingly experienced web users are using specialist search engines, such as Amazon (shopping), Expedia (travel) and moneysupermarket.com (financial services), or going direct to the sites they need, thereby circumventing Google’s search engine and the advertising brokered by Google. This trend is exacerbated by Google’s ongoing lockout from the vast amount of content being generated by Facebook’s social network. As the Internet matures, general-purpose web search may become yesterday’s business.
  2. The rise of the app-based Internet: As consumers increasingly access the Internet via mobile devices, they are making greater use of apps and less use of browsers and, by extension, conventional search engines. Apps are popular on mobile devices because they are designed to take the consumer straight to the content they are looking for, rather than requiring them to navigate around the web using small and fiddly on-screen keyboards. Moreover, Apple, the leading provider of smartphones and tablets to the affluent, is seeking to relegate, and where feasible, remove, Google’s apps and services in its ecosystem.
  3. Android forks: Android, an extraordinarily successful ‘Trojan Horse’ for Google’s apps and services, is the market leading operating system for mobile devices, but Google’s control of Android is patchy. Some device makers are integrating their own apps into a forked variant of this open-source platform. Amazon and Nokia are among those who have stripped Google’s search, maps, mail and store apps from their variants of the Android operating system, reducing the data that Google can gather on their customers. At the same time, Samsung, the world’s largest handset vendor, is straining at Google’s Android leash.
  4. Quality dilution: As Google is the world’s dominant search engine, it is the prime target for so-called content farms that produce large volumes of low quality content in an effort to rank highly in Google’s search results and thereby attract traffic and advertising.
  5. Regulatory scrutiny: Despite a February 2014 settlement with the European Commission concerning its search practices, Google remains in the regulatory spotlight. Competition authorities across the world continue to fret about Google’s market power and its ability to influence what people look at on the Internet.

1. Google’s margin squeeze

Price deflation

Google, the company that facilitated massive deflation across advertising, content, e-commerce, and mobile operating systems, is itself suffering from the deflationary environment of the Internet. Although revenue and net income are still growing, margins are shrinking (see Figure 2). Google is still growing because it is adding volume. However, there is strong evidence that its pricing power is being eroded.

Figure 2: Google margins are steadily falling as volumes continue to rise

Telco 2 Figure 2: Google margins are steadily falling as volumes continue to rise

Source: Google filings

To put this in the context of its Silicon Valley peers, Figure 3 shows the same data for Google, Facebook, and Apple using a trend line covering the 2009 to 2013 period for each company. Note, that we have used a log scale to compare three companies of very different size. Apple saw growth in both revenue and operating margins until 2013, when it hit a difficult patch, although a big product launch might fix that at any time. Facebook has grown revenues enormously, but went through a traumatic 2012 as the shift to mobile hit it. While all this drama went on, Google has grown steadily, while seeing its margins eroded.

Figure 3: Google’s operating margins are now below those of Apple and Facebook

Telco 2 Figure 3 googles operating mar

Source: SEC filings

What are the factors behind Google’s declining operating margin? We believe the main drivers are:

  • The amount Google can charge per click is falling – buyers get more ads per buck.
  • The cost of acquiring ad inventory is increasing.

Cheaper ads

As Figure 4 shows, Google continues to drive ad volume (paid clicks), but ad rates (cost per click) are falling steadily. The average cost-per-click on Google websites and Google Network Members’ websites decreased approximately 8% from 2012 to 2013.  We think this is primarily due to intensifying competition, particularly from Facebook. However, Google attributes the decline to “various factors, such as the introduction of new products as well as changes in property mix, platform mix and geographical mix, and the general strengthening of the U.S. dollar compared to certain foreign currencies.” The second quarter of 2014 saw paid clicks rise 2% quarter-on-quarter, while the cost per click was flat.

