Tag: NTT DOCOMO

Telco Cloud Deployment Tracker : Is 5G SA getting real?

5G SA core: Will 2H23 finally see momentum?

At the end of 2021, we predicted that 5G SA core deployments would significantly accelerate in 2022, but they did not. There were 21 launches of converged 5G NSA/SA or pure 5G SA cores in 2022, against 18 in 2021. In the January 2023 update of our tracker, when we reviewed telco cloud activity for 2022, we shifted all the outstanding deployments once expected in 2022 to 2023. Some of these deployments had been announced for over two years and this made 2023 look as if it might become the year of 5G SA.

Now at the half-way point in 2023, there have been only seven 5G SA (including converged 5G NSA/SA) core deployments so far:

  • Although few in number, these deployments are significant either by their scale (Reliance Jio in India) or by virtue of the importance of the operators involved: E& (introduced in the UAE in March); and Vodafone (in the UK in June).
  • And for Orange, which is engaged in 5G SA deployments across its entire European footprint, the launch of a first country (Spain in February 2023) is encouraging progress.

But it is legitimate to ask whether the remaining 30 5G SA launches that we still have pending for 2023 are likely to take place in the remaining six months (as our Tracker currently reflects). Or will they in fact trickle in over the next few years or even not happen at all?

Global deployments of 5G core by type, 2018–2024

Source: STL Partners

 

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Why have SA 5GC deployments gone off track?

Our September 2022 report 5G standalone (SA) core: Why and how telcos should keep going provided some pointers as to why operators are slow in jumping to 5G SA. These remain valid today:

  1. 5G SA requires significant investment, for which (in some markets at least) there is no clear ROI because the use cases that would leverage 5G SA capabilities (in terms of latency, bandwidth or high volume of connections) are yet to emerge, both on the consumer and the enterprise fronts, as are the ways to monetise them.
  2. Many operators are still weighing up their strategy for partnering with the hyperscale cloud providers. In particular, this relates to the role of public cloud as an infrastructure platform for 5G SA deployments and the role hyperscaler infrastructure can play in accelerating SA network coverage.
  3. Some of the leading operators that are yet to launch SA are also among the main supporters of open RAN and/or are engaged in fibre rollout projects: those conflicting investment requirements may create delays and a need for phasing in some of the rollouts.

To fully exploit 5G SA requires an organisational evolution within telcos. To reap its benefits as both a pure connectivity enabler and as a platform for innovative services, telcos need to undergo an evolution in their processes and organisations to support cloud practices and operations. This doesn’t happen overnight.

In APAC where SA is steaming ahead, greater telco ambition and strong state support have spurred deployments

One way to address the question of stalled 5G SA deployments is to examine what has driven the deployments that have taken place. Will the use cases involved there drive a bigger wave of deployments globally?

While there have been 13 (converged 5G NSA/) SA core deployments in Europe, 31 have taken place in APAC. They involve the leading operators in China, Japan, the Philippines, Singapore, South Korea and Taiwan. The roll-outs support bandwidth-hungry consumer use cases such as gaming, AR/VR, HD/4K content streaming, VoNR, etc. Some operators, such as NTT Docomo, SK Telecom and the Chinese players, have made SA available to support a limited number of private networking and industrial IoT use cases. Factors driving these deployments include:

  • State support or mandates for 5G SA (China and South Korea)
  • Consumer enthusiasm for and early adoption of 5G, with the SA version offering tangible performance gains over 4G
  • Rich ecosystem of local device manufacturers and app developers, and a commitment by operators to invest in new use cases and services
  • Ability to offload ‘power users’ of bandwidth-hungry, latency-critical services off the 4G and 5G NSA network and willingness from those users to pay a premium for these benefits (the three Chinese operators have seen modest ARPU increases between 2020 and 2022 of between 2.5% and 5.2% per annum)
  • Pre-existing local and metro fibre, supporting 5G SA backhaul.

Effective deployments of 5G SA and converged 5G NSA/SA cores by region, 2019-23

Source: STL Partners

 

Table of Contents

  • Executive summary
  • Deep dive: Is 5G SA getting real?
  • Regional overview
  • Operator view
  • Vendor view

Related research

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Telco Cloud Deployment Tracker: 5G core deep dive

Deep dive: 5G core deployments 

In this July 2022 update to STL Partners’ Telco Cloud Deployment Tracker, we present granular information on 5G core launches. They fall into three categories:

