Regulation has a significant impact on global communications markets
Telco relationships with telecoms regulators and the governments that influence them are very important. For data-driven telecoms, telcos must now also understand the regulation of digital markets, and how different types of data are treated, stored and transferred around the world. Data-driven telecoms is an essential part of telecoms growth strategy. The massive growth enjoyed by the global tech giants, in contrast with the stagnation of growth in the telecoms industry, provides a significant lure for telcos, to harness data and become digital businesses themselves. Of course, this necessitates complying with digital regulations, and understanding their direction.
Additionally, by participating in digital markets, and digitising their own systems, telcos are necessarily working with and sometimes competing against the global digital, for whom this legislation is essential to their ongoing business practices. Political reaction against some practices of these digital giants is leading to some toughened stances on digital regulation around the world, and a tarnished public perception.
Most businesses are impacted by digital regulation to some extent, but it is those most deeply embedded in digital markets that feel it the most, especially the digital hyper-scalers. What do Google, Meta, Microsoft et al need to do differently as digital regulations evolve and new standards come into play? And for telcos, apart from compliance, are there opportunities presented by new digital regulations? How can telcos and the digital giants evolve their relationships with the entities that regulate them? Can they ultimately work together to create a better future based on the Co-ordination Age vision, or will they remain adversarial with lines drawn around profit vs public good?
What is digital regulation?
The report covers two important aspects of digital regulation for telecoms players – data governance and digital market regulations.
It does not cover a third theme in digital regulation – the regulation of potentially harmful content and the responsibilities of digital platforms in this regard. This is a complex and far-reaching issue, affecting global trade agreements, sparking philosophical debates and leading to some tricky public relations challenges for digital platform providers. However, for the purposes of this report we will set aside this issue and focus instead on data governance and the regulation of digital markets which have most direct relevance to telcos in particular.
Data governance is a large topic, covering the treatment, storage and transfer of all kinds of data. Different national and regional regulatory bodies may have different approaches to data governance rules, broadly depending on where they find the balance between prioritising security, privacy and the rights of the individual, against the need for a free flow of data to fuel the growth of digital industries.
Regulation around data governance also naturally splits into two areas, one concerning personal data, and the other concerning industrial data, with greater regulatory scrutiny focused on the former. The regulation of these types of data are necessarily different because concerns about privacy only really apply to data that can be associated with individual people, although there may still be requirements around security, and fair access to industrial data. Examples of data governance regulation are the EU’s General Data Protection Regulation (GDPR) concerning personal data, and The Data Act concerning industrial data, or the Data Privacy and Protection Act in the US. All of these examples will be discussed in greater detail in the main body of the report.
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Significant types of digital regulation
Source: STL Partners
Regulation specific to policing digital markets has emerged when regulatory bodies decide that general competition law is not sufficient to serve digital markets, and that more specific and tailored rules or reparations are needed. Like other forms of competition law, this regulation aims to promote fair and open competition and curb market participants deemed to possess significant market power. Regulations of this nature are always to some degree controversial, because the exact boundaries of what constitutes significant market power have to be defined, and can be argued to be arbitrary or incorrectly drawn. Examples of this type of regulation that will be discussed in depth later in the report are the Digital Markets Act in the EU, and the Innovation and Choice Online Act in the US.
A global perspective
The market for digital services is by its nature global. Digital giants like Google, Meta, Amazon and Apple are offering a wide variety of digital services, both b2b and b2c, all over the world. Those services will be provisioned using storage, compute power, and even human workforce, that may or may not be located in the country or even region in which the service is being consumed. Thus digital regulations, especially those concerning data governance, are globally significant.
A global market
Source: STL Partners
This report places significant focus on the regulatory agendas of the European Union and the United States. This is because these are two of the most significant and influential global powers in setting trends in digital regulation. This significance is gained partly by market size – in a global market such as that for digital services, regulations that cover a large number of potential customers are going to have more weight, and the European Union has a population of roughly 447mn, while the population of the US is around 332mn. The US also maintains its significant role in setting the digital regulatory agenda by actively seeking influence and leadership, while the EU has gained influence by being one of the most proactive, and stringent, regulatory bodies in the world.
Table of Contents
Executive Summary
Introduction
Important trends in data governance regulation
Regulation of the processing, storage and use of personal data
Regulation of industrial data
Regulation of digital markets
The Digital Markets Act: Governing digital monopolies
The US approach to digital market regulation
A global perspective – how EU and US digital regulation trends are spreading around the world
The Globalisation of the EU Regulation: The Brussels Effect
Digital Economy Governance in the US Foreign Policy
4G/5G densification and the growth in edge end points will place fresh demands on telecoms network infrastructure to deliver high bandwidth connections to new locations. Many of these will be sites on the streets of urban centres without existing connections, where installation of new fibre cables is costly. This will require careful planning and optimum selection of existing infrastructure to minimise costs and strengthen the business cases for fibre deployment.
While much of the growth in deployment of small cells and edge end points will be on private sites, their deployment in public areas, in support of public network services, will pose specific challenges to providing the broad bandwidth connectivity required. This includes both backhaul from cell sites and edge end points to the fibre transport network, plus any fronthaul needs for new open RAN deployments, from baseband equipment to radio units and antennas. In almost all cases this will entail installing new fibre in areas where laying a new duct is at its most expensive, although in a few cases fixed point-to-point radio links could be deployed instead.
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Global deployments of small cells and non-telco edge end points in public areas
Source: Small Cell Forum, STL research and analysis
In addition, operators of 5G small cells and public cloud edge sites will require access to fibre links for backhaul to their core networks to provide the high bandwidths required. In some cases, they may need multiple fibres, especially if diverse paths are needed for security and resilience purposes.
Many newer networks have been built for a specific purpose, such as residential or business FTTP. Others are trunk routes to connect large businesses and data centres, and may serve local, regional, national or international areas. In addition, changing regulations have encouraged the creation of new businesses such as neutral hosts (also called “open access” for wholesale fibre) and, as a result, the supply side of the market is composed of an increasing variety of players. If this pattern were to continue, then it would very likely prove uneconomic to build dedicated networks for some applications, such as small cell densification or some standalone edge applications.
However, provided build qualities meet the required standard and costs can be contained there is no reason why networks deployed to address one market cannot be extended and repurposed to serve others. For new fibre builds being planned, it is also important to consider these new FTTX opportunities upfront and in some detail, rather than as an afterthought or just a throw-away bullet point on investor slide-decks.
This report looks at the opportunities these developments offer to fibre network operators and considers the business cases that need to be made. It looks at the means and scope for minimising costs necessary to profitably satisfy the widest range of needs.
The fibre market is changing
FTTH/P has been largely satisfied in many countries, and even in slower markets such as the UK and Germany, the bulk of the network is expected to be in place by 2025/6 for most urban premises, at least on the basis of “homes passed”, if not actually connected.
By contrast the requirement of higher bandwidth connectivity for mobile base stations being upgraded from 3G to 4G and 5G is current and ongoing. Demand for links to small cells needed to support 5G densification, standalone edge, and smart city applications is only just beginning to appear and is likely to develop significantly over the next 10 years or more. In future high speed broadband links will be required to support an increasing range of applications for different organisations: for example, autonomous and semi-autonomous vehicle (V2X) applications operated by government or city authorities.
Both densification and edge will need local connections for fronthaul and backhaul as well as longer connections to provide backhaul to the core network. Building from scratch is expensive owing to the high costs associated with digging in the public highway, especially in urban centres. Digging can be complex, depending on the surfaces and buried services encountered, and extensions after the initial main build can be very expensive.
Laying fibre and ducts are a long-term investment and can usually be amortised over 15 to 20 years. Nevertheless, network operators need to be sure of a good return on their investment and therefore need to find ways to minimise costs while maximising revenues. In markets with multiple players, there will also be a desire by potential acquisition targets to underscore their valuations, by maximising their addressable market, while reducing any post-merger remedial or expansion costs. Good planning, including watching for new opportunities and trends and the smart use of existing assets to minimise costs, can help ensure this.
Serving multiple markets through good forecasting and planning can help maximise revenues.
Operators and others can make use of various infrastructure assets to reduce costs, including incumbents’ physical duct/pole infrastructure sewers, disused water and hydraulic pipes, neutral hosts’ networks, council ducts, and traffic management ducts. Obviously these will not extend everywhere that fibre is required, but can make a meaningful contribution in many situations.
The remaining sections of this report examine in more detail the specific opportunities offered to fixed network operators, by densification of mobile base stations and growth of edge computing. It covers:
Market demand, including drivers of demand, and end users’ and the industry’s needs and options
The changing supply side and regulation
Technologies, build options and costs
How to maximise revenues and returns on investment.
As we look ahead, the world faces a number of significant challenges:
Global / OECD consumer confidence is diving to startling new depths as people increasingly feel the impact of inflation, supply constraints and a cost of living crisis.
This follows the war in Ukraine, the Covid pandemic and long Covid, stresses resulting from diverging political ideologies, growing social unrest, and the ever increasing realisation of the impact of climate change.
These seismic tensions are all driven by nearly 8 billion (and growing) people vying for resources and a vision of the future that they can continue to thrive in.
And before that, there was the Credit Crunch series (2008), the Eurozone Crisis (2012), and technology and market disruptions too numerous to name.
There is always a temptation to think that the latest crisis is the worst. Each one tends to temporarily obliterate one’s view of the future as our imaginations are so absorbed in dealing with the nearby threat that all other considerations become secondary.
…and we believe we can bring some hope
Our solution to these challenges is two-fold. First, there is a lot that can be learned by looking at the lessons from previous traumas. Secondly, it is extremely helpful to be able to position all the individual events within an overall context, as it enables us to more rapidly reorientate after the latest shock.
Our context is The Coordination Age – the vision that the world is entering into a new era where:
The primary need is to make better use of available resources (e.g. money, carbon, time, assets, etc)
And that connecting technologies (e.g. telecommunications, data, automation and AI) are key elements of the solution.
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Making the Coordination Age work
Source: STL Partners
This report uses these learnings to look ahead to what we see as a challenging time. While some of the forces we outline in this report may seem alarming, this is not a pessimistic picture. We believe that the vision we describe brings opportunities for telecoms – but only if leaders in telecoms and elsewhere act on the vision. We are striving to make this happen, and we hope we can help you do that too.
A scale of discovery
To help contextualise the many forces of change, we have developed a six-stage schematic to generalise how people deal with new forces and changes in their lives. It progresses from the first recognition of a new theme or issue through to normalisation, the point where something is no longer new or different. The graphic below highlights the six stages, and general heuristic descriptions of what you might hear said, risks and threats, mitigations, and the general psychological and emotional mindset of those processing the change or issue in question.
Six stages of dealing with new ideas
Source: STL Partners
The body of the report covers the drivers, their impact and consequences for telecoms:
Economic drivers, such as consumer confidence, inflation, and rising living costs
Environmental drivers, including climate change and carbon reduction
Political drivers, including the War in Ukraine, China / US tensions, trade wars and tensions
Social drivers, including Covid and Long Covid, inequalities and social polarisation.
Economic drivers: A crisis of confidence
In this section we examine drivers in consumer confidence, inflation / cost-of-living concerns and the consequences for telecoms.
Consumer confidence: An all-time low
The OECD consumer confidence index is a barometer of consumer sentiment. It reflects people’s confidence in their economic prospects. The chart below shows that it is currently reaching record new lows.
The OECD Consumer confidence index is at its lowest ever level
This means that consumers feel extremely pessimistic about their economic prospects. The average score is now below where it was at the peak of anxiety about Covid in early 2020, and below where it was in the financial crash in 2008-09. Indeed, the OECD average is now at its lowest ever level since global measures were introduced in the early 1970s, with only Mexico and Indonesia bucking the downward trend.
People are now preparing for a tough period in their economies. Some are worried about making ends meet – having enough to live to the standard they normally expect. This usually means that they will look to cut back on spending, especially for non-essential things.
Inflation is worrying everyone in Summer 2023
The pressures behind this trend are a generalised concern about inflation (rising prices on essential items like food) leading to a cost-of-living crisis.
Inflation overtook other global concerns in April 2022
The Google trends chart below shows search interest in ‘inflation’ globally, which is an even more immediate signal of concern. It clearly spikes in July 2022.
Google Trends – searches for “inflation” spiked in Summer 2022
The rest of the analysis in this report reviews the macro-economic trends – i.e. the economic, environmental, political and social drivers of change. In a second report, we will cover telecoms industry trends, including technologies, policy, propositions and industry structure.
Table of Contents
Executive Summary
Not one crash, but many
1. Actively realigning with stakeholders
2. Accelerating operational innovation
3. Enhancing resilience and customer security offerings
Next steps
Introduction: Signs of tougher times
A scale of discovery
Economic drivers: A crisis of confidence
Consumer confidence: An all-time low
Inflation is worrying everyone in summer 2022
Interest rates: A blunt tool?
Stock markets: Not quite sure…yet
Moving out of denial on economic problems
Consequences in telecoms demand
Recommendations
Environmental factors: Heating up fast
Climate change: Denial is hard these days
Decarbonisation: Digitising the industrial landscape, fast
Environmental concerns are now mainstream
Consequences for telecoms
Recommendations
Political: Drawing new lines
Ideo-conflict: Who’s side are you on?
The war in Ukraine: The first Coordination Age war?