Figure 4: The cost per click is declining in lockstep with rising volume

Telco 2 Figure 4 The cost per click is declining in lockstep with rising volume

Source: Google filings

 

  • Introduction
  • Executive Summary
  • The challenges to Google’s core business
  • 1. Google’s margin squeeze
  • 2. The rising importance of mobile apps
  • 3. Android forks
  • 4. Quality dilution
  • 5. Regulatory scrutiny
  • Google’s strategy – get on the front foot
  • Google Now – turning search on its head
  • Reactive search becomes more proactive
  • Voice input
  • Anticipating wearables, connected cars and the Internet of Things
  • Searching inside apps
  • Evaluating Google Now
  • 1. The marketplace
  • 2. Develop compelling service offerings
  • 3. The value network
  • 4. Technology
  • 5. Finance – the high-level business model

 

  • Figure 1: How Google is neutralising threats and pursuing opportunities
  • Figure 2: Google margins are steadily falling as volumes continue to rise
  • Figure 3: Google’s operating mar gins are now below those of Apple and Facebook
  • Figure 4: The cost per click is declining in lockstep with rising volume
  • Figure 5: Rising distribution costs are driving Google’s TAC upwards
  • Figure 6: Google’s revenues are increasingly coming from in-house sites and apps
  • Figure 7: R&D is the fastest-growing ad-acquisition cost in absolute terms
  • Figure 8: Daily active users of Facebook generating content out of Google’s reach
  • Figure 9: Google is still the most popular destination on the Internet
  • Figure 10: In the U.S., usage of desktop web sites is falling
  • Figure 11: Google’s declining share of mobile search advertising in the U.S.
  • Figure 12: Google’s lead on the mobile web is narrower than on the desktop web
  • Figure 13: Top smartphone apps in the U.S. by average unique monthly users
  • Figure 14: For Google, its removal from the default iOS Maps app is a major blow
  • Figure 15: On Android, Google owns four of the five most used apps in the U.S.
  • Figure 16: The resources Google needs to devote to web spam are rising over time
  • Figure 17: Google, now genuinely global.
  • Figure 18: A gap in the market: Timely proactive recommendations
  • Figure 19: Google’s search engine is becoming proactive
  • Figure 20: The ongoing evolution of Google Search into a proactive, recommendations service
  • Figure 21: The Telco 2.0 Business Model Framework
  • Figure 22: Amazon Local asks you to set preferences
  • Figure 23: Google Now’s cards and the information they use
  • Figure 24: Android dominates the global smartphone market
  • Figure 25: Samsung has about 30% of the global smartphone market
  • Figure 26: Google – not quite the complete Internet company
  • Figure 27: Google’s strategic response

Digital Entertainment 2.0: Report and analysis of the event

Digital Entertainment 2.0: A summary of the findings of the Digital Entertainment 2.0 workshop, 8th November 2011, held in the Guoman Hotel, London.

Digital Entertainment 2.0: Event Summary Analysis Presentation

Part of the New Digital
Economics Executive Brainstorm
series, the Digital Entertainment 2.0
workshop took place at the Guoman Hotel, London on the 8th November
and looked at how ‘personal data’ will revolutionize advertising, payments and
customer experiences.

Using a widely acclaimed interactive format called ‘Mindshare’ the event enabled  specially-invited senior executives from across the communications, media, banking and technology sectors to.

This note summarises some of the high-level findings and includes the verbatim output of the brainstorm.

More information: email contact@stlpartners.com, or phone: +44 (0) 207 247 5003.

DOWNLOAD REPORT

Extracted example slide:

Digital Entertainment 2.0: Event Summary Analysis Presentation

Telco 2.0: Report and analysis of the event

Telco 2.0: Event Summary Analysis. A summary of the findings of the Telco 2.0 Executive Brainstorm, 9th November 2011, held in the Guoman Tower Hotel, London. The Brainstorm explored telcos’ strategic options to grow in the fast changing digital economy. It also considered how telcos can defend their core voice and messaging business, while also examining the steps they can take to improve the customer experience.

Telco 2.0: Event Summary Analysis Presentation


Part of the New Digital Economics Executive Brainstorm series, the Telco 2.0 event took place at the Guoman Hotel, London on the 9th November and looked at telcos’ strategic options, the future of the core communications products telcos rely on for much of their revenue and how they can improve the customer experience both to reduce churn and attract new customers.

Using a widely acclaimed interactive format called ‘Mindshare’ the event
enabled 80 specially-invited senior executives from across the communications,
media, banking and technology sectors to.