  • 5G Non-standalone core (5G NSA core) deployments: The 5G NSA core (agreed as part of 3GPP Release in December 2017), involves using a virtualised and upgraded version of the existing 4G core (or EPC) to support 5G New Radio (NR) wireless transmission in tandem with existing LTE services. This was the first form of 5G to be launched and still accounts for 75% of all 5G core network deployments in our Tracker.
  • 5G Standalone core (5G SA core) deployments: The SA core is a completely new and 5G-only core. It has a simplified, cloud-native and distributed architecture, and is designed to support services and functions such as network slicing, Ultra-Reliable Low-Latency Communications (URLLC) and enhanced Machine-Type Communications (eMTC, i.e. massive IoT). Our Tracker indicates that the upcoming wave of 5G core deployments in 2022 and 2023 will be mostly 5G SA core.
  • Converged 5G NSA/SA core deployments: this is when a dual-mode NSA and SA platform is deployed; in most cases, the NSA core results from the upgrade of an existing LTE core (EPC) to support 5G signalling and radio. The principle behind a converged NSA/SA core is the ability to orchestrate different combinations of containerised network functions, and automatically and dynamically flip over from an NSA to an SA configuration, in tandem – for example – with other features and services such as Dynamic Spectrum Sharing and the needs of different network slices. For this reason, launching a converged NSA/SA platform is a marker of a more cloud-native approach in comparison with a simple 5G NSA launch. Ericsson is the most commonly found vendor for this type of platform with a handful coming from Huawei, Samsung and WorkingGroupTwo. Albeit interesting, converged 5G NSA/SA core deployments remain a minority (7% of all 5G core deployments over the 2018-2023 period) and most of our commentary will therefore focus on 5G NSA and 5G SA core launches.

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75% of 5G cores are still Non-standalone (NSA)

Global 5G core deployments by type, 2018–23

  • There is renewed activity this year in 5G core launches since the total number of 5G core deployments so far in 2022 (effective and in progress) stands at 49, above the 47 logged in the whole of 2021. At the very least, total 5G deployments in 2022 will settle between the level of 2021 and the peak of 2020 (97).
  • 5G in whichever form now exists in most places where it was both in demand and affordable; but there remain large economies where it is yet to be launched: Turkey, Russia and most notably India. It also remains to be launched in most of Africa.
  • In countries with 5G, the next phase of launches, which will see the migration of NSA to SA cores, has yet to take place on a significant scale.
  • To date, 75% of all 5G cores are NSA. However, 5G SA will outstrip NSA in terms of deployments in 2022 and represent 24 of the 49 launches this year, or 34 if one includes converged NSA/SA cores as part of the total.
  • All but one of the 5G launches announced for 2023 are standalone; they all involve Tier-1 MNOs including Orange (in its European footprint involving Ericsson and Nokia), NTT Docomo in Japan and Verizon in the US.

The upcoming wave of SA core (and open / vRAN) represents an evolution towards cloud-native

  • Cloud-native functions or CNFs are software designed from the ground up for deployment and operation in the cloud with:​
  • Portability across any hardware infrastructure or virtualisation platform​
  • Modularity and openness, with components from multiple vendors able to be flexibly swapped in and out based on a shared set of compute and OS resources, and open APIs (in particular, via software ‘containers’)​
  • Automated orchestration and lifecycle management, with individual micro-services (software sub-components) able to be independently modified / upgraded, and automatically re-orchestrated and service-chained based on a persistent, API-based, ‘declarative’ framework (one which states the desired outcome, with the service chain organising itself to deliver the outcome in the most efficient way)​
  • Compute, resource, and software efficiency: as a concomitant of the automated, lean and logically optimal characteristics described above, CNFs are more efficient (both functionally and in terms of operating costs) and consume fewer compute and energy resources.​
  • Scalability and flexibility, as individual functions (for example, distributed user plane functions in 5G networks) can be scaled up or down instantly and dynamically in response to overall traffic flows or the needs of individual services​
  • Programmability, as network functions are now entirely based on software components that can be programmed and combined in a highly flexible manner in accordance with the needs of individual services and use contexts, via open APIs.​

Previous telco cloud tracker releases and related research

Each new release of the tracker is global, but is accompanied by an analytical report which focusses on trends in given regions from time to time:

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Are telcos smart enough to make money work?

Telco consumer financial services propositions

Telcos face a perplexing challenge in consumer markets. On the one hand, telcos’ standing with consumers has improved through the COVID-19 pandemic, and demand for connectivity is strong and continues to grow. On the other hand, most consumers are not spending more money with telcos because operators have yet to create compelling new propositions that they can charge more for. In the broadest sense, telcos need to (and can in our view) create more value for consumers and society more generally.

