Will web 3.0 change the role of telcos?

Introduction

Over the past 12 months or so, the notion that the Internet is about to see another paradigm shift has received a lot of airtime. Amid all the dissatisfaction with way the Internet works today, the concept of a web 3.0 is gaining traction. At a very basic level, web 3.0 is about using blockchains (distributed ledgers) to bring about the decentralisation of computing power, resources, data and rewards.

STL Partners has written extensively about the emergence of blockchains and the opportunities they present for telcos. But this report takes a different perspective – it considers whether blockchains and the decentralisation they embody will fix the public Internet’s flaws and usher in a new era of competition and innovation. It also explores the potential role of telcos in reinventing the web in this way and whether it is in their interests to support the web 3.0 movement or protect the status quo.

Our landmark report The Coordination Age: A third age of telecoms explained how reliable and ubiquitous connectivity can enable companies and consumers to use digital technologies to efficiently allocate and source assets and resources. In the case of web 3.0, telcos could help develop solutions and services that can help bridge the gap between the fully decentralised vision of libertarians and governments’ desire to retain control and regulate the digital world.

As it considers the opportunities for telcos, this report draws on the experiences and actions of Deutsche Telekom, Telefónica and Vodafone. It also builds on previous STL Partners reports including:

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What do we mean by web 3.0?

The term web 3.0 is widely used to refer to the next step change in the evolution of the Internet. For some stakeholders, it is about the integration of the physical world and the digital world through the expansion of the Internet of Things, the widespread use of digital twins and augmented reality and virtual reality. This concept, which involves the capture and the processing of vast amounts of real-time, real-world data, is sometimes known as the spatial web.

While recognising the emergence of a spatial web, Nokia, for example, has defined web 3.0 as a “visually dynamic smart web” that harness artificial intelligence (AI) and machine learning (ML). It describes web 3.0 as an evolution of a “semantic web” with capacity to understand knowledge and data. Nokia believes that greater interconnectivity between machine-readable data and support for the evolution of AI and ML across “a distributed web” could remake ecommerce entirely.

Note, some of these concepts have been discussed for more than a decade. The Economist wrote about the semantic web in 2008, noting then that some people were trying to rebrand it web 3.0.

Today, the term web 3.0 is most widely used as a shorthand for a redistribution of power and data – the idea of decentralising the computation behind Internet services and the rewards that then ensue. Instead of being delivered primarily by major tech platforms, web 3.0 services would be delivered by widely-distributed computers owned by many different parties acting in concert and in line with specific protocols. These parties would be rewarded for the work that their computers do.

This report will focus primarily on the latter definition. However, the different web 3.0 concepts can be linked. Some commentators would argue that the vibrancy and ultimate success of the spatial web will depend on decentralisation. That’s because processing the real-world data captured by a spatial web could confer extraordinary power to the centralised Internet platforms involved. Indeed, Deloitte has made that link (see graphic below).

In fact, one of the main drivers of the web 3.0 movement is a sense that a small number of tech platforms have too much power on today’s Internet. The contention is that the current web 2.0 model reinforces this position of dominance by funnelling more and more data through their servers, enabling them to stay ahead of competitors. For web 3.0 proponents, the remedy is to redistribute these data flows across many thousands of different computers owned by different entities.  This is typically accomplished using what is known as decentralised apps (dapps) running on a distributed ledger (often referred to as a blockchain), in which many different computers store the code and then record each related interaction/transaction.

The spatial web and web 3.0 – two sides of the same coin?

Spacial-web-Web3-Deloitte

Source: Deloitte

For many commentators, distributed ledgers are at the heart of web 3.0 because they enable the categorisation and storage of data without the need for any central points of control. In an article it published online, Nokia predicted new application providers will displace today’s tech giants with a highly distributed infrastructure in which users own and control their own data. “Where the platform economy gave birth to companies like Uber, Airbnb, Upwork, and Alibaba, web 3.0 technology is driving a new era in social organization,” Nokia argues. “Leveraging the convergence of AI, 5G telecommunications, and blockchain, the future of work in the post-COVID era is set to look very different from what we’re used to. As web 3.0 introduces a new information and communications infrastructure, it will drive new forms of distributed social organisation…Change at this scale could prove extremely challenging to established organisations, but many will adapt and prosper.”

Nokia appears to have published that article in March 2021, but the changes it predicted are likely to happen gradually over an extended period. Distributed ledgers or blockchains are far from mature and many of their flaws are still being addressed. But there is a growing consensus that they will play a significant role in the future of the Internet.

Nokia itself is hoping that the web 3.0 movement will lead to rising demand for programmable networks that developers can harness to support decentralised services and apps. In June 2022, the company published a podcast in which Jitin Bhandari, CTO of Cloud and Network Services at Nokia, discusses the concept of “network as code” by which he means the creation of a persona of the network that can be programmed by ecosystem developers and technology application partners “in domains of enterprise, in domains of web 2.0 and web 3.0 technologies, in domains of industry 4.0 applications, in scenarios of operational technology (OT) applications.”  Nokia envisions that 5G networks will be able to participate in what it calls distributed service chains – the interlinking of multiple service providers to create new value.