This note
summarises some of the high-level findings and includes the verbatim output of
the brainstorm.

More information: email contact@stlpartners.com, or phone: +44 (0) 207 247 5003.

DOWNLOAD REPORT

Extracted example slide:

Telco 2.0: Event Summary Analysis Presentation

M-Commerce 2.0: Report and analysis of the event

M-Commerce 2.0: Event Summary Analysis. A summary of the findings of the M-Commerce 2.0 Executive Brainstorm, 10th November , held in the Guoman Hotel, London. Part of an international research and events programme, run with the support of the World Economic Forum, the Brainstorm explored the principles of personal data in the context of ‘M-Commerce 2.0’ – creating mechanisms that put the user in control of their data, helping the individual to generate value from that data, reducing friction and transaction costs in day-to-day ‘B2B2C’ commercial processes.

M-Commerce 2.0: Event Summary Analysis Presentation

 

 

Part of the New Digital Economics Executive Brainstorm series, the M-Commerce 2.0 event took place at the Guoman Hotel, London on the 10th November and looked at how ‘personal data’ will revolutionize advertising, payments and customer experiences. It also explored the “Great Game” between the leading Internet players and the telcos. Using a widely acclaimed interactive format called ‘Mindshare’ the event enabled specially-invited senior executives from across the communications, media, banking and technology sectors to explore opportunities to create new services and experiences from unlocking the value of ‘personal data’. The agenda is shown in appendix A.

The Brainstorm is part of an international research and events programme run with the support of the World Economic Forum. M-Commerce 2.0 supports the World Economic Forum’s ‘Re-thinking Personal Data’ project, which promotes the concept of user-centricity within the context of building ‘trust frameworks’.

This note summarises some of the high-level findings and includes the verbatim output of the brainstorm.

More information: email contact@stlpartners.com, or phone: +44 (0) 207 247 5003.

DOWNLOAD REPORT


Extracted example slide:

 

M-Commerce 2.0: Event Summary Analysis Presentation

Cloud 2.0: Report and analysis of the event

Cloud 2.0: Event Summary Analysis. A summary of the findings of the Cloud 2.0 Executive Brainstorm, 10th November 2011, held in the Gouman Tower Hotel, London. The Brainstorm explored telcos’ strategic options to grow in the fast changing digital economy. It also considered how telcos can defend their core voice and messaging business, while also examining the steps they can take to improve the customer experience. (November 2012, Executive Briefing Service, Cloud & Enterprise ICT Stream) Cloud 2.0: Event Summary Analysis Presentation

 

 

Part of the New Digital Economics Executive Brainstorm series, the Cloud 2.0 event took place at the Guoman Hotel, London on the 10th November and looked at telcos’ strategic options, the future of the core communications products telcos rely on for much of their revenue and how they can improve the customer experience both to reduce churn and attract new customers.

Using a widely acclaimed interactive format called ‘Mindshare’ the event enabled 80 specially-invited senior executives from across the communications, media, banking and technology sectors to.

This note summarises some of the high-level findings and includes the verbatim output of the brainstorm.

More information: email contact@stlpartners.com, or phone: +44 (0) 207 247 5003.

DOWNLOAD REPORT

Extracted example slide:

 

Cloud 2.0: Event Summary Analysis Presentation

CDN 2.0: Report and analysis of the event

CDN 2.0: Event Summary Analysis. A summary of the findings of the CDN 2.0 session, 10th November 2011, held in the Guoman Hotel, London

CDN 2.0: A Summary of Findings of the CDN 2.0 Session Presentation

Part of the New Digital Economics Executive Brainstorm
series, the CDN 2.0 session took place at the Guoman Hotel, London on the 10th
November and looked at the future of online video, both the star product telcos
rely on for much of their revenue and the main driver of their costs.

Using a widely acclaimed interactive format called ‘Mindshare’, the event enabled
specially-invited senior executives from across the communications, media,
banking and technology sectors to discuss the field of content delivery
networking and the digital logistics systems Netflix, YouTube and other online
video providers rely on.