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As discussed in our previous research, we believe the world is now entering a “Coordination Age” in which multiple stakeholders will work together to maximize the potential of the planet’s natural and human resources. New technologies – 5G, analytics, AI, automation, cloud – are making it feasible to coordinate and optimise the allocation of resources in real-time. As providers of connectivity that generates vast amounts of relevant data, telcos can play an important role in enabling this coordination. Although some operators have found it difficult to expand beyond connectivity, the opportunity still exists and may actually be expanding.

In this report, we consider how telcos can support more efficient allocation of capital by playing in the financial services sector.  Financial services (banking) sits in a “sweet spot” for operators: economies of scale are available at a national level, connected technology can change the industry.

Financial Services in the Telecoms sweet spot

financial services

Source STL Partners

The financial services industry is undergoing major disruption brought about by a combination of digitisation and liberalisation – new legislation, such as the EU’s Payment Services Directive, is making it easier for new players to enter the banking market. And there is more disruption to come with the advent of digital currencies – China and the EU have both indicated that they will launch digital currencies, while the U.S. is mulling going down the same route.

A digital currency is intended to be a digital version of cash that is underpinned directly by the country’s central bank. Rather than owning notes or coins, you would own a deposit directly with the central bank. The idea is that a digital currency, in an increasingly cash-free society, would help ensure financial stability by enabling people to store at least some of their money with a trusted official platform, rather than a company or bank that might go bust. A digital currency could also make it easier to bring unbanked citizens (the majority of the world’s population) into the financial system, as central banks could issue digital currencies directly to individuals without them needing to have a commercial bank account. Telcos (and other online service providers) could help consumers to hold digital currency directly with a central bank.

Although the financial services industry has already experienced major upheaval, there is much more to come. “There’s no question that digital currencies and the underlying technology have the potential to drive the next wave in financial services,” Dan Schulman, the CEO of PayPal told investors in February 2021. “I think those technologies can help solve some of the fundamental problems of the system. The fact that there’s this huge prevalence and cost of cash, that there’s lack of access for so many parts of the population into the system, that there’s limited liquidity, there’s high friction in commerce and payments.”

In light of this ongoing disruption, this report reviews the efforts of various operators, such as Orange, Telefónica and Turkcell, to expand into consumer financial services, notably the provision of loans and insurance. A close analysis of their various initiatives offers pointers to the success criteria in this market, while also highlighting some of the potential pitfalls to avoid.

Table of contents

  • Executive Summary
  • Introduction
  • Potential business models
    • Who are you serving?
    • What are you doing for the people you serve?
    • M-Pesa – a springboard into an array of services
    • Docomo demonstrates what can be done
    • But the competition is fierce
  • Applying AI to lending and insurance
    • Analysing hundreds of data points
    • Upstart – one of the frontrunners in automated lending
    • Takeaways
  • From payments to financial portal
    • Takeaways
  • Turkcell goes broad and deep
    • Paycell has a foothold
    • Consumer finance takes a hit
    • Regulation moving in the right direction
    • Turkcell’s broader expansion plans
    • Takeaways
  • Telefónica targets quick loans
    • Growing competition
    • Elsewhere in Latin America
    • Takeaways
  • Momentum builds for Orange
    • The cost of Orange Bank
    • Takeaways
  • Conclusions and recommendations
  • Index

This report builds on earlier STL Partners research, including:

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Personal data: Treasure or trash?

Introduction

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

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

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

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

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

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In pursuit of personal cloud services

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

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

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

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

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

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

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

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

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

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

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

Contents:

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

Figures:

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

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NTT DoCoMo: The Digital Pathfinder

The need for telco transformation

Shrinking revenues in voice and data mean telcos need to change

Telcos are facing difficult times; as we wrote in a recent report – Which operator growth strategies will remain viable in 2017 and beyond? – the days of meteoric growth are in the past, and telcos need to find a new approach to prevent a dramatic decline in their revenues. This is not a new story; STL Partners has been writing about this phenomenon and the need for business model change since 2006. In the afore-mentioned report we discussed seven different growth strategies used by telcos between 2009 and mid-2016, and came to the conclusion that only one, which involves developing or acquiring new businesses and services, is viable for 2017 and beyond if the industry is to reignite sustainable growth.

Digital services are an important part of this growth strategy. In fact, as Figure 1 shows, STL Partners estimates that digital business should represent 25+% of Telco revenue by 2020 to avoid long-term industry decline.

Figure 1 – Transformation priorities are different for every operator

However, the move to digital is difficult for telcos, who have traditionally relied on an infrastructure-based business model. Digital businesses are very different, and to be successful here telcos will need to make a fundamental shift from their traditional infrastructure-based business model to a complex amalgam of infrastructure, platform, and product innovation businesses.

One of STL Partners’ global observations is that all operators have different goals in the pursuit of transformation. This was also true with the group in Singapore, as shown by the following chart of a vote on the priorities assigned to different transformation objectives.