China and Taiwan: Watching, waiting, wondering
Trade wars and barriers in general
Global instability: More trouble ahead
Consequences for telecoms
Recommendations
Social: A new order
Covid and Long Covid: Living with the virus
Rising resentment of inequalities
The United Nations Sustainable Development Goals
Consequences and recommendations for telecoms
Analysis
Getting the news in context
Appendix 1: Waste, pollution and air quality
Waste and pollution: Cleaning up
Refugees and migrations: Seeking solace in troubling times
Appendix 2: The 17 Sustainable Development Goals
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Telecoms operators’ attempts to build new sources of revenue have been a core focus of STL Partners’ research activities over the years. We’ve looked at many telecoms case studies, adjacent market examples, new business models and technologies and other routes to explore how operators might succeed. We believe the STL stakeholder model usefully and holistically describes telcos’ main stakeholder groups and the ideal relationships that telcos need to establish with each group to achieve valuable growth. It should be used in conjunction with other elements of STL’s portfolio which examine strategies needed within specific markets and industries (e.g., healthcare) and telcos’ operational areas (e.g., telco cloud, edge, leadership and culture).
This report outlines the stakeholder model at a high level, identifying seven groups and three factors within each group that summarise the ideal relationship. These stakeholder and influencer groups include:
Management
People
Customer propositions
Partner and technology ecosystems
Investors
Government and regulators
Society
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1. Management
Growth may not always start at the top of an organisation, but to be successful, top management will be championing growth, have the capabilities to lead it, and aligning and protecting the resources needed to foster it. This is true in any organisation but especially so in those where there is a strong established business already in place, such as telecoms. The critical balance to be maintained is that the existing business must continue to succeed, and the new growth businesses be given the space, time, skills and support they need to grow. It sounds straightforward, but there are many challenges and pitfalls to making it work in practice.
For example, a minor wobble in the performance of a multi-billion-dollar business can easily eclipse the total value of a new business, so it is often tempting to switch resources back to the existing business and starve the fledgling growth. Equally, perceptions of how current businesses need to be run can wrongly influence what should happen in the new ones. Unsuitable choices of existing channels to market, familiar but ill-fitting technologies, or other business model prejudices are classic bias-led errors (see Telco innovation: Why it’s broken and how to fix it).
To be successful, we believe that management needs to exhibit three broad behaviours and capabilities.
Stable and committed long term vision for growth aligned with the Coordination Age.
Suitable knowledge, experience and openness.
Effective two-way engagement with stakeholders. (N.B. We cover the board and most senior management in this group. Other management is covered in the People stakeholder group.)
Management: Key management enablers of growth
Source: STL Partners
Stable and committed long-term vision for growth
The companies that STL has seen making more successful growth plays typically exhibit a long-term commitment to growth and importantly, learning too.
Two examples we have studied closely are TELUS and Elisa. In both cases, the CEO has held tenure in the long-term, and the company has demonstrated a clear and well managed commitment to growth.
In TELUS’s case, the primary area of growth targeted has been healthcare, and the company now generates somewhere close to 10% of its revenue from the new areas (it does not publish a number). It has been working in healthcare for over 10 years, and Darren Entwistle, its CEO, has championed this cause with all stakeholders throughout.
In Elisa’s case, the innovation has been developed in a number of areas. For example, how it couples all you can use data plans and a flat sales/capex ratio; a new network automation business selling to other telcos; and an industrial IoT automation business.
Again, CEO Veli-Matti Mattila has a long tenure, and has championed the principle of Elisa’s competitive advantage being in its ability to learn and leverage its existing IP.
…aligned with the Coordination Age
STL argues that the future growth for telcos will come by addressing the needs of the Coordination Age, and this in turn is being accelerated by both the COVID-19 pandemic and growing realisation of climate change.
Why COVID-19 and Climate change are accelerating the Coordination Age
Source: STL Partners
The Coordination Age is based on the insight that most stakeholder needs are driven by a global need to make better use of resources, whether in distribution (delivery of resources when and where needed), efficiency (return on resources, e.g. productivity), and sustainability (conservation and protection of resources, e.g. climate change).
This need will be served through multi-party business models, which use new technologies (e.g. better connectivity, AI, and automation) to deliver outcomes to their customers and business ecosystems.
We argue that both TELUS and Elisa are early innovators and pathfinders within these trends.
Suitable knowledge, experience and openness
Having the right experience, character and composition in the leadership team is an area of constant development by companies and experts of many types.
The dynamics of the leadership team matter too. There needs to be leadership and direction setting, but the team must be able to properly challenge itself and particularly its leader’s strongest opinions in a healthy way. There will of course be times when a CEO of any business unit needs to take the helm, but if the CEO or one of the C-team is overly attached to an idea or course of action and will not hear or truly consider alternatives this can be extremely risky.
AT&T / Time Warner – a salutary tale?
AT&T’s much discussed venture into entertainment with its acquisitions of DirecTV and Time Warner is an interesting case in point here. One of the conclusions of our recent analysis of this multi-billion-dollar acquisition plan was that AT&T’s management appeared to take a very telco-centric view throughout. It saw the media businesses primarily as a way to add value to its telecoms business, rather than as valuable business assets that needed to be nurtured in their own right.
Regardless of media executives leaving and other expert commentary suggesting it should not neglect the development of its wider distribution strategy for the content powerhouse for example, AT&T ploughed on with an approach that limited the value of its new assets. Given the high stakes, and the personalised descriptions of how the deal arose through the CEOs of the companies at the time, it is hard to escape the conclusion that there was a significant bias in the management team. We were struck by the observation that it seemed like “AT&T knew best”.
To be clear, there can be little doubt that AT&T is a formidable telecoms operator. Many of its strategies and approaches are world leading, for example in change management and Telco Cloud, as we also highlight in this report.
However, at the time those deals were done AT&T’s board did not hold significant entertainment expertise, and whoever else they spoke with from that industry did not manage to carry them to a more balanced position. So it appears to us that a key contributing factor to the significant loss of momentum and market value that the media deals ultimately inflicted on AT&T was that they did not engineer the dynamics or character in their board to properly challenge and validate their strategy.
It is to the board’s credit that they have now recognised this and made plans for a change. Yet it is also notable that AT&T has not given any visible signal that it made a systemic error of judgement. Perhaps the huge amounts involved and highly litigious nature of the US market are behind this, and behind closed doors there is major change afoot. Yet the conveyed image is still that “AT&T knows best”. Hopefully, this external confidence is now balanced with more internal questioning and openness to external thoughts.
What capabilities should a management team possess?
In terms of telcos wishing to drive and nurture growth, STL believes there are criteria that are likely to signal that a company has a better chance of success. For example:
Insight into the realistic and differentiating capabilities of new and relevant markets, fields, applications and technologies is a valuable asset. The useful insight may exist in the form of experience (e.g. tenure in a relevant adjacent industry such as healthcare, or delivery of automation initiatives, working in relevant geographies, etc.), qualification (e.g. education in a relevant specialism such as AI), or longer term insight (which may be indicated by engagement with Research and Development or academic activities)
[The full range of management capabilities can be viewed in the report…..]
2. People…
Table of Contents
Executive Summary
Introduction
Management
Stable and committed long-term vision for growth
…aligned with the Coordination Age
Suitable knowledge, experience and openness
Two-way engagement with stakeholders
People
Does the company have a suitable culture to enable growth?
Does the company have enough of the new skills and abilities needed?
Is the company’s general management collaborative, close to customers, and diverse?
Customer propositions
Nature of the current customer relationship
How far beyond telecoms the company has ventured
Investment in new sectors and needs
Partner and technology ecosystems
Successful adoption of disruptive technologies and business models
More resilient economics of scale in the core business
Technology and partners as an enabler of change
Investors
The stability of the investor base
Has the investor base been happy?
Current and forecast returns
Government and regulators
The tone of the government and regulatory environment
Current status of the regulatory situation
The company’s approach to government and regulatory relationships
The Coronavirus pandemic is an unprecedented event in our lifetimes. As well as the virus’s impact on health, shock and fear have rippled across the world. Everyday life is changing almost everywhere, with major impacts across the economy. It is having many of the same effects as a new world war, albeit a war against a common invisible enemy.
At the start of every world world war, people in the UK thought it would be over by Christmas. Coronavirus won’t be over by Christmas (December) 2020. Unchecked. Each person with COVID-19 infects about 3 people, on average. This means it is hugely infectious and can (re)infect populations rapidly. Hopefully, better healthcare treatments will be developed fast, and in time a vaccine too – though the World Health Organisation (WHO) believes this will take at least a year, and longer to immunise the population.
On this basis, unless several miracles happen, we think the world is likely to be dealing with some form of social distancing and other preventative and curative measures for a while. Given what we know today, here is our initial take on what telcos are doing now – and what they should do next, including four scenarios to help envisage a range of possibilities amid the current uncertainty.
Telcos and vendors can and should now do some great things
Telecoms is an essential service in today’s world. The initial focus of telcos has inevitably been on the short term crisis response: keeping the network working, adapting to new and changing patterns of customer behaviour, and trying to keep their employees and customers safe. Beyond that, telcos have been offering additional services and help to customers, and we outline some of the measures taken so far in this report (summarised below).
Beyond that, telco leaders must keep thinking and planning ahead. As a sector it is in a relatively strong position. Telecoms stocks are among those least impacted in the crisis, showing that shareholders see telecoms as a relatively safe haven with a more reliable future than many other sectors (e.g. travel, hospitality, etc.).
That’s not to say that all telcos will survive the crisis in the state they are in today. Some may be nationalised or struggle to finance debt or worse, though for the most part we imagine telcos will find state support where needed because of the importance of the service they deliver.
On a more positive note, the near term future will see an enhanced focus on addressing some big problems, such as accelerating the transformation of healthcare and making it and other critical functions such as logistics even more robust and resilient.
STL Partners believes that the crisis will further accelerate the evolution of the Coordination Age, as customers and governments will accept, change and learn new behaviours (such as online ordering, remote delivery, automated services, etc.) fast in the context of an environment in which they simply have to do so. The crisis will also place the importance of critical and sometimes limited resources (e.g. food, healthcare, communications) firmly in the spotlight, along with issues such as potential conflicts between the use of data and privacy.
It’s too early to say whether highly controlled economies like China will do better than less controlled ones. Yet the strengths of a coordinated response to a problem (such as how a national health service can organise and plan collectively) will become clearer, and is likely to shape regulation that prioritises desired outcomes in a more pragmatic way, potentially bringing regulated collaboration back into fashion somewhat compared to pure competition in some sectors.
True leaders think ahead
Despite all the near term focus that a crisis brings, the challenge of addressing future problems should not just be dropped. We recommend that telcos and vendors shouldn’t abandon their longer term ambitions to develop new services and solutions in order to deal with the crisis. By analogy, the countries that are doing best in the COVID-19 response today are those that were best prepared for a viral pandemic, i.e. those that have planned how to scale up testing and hospital capacity, and have previously outlined a pandemic response strategy. Likewise, the telcos that will do best will continue to offer resilient support to their communities, and develop new solutions for customer problems.
Perhaps the best that could happen is that telcos and other service providers could ultimately find this crisis a stimulant to accelerate internal and business model change. For this to happen, the change needs to come from the top, and leaders in telecoms need to set the example of looking to do everything possible to help deal with the crisis, while maintaining a strong forward looking outlook.
STL Partners will continue to research how to do that realistically in the new context. We believe that Coronavirus will change how services evolve. For example, some 5G capital investments are likely to proceed with greater caution in the near term. Our initial thoughts on this is that, rather than bin all development, telcos should use this as an opportunity to better develop their understanding of customer needs, and develop the non-network capabilities and offerings to support consumers and other sectors to prepare the ground better for when 5G does arrive.
Short-term: Some smart offers to copy
Telcos are broadly offering customer support in four ways:
Supporting healthcare, government and other critical care customers: prioritising communications and resources for first line responders and healthcare facilities, offering population movement statistics, participating in national tests, and providing other services (e.g. bulk SMS updates to patients and healthcare communities)
Business customers: support for home working such as increased capacity on collaboration services, support on business continuity
Consumer customers: quite a wide range of offers, varying from suspending data bundle usage caps, to providing free calls for pensioners, free calls to the worst hit countries, waiving roaming charges and late payment relief for COVID-19 impacted customers
Shops and customer premise visits: a range of measures to ensure customer and employee safety, including shutting shops entirely, keeping some open, and introducing social distancing
Mid term: Adjust, but don’t forget the future
For the next few months, humans will interact differently. People and businesses will want to survive, and will be keen to return to ‘normal’ – but they won’t be able to.
Thus new habits, such as home working, and work and social video conferencing, will become more deeply embedded behaviours. New support structures to care remotely for the isolated will evolve, potentially with lasting effects. Telcos will need to support these behaviours with appropriate service and capacity, and with considerate offers as they have started to do as the crisis bites. Telcos should not behave like or risk being seen as profiteers during the crisis. Such action would be wrong – and a PR disaster.
They will need to continue to focus on the needs of critical sectors such as healthcare, government, security and logistics, and maintain a close relationship with government to assist the centralised efforts to combat COVID-19 and support the pandemic relief effort.
Long term: Four possible scenarios
When the future is as uncertain as it is now, scenarios are a useful way to envisage possible alternatives and enrich planning. We’ve therefore outlined four scenarios for the recovery stage:
Scenario 1:Back to (almost) normal. A cautiously optimistic scenario in which all economies recover reasonably swiftly without much impact on the global order. Global trade recovers gradually, and activities like 5G investments are merely delayed at the outset.
Scenario 2:Fragmented recovery. A moderately pessimistic scenario in which some economies are much more significantly damaged than others. Recovery takes longer and global initiatives are less successful because of lower collaboration. 5G take-up is patchy, nation by nation.
Scenario 3:Weak and distanced. The most pessimistic scenario in which nations have become much more insular and distrustful, and economic and social recovery is much slower. Economic realities have significantly delayed 5Ginvestments in most nations.