This note summarises some of the high-level
findings and includes the verbatim output of the brainstorm.

More information: email contact@stlpartners.com, or phone: +44 (0) 207 247 5003.

DOWNLOAD REPORT


Extracted example slide:

CDN 2.0: A Summary of Findings of the CDN 2.0 Session Presentation

M2M 2.0: Report and analysis of the event

M2M 2.0: Event Summary Analysis: A summary of the findings of the M2M 2.0 session, 10th November 2011, held in the Guoman Hotel, London

M2M 2.0: Event Summary Analysis Presentation


Part of the New Digital
Economics Executive Brainstorm
series, the M2M 2.0 session took place at
the Guoman Hotel, London on the 10th November and reviewed real-world
experience with M2M projects from operators and other actors. Using
a widely acclaimed interactive format called ‘Mindshare’, the
event enabled specially-invited senior executives from across the
communications, energy and technology sectors to.

This
note summarises some of the high-level findings and includes the verbatim
output of the brainstorm.

More information: email contact@stlpartners.com, or phone: +44 (0) 207 247 5003.

DOWNLOAD REPORT

Extracted example slide:

M2M 2.0: Event Summary Analysis Presentation

Your Text is on Fire: OTT’s to burn 40% SMS revenue by 2015

Introduction

Background

STL Partners’ New Digital Economics Executive Brainstorm EMEA, took place from 8-10 November in London, and brought together 5 events in 1 venue, co-locating the Telco 2.0, M-Commerce, 2.0 Cloud 2.0, M2M 2.0 and Digital Entertainment 2.0 brainstorms, using a unique and widely acclaimed interactive format called ‘Mindshare’ to help clarify the important ‘next steps’ for both individual companies and industries.

Building on output from previous brainstorms and new market research and analysis from STL Partners, it focuses on new growth opportunities at the intersection of Telecoms, Media and Technology. The keynote Strategy Report Dealing with the ‘Disruptors’: Google, Apple, Facebook, Microsoft/Skype and Amazon was launched at the brainstorm, and a similar agenda will be discussed at the New Digital Economics – APAC Brainstorm, Accelerating New Growth Opportunities in Telecoms, Media and Tech, 30 November – 1 December, Capella Resort, Singapore.

This note provides an extract of key take-outs and votes on the ‘Voice and Messaging 2.0’ sessions from the EMEA brainstorm for Telco 2.0 readers and subscribers.

Brainstorm participants will also receive detailed write-ups and analysis from the event sessions they registered for, and we will be using the input from all the sessions of the EMEA, Americas and APAC brainstorms as input to new analysis across all of the topics covered in the coming months.

The telco business model challenge is getting acute in EMEA

Your text platform is on fire

Telco SMS revenue will decline on average by around 40% across the Europe and Middle East region by 2015 according to the senior execs at this month’s Telco 2.0 brainstorm in London. The main cause is competitive pressure from so-called ‘Over-The-Top’ (OTT) alternatives (Facebook, Skype, Google, BBM, etc).

Figure 1 – Predicted decline of mobile telco messaging revenues

EMEA 2011 Messaging Decline Chart 40% Telco 2.0

 

The cause of this predicted decline was unambiguous – the impact of so-called Over The Top (OTT) players’ messaging services like iMessage, BlackBerry Messenger, Whatsapp, Skype and Facebook.

Figure 2 – Causes of predicted mobile messaging decline

EMEA 2011 Messaging Decline Chart OTT Causes Telco 2.0

This is similar to the impact of the new services that we saw predicted in the survey conducted across 300 senior execs in the research for our latest report Dealing with the ‘Disruptors’: Google, Apple, Facebook, Microsoft/Skype and Amazon.

Indeed, KPN and some Middle-Eastern operators have reported even higher percentage declines among users of certain devices and applications.

The Voice platform is smoking too

While not as pressing as the impact on Messaging revenues, delegates had a pessimistic view of the prospects for voice revenues.

Figure 3 – Predicted decline of mobile carrier voice revenues

EMEA 2011 Voice Decline Chart 20% Telco 2.0

The causes behind the voice declines were seen as somewhat broader, with competition and regulation taking up 56% compared to 16% for Messaging, although ‘Responding to price pressures from OTT alternatives’ was still the main choice with 44% of the vote.