NTT DoCoMo – an example for other operators

With this in mind, telcos need to think about how they will develop new businesses and services. NTT DoCoMo provides a useful example for other telcos because it has done more than any other operator globally to develop digital services.

However, some people claim that the Japanese mobile market is so unique that it does not provide a useful role model for telcos in other markets. STL Partners disagrees with this point of view. Although the Japanese mobile market does have some unique characteristics, in some cases what was originally thought of as “unique” has just been proved to be “advanced.” An example of this is the popularity of apps and the iPhone – before this it was claimed that Japanese consumers were more engaged than those in other markets with mobile games and gadgets – however, the worldwide popularity of the iPhone and smartphones has disproved this.

In fact, although not advanced in every area, the Japanese mobile market has experienced several key phenomena earlier than other countries, such as an early peak in revenues and market disruption from non-telcos. Therefore, STL Partners thinks telcos should be examining the Japanese market to help them prepare for the future challenges of their own. Examples of this can be found in NTT DoCoMo’s annual reports – as early as 1999 the company was talking about the need to develop new sources of revenue (such as digital services and machine-to-machine communications) because of the inevitable decline in voice.

We therefore think that, although telcos in different markets cannot replicate NTT DoCoMo’s strategy in Japan like-for-like, they can certainly adopt similar practices to help them succeed in the digital telco world.

 

  • Executive Summary
  • Introduction
  • Objectives
  • Methodology
  • The need for telco transformation
  • Shrinking revenues in voice and data mean telcos need to change
  • NTT DoCoMo – an example for other operators
  • A snapshot of the Japanese mobile market
  • NTT DoCoMo’s history
  • A mature home market…
  • Softbank disrupts the market
  • NTT DoCoMo’s digital journey
  • Early recognition of the telco challenge, but regulation dictates the direction of evolution
  • An incremental journey to digital success
  • Adapting to the post-iPhone world
  • Can NTT DoCoMo’s digital success work overseas?
  • What was i-mode and why did it fail outside Japan?
  • What can other operators learn from NTT DoCoMo’s digital journey?

 

  • Figure 1: Traditional telco revenues forecast to continue declining
  • Figure 2: NTT Corporation, NTT DoCoMo’s parent company
  • Figure 3: Japanese mobile subscriber data, 1999-2015
  • Figure 4: Japanese mobile operators’ annual revenues, 1994-2014
  • Figure 5: NTT DoCoMo quarterly revenue – by business segment
  • Figure 6: NTT DoCoMo’s digital innovation milestones
  • Figure 7: Before and after DoCoMo ID
  • Figure 8: +d’s social value in health, education and agriculture
  • Figure 8: i-mode subscriptions – a runaway success in Japan

Reality Check: Are operators’ lofty digital ambitions unrealistic given slow progress to date?

Growing telco ambitions in new (digital) business models

Telco execs are bullish about long-term prospects for new digital business models

Respondents believe new business model revenues should reach nearly 25% of total telecom revenue by 2020

Despite recent evidence in Europe of material revenue decline from telecoms operators, the executives that STL Partners canvassed in its recent global survey  were relatively optimistic about the opportunities for revenue growth from new business models.  On average, executives felt that revenue from new digital business models  should reach 9% of total revenue in 2015 and this should rise to 24% by 2020 (see Figure 1).

In the case of 2015, 9% is way beyond what will be achieved by most players and probably represents respondents’ theoretical target that their organisation should have achieved by the end of this year if management had invested more effort in building new revenue sources earlier: it is where their organisation should be in an ideal world.   One of the few operators in the world that is at this level of digital revenues is NTT DoCoMo.  We explore its digital activities later in this report.

24% of telecoms revenue coming from new business models in 2020 is also ambitious but STL Partners considers this a realistic target and one which would probably result in the overall telecoms market being no bigger than it was in 2013 – see the forecast on page 15.

Two drivers of digital business model importance to operators: digital revenue growth and core business revenue decline

A key question for the industry is whether the 2020 target can be achieved by growing material new business model revenues in tandem with limited voice, messaging and connectivity decline or whether it could result from an implosion of these Telco 1.0 revenues.  In other words, modest new business model revenue could be 24% of a very much smaller overall telecoms market if voice, messaging and connectivity revenues suffer a precipitous decline.

Figure 2 charts the quarterly revenue for six European markets and illustrates a range of trajectories for telecoms revenues.  At one extreme is Denmark where telecoms revenue in Q3 2014 was nearly 40% lower than Q1 2008.  At the other extreme are the UK and French markets where the figure is 3% and 7% lower respectively.  Clearly, if most telecoms markets follow the Danish route then the opportunity for modest digital revenues to become important to operators grows substantially.  Interestingly, in most of the six markets, 2013 and 2014 has seen revenues stabilising (at least among operators that publish accounts which split out those markets over the time period) and in some cases, such as the UK and Netherlands, growth has been achieved from the lows of 2012.