Scenario 4:Stronger than before. The most optimistic scenario. Collaboration and cooperation are enhanced, and the broadly successful response and recovery to the crisis has refocused strategic thoughts on the importance of resilience in the long-term. 5G is close to the trajectory it would have been on before the crisis and accelerating fast.
Introduction
World War C
The Coronavirus pandemic sweeping the world in 2020 is a truly disruptive ‘black swan’ event. It is impacting people’s lives in almost every nation and will continue to do so for many years ahead.
STL Partners, like all our customers and partners, families and friends, is feeling the impact already. We are lucky enough to be able to continue to work because the nature of our work is relatively unaffected by virtual working. Many in the global economy are not so lucky, and many others have been even more directly impacted by the illness. Our thoughts and best wishes are with you all.
Our job is to try to help others make better decisions to shape the future of their businesses. We believe that COVID-19 will change the global economy in a way that will impact all previous strategies and plans. This analysis is therefore intended to help preparations and planning for the next few months and years. Yet certainty is in short supply, and the situation is changing all the time. We do not claim to have all the answers and will update our analysis when it makes sense.
The scale and speed of this pandemic is unprecedented in the lives of the few alive today under the age of 102. Even so, when the so-called “Spanish Flu” swept the world in 1918, road and air travel were relative novelties, information spread slowly and its distribution was highly limited.
Today, the virus has spread much faster – but so too has news, information and research relating to it. The primary challenges for economies and societies as a whole are:
Supporting the frontline medical battle for the lives of the severely infected.
How the available information can be used to manage the disease to best effect by governments and authorities.
How other technological and economic developments such as globalised food chains and online information and entertainment services can help to sustain the rest of the population until the virus and the fear and disruption it has brought are defeated, or at least brought under control.
Operational and financial support to maintain economies and employment wherever possible.
Coronavirus and the Coordination Age
STL Partners has written at length about the Coordination Age – our view that the world economy now needs on-demand solutions enabled by the emergence of new technologies like AI, virtualisation, 5G, etc. These solutions must deliver outcomes (e.g. in healthcare) in a resource efficient way.
This age impacts all industries, but in the forefront are healthcare and logistics, which are also those most under test by Coronavirus. Succeeding against COVID-19 will require a massive and sustained effort of coordination, in this case mostly orchestrated by governments and health authorities.
Telcos and the telecoms industry will not solve this, but they can be major enablers of success. They can also have a major role in helping societies deal with the crisis and rebuilding and reshaping themselves after it has passed. This report starts to sketch out how this might happen.
Three stages and three questions for telcos
To simplify the analysis of what could happen, we’ve split the near future into three stages, and have structured the report correspondingly:
Now: shock and lockdown. Dealing with the initial global spread of the pandemic.
Next: finding a new, temporary normal. Coping with the longer-term impacts of social isolation, healthcare, and economic damage.
After: rebuilding and reshaping. What will be the lasting changes, what will need to be rebuilt?
In each case, we outline our best views on the ‘certainties’ – or at least more certain outcomes, and explore different scenarios where uncertainty is currently prime.
Throughout, we address three questions about what actions telcos and the industry should take:
What do telcos need to do to survive?
What can telcos do to help their customers?
How can telcos help the immediate response, then rebuild and reshape society?
Now: Shock and lockdown
The problems that need to be solved
A health crisis is a hard reminder of the need to serve the greater good of our societies. We need other people and organisations to survive and thrive, especially in today’s highly globalised and connected world. In this regard, there is an over-riding responsibility for those in positions of power to direct that power in service of the integrity of society and the economy – how we exchange goods and services to maintain our lives.
In such moments, the pursuit of competitive gains which is the normal function of companies and markets becomes secondary to the overall well-being of the society and the economy that supports it. This is a fundamental – albeit temporary – suspension of ‘business as usual’.
Telcos have a long history of providing support in times of crisis, and the COVID-19 pandemic is the broadest and most systemic global crisis of our times. The fundamental functions and sectors that the industry needs to support are:
Healthcare – sustaining and protecting the healthcare system in a time of critical demand and pressure
Logistics – ensuring that supply and delivery chains are enabled to operate and deliver the goods (e.g. food and medical supplies) and services (e.g. water, power, hygiene) required for the healthy function of society
Government – ensuring that governments and responsible authorities are enabled to function and make decisions to best manage, control and mitigate the impact of the virus and the accompanying fear and disruption
General communications – ensuring that the public, businesses and others can stay in touch with each other to provide information, economic, medical and emotional support, and maintain employment.
Immediate actions
Following airline safety advice
The classic airline safety advice is to fit your own oxygen mask before attempting to help others.
We expect that telcos will be putting in place their contingency plans for dealing with the COVID-19 pandemic – though of course, the exact circumstances cannot have been foreseen.
Clearly, maintaining the core functions of telecommunications networks will be the priority – doubling down on enabling and protecting data and voice communications across the network, especially to mission-critical establishments like hospitals, and other healthcare and state facilities.
This may require operators to scale up network capacity at key points, although early data suggests most traffic growth from home-working and home-schooling may come at historical off-peak times. There is likely to be a shift from mobile to fixed broadband in many cases, with mobile use being concentrated in residential areas rather than urban centres and transport corridors. Mobile voice traffic is likely to rise substantially (in Spain, a 50% rise has been reported) as people speak to elder relatives and connect to conference calls and other services. Encouraging customers to shift usage to fixed-line telephony (which usually has extra capacity) could be wise.
Most cloud and enterprise facilities have been engineered to be highly resilient, but there is also likely to be increased demand in the distributed consumption of data in many societies as social isolation measures move populations into home-working environments and away from traditional daytime centres of communications localised on business.
How telcos can support and are supporting their customers
Many telcos are putting in place wider measures to support their customers.
Figure 1: How telcos are supporting their customers
Telco responses to Coronavirus
Source: Operator announcements, STL Partners
For healthcare, government and other critical support customers:
Prioritising connectivity for frontline healthcareresponders (AT&T, Verizon and others)
Offering bulk text upgrades to patients and healthcarecommunities (Vodafone)
Offering insights on population movements and statistics (Vodafone, Deutsche Telekom, Telefonica)
Collaborating in other hospital and healthcaretrials and programmes (China Mobile, China Telecom, TELUS)
Extending free hospital Wi-Fi (Globe)
Free-rating data on healthcaresites and apps
For these sectors and business more broadly, additional:
Conferencing lines, VPN capacity, and capacity / licenses for collaborationtools (BT)
Other home-working security(BT, NTT)
Cut price access to digital marketing services and conferencing for small businesses (Telstra)
For consumer customers, telco measures include:
Additional free data in bundles (Telefónica, Telstra, Dialog)
Removing caps on some limited data bundles (AT&T, Sprint, T-Mobile, TELUS, Telstra, Dialog)
Additional entertainmentcontent in some packages (Telefónica, TELUS, Dialog)
Free or reduced tariff calls to the countries most impacted by COVID-19(Verizon, Sprint, T-Mobile)
Free landline calls for pensioners (Telstra)
Free medical hotline service (Dialog)
Free data packages for families with school children without internet access or no data charges on educational services (Du, Etisalat, Dialog)
Waiving fees / suspension of service for non or late payment for impacted customers, or extending payment terms / credit (AT&T, Verizon, Telstra, Dialog)
Waiving all or some roamingfees for overseas customers (TELUS)
Encouraging the use of digital cash and health apps (Globe)
And in terms of shops and customer premises visits, telcos are taking a range of measures from:
Closing shops, or keeping some open to provide critical equipment (AT&T, Sprint, T-Mobile, DTAG, TELUS)
Possibly stopping or limiting customer premises visits, or continuing but with new isolation/protection procedures in place (AT&T, Globe)
NB This is illustrative and not an exhaustive or comprehensive list. Please see our blog for links to some of the companies’ policies and articles relating to them at the time of research.
STL Partners is conducting a rapid survey of telco responses which can be found here. We will be updating and freely sharing what operators tell us over the next few weeks with details of the measures used so that other telcos can review what they can copy or learn from these measures to support their customers.
Help your employees
Again, many telcos in directly impacted environments have asked employees that can to work from home. We would also hope telcos are putting in place additional health measures to protect those employees that do need to make physical contact with customers and others, such as health advice and screening.
Starting to look ahead
Which sectors will be most affected?
The impact of the COVID-19 pandemic across the economy is very hard to predict at this stage, although there are certain sectors that are clearly already under immediate pressure, such as:
Consumer leisure and mass transport: cruise lines, passenger airlines, hotels and tourism as people shun travel and self-isolate
Consumer service industries such as cafes, bars, restaurants, gyms, hairdressers
Entertainment and mass gatherings such as sporting events, festivals, conferences and events, concerts, museums.
Wider impacts are anticipated in demand for other consumer goods and services, such as cars, clothes and other non-food and everyday items, and this knocks on to the value chains of those industries too.
This pattern is evident looking at the impact on FT.com share indices over the last month in Figure 2. Indeed, of the major sectors, telecommunications was the least devalued on the 16th March when we looked at this data (a day on which there was a 10% drop in global financial indicators).
Figure 2: Financial markets rate telecoms as one of the sectors of the economy least hit by Coronavirus
Coronavirus impact on industries
NB Oil and gas sectors have recently faced additional pressures from an industry price war. Source: STL Partners, FT.com
Moody’s credit rating agency paints a similar picture of their estimated impact of the pandemic on the credit worthiness of industries by sector as shown in Figure 3.
Figure 3: Moody’s credit rating impact of Coronavirus by industry
Source: Moody’s
At this early stage it’s very hard to be sure of what the overall impact of the COVID-19 pandemic will be on each sector. But there’s certainly some consistency between the logic of what is causing the impacts, and the degree to which markets and market rate-setters are reflecting likely changes in future value.
For telcos, the questions are: how can they support all sectors effectively during the crisis, and how can they help them recover and rebuild in due course. We will explore this a little further in subsequent sections.
Table of contents
Executive Summary
It won’t be over by Christmas
Telcos and vendors can and should now do some great things
Spectrum concerns reach far beyond traditional telecoms
We last had an in-depth look at spectrum policy and its implications for telcos almost three years ago, in our report on 5G spectrum in January 2017. (Please refer to that report for general background information on the ways that spectrum is organised and allocated for mobile and wireless networks).
That report has proven prescient:
“5G development and deployment is largely happening between WRC-15 and WRC-19. By November 2019’s event, a lot of spectrum decisions may have been taken locally, early networks deployed, and thus given to ITU’s delegates as a “fait accompli”. As well as bringing in many new radio technologies and innovations, the new focus on IoT, “network slicing” and industry verticals complicates matters still further. For instance, many of the most-touted new use-cases are likely to occur indoors, or on industrial sites – not outside “in public spaces” where mobile operators can exert most control and oversight. Potentially, new models such as shared licensing of spectrum are needed, with large companies running their own on-site private 5G networks”.
This has largely been reflected in the outcome of events. Today, we have had early launches of around 50 5G networks worldwide, from the US to South Korea to Ireland. These use a mix of bands that are about to be discussed by ITU at WRC, and others that were not even supposed to be in consideration, such as the US and Korean 28GHz band. Meanwhile, as we recently discussed in our Private/Vertical Networks report, various countries have started awarding spectrum to “non-public networks”, on a localised basis. The US CBRS band, the German industrial 5G allocation and various different approaches taken in the UK exemplify this. This raises the question of whether the current ITU processes are really “fit for purpose” for the modern wireless industry. Especially given the growing levels of geopolitical controversy in many areas of the economy, we may see the WRC process becoming increasingly side-lined in future policy discussions.
Given that ITU’s World Radio Congress has recently concluded – and has been attended or closely watched by the telco and wider spectrum community, this seems to be a good time to revisit the topic – which has also cropped up in our recent work on 5G launches, indoor wireless, and private networks.
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What WRC really means
Access to spectrum is critically important for 5G. That is widely understood in the telecoms industry. But often, there is little awareness of how and why spectrum is allocated to mobile use, which bands make most sense, or what else radio frequencies are used for.
Not all bands are created equal – so when someone says that 100MHz or 1GHz is being made available for 5G, it’s important to understand which frequencies are being discussed, with which conditions – and what else is currently using that allocation.
The negotiators are governments, not companies, so telcos and vendors are represented indirectly through many layers of advisors, delegations and lobbyists.
Countries and regions adopt ITU and localised regulatory stances based on national priorities, champion exporters or intellectual property owners, visions of the future around social inclusion, climate change and the UN Development Goals, and how various sorts of wireless applications (and thus spectrum) can improve humanity.
Sometimes there are trade-offs between tangible (economic) outcomes and less-tangible social or geopolitical impact.
The main telecoms-related battle at WRC centred on what high-frequency mmWave bands should be dedicated to 5G, and under what conditions. This involves a mix of technical arguments (“does X cause interference for Y?”) and politics. But the other agenda items also relate to how telcos should be seeing themselves, and positioning for roles in what STL calls the Coordination Age.
While 5G has extremely important roles to play in coordination, so do other wireless technologies – and telcos and policymakers should be embracing them, their applications, and their own spectrum needs – rather than just putting all their future eggs in a still-hypothetical 5G basket. MNOs should resist hype from vendors proposing 5G as the solution to all problems, and the source of all new revenue opportunities. It’s important certainly, but that is a major – and naïve – overstatement.
Recent developments: What has changed?