Figure 4 – Causes of predicted mobile voice revenue decline

EMEA 2011 Voice Decline Chart 20% reasons Telco 2.0

All in all, it looks as if the pressures on voice and messaging revenues are beginning to bite as we originally predicted in our 2008 strategy report Lessons from Internet Communications Services – Skype, Facebook, and others: how Telcos can adapt and compete – although the options for adaptation and competition have narrowed somewhat due to the success of the so-called OTT players and the relative lack of action by telcos.

Who should telcos fear most?

Delegates did not have an entirely consistent view of the threats and opportunities presented by the OTT players as shown below.

Figure 5 – Who should telcos support / fear most in voice and messaging?

EMEA 2011 Voice and Messaging Decline Chart OTT Fears Telco 2.0

This is not entirely surprising given the relative attractions and perils presented in different scenarios as we describe in Dealing with the ‘Disruptors’: Google, Apple, Facebook, Microsoft/Skype and Amazon.

However, what is consistent for operators is that:

  • There is most to gain, in the short-term at least, in supporting Microsoft as a counterweight to Apple and Google;
  • RIM / Blackberry is perceived to have the least power – and also presents a opportunity as a counterweight to Apple and Google, albeit a weakened one;
  • Facebook is indeed a ‘double-edged sword’ – as a threat in terms of its potential to enter communications and an opportunity in driving data use;
  • Apple and Google are the established players with the most current power, and hence threat.

Will RCS-e help?

At the November 2011 EMEA Brainstorm, Cenk Serdar, Director, Data & Communications Service, Vodafone, and Rainer Deutschmann, SVP Core Telco Products, DTAG, carried out a live demonstration of RCS-e, the GSMA-backed future voice & messaging solution using IMS. Morten Sorby, EVP of Strategy & Regulatory Affairs, Telenor, and Andreas Bernstrom, CEO, Rebtel, joined the vibrant subsequent debate with the audience and Simon Torrance, CEO STL Partners.

The following is an anonymised top-level summary of the resulting discussions and the votes.

Getting to market

Instant messaging, video, and file-sharing are the key features in RCS-e, and are being introduced as a refined set compared to the original specifications in order to bring applications to market as quickly as possible. This refinement was lead by the E5 Group of top European operators.

The most important item on the future roadmap is service discovery. Beyond that, contacts transfer, location sharing, and multi-device operation are on the to-do list.

Interestingly, it seems that some of the RCS-e use cases focus on supporting enterprise applications such as trying to provide a platform for better CRM and person-to-organisation applications (for example, an enhanced helpdesk for a furniture company). This has consequences for the design of APIs and business relationships facing upstream towards enterprises and developers.

Arguments for success or failure

Arguments put forward at the Brainstorm for RCS-e included:

  • While Apple’s iMessenger and RIM’s BlackBerry Messenger are impressive products, they aren’t ubiquitious or necessarily deeply integrated with other applications in the way that SMS, MMS, and telephony could be.
  • RCS-e doesn’t require the user to download any new apps – the vast majority of users aren’t already using sophisticated communications tools like smartphones.
  • RCS-e ‘is a service for mass-market users’ rather than just smartphones.
  • Seven of the major device makers are committed, and the RCS-e standard is an open standard, so nothing prevents Apple iOS or RIM BBX developers implementing it independently.
  • RCS-e is building its global footprint. Spain, France, and Germany will launch sequentially between now and the first half of 2012. South Korea is committed to deploying RCS-e, and discussions were going on with other Asian countries.

Arguments put forward against RCS-e included:

  • Smartphones will change customer behaviour and catalyse change as more people get them. Horace Dediu, Associate Analyst at STL Partners, predicts that Western Europe and North America will go 100% smartphone within 18 months – so control will be further ceded to the Smartphone OS owners.
  • Cost is the main reason users move to Skype and similar services, and RCS-e doesn’t reduce costs.
  • The feature set just isn’t that convincing compared to what else can be done using VOIP services and other smartphone apps.