STL Partners’ global forecast lies somewhere between the two extremes outlined in Figure 2: we believe that core telecoms revenues will decline by around 25% between 2013 and 2020.  If this is indeed the case then for digital revenues to represent 24% of telecoms revenue, they will need to be very material – around $250 billion for mobile telecoms alone!

Figure 1: Digital business model revenue ambition, 2015 and 2020

Source: STL Partners/Telco 2.0 Operator Survey, November 2014, n=55

Figure 2: Telecoms quarterly revenue in 6 European markets

Source: Telecoms company accounts, STL Partners analysis
Note: Revenue is for operators reporting quarterly figures for each market. As a result, not all market revenue is captured.

Belief in the importance of future telecoms business models varies greatly by business function and by geography

Respondents from Network functions were most bullish; IT respondents most pessimistic

Where there were 10 or more respondents in a functional or geographic group, we examined the responses for that group.  As Figure 3 shows, there were wide differences in ambition for digital services by functional area with respondents from Network being far more bullish than those in IT:  the former suggesting 30% of 2020 revenue should come from digital services compared with only 14% from IT.

North American respondents seem to anticipate unrealistic digital business growth

There was a consistency among functional groups in their ambitions for digital services: those that were more bullish for 2015 remained more so for 2020.  This contrasted with the regional split in which North American respondents believed the ‘correct’ proportion of revenue from digital services in 2015 is 7% (compared with 10% for Europe and Asia) rising to a formidable 26% in 2020.  This suggests that North American executives remain confident that their organisations can compete effectively in consumer and enterprise digital markets despite the US, in particular, being the home market of many formidable digital players: Google, Facebook, Amazon, Microsoft, Salesforce, Twitter, and so forth.

To put the North American perspective in perspective: if STL Partners’ global forecast for core telecoms services holds true in the US then a $120bn revenue telecoms company, such as Verizon, will lose around $30 billion in core service revenues by 2020.  In this scenario, for Verizon to end up the same size as it is now in 2020, it will have to replace this $30 billion with new digital business revenues (which would equate roughly to the 26% proposed by North American respondents).  In our deep-dive analysis of Verizon for the Telco 2.0 Transformation Index, STL Partners estimated that Verizon generated around $2.9 billion in Telco 2.0 digital business model revenues (around 2.4% of total revenue) in 2013.  For that $2.9 billion to grow to $30 billion by 2020 requires compound annual growth of a whopping 40% per year: a tall order indeed and one that is almost certainly unrealistic.

Middle Eastern respondents least ambitious: signs of complacency?

Unsurprisingly, the Middle Eastern respondents whose companies are enjoying continued growth in core telecoms services and, in many countries advantageous regulatory environments, were least bullish about digital services in the near and longer term.  The danger for this region is complacency: operators are in a similar position to those in Europe in 2007.  European operators failed to prepare early enough for core service decline – most digital activities were not kicked off until 2012 by which time aggregate revenue from voice, messaging and connectivity was either flat or in decline in most markets.

Figure 3: Average digital business model revenue ambition, 2015 and 2020 by function and geography

Source: STL Partners/Telco 2.0 Operator Survey, November 2014, n=55

 

  • Executive Summary
  • Growing telco ambitions in new (digital) business models
  • Telco execs are bullish about long-term prospects for new digital business models
  • Belief in the importance of future telecoms business models varies greatly by business function and by geography
  • Telco execs’ views on digital business Opex and Capex investment are closely correlated with their views on revenue growth
  • Calculating a telecoms digital business P&L:  Moving from investment in 2015 to (unrealistically?) strong returns in 2020
  • STL Partners’ forecast suggests that new digital business should be 25+% of revenue by 2020 to avoid long-term industry decline
  • The outlook for Telco 1.0 business models is not positive and Telco 2.0 business models are required to fill the gap
  • Investment in new business models is increasing but results from the Telco 2.0 Transformation Index suggest it is still inadequate to engender success
  • Scale of NTT DoCoMo’s ‘new digital business’ suggests bold vision is realistic for some players
  • Long-term downward trend in Telco 1.0 core services in Japan with digital services a ‘gap-filler’
  • Smart Life: A cloud-based (OTT) consumer-centric approach to digital services
  • A digital business has fundamentally different characteristics to a telecoms business
  • 9 challenges to overcome and all are important
  • Overall, operator progress on all 9 challenges remains slow
  • Too little progress on core challenges from most operators
  • What next?  Forthcoming STL Partners’ Telco 2.0 research supporting telecoms transformation
  • Appendix 1: Survey details
  • Appendix 2: Telco 2.0 Transformation Index overview