What has changed since early 2017? A few items of particular interest for the telecoms industry have risen up or suddenly appeared on the regulatory/spectrum agenda:
We have had numerous trials and commercial launches, and hence some more hard data on 5G performance in different spectrum domains, and increasingly more realistic views on the abilities and constraints of antennas, devices, core networks and concepts like network-slicing. While there’s still a lot of hype – and capabilities will obviously improve over time – the practicalities have become more visible. In particular, the early focus of 5G on mmWave bands (especially in the US) has stepped down a notch, with the recognition that low- and mid-band spectrum will be the main driver for 5G usage and value. Even the GSMA’s 15-year forecasts – discussed later in this report and which we think are methodologically questionable – only put mmWave as accounting for 25% of the total forecast GDP contribution from 5G. The true number may well turn out be closer to 10%, with even that biased towards the years from 2029-2034.
The global regulatory community seems to have accepted that various forms of spectrumsharing, sub-leasing and local licensing is important for some mobile bands – at least in developed markets. The complex economics of building multiple competing cellular networks, the difficulty of completely clearing incumbents from new bands, and the desire for industry/rural/vertical/metro -specific cellular or other networks is driving this. (While this is a hotbed of regulatory action, it is rather less relevant to WRC – the ITU mostly determines usecases for spectrum such as cellular vs. satellite, but it is up to local regulators to decide how best to parcel up licenses and authorisations within those constraints).
The main exception is around fixed wireless access (FWA) which is turning out to be one of the main commercial focuses of mmWave spectrum, both for 5G and Wi-Fi type network technologies, along with urban densification. Various new initiatives and services have launched, and considerable innovation is ongoing. We will be looking more closely at FWA in a future report in the Network Futures research stream. (It is worth noting that a large amount of FWA is not mmWave-based, but in sub-6GHz bands, especially in the 3-5GHz range, which gives it much better propagation characteristics and a certain level of indoor penetration).
Geopolitics has become more important, especially in the US vs. China (and to an extent, vs. Europe) trade war and battles about network security and strategic advantage. That is filtering through to spectrum policy in unexpected ways – especially as the US currently seems to see itself having home advantages in mmWave, Wi-Fi and cloud-based platforms. Europe, which has numerous densely-populated member states, and is home to a number of major satellite companies, seems much more equivocal about mmWave 5G, and is more hesitant about dedicating more bands to it – especially given possible knock-on effects on earth/weather observation and its effects on climate science. China is somewhere in between, advocating various mmWave bands for 5G use, but currently focused on the mid-band, including (controversially within the spectrum community) the 4.9GHz range.
Various industries and new sectors have woken up to the IoT future, and are demanding their own spectrum resources, either for private 4G / 5G or alternative dedicated sector-specific approaches. A May 2019 meeting convened by European regulatory agency CEPT on Spectrum for Industries featured diverse interest groups, from railways to aviation to medical sectors. At that event, telecom/mobile was “just another vertical”. While some of the use-cases described could possibly be satisfied with variants of 5G (or Wi-Fi) others clearly have very special requirements that need different technologies, and probably different (dedicated or shared) spectrum allocations
There has been growing coordination – and better lobbying – from new and existing groups to counter some of the 5G hyperbole. The satellite industry in particular has been pushing back, often cleverly embracing the cellular industry by pointing to ways it can integrate with, and complement, terrestrial cellular networks. (As long, of course, as the mobile industry doesn’t steal its spectrum for ground-based uses). The automotive industry has been arguing about flavours of V2X technology based on variants of WiFi and/or cellular.
Internet-era companies have entered the spectrum fray in a major fashion. Google is a big fan of dynamic spectrum regimes like CBRS and seems to want “spectrum-as-a-service” to become reality, aided by cloud and AI platforms. It’s also a noted fan of satellite and balloon-based wireless, through O3B and Loon. Amazon also seems keen on CBRS and is closely watching international developments. Facebook has been pushing its Terragraph 60GHz FWA technology, and also catalysing many other developments through its TIP (Telecoms Infrastructure Project) work. Microsoft is still arguing for TV White Space and other dynamic approaches, especially in the developing world. And Elon Musk’s SpaceX wants to launch a massive LEO (low earth orbit – maybe 200-400km altitude compared to 36,000km for geostationary satellites) constellation called Starlink for satellite broadband globally. All these initiatives have spectrum angles, plus asking ITU for orbital slots in some cases.
Behind all this, there are other application and political drivers of spectrum policy and allocation mechanisms, some of which relate to telecoms and some of which are more distant:
Near-insatiable demand for consumer mobile broadband capacity, especially in the 5G era
Similar insatiable demand for Wi-Fi and other unlicensed, simple data networks with different power and range levels.
Political desires for better rural cellular coverage, satisfying industrial requirements for private networks, encouraging innovation, productivity and maintaining national security and critical infrastructure
Desire for better connections for smarter cars, ships, planes and trains – both for passengers and for the transport systems themselves
Innovation in satellite communications, which is especially relevant for remote and island communities, but which is potentially becoming more “mainstream” with the imminent arrival of huge new constellations of low-orbit birds.
More requirements for spectrum for scientific and medical uses, especially relating to climate monitoring and weather-forecasting, as concern grows about the environment.
Continued use of spectrum for non-communications uses, drones and “high altitude platform” connectivity, aviation radar and beacons, GPS / GNSS signals, short-range sensors, maritime functions and so on.
WRC’19 is a microcosm – spectrum issues are much broader
This report looks at three areas that reflect the changing spectrum landscape, and how the telecom/mobile industry participates in it:
The current World Radio Congress (WRC19) that took place in Egypt during October and November, convened by the ITU (International Telecommunications Union, an arm of the UN). This updated the global harmonisation rules called the Radio Regulations, including defining new dedicated bands for mobile/cellular use. The main telecoms interest related to 5G-suitable bands, but we argue it should also be looking at other wireless applications, in order to satisfy a wider range of future “Coordination Age” opportunities than cellular alone can cover.
The growing demands for cellular-suitable spectrum by enterprises and other groups outside the traditional MNO world (also “non-public networks”), typically for private 4G or 5G networks, or various new types of wholesale. This is somewhat separate to the WRC process, although once suitable cellular spectrum is identified, governments can allocate it to enterprise or local use, rather than national telcos, if they choose.
Innovation outside the cellular industry, driving extra spectrum demand from satellites, transport and utility wireless, Wi-Fi, LPWA and various other use-cases.
Table of contents
Executive Summary
Introduction
What WRC really means
Recent developments: What has changed?
WRC’19 is a microcosm – spectrum issues are much broader
Spectrum for 4G / 5G
Is mmWave 5G spectrum a red herring?
Implications for the Coordination Age
WRC-19 process and structure
How ITU and WRC work
Spectrum, WRC and The Great Game: Why telcos need to care
WRC: Other issues and debates
How important is WRC and harmonisation in future?
Beyond WRC: Other spectrum issues and debates
New mobile spectrum conditions
Local, dynamic and vertical spectrum
Secondary spectrum markets
Spectrum for Wi-Fi
Satellites and HAPs
Conclusion
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This executive briefing explores the evolution of control points – products, services or roles that give a company disproportionate power within a particular digital value chain. Historically, such control points have included Microsoft’s Windows operating system and Intel’s processor architecture for personal computers (PCs), Google’s search engine and Apple’s iPhone. In each case, these control points have been a reliable source of revenues and a springboard into other lucrative new markets, such as productivity software (Microsoft) server chips (Intel), display advertising (Google) and app retailing (Apple).
Although technical and regulatory constraints mean that most telcos are unlikely to be able to build out their own control points, there are exceptions, such as the central role of Safaricom’s M-Pesa service in Kenya’s digital economy. In any case, a thorough understanding of where new control points are emerging will help telcos identify what their customers most value in the digital ecosystem. Moreover, if they move early enough to encourage competition and/or appropriate regulatory intervention, telcos could prevent themselves, their partners and their customers from becoming too dependent on particular companies.
The emergence of Microsoft’s operating system as the dominant platform in the PC market left many of its “partners” struggling to eke out a profit from the sale of computer hardware. Looking forward, there is a similar risk that a company that creates a dominant artificial intelligence platform could leave other players in various digital value chains, including telcos, at their beck and call.
This report explores how control points are evolving beyond simple components, such as a piece of software or a microprocessor, to become elaborate vertically-integrated stacks of hardware, software and services that work towards a specific goal, such as developing the best self-driving car on the planet or the most accurate image recognition system in the cloud. It then outlines what telcos and their partners can do to help maintain a balance of power in the Coordination Age, where, crucially, no one really wants to be at the mercy of a “master coordinator”.
The report focuses primarily on the consumer market, but the arguments it makes are also applicable in the enterprise space, where machine learning is being applied to optimise specialist solutions, such as production lines, industrial processes and drug development. In each case, there is a danger that a single company will build an unassailable position in a specific niche, ultimately eliminating the competition on which effective capitalism depends.
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Control points evolve and shift
A control point can be defined as a product, service or solution on which every other player in a value chain is heavily dependent. Their reliance on this component means the other players in the value chain generally have to accept the terms and conditions imposed by the entity that owns the control point. A good contemporary example is Apple’s App Store – owners of Apple’s devices depend on the App Store to get access to software they need/want, while app developers depend on the App Store to distribute their software to the 1.4 billion Apple devices in active use. This pivotal position allows Apple to levy a controversial commission of 30% on software and digital content sold through the App Store.
But few control points last forever: the App Store will only continue to be a control point if consumers continue to download a wide range of apps, rather than interacting with online services through a web browser or another software platform, such as a messaging app. Recent history shows that as technology evolves, control points can be sidestepped or marginalised. For example, Microsoft’s Windows operating system and Internet Explorer browser were once regarded as key control points in the personal computing ecosystem, but neither piece of software is still at the heart of most consumers’ online experience.
Similarly, the gateway role of Apple’s App Store looks set to be eroded over time. Towards the end of 2018, Netflix — the App Store’s top grossing app — no longer allowed new customers to sign up and subscribe to the streaming service within the Netflix app for iOS across all global markets, according to a report by TechCrunch. That move is designed to cut out the expensive intermediary — Apple. Citing data compiled by Sensor Tower, the report said Netflix would have paid Apple US$256 million of the US$853 million grossed by its 2018 the Netflix iOS app, assuming a 30% commission for Apple (however, after the first year, Apple’s cut on subscription renewals is lowered to 15%).
TechCrunch noted that Netflix is following in the footsteps of Amazon, which has historically restricted movie and TV rentals and purchases to its own website or other “compatible” apps, instead of allowing them to take place through its Prime Video app for iOS or Android. In so doing, Amazon is preventing Apple or Google from taking a slice of its content revenues. Amazon takes the same approach with Kindle e-books, which also aren’t offered in the Kindle mobile app. Spotify has also discontinued the option to pay for its Premium service using Apple’s in-app payment system.
Skating ahead of the puck
As control points evolve and shift, some of today’s Internet giants, notably Alphabet, Amazon and Facebook, are skating where the puck is heading, acquiring the new players that might disrupt their existing control points. In fact, the willingness of today’s Internet platforms to spend big money on small companies suggests they are much more alert to this dynamic than their predecessors were. Facebook’s US$19 billion acquisition of messaging app WhatsApp, which has generated very little in the way of revenues, is perhaps the best example of the perceived value of strategic control points – consumers’ time and attention appears to be gradually shifting from traditional social into messaging apps, such as WhatsApp, or hybrid-services, such as Instagram, which Facebook also acquired.
In fact, the financial and regulatory leeway Alphabet, Amazon, Facebook and Apple enjoy (granted by long-sighted investors) almost constitutes another control point. Whereas deals by telcos and media companies tend to come under much tougher scrutiny and be restricted by rigorous financial modelling, the Internet giants are generally trusted to buy whoever they like.
The decision by Alphabet, the owner of Google, to establish its “Other Bets” division is another example of how today’s tech giants have learnt from the complacency of their predecessors. Whereas Microsoft failed to anticipate the rise of tablets and smart TVs, weakening its grip on the consumer computing market, Google has zealously explored the potential of new computing platforms, such as connected glasses, self-driving cars and smart speakers.
In essence, the current generation of tech leaders have taken Intel founder Andy Grove’s famous “only the paranoid survive” mantra to heart. Having swept away the old order, they realise their companies could also easily be side-lined by new players with new ways of doing things. Underlining this point, Larry Page, founder of Google, wrote in 2014: “Many companies get comfortable doing what they have always done, making only incremental changes. This incrementalism leads to irrelevance over time, especially in technology, where change tends to be revolutionary, not evolutionary. People thought we were crazy when we acquired YouTube and Android and when we launched Chrome, but those efforts have matured into major platforms for digital video and mobile devices and a safer, popular browser.”
Table of contents
Executive Summary
Introduction
What constitutes a control point?
Control points evolve and shift
New kinds of control points
The big data dividend
Can incumbents’ big data advantage be overcome?
Data has drawbacks – dangers of distraction
How does machine learning change the data game?
The power of network effects
The importance of the ecosystem
Cloud computing capacity and capabilities
Digital identity and digital payments
The value of vertical integration
The machine learning super cycle
The machine learning cycle in action – image recognition
Tesla’s journey towards self-driving vehicles
Custom-made computing architecture
Training the self-driving software
But does Tesla have a sustainable advantage?
Regulatory checks and balances
Conclusions and recommendations
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How will 5G MNVO models differ from what’s gone before? MVNOs occupy an important set of market niches in the mobile industry, ranging from low-cost generic consumer propositions by discount retail brands, through to some of the most advanced mobile offers, based on ingenious service-level innovation.
The importance and profile of MVNOs varies widely by country and target market segments. Worldwide, there are around 250 million consumer subscribers using virtual operators’ branded services. IoT-focused MVNOs add many more. In many developed markets, MVNOs account for around 10-15% of subscribers, although in less-mature markets they are often not present at all, or are below 5%.