Although blockchains are widely associated with Bitcoin, they can enable much more than crypto-currencies. As a distributed computer, a blockchain can be used for multiple purposes – it can store the number of tokens in a wallet, the terms of a self-executing contract, or the code for a decentralised app.

As early as 2014, Gavin Wood, the founder of the popular Ethereum blockchain, laid out a vision that web 3.0 will enable users to exchange money and information on the web without employing a middleman, such as a bank or a tech company. As a result, people would have more control over their data and be able to sell it if they choose.

Today, Ethereum is one of the most widely used (and trusted) blockchains. It bills itself as a permissionless blockchain, which means no one controls access to the service – there are no gatekeepers.

Still, as the Ethereum web site acknowledges, there are several disadvantages to web 3.0 decentralisation, as well as advantages. The graphic below which draws on Ethereum’s views and STL analysis, summarises these pros and cons.

Table of Contents

  • Executive Summary
    • Three ways in which telcos can support web 3.0
    • Challenges facing web 3.0
  • Introduction
  • What do we mean by web 3.0?
    • Transparency versus privacy
    • The money and motivations behind web 3.0
    • Can content also be unbundled?
    • Smart contracts and automatic outcomes
    • Will we see decentralised autonomous organisations?
    • Who controls the user experience?
    • Web 3.0 development on the rise
  • The case against web 3.0
    • Are blockchains really the way forward?
    • Missteps and malign forces
  • Ironing out the wrinkles in blockchains
  • Could and should telcos help build web 3.0?
    • Validating blockchains
    • Telefónica: An interface to blockchains
    • Vodafone: Combining blockchains with the IoT
  • Conclusions

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Regulation: A Good Case for Change (at last)

Introduction

As one of the most regulated sectors of the economy, telecoms services are the product of a complex mix of market forces and a multitude of rules governing everything from prices to the availability of spectrum. Many of these rules date from the days when an incumbent telco, often state-owned, was the dominant player in the market and needed to be carefully scrutinised by regulators. However, some of these rules, such as those governing Net Neutrality, are relatively new and relate to telcos’ role as the gateway to the Internet, which has become so fundamental to modern life. For more on this topic, please see STL Partners’ recent report: Net Neutrality 2021: IoT, NFV and 5G ready?

As telcos’ profitability has come under increasing pressure, they are lobbying hard for greater regulatory freedom. This report outlines and analyses telcos’ various campaigns to improve the business case for infrastructure investment and level the playing field with Internet players, such as Google and Facebook. It also considers whether telcos are actually putting their money where their mouth is. Is the current regulatory and competitive climate actually prompting them to cut back on investment? What will be the impact on 5G?

For their part, governments are increasingly aware of the need to stimulate new investments and new solutions in the digital economy. Greater digitisation could help solve important socio-economic problems. For example, most governments believe that digital technologies can improve the business environment, and support lower-cost, but effective, healthcare, education and security services, that will make their economies function and grow. The EU, for example, is trying to build a Digital Single Market, while the Indian government’s Digital India initiative aims to make all public services available online.

Thus governments need telcos and tech companies to succeed. Given that telcos are typically more national than global in their outlook and organisation, they tend to seem a more natural partner for national governments than the giant Internet players, such as Google and Apple.

In light of these factors, this report explores whether policymakers’ priorities are changing and how regulatory principles and competition policy are evolving. In particular, it considers whether policymakers and regulators are now taking a tougher stance with the major Internet platforms. Finally, the report analyses several areas of uncertainty – arenas in which telcos and others are likely to concentrate their lobbying efforts in future, and gives our high level analysis of areas of potential for telcos – and regulators – to make progress.

 

  • Introducton
  • Executive Summary
  • The regulatory constraints on telcos
  • Telcos’ lobbying efforts
  • More than just talk?
  • Policymakers change their priorities
  • Taking a tougher line with Internet players
  • Conclusions and areas of uncertainty

 

  • Figure 1: EBIT margins for various segments of the digital economy
  • Figure 2: ROCE in various segments of the digital value chain
  • Figure 3: Western Europe isn’t investing enough in telecoms infrastructure
  • Figure 4: Europe’s big five have stepped up capital spending
  • Figure 5: Vodafone & Telecom Italia invest more than 20% of revenues
  • Figure 6: The capital intensity of European telcos has been rising
  • Figure 7: Europe’s large telcos are seeing ROCE fall
  • Figure 8: Europe lags behind on LTE availability
  • Figure 9: In the UK, mobile operators already share infrastructure
  • Figure 10: The EU alleges Google uses Android to unfairly promote its apps
  • Figure 11: The key issues in telecoms regulation & their relative importance
  • Figure 12: The flywheel that can be driven by ROCE-aware regulation