 

  • Figure 1: Digital business model revenue ambition, 2015 and 2020
  • Figure 2: Telecoms quarterly revenue in 6 European markets
  • Figure 3: Average digital business model revenue ambition, 2015 and 2020 by function and geography
  • Figure 4: Average required Digital Business Opex and Capex, 2015 & 2020
  • Figure 5: Digital Business P&L for a $100 billion revenue telecoms operator, 2015 vs 2020, $ Billions
  • Figure 6: STL Partners’ global mobile telecoms forecast by opportunity area
  • Figure 7: STL Partners Telco 2.0 Transformation Index summary results, December 2014
  • Figure 8: NTT DoCoMo quarterly voice, data and ‘other’ revenue, Mar 2007-Sep 2014
  • Figure 9: Smart Life – NTT DoCoMo’s customer-centric approach to transformation
  • Figure 10: Different companies…different business models – the change that telecoms operators are trying to make
  • Figure 11: 9 challenges scored by ‘importance for operator digital transformation and future success’
  • Figure 12: The degree to which operators have addressed the 9 challenges
  • Figure 13: Strategists are much more bullish than other functions about their organisation’s transformation progress
  • Figure 14: Lots to change…and its taking too long
  • Figure 15: Operators appear to be at very different stages of resolving the ‘Big 6’ challenges
  • Figure 16: Defining Digital Services

 

Mobile Marketing and Commerce: the technology battle between NFC, BLE, SIM, & Cloud

Introduction

In this briefing, we analyse the bewildering array of technologies being deployed in the on-going mobile marketing and commerce land-grab. With different digital commerce brokers backing different technologies, confusion reigns among merchants and consumers, holding back uptake. Moreover, the technological fragmentation is limiting economies of scale, keeping costs too high.

This paper is designed to help telcos and other digital commerce players make the right technological bets. Will bricks and mortar merchants embrace NFC or Bluetooth Low Energy or cloud-based solutions? If NFC does take off, will SIM cards or trusted execution environments be used to secure services? Should digital commerce brokers use SMS, in-app notifications or IP-based messaging services to interact with consumers?

STL defines Digital Commerce 2.0 as the use of new digital and mobile technologies to bring buyers and sellers together more efficiently and effectively (see Digital Commerce 2.0: New $Bn Disruptive Opportunities for Telcos, Banks and Technology Players).  Fast growing adoption of mobile, social and local services is opening up opportunities to provide consumers with highly-relevant advertising and marketing services, underpinned by secure and easy-to-use payment services. By giving people easy access to information, vouchers, loyalty points and electronic payment services, smartphones can be used to make shopping in bricks and mortar stores as interactive as shopping through web sites and mobile apps.

This executive briefing weighs the pros and cons of the different technologies being used to enable mobile commerce and identifies the likely winners and losers.

A new dawn for digital commerce

This section explains the driving forces behind the mobile commerce land-grab and the associated technology battle.

Digital commerce is evolving fast, moving out of the home and the office and onto the street and into the store. The advent of mass-market smartphones with touchscreens, full Internet browsers and an array of feature-rich apps, is turning out to be a game changer that profoundly impacts the way in which people and businesses buy and sell.  As they move around, many consumers are now using smartphones to access social, local and mobile (SoLoMo) digital services and make smarter purchase decisions. As they shop, they can easily canvas opinion via Facebook, read product reviews on Amazon or compare prices across multiple stores. In developed markets, this phenomenon is now well established. Two thirds of 400 Americans surveyed in November 2013 reported that they used smartphones in stores to compare prices, look for offers or deals, consult friends and search for product reviews.

At the same time, the combination of Internet and mobile technologies, embodied in the smartphone, is enabling businesses to adopt new forms of digital marketing, retailing and payments that could dramatically improve their efficiency and effectiveness. The smartphones and the data they generate can be used to optimise and enable every part of the entire ‘wheel of commerce’ (see Figure 4).

Figure 4: The elements that make up the wheel of commerce

The elements that make up the wheel of commerce Feb 2014

Source: STL Partners

The extensive data being generated by smartphones can give companies’ real-time information on where their customers are and what they are doing. That data can be used to improve merchants’ marketing, advertising, stock management, fulfilment and customer care. For example, a smartphone’s sensors can detect how fast the device is moving and in what direction, so a merchant could see if a potential customer is driving or walking past their store.