In Europe, the most mature region, there are around 100m subscribers, focused particularly on German and UK markets. Globally, MVNO revenues are estimated at around $70bn annually – a figure expected to grow to over $100bn in coming years, as markets such as China – which already has over 60m MVNO subscribers – gain more traction, bolstered by regulatory enthusiasm. IoT-centric and enterprise MVNOs are also growing in importance and sophistication, particularly for cross-border connectivity management.
While many MVNOs are aimed at lower-end consumers, with discounted packages under retail, banking or other brands, plenty more are more sophisticated and higher-ARPU propositions. Some fixed/cable operators want a mobile wholesale offer to expand into quad-play bundles. Increasingly, the MVNO model is going far beyond mass-market consumer offers, towards IoT and enterprise use-cases, that can add extra services and functions in the network or SIM.
Some 4G-only mobile operators have 3G MVNO arrangements for customers moving beyond their infrastructure footprint. Google has its pioneering Fi MVNO service, which switches users between multiple telcos’ infrastructures – and which is perhaps a testbed for its broader core/NFV ambitions. A variety of frequent-travellers or enterprise users seek customised plans with extra features, that mass-market MNOs cannot provide. In addition, many IoT connections are also provided by third parties that repackage MNOs’ network connectivity, often to provide global coverage across multiple underlying networks, tailored to specific segments or verticals. For example, Cubic Telecom, an automotive-focused CSP, is part-owned by Audi.
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Operating with a variety of different business models and technical architectures, MVNOs are also relevant to mobile markets’ competitive functioning, especially as larger networks consolidate. Regulators vary in the degree to which they encourage virtual operators’ establishment and operation.
Some MVNOs, described as “full” or “thick” operate their own core networks, while other “light” or “thin” providers are essentially resellers, usually with their own billing platform but little more. Confusingly, some avoid the use of the term MVNO, especially in the IoT arena, often just describing themselves as offering “managed connectivity” or similar phrases.
Figure 1: Thick vs thin MVNOs and resellers
Source: Mobilise Consulting
This all presents a challenge for normal mobile operators – at one level, they want the extra reach and scale, using MVNOs as channels into extra customer groups they cannot easily reach themselves. They may even want their own MVNO operations in countries outside their licensed footprint – TurkCell and China Mobile are examples of this. But they also worry that as MVNOs go beyond resale, they start to capture additional value in certain lucrative niches, or worse, become an “abstraction layer”, aggregating and commoditising multiple underlying networks, facilitating arbitrage – especially by using eSIM or multi-IMSI approaches. Google Fi has raised eyebrows in this regard, and Apple has long been feared for wanting to create an MVNO/AppStore hybrid to resell network capacity.
That said, even simple MVNO operations are not that simple. Setting up billing systems, legal agreements, network integrations and other tasks is still complex for a non-telecoms firm like a retailer or sports/entertainment brand. A parallel ecosystem of specialised software vendors, systems-integrators and “MVNO platforms” has evolved, with subtly-different types of organisation called MVNA (mobile virtual network aggregator) and MVNE (mobile virtual network enabler) doing the technical heavy-lifting for brands or other marketing organisations to develop specialised – and often tiny – MVNOs.
What is uncertain is how much of this changes with 5G – either because of innate technical challenges of the new architecture, or because of parallel evolutions like network virtualisation. These could prove to be both enablers and inhibitors for different types of MVNO, as well as changing the competitive / cannibalisation dynamics for their host providers.
This briefing document describes the current state-of-play of the MVNO landscape, and the shifts in both business model and technology that are ongoing. It considers the different types of MVNO, and how they are likely to intersect with the new 5G world that is set to emerge over the next decade.
Contents:
Executive Summary
Introduction
Why (and where) are MVNOs important?
Different types of MVNO
Full and “Thick” MVNOs, MVNEs and MVNAs
MVNO opportunities: what changes with 5G?
Consumer MVNOs – more of the same, just faster?
The rise of enterprise, verticals and IoT – catalysed by 5G?
MVNOs and network slicing
5G challenges for MVNOs: network and business
Technology: It’s not just 5G New Radio
5G New Radio
5G New Core and network slicing
Devices, 5G and MVNOs
Other technology components
What happened with 4G’s and MVNOs?
VoLTE was a surprising obstacle for MVNOs
Growing interest in full MVNO models
5G MVNOs: Business and regulatory issues
Cannibalisation: The elephant in the room?
Can MNOs’ wholesale departments handle 5G?
Can MVNOs operate network slices?
Regulatory impacts on MVNOs with 5G
What do enterprises and IoT players want from 5G and MVNOs?
Hybrid MNOs / MVNOs
Conclusions
Figures:
Figure 1: Thick vs. thin MVNOs and resellers
Figure 2: MVNO segments and examples
Figure 3: 5G predicted timeline, 2018-2026
Figure 4: 5G New Core network architecture
Figure 5: Do MNOs need to reinvent the wholesale function?
Figure 6: MVNO relationships are part of the future B2B/vertical service spectrum
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Network sharing has become well established as a useful means of reducing capital and operating expenditure by mobile network operators and sharing of passive infrastructure such as towers has become commonplace. The main reasons for sharing are a need or desire to:
as a precursor for possible merger or acquisition.
The speed at which operators wish to roll out their 5G networks will depend on a number of factors, including their need for additional capacity to meet market demand, respond to or pre-empt competitive actions by other operators, and their overall business strategy. Minimising the costs of doing so will be important, although some dominant and well-funded operators, such as Verizon, may choose to avoid sharing to put pressure on weaker competitors. Operators choosing to share have several options which may include mergers or acquisitions.
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Where are the largest current costs?
Analysis of data from mobile operators in both developed and developing countries shows that network operating costs are split between three main areas:
the radio access network (RAN)
the core network
IT systems and service platforms.
While the proportions of the total operating costs taken by each of the three areas vary between operators, the overall pattern is the same for all. Typically, the RAN accounts for over half of operating costs, and the core network from one eighth to a quarter. IT and platforms account for the rest. Average operating cost splits for mobile operators are shown in Figure 4. Most operators find that around half of the RAN cell sites generate insufficient revenue from the traffic they carry to cover their operating costs, although such a simple measure does not take account of the benefit that wide coverage brings to overall business revenues. Nevertheless, it is important to manage the costs of the RAN effectively to ensure that resources are used in the most efficient manner. Typical cost splits are shown below.
Typical top-level split of network opex costs
Source: STL Partners
5G is bringing changes
5G is designed to cater for the rapidly growing demand for mobile broadband and for new use cases that require higher speeds and lower latency while at the same time minimising capital and operating costs. To cater for these requirements the use of higher frequency bands is being introduced, together with network slicing and wherever possible the use of standard computing equipment. The use of mid band frequencies of 3.5GHz and above and millimetre wave (mmWave) will enable much higher speeds, but these frequencies have shorter range and are less able to penetrate most buildings. The impact of the poorer propagation will depend on several factors.
Where very high levels of traffic are concentrated in a small area the extra bandwidth provided may permit the replacement of a number of low frequency base stations by a single mid-band or mmWave base station. In other cases where traffic is more thinly spread but still heavy enough to warrant the use of and investment in high capacity high frequency base stations then it is likely that more base stations will be required to provide equivalent coverage, placing greater demands on the availability of suitable sites and provision of associated infrastructure for backhaul and power.
In more remote areas use of low frequencies will be required to provide wide area coverage, but their use may place limits on the bandwidths that can be economically delivered.
In-building coverage may well prove more difficult to provide, and although some tests suggest the problem may be less severe than initially feared, in many cases it will require the provision of alternative means of delivering in-building coverage. Options include the provision of indoor base stations, potentially meaning multiple installations to support different carriers, the use of neutral hosts or increased reliance on Wi-Fi. The requirements of different industries, large and small businesses and individual householders or tenants will vary enormously, and means will need to be found to meet a wide variety of situations in an economic manner. Neutral hosts for 4G already exist in some venues and products are appearing that connect an internal network to an antenna installed externally.
With rollout of the first 5G networks beginning soon, operators need to ensure that they can deploy their networks fast enough to meet market demand and any regulatory targets whilst at the same time containing costs to a level consistent with their revenues. However, in some cases plans for sharing, especially active and spectrum sharing, may result in delays caused by the time required to reach agreements with prospective partners and to gain any necessary regulatory approvals. They will also wish to ensure that they at least maintain or preferably improve their position relative to their competitors.
Technical changes that can be expected to affect the need for and viability of sharing therefore include:
Use of spectrum in higher frequency bands:
shorter range of higher frequencies
densification and the availability of sites and backhaul links – and ease of access.
availability of sufficient low frequency spectrum for rural areas
spectrum sharing
regulatory factors
Changes in architecture for:
slicing
NFV, cloud
use of off-the-shelf IT components and their reliability and availability.
Contents:
Executive Summary
Introduction
Network sharing is well established
5G is bringing changes
Obstacles: MNO fear of sharing
Other Issues
Structure of report
How will 5G drive demand for sharing?
Overview
Spectrum: Use of higher frequency bands
Options for sharing
How will 5G affect costs of sharing?
Current costs
How will networks costs be split in the future?
NFV, Cloud and Slicing
How soon does the market need 5G?
Other options for MNOs
Neutral host
Implementation: Lessons from experience
Timing is important to obtain best results from sharing
Lessons from existing sharing arrangements
Conclusions & recommendations
Recommendations for telcos
Figures:
Figure 1: Types of network sharing
Figure 2: Typical network cost splits of no sharing versus sharing active RAN
Figure 3: Modelled effect of 3.5 GHz RAN sharing on 5G rollout speed in UK
Figure 4: Typical top-level split of network costs (opex)
Figure 5: Losses from building penetration as frequencies increase
Figure 6: MORAN sharing
Figure 7: MOCN Sharing
Figure 8: Shared spectrum efficiencies
Figure 9: Examples of spectrum sharing
Figure 10: Range of typical network costs as percentage of total
Figure 11: Typical breakdown of RAN opex costs
Figure 12: Network and IT costs
Figure 13: Effect of increased number of cell sites on proportion of network cost in RAN
Figure 14: Population and coverage data for the UK
Figure 15: Capex and opex infrastructure costs
Figure 16: Population coverage for different levels of gross annual capex
Figure 17: Base case coverage (£2 billion per annum)
Figure 18: The effect of sharing small cell layer on rollout
Figure 19: Effect on regional rollout of sharing small cells
Figure 20: Ericsson mobile data growth forecast
Figure 21: Ericsson forecasts data traffic growth 2018–2023 by region
Figure 22: Growth in traffic for different applications
Figure 23: Neutral host configuration for US 3.5GHz CBRS
Figure 24: Red Compartida coverage targets
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This report analyses Orange’s launch of Orange Bank at the end of 2017, examining the strategy behind the new services, considering why Orange decided to launch a bank independently and exploring the ways in which the business model could be relevant to other telcos.
In examining the business case, the report looks at what Orange learnt from its previous mobile money initiatives, what its long-term strategy is, why it chose to launch a new banking service and how it was aided or impeded by regulatory changes in the industry.
The report is structured into the following sections:
The first part of the report outlines consumer behaviour changes and regulatory intervention in the payments industry. This explains why the current climate is aiding the launch of new mobile banking services by telcos and other innovative players.
The second section considers the strength of the banks’ position in the consumer payments market, and how leveraging customer data and digital services can provide opportunities in this area, with a particular focus on telcos.
The third and final section examines the Orange Bank proposition in detail, mobile money strategies from operators in developed and developing markets, and how Orange’s approach can inform similar telco strategies, while also suggesting ways for telcos to differentiate themselves from the competition.
How consumer financial services is changing
Smartphones drive fintech adoption
Digital financial services, part of the broader fintech trend[1], have been gaining traction among consumers for some time. By some measures, about one quarter[2] of the global population are already using some kind of fintech innovation, while fintech start-ups have secured $45 billion in funding since 2015.
In France, for example, 793.4 million online banking payments were made last year, according to the European Central Bank, an increase from 586.2 million in 2014. Ernst & Young (EY) predicts the number of customers going online to open an account in France will surge nearly six-fold to 17 million in the next ten years. In addition, there has been an increase in bank licences being issued to non-traditional banks in international markets. In the UK, for example, there has been a steady influx of licences issued since the financial regulators relaxed rules for new entrants in 2013, according to the Bank of England. Overall, there has been a shift in industry perspectives about the feasibility of launching new banking products and competing with the incumbents.
Fintech providers are benefitting from the global adoption of smartphones, which is growing at an extraordinary pace: today there are about 4 billion smartphone connections, nearly double the figure of three years ago[3]. As consumers are increasingly using smartphones for many aspects of their lives, brands, tech companies and whole industries are finding they are required to innovate to stay relevant, and banking is no exception to this rule. In many cases, incumbent financial services players have been slow to adapt to the rise of the smartphones, opening up an opportunity for newer, more agile players, such as challenger banks or mobile operators wielding new technologies and innovative banking concepts.
