Mobile app latency in Europe: French operators lead; Italian & Spanish lag

Latency as a proxy for customer app experience

Latency is a measure of the time taken for a packet of data to travel from one designated point to another. The complication comes in defining the start and end point. For an operator seeking to measure its network latency, it might measure only the transmission time across its network.

However, to objectively measure customer app experience, it is better to measure the time it takes from the moment the user takes an action, such as pressing a button on a mobile device, to receiving a response – in effect, a packet arriving back and being processed by the application at the device.

This ‘total roundtrip latency’ time is what is measured by our partner, Crittercism, via embedded code within applications themselves on an aggregated and anonymised basis. Put simply, total roundtrip latency is the best measure of customer experience because it encompasses the total ‘wait time’ for a customer, not just a portion of the multi-stage journey

Latency is becoming increasingly important

Broadband speeds tend to attract most attention in the press and in operator advertising, and speed does of course impact downloads and streaming experiences. But total roundtrip latency has a bigger impact on many user digital experiences than speed. This is because of the way that applications are built.

In modern Web applications, the business logic is parcelled-out into independent ‘microservices’ and their responses re-assembled by the client to produce the overall digital user experience. Each HTTP request is often quite small, although an overall onscreen action can be composed of a number of requests of varying sizes so broadband speed is often less of a factor than latency – the time to send and receive each request. See Appendix 2: Why latency is important, for a more detailed explanation of why latency is such an important driver of customer app experience.

The value of using actual application latency data

As we have already explained, STL Partners prefers to use total roundtrip latency as an indicator of customer app experience as it measures the time that a customer waits for a response following an action. STL Partners believes that Crittercism data reflects actual usage in each market because it operates within apps – in hundreds of thousands of apps that people use in the Apple App Store and in Google Play. This is a quite different approach to other players which require users to download a specific app which then ‘pings’ a server and awaits a response. This latter approach has a couple of limitations:

1. Although there have been several million downloads of the OpenSignal and Actual Experience app, this doesn’t get anywhere near the number of people that have downloaded apps containing the Crittercism measurement code.

2. Because the Crittercism code is embedded within apps, it directly measures the latency experienced by users when using those apps1. A dedicated measurement app fails to do this. It could be argued that a dedicated app gives the ‘cleanest’ app reading – it isn’t affected by variations in app design, for example. This is true but STL Partners believes that by aggregating the data for apps such variation is removed and a representative picture of total roundtrip latency revealed. Crittercism data can also show more granular data. For example, although we haven’t shown it in this report, Crittercism data can show latency performance by application type – e.g. Entertainment, Shopping, and so forth – based on the categorisation of apps used by Google and Apple in their app stores.

A key premise of this analysis is that, because operators’ customer bases are similar within and across markets, the profile of app usage (and therefore latency) is similar from one operator to the next. The latency differences between operators are, therefore, down to the performance of the operator.

Why it isn’t enough to measure average latency

It is often said that averages hide disparities in data, and this is particularly true for latency and for customer experience. This is best illustrated with an example. In Figure 2 we show the distribution of latencies for two operators. Operator A has lots of very fast requests and a long tail of requests with high latencies.

Operator B has much fewer fast requests but a much shorter tail of poor-performing latencies. The chart clearly shows that operator B has a much higher percentage of requests with a satisfactory latency even though its average latency performance is lower than operator A (318ms vs 314ms). Essentially operator A is let down by its slowest requests – those that prevent an application from completing a task for a customer.

This is why in this report we focus on average latency AND, critically, on the percentage of requests that are deemed ‘unsatisfactory’ from a customer experience perspective.

Using latency as a measure of performance for customers

500ms as a key performance cut-off

‘Good’ roundtrip latency is somewhat subjective and there is evidence that experience declines in a linear fashion as latency increases – people incrementally drop off the site. However, we have picked 500ms (or half a second) as a measure of unsatisfactory performance as we believe that a delay of more than this is likely to impact mobile users negatively (expectations on the ‘fixed’ internet are higher). User interface research from as far back as 19682 suggests that anything below 100ms is perceived as “instant”, although more recent work3 on gamers suggests that even lower is usually better, and delay starts to become intrusive after 200-300ms. Google experiments from 20094 suggest that a lasting effect – users continued to see the site as “slow” for several weeks – kicked in above 400ms.

Percentage of app requests with total roundtrip latency above 500ms – markets

Five key markets in Europe: France, Germany, Italy, and the UK.