Marketing that makes use of real-time smartphone data should also be more effective than other forms of digital marketing. In theory, at least, targeting marketing at consumers in the right geography at a specific time should be far more effective than simply displaying adverts to anyone who conducts an Internet search using a specific term.

Similarly, local businesses should find sending targeted vouchers, promotions and information, delivered via smartphones, to be much more effective than junk mail at engaging with customers and potential customers. Instead of paying someone to put paper-based vouchers through the letterbox of every house in the entire neighbourhood, an Indian restaurant could, for example, send digital vouchers to the handsets of anyone who has said they are interested in Indian food as they arrive at the local train station between 7pm and 9pm in the evening. As it can be precisely targeted and timed, mobile marketing should achieve a much higher return on investment (ROI) than a traditional analogue approach.

In our recent Strategy Report, STL Partners argued that the disruption in the digital commerce market has opened up two major opportunities for telcos:

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

These two opportunities are inter-related and could be combined in a single platform. In both cases, the telco is acting as a broker – matching buyers and sellers as efficiently as possible, competing with incumbent digital commerce brokers, such as Google, Amazon, eBay and Apple. The Strategy Report explains in detail how telcos could pursue these opportunities and potentially compete with the giant Internet players that dominate digital commerce today.

For most telcos, the best approach is to start with mobile commerce, where they have the strongest strategic position, and then use the resulting data, customer relationships and trusted brand to expand into personal cloud services, which will require high levels of investment. This is essentially NTT DOCOMO’s strategy.

However, in the mobile commerce market, telcos are having to compete with Internet players, banks, payment networks and other companies in land-grab mode – racing to sign up merchants and consumers for platforms that could enable them to secure a pivotal (and potentially lucrative) position in the fast growing mobile commerce market. Amazon, for example, is pursuing this market through its Amazon Local service, which emails offers from local merchants to consumers in specific geographic areas.

Moreover, a bewildering array of technologies are being used to pursue this land-grab, creating confusion for merchants and consumers, while fuelling fragmentation and limiting economies of scale.

In this paper, we weigh the pros and cons of the different technologies being used in each segment of the wheel of commerce, before identifying the most likely winners and losers. Note, the appendix of the Strategy Report profiles many of the key innovators in this space, such as Placecast, Shopkick and Square.

What’s at stake

This section considers the relative importance of the different segments of the wheel of commerce and explains why the key technological battles are taking place in the promote and transact segments.

Carving up the wheel of commerce

STL Partners’ recent Strategy Report models in detail the potential revenues telcos could earn from pursuing the real-time commerce and personal cloud opportunities. That is beyond the scope of this technology-focused paper, but suffice to say that the digital commerce market is large and is growing rapidly: Merchants and brands spend hundreds of billions of dollars across the various elements of the wheel of commerce. In the U.S., the direct marketing market alone is worth about $155 billion per annum, according to the Direct Marketing Association. In 2012, $62 billion of that total was spent on digital marketing, while about $93 billion was spent on traditional direct mail.

In the context of the STL Wheel of Commerce (see Figure 3), the promote segment (ads, direct marketing and coupons) is the most valuable of the six segments. Our analysis of middle-income markets for clients suggests that the promote segment accounts for approximately 40% of the value in the wheel of digital commerce today, while the transact segment (payments) accounts for 20% and planning (market research etc.) 16% (see Figure 5). These estimates draw on data released by WPP and American Express.

Note, that payments itself is a low margin business – American Express estimates that merchants in the U.S. spend four to five times as much on marketing activities, such as loyalty programmes and offers, as they do on payments.

Figure 5: The relative size of the segments of the wheel of commerce

The relative size of the segments of the wheel of commerce Feb 2014

Source: STL Partners

 

  • Introduction
  • Executive Summary
  • A new dawn for digital commerce
  • What’s at stake
  • Carving up the wheel of commerce
  • The importance of tracking transactions
  • It’s all about data
  • Different industries, different strategies
  • Tough technology choices
  • Planning
  • Promoting
  • Guiding
  • Transacting
  • Satisfying
  • Retaining
  • Conclusions
  • Key considerations
  • Likely winners and losers
  • The commercial implications
  • About STL Partners

 