Contents:
Executive Summary
Technology and regulation rock banking
Recommendations and takeaways
Introduction
How consumer financial services is changing
Smartphones drive fintech adoption
New regulation to shake up payments industry
Banks under pressure to innovate
Orange Bank, a mobile-first proposition
Incumbents’ response to Orange Bank
Telcos’ track record in financial services
The developing world
The developed world
Conclusions and Recommendations
Orange Bank looks promising
Telcos have multiple options in the banking market
Recommendations and takeaways
Figures:
Figure 1: Orange Bank provides customers with a breakdown of their spending
Figure 2: Orange Bank is clearly differentiated from existing banking services
Figure 3: Many reviews of the Orange Bank App are critical
Figure 4: The global mobile money industry is still expanding quickly
[1] Fintech is defined by STL Partners as “technology that improves and disrupts financial services”, as outlined in Fintech: Definition and Landscape Overview, June 2016
[2] Frost & Sullivan, AI and Big Data Technologies Transforming Financial Services, September 2017
A very large part of the usage of mobile devices – and mobile and other wireless networks – is indoors. Estimates vary but perhaps 70-80% of all wireless data is used while fixed or “nomadic”, inside a building. However, the availability and quality of indoor wireless connections (of all types) varies hugely. This impacts users, network operators, businesses and, ultimately, governments and society.
Whether the use-case is watching a YouTube video on a tablet from a sofa, booking an Uber from a phone in a company’s reception, or controlling a moving robot in a factory, the telecoms industry needs to give much more thought to the user-requirements, technologies and obstacles involved. This is becoming ever more critical as sensitive IoT applications emerge, which are dependent on good connectivity – and which don’t have the flexibility of humans. A sensor or piece of machinery cannot move and stand by a window for a better signal – and may well be in parts of a building that are inaccessible to both humans and many radio transmissions.
While mobile operators and other wireless service providers have important roles to play here, they cannot do everything, everywhere. They do not have the resources, and may lack site access. Planning, deploying and maintaining indoor coverage can be costly.
Indeed, the growing importance and complexity is such that a lot of indoor wireless infrastructure is owned by the building or user themselves – which then brings in further considerations for policymakers about spectrum, competition and more. There is a huge upsurge of interest in both improved Wi-Fi, and deployments of private cellular networks indoors, as some organisations recognise connectivity as so strategically-important they wish to control it directly, rather than relying on service providers. Various new classes of SP are emerging too, focused on particular verticals or use-cases.
In the home, wireless networks are also becoming a battleground for “ecosystem leverage”. Fixed and cable networks want to improve their existing Wi-Fi footprint to give “whole home” coverage worthy of gigabit fibre or cable connections. Cellular providers are hoping to swing some residential customers to mobile-only subscriptions. And technology firms like Google see home Wi-Fi as a pivotal element to anchor other smart-home services.
Large enterprise and “campus” sites like hospitals, chemical plants, airports, hotels and shopping malls each have complex on-site wireless characteristics and requirements. No two are alike – but all are increasingly dependent on wireless connections for employees, visitors and machines. Again, traditional “outdoors” cellular service-providers are not always best-placed to deliver this – but often, neither is anyone else. New skills and deployment models are needed, ideally backed with more cost—effective (and future-proofed) technology and tools.
In essence, there is a conflict between “public network service” and “private property” when it comes to wireless connectivity. For the fixed network, there is a well-defined “demarcation point” where a cable enters the building, and ownership and responsibilities switch from telco to building owner or end-user. For wireless, that demarcation is much harder to institutionalise, as signals propagate through walls and windows, often in unpredictable and variable fashion. Some large buildings even have their own local cellular base stations, and dedicated systems to “pipe the signal through the building” (distributed antenna systems, DAS).
Where is indoor coverage required?
There are numerous sub-divisions of “indoors”, each of which brings its own challenges, opportunities and market dynamics:
• Residential properties: houses & apartment blocks
• Enterprise “carpeted offices”, either owned/occupied, or multi-tenant
• Public buildings, where visitors are more numerous than staff (e.g. shopping malls, sports stadia, schools), and which may also have companies as tenants or concessions.
• Inside vehicles (trains, buses, boats, etc.) and across transport networks like metro systems or inside tunnels
• Industrial sites such as factories or oil refineries, which may blend “indoors” with “onsite”
In addition to these broad categories are assorted other niches, plus overlaps between the sectors. There are also other dimensions around scale of building, single-occupant vs. shared tenancy, whether the majority of “users” are humans or IoT devices, and so on.
In a nutshell: indoor wireless is complex, heterogeneous, multi-stakeholder and often expensive to deal with. It is no wonder that most mobile operators – and most regulators – focus on outdoor, wide-area networks both for investment, and for license rules on coverage. It is unreasonable to force a telco to provide coverage that reaches a subterranean, concrete-and-steel bank vault, when their engineers wouldn’t even be allowed access to it.
How much of a problem is indoor coverage?
Anecdotally, many locations have problems with indoor coverage – cellular networks are patchy, Wi- Fi can be cumbersome to access and slow, and GPS satellite location signals don’t work without line- of-sight to several satellites. We have all complained about poor connectivity in our homes or offices, or about needing to stand next to a window. With growing dependency on mobile devices, plus the advent of IoT devices everywhere, for increasingly important applications, good wireless connectivity is becoming more essential.
Yet hard data about indoor wireless coverage is also very patchy. UK regulator Ofcom is one of the few that reports on availability / usability of cellular signals, and few regulators (Japan’s is another) enforce it as part of spectrum licenses. Fairly clearly, it is hard to measure, as operators cannot do systematic “drive tests” indoors, while on-device measurements usually cannot determine if they are inside or outside without being invasive of the user’s privacy. Most operators and regulators estimate coverage, based on some samples plus knowledge of outdoor signal strength and typical building construction practices. The accuracy (and up-to-date assumptions) is highly questionable.
Contents:
Executive Summary
Likely outcomes
What telcos need to do
Introduction to Indoor Wireless
Overview
Where is indoor coverage required?
How much of a problem is indoor coverage?
The key science lesson of indoor coverage
The economics of indoor wireless
Not just cellular coverage indoors
Yet more complications are on the horizon…
The role of regulators and policymakers
Systems and stakeholders for indoor wireless
Technical approaches to indoor wireless
Stakeholders for indoor wireless
Home networking: is Mesh Wi-Fi the answer?
Is outside-in cellular good enough for the home on its own?
Home Wi-Fi has complexities and challenges
Wi-Fi innovations will perpetuate its dominance
Enterprise/public buildings and the rise of private cellular and neutral host models
Who pays?
Single-operator vs. multi-operator: enabling “neutral hosts”
Recent years have seen an explosion in the amount of data being generated by people and devices, thanks to more advanced network infrastructure, widespread adoption of smartphones and related applications, and digital consumer services. With the expansion of the Internet of Things (IoT), the amount of data being captured, stored, searched and analysed will only continue to increase. Such is the volume and variety of the data that it is beyond traditional processing software and is therefore referred to as ‘big data’.
Big data is of a greater magnitude and variety than traditional data, it comes from multiple sources and can be comprised of various formats, generated, stored and utilised in batches and/or in real-time. There is much talk and discussion around big data and analytics and its potential in many sectors, including telecommunications. As Figure 1 shows, analysis of big data can give an improved basis upon which to base human-led and automated decisions by providing better insight and allowing greater understanding of the situation being addressed.
Figure 1: Using Big Data can result in richer data insights
Source: STL Partners
This report analyses how telcos are pursuing big data analytics, and how to be successful in this regard. This report seeks to answer the following questions:
When does data become ‘big’ and why is it an important issue for telcos?
What is the current state of telco big data implementations?
Who is doing what in terms of intelligent use of data and analytics?
How can big data analytics improve internal operational efficiencies?
How can big data be used to improve the relationship between telcos and their customers?
Where are the greatest revenue opportunities for telcos to employ big data, e.g. B2B, B2C?
Which companies are leading the way in enabling telcos to successfully realise big data strategies?
What is required in terms of infrastructure, dedicated teams and partners for successful implementation?
This report discusses implementations of big data and examines how the market will develop as telco awareness, understanding and readiness to make use of big data improves. It provides an overview of the opportunities and use cases that can be realised and recommends what telcos need to do to achieve these.
Contents:
Executive Summary
Big data analytics is important
…but it’s not a quick win
…it’s a strategic play that takes commitment
How is ‘big data analytics’ different from ‘analytics’?
Opportunities for telcos: typically internal then external
Market development and trends
Challenges and restrictions in practice
What makes a successful big data strategy?
Next steps
Introduction
Methodology
An overview of big data analytics
Volume, variety and velocity – plus veracity and value
The significance of big data for telcos and their future strategies
Market development and trends
Challenges and restrictions
Optimisation and efficiency versus data monetisation
Telcos’ big data ecosystem
Case studies and results
Early results
Big data analytics use cases
Examples of internal use-cases
Examples of external use cases
Findings, conclusions and recommendations
Figures:
Figure 1: Using Big Data can result in richer data insights
Figure 2: The data-centric telco: infusing data to improve efficiency across functions
Figure 3: Options for telcos’ big data implementations
Figure 4: Telco’s big data partner ecosystem
Figure 5: The components of a telco-oriented big data
Healthcare is one of the few sectors where, in every country, there is a huge and ongoing need. This demand will only rise as populations age and grow, exacerbating significant pain points relating to costs and funding models, and unmet needs. Meanwhile, the combination of cost pressures, the sensitive nature of health data and the complexity of healthcare systems have left it as one of the least digitised sectors. Thus, many telcos have identified healthcare as a sector where there is significant opportunity to drive efficiency through new services leveraging their network infrastructure and customer reach.
In some respects, telcos are well positioned to fill the healthcare sector’s needs. For example, enabling doctors to offer virtual care to patients through secure messaging or video chats, and to share electronic health records with patients and other doctors more easily, seem like low hanging fruit. However, in practice this is much more complicated; hospitals, primary care providers (general practitioners, family doctors), specialised clinics (e.g. mental health, physiotherapy) and pharmacies all store patient records in different systems (that are not necessarily digitised), and have different views on how to securely share data between each other. Every healthcare system also has a unique funding model, ranging from predominantly privately funded through insurance providers or out of pocket payments, like the United States, to single payer models like the UK, where the National Health Service accounts for more than 80% of healthcare spending, and budgets – including IT solutions – are closely tied to electoral and economic cycles.
These synergies have prompted a number of telcos to launch consumer health services or to pursue opportunities in the health IT market. Besides TELUS, AT&T, Verizon, Vodafone, Telefónica, NTT DoCoMo, Telstra, Deutsche Telekom AG and BT have all been active in healthcare. We explore their strategies and differences in comparison with TELUS’ approach on page 33. Why TELUS? This report focuses on TELUS Health, which has one of the longest and the most committed investment into the healthcare sector by a telco that we are aware of. We see it as a leading example of how telcos can build a business in healthcare, as well as in other sectors that are not instinctively linked to telecoms.
To put the Canadian healthcare market, which TELUS entered ten years ago, into context:
Canada’s healthcare system is fragmented between 13 provincial/territorial systems and the federal level.
The payer model is split between the government (70%) for necessary hospital and physician services and private insurers (30%) for supplemental care and drug prescriptions.
Healthcare spending accounted for 11.1% of GDP in 2016, on par with other developed countries globally.
The huge geographical distances mean that the 19% of Canadians living in rural areas have very limited access to specialist care.
Adoption of electronic medical record (EMR) systems among family doctors and specialised clinics started from a low base of 20% in 2006, rising to 62% in 2013 and 80% by 2017.
Why TELUS got into healthcare: a viable growth opportunity
Starting in 2005, led by the CEO Darren Entwistle, TELUS executives came to a consensus that just focusing on connectivity would not be enough to sustain long term revenue growth for telecoms companies in Canada, so the telco began a search into adjacent areas where it felt there were strong synergies with its core assets and capabilities. TELUS initially considered options in many sectors with similar business environments to telecoms – i.e. high fixed costs, capex intensive, highly regulated – including financial services, healthcare and energy (mining, oil).
In contrast with other telcos in Canada and globally, TELUS made a conscious decision not to focus on entertainment, anticipating that regulatory moves to democratise access to content would gradually erode the differentiating value of exclusive rights.
By 2007, health had emerged as TELUS’ preferred option for a ‘content play’, supported by four key factors which remain crucial to TELUS’ ongoing commitment to the healthcare sector, nearly a decade later. These are:
Strong correlation with TELUS’ socially responsible brand. TELUS has always prioritised social responsibility as a core company value, consistently being recognised by Canadian, North American and global organisations for its commitment to sustainability and philanthropy. For example, in 2010, the Association for Fundraising Professionals’ named it the most outstanding philanthropic corporation in the world. Thus, investing into the healthcare, with the aim of improving efficiency and health outcomes through digitisation of the sector, closely aligns with TELUS’ core values.
Healthcare’s low digital base. Healthcare was and remains one of the least digitised sectors both in Canada and globally. This is due to a number of factors, including the complexity and fragmented nature of healthcare systems, the difficulty of identifying the right payer model for digital solutions, and cultural resistance among healthcare workers who are already stretched for time and resources.
Personal commitment from the CEO, Darren Entwistle. TELUS’ CEO since he joined the company in 2000, Based on personal experiences with the flaws in the Canadian healthcare system, Darren Entwistle forged his conviction that there was a business case for TELUS to drive adoption of digital health records and other ehealth solutions that could help minimise such errors, which was crucial in winning and maintaining shareholders’ support for investment into health IT.
Healthcare is a growing sector. An ageing population means that the burden on Canada’s healthcare system has and will continue to grow for the foreseeable future. As people live longer, the demands on the healthcare system are also shifting from acute care to chronic care. For example, data from the OECD and the Canadian Institute for Health Information show that the rate of chronic disease among patients over 65 years old is double that of those aged 45-64 (see figure 3). Meanwhile, funding is not increasing at the same rate as demand, convincing TELUS of the need for the type of digital disruption that has occurred in many other sectors.