Delegates were split in their views on the likely efficacy of RCS.

Figure 6 – Will RCS-e offer an attractive alternative to OTT services?

EMEA 2011 RCS-e attractive vs OTT Telco 2.0 chart

Telco 2.0’s questions

The value of RCS-e is a subject that stirs strong opinions from across the industry, and it was intriguing to see the extreme polarity of delegate views at the Brainstorm.

Figure 7 – Is RCS-e ‘too little too late’?

EMEA 2011 RCS-e too little too late Telco 2.0 chart

Telco 2.0 will be conducting an in-depth analysis of Messaging and Voice 2.0 strategies, including RCS-e and its prospects in coming months.

Our questions on RCS-e at this point are as follows.

How many Christmas 2012 handsets will have RCS-e?

An critical factor is whether the wave of cheap smartphones will support RCS-e and if so, whether they support it well or only half-heartedly. The great bulk of them will be Android devices, and therefore the key vendors will be HTC and Samsung.
HTC are signed up, but their device line-up is concentrated on the high end, and they are very much second to Samsung in terms of volume.

Samsung is shipping more Androids than any other vendor, and indeed more smartphones than any other vendor, and they have a portfolio of products from the Ace to the Galaxy S II rather than a single top-end hero product. A key question is to what extent across their handset range they will sign up to RCS-e.

Are the features really convincing?

It is notoriously difficult to accurately predict the appeal of features in advance of consumer trials. However, a challenge for operators will be that, unlike Apple, they will have limited control of the design and implementation of the end-to-end customer experience.
How quickly can RCS-e evolve?

An important issue regarding services “embedded” in the core network or the device operating system is that they are unlikely to get upgrades anywhere near as quickly as either standalone applications or Web services. Operators tend to be slow to push out OTA upgrades to device OS, even after the manufacturers release them, and software iterations in the core network are taken slowly for very good reasons. App developers and Web 2.0 players tend to have much faster development cycles, so in terms of both user experience design control and release iteration operators are at a disadvantage.

What is RCS-e realistically intended to achieve now?

Opinions vary on what RCS-e is meant to achieve for operators, though few people we’ve spoken to in private recently believe that RCS-e is a ‘silver-bullet’ to combat so-called ‘OTT’ revenue erosion. Indeed, there appears to be a growing minority who appear to have ‘given up’ on voice and messaging revenues.

A more tenable position perhaps is that RCS-e may help a little, and that extending the life of the Messaging and Voice revenue streams by only a few months would justify the business case. One argument we’ve heard is that RCS-e is about enhancing and protecting the telco services bundle of minutes, texts, and data.

In a wider sense, it is a move by operators to provide something new to consumers, and it may at least be a small step to revitalise their relevance to consumers. In our view, it is far from the only strategy that operators should explore.

Content

  • What else can be done?
  • A new strategy framework for Messaging and Voice 2.0 Strategies
  • Developing alternative sources of value

 

  • Figure 1 – Predicted decline of mobile telco messaging revenues
  • Figure 2 – Causes of predicted mobile messaging decline
  • Figure 3 – Predicted decline of mobile carrier voice revenues
  • Figure 4 – Causes of predicted mobile voice revenue decline
  • Figure 5 – Who should telcos support / fear most in voice and messaging?
  • Figure 6 – Will RCS-e offer an attractive alternative to OTT services?
  • Figure 7 – Is RCS-e ‘too little too late’?
  • Figure 8 – Strategic Messaging and Voice options for operators

 

Digital Money 2.0: a vision of the future of M-Commerce (ClickandBuy Presentation)

In Digital Money 2.0. Presentation by Stefan Reinhardt, SVP Mechant Services, ClickandBuy (a Deutsche Telekom company), covering a background to the company, state of the market in Germany, and its future vision for the market. Presented at EMEA Brainstorm, November 2011.

OS Wars small STL Partners Nov 2011

Download presentation here.

Links here for more on New Digital Economics brainstorms and Money and Payments research, or call +44 (0) 207 247 5003.

Extracted example slide:

Slide on Digital Money Vision, ClickandBuy, STL Partners, Telco 2.0, New Digital Economics, Nov 2011