  • Figure 1: App notifications are in pole position in the promotion segment
  • Figure 2: There isn’t a perfect point of sale solution
  • Figure 3: Different tech adoption scenarios and their commercial implications
  • Figure 4: The elements that make up the wheel of commerce
  • Figure 5: The relative size of the segments of the wheel of commerce
  • Figure 6: Examples of financial services-led digital wallets
  • Figure 7: Examples of Mobile-centric wallets in the U.S.
  • Figure 8: The mobile commerce strategy of leading Internet players
  • Figure 9: Telcos can combine data from different domains
  • Figure 10: How to reach consumers: The technology options
  • Figure 11: Balancing cost and consumer experience
  • Figure 12: An example of an easy-to-use tool for merchants
  • Figure 13: Drag and drop marketing collateral into Google Wallet
  • Figure 14: Contrasting a secure element with host-based card emulation
  • Figure 15: There isn’t a perfect point of sale solution
  • Figure 16: The proportion of mobile transactions to be enabled by NFC in 2017
  • Figure 17: Integrated platforms and point solutions both come with risks attached
  • Figure 18: Different tech adoption scenarios and their commercial implications

Digital Commerce 2.0: New $50bn Disruptive Opportunities for Telcos, Banks and Technology Players

Introduction – Digital Commerce 2.0

Digital commerce is centred on the better use of the vast amounts of data created and captured in the digital world. Businesses want to use this data to make better strategic and operational decisions, and to trade more efficiently and effectively, while consumers want more convenience, better service, greater value and personalised offerings. To address these needs, Internet and technology players, payment networks, banks and telcos are vying to become digital commerce intermediaries and win a share of the tens of billions of dollars that merchants and brands spend finding and serving customers.

Mobile commerce is frequently considered in isolation from other aspects of digital commerce, yet it should be seen as a springboard to a wider digital commerce proposition based on an enduring and trusted relationship with consumers. Moreover, there are major potential benefits to giving individuals direct control over the vast amount of personal data their smartphones are generating.

We have been developing strategies in these fields for a number of years, including our engagement with the World Economic Forum’s (WEF) Rethinking Personal Data project, and ongoing research into user data and privacy, digital money and payments, and digital advertising and marketing.

This report brings all of these themes together and is the first comprehensive strategic playbook on how smartphones and authenticated personal data can be combined to deliver a compelling digital commerce proposition for both merchants and consumers. It will save customers valuable time, effort and money by providing a fast-track to developing and / or benchmarking a leading edge strategy and approach in the fast-evolving new world of digital commerce.

Benefits of the Report to Telcos, Other Players, Investors and Merchants


For telcos, this strategy report:

  • Shows how to evaluate and implement a comprehensive and successful digital commerce strategy worth up to c.$50bn (5% of core revenues in 5 years)
  • Saves time and money by providing a fast-track for decision making and an outline business case
  • Rapidly challenges / validates existing strategy and services against relevant ‘best in class’, including their peers, ‘OTT players’ and other leading edge players.


For other players including Internet companies, technology vendors, banks and payment networks:

  • The report provides independent market insight on how telcos and other players will be seeking to generate $ multi-billion revenues from digital commerce
  • As a potential partner, the report will provide a fast-track to guide product and business development decisions to meet the needs of telcos (and others) that will need to make commensurate investment in technologies and partnerships to achieve their value creation goals
  • As a potential competitor, the report will save time and improve the quality of competitor insight by giving a detailed and independent picture of the rationale and strategic approach you and your competitors will need to take


For merchants building digital commerce strategies, it will:

 

  • Help to improve revenue outlook, return on investment and shareholder value by improving the quality of insight to strategic decisions, opportunities and threats lying ahead in digital commerce
  • Save vital time and effort by accelerating internal decision making and speed to market


For investors, it will:

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

Digital Commerce 2.0: Report Content Summary

  • Executive Summary. (9 pages outlining the opportunity and key strategic options)
  • Strategy. The shape and scope of the opportunities, the convergence of personal data, mobile, digital payments and advertising, and personal cloud. The importance of giving consumers control. and the nature of the opportunity, including Amazon and Vodafone case studies.
  • The Marketplace. Cultural, commercial and regulatory factors, and strategies of the market leading players. Further analysis of Google, Facebook, Apple, eBay and PayPal, telco and financial services market plays.
  • The Value Proposition. How to build attractive customer propositions in mobile commerce and personal cloud. Solutions for banked and unbanked markets, including how to address consumers and merchants.
  • The Internal Value Network. The need for change in organisational structure in telcos and banks, including an analysis of Telefonica and Vodafone case studies.
  • The External Value Network. Where to collaborate, partner and compete in the value chain – working with telcos, retailers, banks and payment networks. Building platforms and relationships with Internet players. Case studies include Weve, Isis, and the Merchant Customer Exchange.
  • Technology. Making appropriate use of personal data in different contexts. Tools for merchants and point-of-sale transactions. Building a flexible, user-friendly digital wallet.
  • Finance. Potential revenue streams from mobile commerce, personal cloud, raw big data, professional services, and internal use.
  • Appendix – the cutting edge. An analysis of fourteen best practice and potentially disruptive plays in various areas of the market.