That all four of TELUS’ reasons for investing in healthcare remain equally relevant in 2017 as in 2007 is key to its unwavering commitment to the sector. Darren Entwistle refers to healthcare as a ‘generational investment’, saying that over the long term, TELUS may shift into a healthcare company that offers telecoms services, rather than the other way around.
Contents:
Executive Summary
Healthcare can be a viable investment opportunity…
…But there are risks
Introduction
Why TELUS got into healthcare: a viable growth opportunity
How TELUS got into healthcare: buying a way in
Overview of the Canadian healthcare system
The payer model
Access to healthcare and demographics
TELUS’ objectives and evidence of success in healthcare
Build a new revenue stream
Synergy: supporting telecoms revenues
Differentiate brand among consumers
Drive better health outcomes
Understanding TELUS Health’s strategy
TELUS Health’s three step strategy
eHealth market challenges: how is TELUS responding?
Comparing TELUS with other telcos: a deeper dive
Lessons for other telcos
Challenges of the digital health market
Healthcare is a long-term play
Healthcare matrix: mapping the healthcare sector for telcos
Figures:
Figure 1: Snapshot of TELUS Health business
Figure 2: Public vs. private healthcare services in Canada
Figure 3: Rate of chronic disease rises dramatically among seniors
Figure 4: TELUS Health’s reach in the healthcare market
Figure 5: TELUS Health is outpacing TELUS in revenue growth
Figure 6: TELUS Health’s contribution to TELUS revenues
Figure 7: Healthcare investment contributes to improving customer loyalty
Figure 8: How do consumers feel about TELUS?
Figure 9: TELUS vs. other Canadian telcos’ consumer brand score and rank
Figure 10: BC pilot of HHM shows reduction in hospital admissions
Figure 11: TELUS acquisitions
Figure 12: Methodology for building collaborative solutions
Figure 13: List of collaborative solutions and end-users
Figure 14: Roadmap for eClaims solution
Figure 15: Roadmap for PharmaSpace solution
Figure 16: Roadmap for Mobile EMR solution
Figure 17: Patient engagement is central to TELUS Health’s target growth opportunities
Figure 18: Home health monitoring overview
Figure 19: Results of HHM trials across two health authorities in British Colombia
Figure 20: Healthcare in TELUS ad campaigns
Figure 21: Sample of TELUS Health investments and partnerships
Figure 22: Telco digital health strategies
Figure 23: Healthcare Matrix scoring criteria
Figure 24: Where are telcos’ strengths in digital health?
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
It’s been a while since STL Partners last tackled the thorny issue of Net Neutrality. In our 2010 report Net Neutrality 2.0: Don’t Block the Pipe, Lubricate the Market we made a number of recommendations, including that a clear distinction should be established between ‘Internet Access’ and ‘Specialised Services’, and that operators should be allowed to manage traffic within reasonable limits providing their policies and practices were transparent and reported.
Perhaps unsurprisingly, the decade-long legal and regulatory wrangling is still rumbling on, albeit with rather more detail and nuance than in the past. Some countries have now implemented laws with varying severity, while other regulators have been more advisory in their rules. The US, in particular, has been mired in debate about the process and authority of the FCC in regulating Internet matters, but the current administration and courts have leaned towards legislating for neutrality, against (most) telcos’ wishes. The political dimension is never far away from the argument, especially given the global rise of anti-establishment movements and parties.
Some topics have risen in importance (such as where zero-rating fits in), while others seem to have been mostly-agreed (outright blocking of legal content/apps is now widely dismissed by most). In contrast, discussion and exploration of “sender-pays” or “sponsored” data appears to have reduced, apart from niches and trials (such as AT&T’s sponsored data initiative), as it is both technically hard to implement and suffers from near-zero “willingness to pay” by suggested customers. Some more-authoritarian countries have implemented their own “national firewalls”, which block specific classes of applications, or particular companies’ services – but this is somewhat distinct from the commercial, telco-specific view of traffic management.
In general, the focus of the Net Neutrality debate is shifting to pricing issues, often in conjunction with the influence/openness of major web and app “platform players” such as Facebook or Google. Some telco advocates have opportunistically tried to link Net Neutrality to claimed concerns over “Platform Neutrality”, although that discussion is now largely separate and focused more on bundling and privacy concerns.
At the same time, there is still some interest in differential treatment of Internet traffic in terms of Quality of Service (QoS) – and also, a debate about what should be considered “the Internet” vs. “an internet”. The term “specialised services” crops up in various regulatory instruments, notably in the EU – although its precise definition remains fluid. In particular, the rise of mobile broadband for IoT use-cases, and especially the focus on low-latency and critical-communications uses in future 5G standards, almost mandate the requirement for non-neutrality, at some levels at least. It is much less-likely that “paid prioritisation” will ever extend to mainstream web-access or mobile app data. Large-scale video streaming services such as Netflix are perhaps still a grey area for some regulatory intervention, given the impact they have on overall network loads. At present, the only commercial arrangements are understood to be in CDNs, or paid-peering deals, which are (strictly speaking) nothing to do with Net Neutrality per most definitions. We may even see pressure for regulators to limit fees charged for Internet interconnect and peering.
This report first looks at the changing focus of the debate, then examines the underlying technical and industry drivers that are behind the scenes. It then covers developments in major countries and regions, before giving recommendations for various stakeholders.
STL Partners is also preparing a broader research piece on overall regulatory trends, to be published in the next few months as part of its Executive Briefing Service.
What has changed?
Where have we come from?
If we wind the clock back a few years, the Net Neutrality debate was quite different. Around 2012/13, the typical talking-points were subjects such as:
Whether mobile operators could block messaging apps like WhatsApp, VoIP services like Skype, or somehow charge those types of providers for network access / interconnection.
If fixed-line broadband providers could offer “fast lanes” for Netflix or YouTube traffic, often conflating arguments about access-network links with core-network peering capacity.
Rhetoric about the so-called “sender-pays” concept, with some lobbying for introducing settlements for data traffic that were reminiscent of telephony’s called / caller model.
Using DPI (deep packet inspection) to discriminate between applications and charge for “a la carte” Internet access plans, at a granular level (e.g. per hour of view watched, or per social-network used).
The application of “two-sided business models”, with Internet companies paying for data capacity and/or quality on behalf of end-users.
Since then, many things have changed. Specific countries’ and regions laws’ will be discussed in the next section, but the last four years have seen major developments in the Netherlands, the US, Brazil, the EU and elsewhere.
At one level, the regulatory and political shifts can be attributed to the huge rise in the number of lobby groups on both Internet and telecom sides of the Neutrality debate. However, the most notable shift has been the emergence of consumer-centric pro-Neutrality groups, such as Access Now, EDRi and EFF, along with widely-viewed celebrity input from the likes of comedian John Oliver. This has undoubtedly led to the balance of political pressure shifting from large companies’ lawyers towards (sometimes slogan-led) campaigning from the general public.
But there have also been changes in the background trends of the Internet itself, telecom business models, and consumers’ and application developers’ behaviour. (The key technology changes are outlined in the section after this one). Various experiments and trials have been tried, with a mix of successes and failures.
Another important background trend has been the unstoppable momentum of particular apps and content services, on both fixed and mobile networks. Telcos are now aware that they are likely to be judged on how well Facebook or Spotify or WeChat or Netflix perform – so they are much less-inclined to indulge in regulatory grand-standing about having such companies “pay for the infrastructure” or be blocked. Essentially, there is tacit recognition that access to these applications is why customers are paying for broadband in the first place.
These considerations have shifted the debate in many important areas, making some of the earlier ideas unworkable, while other areas have come to the fore. Two themes stand out:
5G, WiFi, GPRS, NB-IoT, LTE-M & LTE Categories 1 & 0, SigFox, Bluetooth, LoRa, Weightless-N & Weightless-P, ZigBee, EC-GSM, Ingenu, Z-Wave, Nwave, various satellite standards, optical/laser connections and more….. the list of current or proposed wireless network technologies for the “Internet of Things” seems to be growing longer by the day. Some are long-range, some short. Some high power/bandwidth, some low. Some are standardised, some proprietary. And while most devices will have some form of wireless connection, there are certain categories that will use fibre or other fixed-network interfaces.
There is no “one-size fits all”, although some hope that 5G will ultimately become an “umbrella” for many of them, in the 2020 time-frame and beyond. But telcos, especially mobile operators, need to consider which they will support in the shorter-term horizon, and for which M2M/IoT use-cases. That universe is itself expanding too, with new IoT products and systems being conceived daily, spanning everything from hobbyists’ drones to industrial robots. All require some sort of connectivity, but the range of costs, data capabilities and robustness varies hugely.
Two over-riding question themes emerge:
What are the business cases for deploying IoT-centric networks – and are they dependent on offering higher-level management or vertical solutions as well? Is offering connectivity – even at very low prices/margins – essential for telcos to ensure relevance and differentiate against IoT market participants?
What are the longer-term strategic issues around telcos supporting and deploying proprietary or non-3GPP networking technologies? Is the diversity a sensible way to address short-term IoT opportunities, or does it risk further undermining the future primacy of telco-centric standards and business models? Either way telcos need to decide how much energy they wish to expend, before they embrace the inevitability of alternative competing networks in this space.
This report specifically covers IoT-centric network connectivity. It fits into Telco 2.0’s Future of the Network research stream, and also intersects with our other ongoing work on IoT/M2M applications, including verticals such as the connected car, connected home and smart cities. It focuses primarily on new network types, rather than marketing/bundling approaches for existing services.
Improve existing M2M operations: Dedicated M2M business units structured around priority verticals with dedicated resources. Such units allow telcos to tailor their business approach and avoid being constrained by traditional strategies that are better suited to mobile handset offerings.
Move into new areas of M2M: Expansion along the value chain through both acquisitions and partnerships, and the formation of M2M operator ‘alliances.’
Explore the Internet of Things: Many telcos have been active in the connected home e.g. AT&T Digital Life. However, outsiders are raising the connected home (and IoT) opportunity stakes: Google, for example, acquired Nest for $3.2 billion in 2014.
Figure 2: The M2M Value Chain
Source: STL Partners, More With Mobile
In the 9 months since that report was published, a number of important trends have occurred in the M2M / IoT space:
A growing focus on the value of the “industrial Internet”, where sensors and actuators are embedded into offices, factories, agriculture, vehicles, cities and other locations. New use-cases and applications abound on both near- and far-term horizons.
A polarisation in discussion between ultra-fast/critical IoT (e.g. for vehicle-to-vehicle control) vs. low-power/cost IoT (e.g. distributed environmental sensors with 10-year battery life). 2015 discussion of IoT connectivity has been dominated by futuristic visions of 5G, or faster-than-expected deployment of LPWANs (low-power wide-area networks), especially based on new platforms such as SigFox or LoRa Alliance.
Comparatively slow emergence of dedicated individual connections for consumer IoT devices such as watches / wearables. With the exception of connected cars, most mainstream products connect via local “capillary” networks (e.g. Bluetooth and WiFi) to smartphones or home gateways acting as hubs, or a variety of corporate network platforms. The arrival of embedded SIMs might eventually lead to more individually-connected devices, but this has not materialised in volume yet.
Continued entry, investment and evolution of a broad range of major companies and start-ups, often with vastly different goals, incumbencies and competencies to telcos. Google, IBM, Cisco, GE, Intel, utility firms, vehicle suppliers and 1000s of others are trying to carve out roles in the value chain.
Growing impatience among some in the telecom industry with the pace of standardisation for some IoT-centric developments. A number of operators have looked outside the traditional cellular industry suppliers and technologies, eager to capitalise on short-term growth especially in LPWAN and in-building local connectivity. In response, vendors including Huawei, Ericsson and Qualcomm have stepped up their pace, although fully-standardised solutions are still some way off.
Connectivity in the wider M2M/IoT context
It is not always clear what the difference is between M2M and IoT, especially at a connectivity level. They now tend to be used synonymously, although the latter is definitely newer and “cooler”. Various vendors have their own spin on this – Cisco’s “Internet of Everything”, and Ericsson’s “Networked Society”, for example. It is also a little unclear where the IoT part ends, and the equally vague term “networked services” begins. It is also important to recognise that a sizeable part of the future IoT technology universe will not be based on “services” at all, although “user-owned” devices and systems are much harder for telcos to monetise.
An example might be a government encouraging adoption of electric vehicles. Cars and charging points are “things” which require data connections. At one level, an IoT application may simply guide drivers to their closest available power-source, but a higher-level “societal” application will collate data from both the IoT network and other sources. Thus data might also flow from bus and train networks, as well as traffic sensors, pollution monitors and even fitness trackers for walking and cycling, to see overall shifts in transport habits and help “nudge” commuters’ behaviour through pricing or other measures. In that context, the precise networks used to connect to the end-points become obscured in the other layers of software and service – although they remain essential building blocks.
Figure 3: Characterising the difference between M2M and IoT across six domains
Source: STL Partners, More With Mobile
(Note: the Future of Network research stream generally avoids using vague and loaded terms like “digital” and “OTT”. While concise, we believe they are often used in ways that guide readers’ thinking in wrong or unhelpful directions. Words and analogies are important: they can lead or mislead, often sub-consciously).
Often, it seems that the word “digital” is just a convenient cover, to avoid admitting that a lot of services are based on the Internet and provided over generic data connections. But there is more to it than that. Some “digital services” are distinctly non-Internet in nature (for example, if delivered “on-net” from set-top boxes). New IoT and M2M propositions may never involve any interaction with the web as we know it. Some may actually involve analogue technology as well as digital. Hybrids where apps use some telco network-delivered ingredients (via APIs), such as identity or one-time SMS passwords are becoming important.
Figure 4: ‘Digital’ and IoT convergence
Source: STL Partners, More With Mobile
We will also likely see many hybrid solutions emerging, for example where dedicated devices are combined with smartphones/PCs for particular functions. Thus a “digital home” service may link alarms, heating sensors, power meters and other connections via a central hub/console – but also send alerts and data to a smartphone app. It is already quite common for consumer/business drones to be controlled via a smartphone or tablet.
In terms of connectivity, it is also worth noting that “M2M” generally just refers to the use of conventional cellular modems and networks – especially 2G/3G. IoT expands this considerably – as well as future 5G networks and technologies being specifically designed with new use-cases in mind, we are also seeing the emergence of a huge range of dedicated 4G variants, plus new purpose-designed LPWAN platforms. IoT also intersects with the growing range of local/capillary[1] network technologies – which are often overlooked in conventional discussions about M2M.
Figure 5: Selected Internet of Things service areas
Source: STL Partners
The larger the number…
…the less relevance and meaning it has. We often hear of an emerging world of 20bn, 50bn, even trillions of devices being “networked”. While making for good headlines and press-releases, such numbers can be distracting.
While we will definitely be living in a transformed world, with electronics around us all the time – sensors, displays, microphones and so on – that does not easily translate into opportunities for telecom operators. The correct role for such data and forecasts is in the context of a particular addressable opportunity – otherwise one risks counting toasters, alongside sensors in nuclear power stations. As such, this report does not attempt to compete in counting “things” with other analyst firms, although references are made to approximate volumes.
For example, consider a typical large, modern building. It’s common to have temperature sensors, CCTV cameras, alarms for fire and intrusion, access control, ventilation, elevators and so forth. There will be an internal phone system, probably LAN ports at desks and WiFi throughout. In future it may have environmental sensors, smart electricity systems, charging points for electric vehicles, digital advertising boards and more. Yet the main impact on the telecom industry is just a larger Internet connection, and perhaps some dedicated lines for safety-critical systems like the fire alarm. There may well be 1,000 or 10,000 connected “things”, and yet for a cellular operator the building is more likely to be a future driver of cost (e.g. for in-building radio coverage for occupants’ phones) rather than extra IoT revenue. Few of the building’s new “things” will have SIM cards and service-based radio connections in any case – most will link into the fixed infrastructure in some way.
One also has to doubt some of the predicted numbers – there is considerable vagueness and hand-waving inherent in the forecasts. If a car in 2020 has 10 smart sub-systems, and 100 sensors reporting data, does that count as 1, 10 or 100 “things” connected? Is the key criterion that smart appliances in a connected home are bought individually – and therefore might be equipped with individual wide-area network connections? When such data points are then multiplied-up to give traffic forecasts, there are multiple layers of possible mathematical error.
This highlights the IoT quantification dilemma – everyone focuses on the big numbers, many of which are simple spreadsheet extrapolations, made without much consideration of the individual use-cases. And the larger the headline number, the less-likely the individual end-points will be directly addressed by telcos.
Executive Summary
Introduction
Connectivity in the wider M2M/IoT context
The larger the number…
The IoT network technology landscape
Overview – it’s not all cellular
The emergence of LPWANs & telcos’ involvement
The capillarity paradox: ARPU vs. addressability
Where does WiFi fit?
What will the impact of 5G be?
Other technology considerations
Strategic considerations
Can telcos compete in IoT without connectivity?
Investment vs. service offer
Regulatory considerations
Are 3GPP technologies being undermined?
Risks & threats
Conclusion
Figure 1: Telcos can only fully monetise “things” they can identify uniquely
Figure 2: The M2M Value Chain
Figure 3: Characterising the difference between M2M and IoT across six domains
Figure 4: ‘Digital’ and IoT convergence
Figure 5: Selected Internet of Things service areas
Figure 6: Cellular M2M is growing, but only a fraction of IoT overall
Before looking at how current network investments might drive future generations of telco-delivered services, it is worth considering some of the history, and examining how we got where we are today.
Most obviously, the original network build-outs were synonymous with the services they were designed to support. Both fixed and mobile operators started life as “phone networks”, with analogue or electro-mechanical switches. (Earlier descendants were designed to service telegraph and pagers, respectively). Cable operators began as conduits for analogue TV signals. These evolved to support digital switches of various types, as well as using IP connections internally.
From the 1980s onwards, it was hoped that future generations of telecom services would be enabled by, and delivered from, the network itself – hence acronyms like ISDN (Integrated Services Digital Network) and IN (Intelligent Network).
But the earliest signs that “digital services” might come from outside the telecom network were evident even at that point. Large companies built up private networks to support their own phone systems (PBXs). Various 3rd-party “value-added networks” (VAN) and “electronic data interchange” (EDI) services emerged in industries such as the automotive sector, finance and airlines. And from the early 1990s, consumers started to get access to bulletin boards and early online services like AOL and CompuServe, accessed using dial-up modems.
And then, around 1994, the first web browsers were introduced, and the model of Internet access and ISPs took off, initially with narrowband connections using modems, but then swiftly evolving to ADSL-based broadband. From 1990 onwards, the bulk of new consumer “digital services” were web-based, or using other Internet protocols such as email and private messaging. At the same time, businesses evolved their own private data networks (using telco “pipes” such as leased-lines, frame-relay and the like), supporting their growing client/server computing and networked-application needs.
Figure 1: In recent years, most digital services have been “non-network” based
Source: STL Partners
For fixed broadband, Internet access and corporate data connections have mostly dominated ever since, with rare exceptions such as Centrex phone and web-hosting services for businesses, or alarm-monitoring for consumers. The first VoIP-based carrier telephony service only emerged in 2003, and uptake has been slow and patchy – there is still a dominance of old, circuit-based fixed phone connections in many countries.
More recently, a few more “fixed network-integrated” offers have evolved – cloud platforms for businesses’ voice, UC and SaaS applications, content delivery networks, and assorted consumer-oriented entertainment/IPTV platforms. And in the last couple of years, operators have started to use their broadband access for a wider array of offers such as home-automation, or “on-boarding” Internet content sources into set-top box platforms.
The mobile world started evolving later – mainstream cellular adoption only really started around 1995. In the mobile world, most services prior to 2005 were either integrated directly into the network (e.g. telephony, SMS, MMS) or provided by operators through dedicated service delivery platforms (e.g. DoCoMo iMode, and Verizon’s BREW store). Some early digital services such as custom ringtones were available via 3rd-party channels, but even they were typically charged and delivered via SMS. The “mobile Internet” between 1999-2004 was delivered via specialised WAP gateways and servers, implemented in carrier networks. The huge 3G spectrum licence awards around 2000-2002 were made on the assumption that telcos would continue to act as creators or gatekeepers for the majority of mobile-delivered services.
It was only around 2005-6 that “full Internet access” started to become available for mobile users, both for those with early smartphones such as Nokia/Symbian devices, and via (quite expensive) external modems for laptops. In 2007 we saw two game-changers emerge – the first-generation Apple iPhone, and Huawei’s USB 3G modem. Both catalysed the wide adoption of the consumer “data plan”- hitherto almost unknown. By 2010, there were virtually no new network-based services, while the “app economy” and “vanilla” Internet access started to dominate mobile users’ behaviour and spending. Even non-Internet mobile services such as BlackBerry BES were offered via alternative non-telco infrastructure.
Figure 2: Mobile data services only shifted to “open Internet” plans around 2006-7
Source: Disruptive Analysis
By 2013, there had still been very few successful mobile digital-services offers that were actually anchored in cellular operators’ infrastructure. There have been a few positive signs in the M2M sphere and wholesaled SMS APIs, but other integrated propositions such as mobile network-based TV have largely failed. Once again the transition to IP-based carrier telephony has been slow – VoLTE is gaining grudging acceptance more from necessity than desire, while “official” telco messaging services like RCS have been abject failures. Neither can be described as “digital innovation”, either – there is little new in them.
The last two years, however, have seen the emergence of some “green shoots” for mobile services. Some new partnering / charging models have borne fruit, with zero-rated content/apps becoming quite prevalent, and a handful of developer platforms finally starting to gain traction, offering network-based features such as location awareness. Various M2M sectors such as automotive connectivity and some smart-metering has evolved. But the bulk of mobile “digital services” have been geared around iOS and Android apps, anchored in the cloud, rather than telcos’ networks.
So in 2015, we are currently in a situation where the majority of “cool” or “corporate” services in both mobile and fixed worlds owe little to “the network” beyond fast IP connectivity: the feared mythical (and factually-incorrect) “dumb pipe”. Connected “general-purpose” devices like PCs and smartphones are optimised for service delivery via the web and mobile apps. Broadband-connected TVs are partly used for operator-provided IPTV, but also for so-called “OTT” services such as Netflix.
And future networks and novel services? As discussed below, there are some positive signs stemming from virtualisation and some new organisational trends at operators to encourage innovative services – but it is not yet clear that they will be enough to overcome the open Internet’s sustained momentum.
What are so-called “digital services”?
It is impossible to visit a telecoms conference, or read a vendor press-release, without being bombarded by the word “digital” in a telecom context. Digital services, digital platforms, digital partnerships, digital agencies, digital processes, digital transformation – and so on.
It seems that despite the first digital telephone exchanges being installed in the 1980s and digital computing being de-rigeur since the 1950s, the telecoms industry’s marketing people have decided that 2015 is when the transition really occurs. But when the chaff is stripped away, what does it really mean, especially in the context of service innovation and the network?
Often, it seems that “digital” is just a convenient cover, to avoid admitting that a lot of services are based on the Internet and provided over generic data connections. But there is more to it than that. Some “digital services” are distinctly non-Internet in nature (for example, if delivered “on-net” from set-top boxes). New IoT and M2M propositions may never involve any interaction with the web as we know it. Hybrids where apps use some telco network-delivered ingredients (via APIs), such as identity or one-time SMS passwords are becoming important.
And in other instances the “digital” phrases relate to relatively normal services – but deployed and managed in a much more efficient and automated fashion. This is quite important, as a lot of older services still rely on “analogue” processes – manual configuration, physical “truck rolls” to install and commission, and high “touch” from sales or technical support people to sell and operate, rather than self-provisioning and self-care through a web portal. Here, the correct term is perhaps “digital transformation” (or even more prosaically simply “automation”), representing a mix of updated IP-based networks, and more modern and flexible OSS/BSS systems to drive and bill them.
STL identifies three separate mechanisms by which network investments can impact creation and delivery of services:
New networks directly enable the supply of wholly new services. For example, some IoT services or mobile gaming applications would be impossible without low-latency 4G/5G connections, more comprehensive coverage, or automated provisioning systems.
Network investment changes the economics of existing services, for example by removing costly manual processes, or radically reducing the cost of service delivery (e.g. fibre backhaul to cell sites)
Network investment occurs hand-in-hand with other changes, thus indirectly helping drive new service evolution – such as development of “partner on-boarding” capabilities or API platforms, which themselves require network “hooks”.
While the future will involve a broader set of content/application revenue streams for telcos, it will also need to support more, faster and differentiated types of data connections. Top of the “opportunity list” is the support for “Connected Everything” – the so-called Internet of Things, smart homes, connected cars, mobile healthcare and so on. Many of these will not involve connection via the “public Internet” and therefore there is a possibility for new forms of connectivity proposition or business model – faster- or lower-powered networks, or perhaps even the much-discussed but rarely-seen monetisation of “QoS” (Quality of Service). Even if not paid for directly, QoS could perhaps be integrated into compelling packages and data-service bundles.
There is also the potential for more “in-network” value to be added through SDN and NFV – for example, via distributed servers close to the edge of the network and “orchestrated” appropriately by the operator. (We covered this area in depth in the recent Telco 2.0 brief on Mobile Edge Computing How 5G is Disrupting Cloud and Network Strategy Today.)
In other words, virtualisation and the “software network” might allow truly new services, not just providing existing services more easily. That said, even if the answer is that the network could make a large-enough difference, there are still many extra questions about timelines, technology choices, business models, competitive and regulatory dynamics – and the practicalities and risks of making it happen.
Part of the complexity is that many of these putative new services will face additional sources of competition and/or substitution by other means. A designer of a new communications service or application has many choices about how to turn the concept into reality. Basing network investments on specific predictions of narrow services has a huge amount of risk, unless they are agreed clearly upfront.
But there is also another latent truth here: without ever-better (and more efficient) networks, the telecom industry is going to get further squeezed anyway. The network part of telcos needs to run just to stand still. Consumers will adopt more and faster devices, better cameras and displays, and expect network performance to keep up with their 4K videos and real-time games, without paying more. Businesses and governments will look to manage their networking and communications costs – and may get access to dark fibre or spectrum to build their own networks, if commercial services don’t continue to improve in terms of price-performance. New connectivity options are springing up too, from WiFi to drones to device-to-device connections.
In other words: some network investment will be “table stakes” for telcos, irrespective of any new digital services. In many senses, the new propositions are “upside” rather than the fundamental basis justifying capex.
Executive Summary
Introduction
History: The network is the service
What are so-called “digital services”?
Service categories
Network domains
Enabler, pre-requisite or inhibitor?
Overview
Virtualisation
Agility & service enablement
More than just the network: lead actor & supporting cast
Case-studies, examples & counter-examples
Successful network-based novel services
Network-driven services: learning from past failures
The mobile network paradox
Conclusion: Services, agility & the network
How do so-called “digital” services link to the network?
Which network domains can make a difference?
STL Partners and Telco 2.0: Change the Game
Figure 1: In recent years, most digital services have been “non-network” based
Figure 2: Mobile data services only shifted to “open Internet” plans around 2006-7
Figure 3: Network spend both “enables” & “prevents inhibition” of new services