This first report looks at five key markets in Europe: France, Germany, Italy, and the UK. We explore performance overall for Europe by comparing the relative performance of each country and then dive into the performance of operators within each country.

We intend to publish other reports in this series, looking at performance in other regions – North America, the Middle East and Asia, for example. This first report is intended to provider a ‘taster’ to readers, and STL Partners would like feedback on additional insight that readers would welcome, such as latency performance by:

  • Operating system – Android vs Apple
  • Specific device – e.g. Samsung S6 vs iPhone 6
  • App category – e.g. shopping, games, etc.
  • Specific countries
  • Historical trends

Based on this feedback, STL Partners and Crittercism will explore whether it is valuable to provide specific total roundtrip latency measurement products.

Contents

  • Latency as a proxy for customer app experience
  • ‘Total roundtrip latency’ is the best measure for customer ‘app experience’
  • Latency is becoming increasingly important
  • STL Partners’ approach
  • Europe: UK, Germany, France, Italy, Spain
  • Quantitative Analysis
  • Key findings
  • UK: EE, O2, Vodafone, 3
  • Quantitative Analysis
  • Key findings
  • Germany: T-Mobile, Vodafone, e-Plus, O2
  • Quantitative Analysis
  • Key findings
  • France: Orange, SFR, Bouygues Télécom, Free
  • Quantitative Analysis
  • Key findings
  • Italy: TIM, Vodafone, Wind, 3
  • Quantitative Analysis
  • Key findings
  • Spain: Movistar, Vodafone, Orange, Yoigo
  • Quantitative Analysis
  • Key findings
  • About STL Partners and Telco 2.0
  • About Crittercism
  • Appendix 1: Defining latency
  • Appendix 2: Why latency is important

 

  • Figure 1: Total roundtrip latency – reflecting a user’s ‘wait time’
  • Figure 2: Why a worse average latency can result in higher customer satisfaction
  • Figure 3: Major European markets – average total roundtrip latency (ms)
  • Figure 4: Major European markets – percentage of requests above 500ms
  • Figure 5: The location of Google and Amazon’s European data centres favours operators in France, UK and Germany
  • Figure 6: European operators – average total roundtrip latency (ms)
  • Figure 7: European operators – percentage of requests with latency over 500ms
  • Figure 8: Customer app experience is likely to be particularly poor at 3 Italy, Movistar (Spain) and Telecom Italia
  • Figure 9: UK Operators – average latency (ms)
  • Figure 10: UK operators – percentage of requests with latency over 500ms
  • Figure 11: German Operators – average latency (ms)
  • Figure 12: German operators – percentage of requests with latency over 500ms
  • Figure 13: French Operators – average latency (ms)
  • Figure 14: French operators – percentage of requests with latency over 500ms
  • Figure 15: Italian Operators – average latency (ms)
  • Figure 16: Italian operators – percentage of requests with latency over 500ms
  • Figure 17: Spanish Operators – average latency (ms)
  • Figure 18: Spanish operators – percentage of requests with latency over 500ms
  • Figure 19: Breakdown of HTTP requests in facebook.com, by type and size

Five Principles for Disruptive Strategy

Introduction

Disruption has become a popular theme, and there are some excellent studies and theories, notably the work of Clayton Christensen on disruptive innovation.

This briefing is intended to add some of our observations, ideas and analysis from looking at disruptive forces in play in the telecoms market and the adjacent areas of commerce and content that have had and will have significant consequences for telecoms.

Our analysis centres on the concept of a business model: a relatively simple structure that can be used to describe and analyse a business and its strategy holistically. The structure we typically use is shown below in Figure 1, and comprises 5 key domains: The Marketplace; Service Offering; Value Network; Finance; and Technology.

Figure 1 – A business model is the commercial architecture of a business: how it makes money

Telco 2.0: STL Partners standard business model analysis Framework

Source: STL Partners

This structure is well suited to analysis of disruption, because disruptive competition is generally a case of conflict between companies with different business models, rather than competition between similarly configured businesses.

A disruptive competitor, such as Facebook for telecoms operators, may be in a completely different core business (advertising and marketing services) seeking to further that business model by disrupting an existing telecoms service (voice and messaging communications). Or it may be a broadly similar player, such as Free in France whose primary business is recognisably telecoms, using a radically different operational model to gain share from direct competitors.

We will look at some of these examples in more depth in this report, and also call on analysis of Google, Apple, Facebook and Amazon to illustrate principles

Digital value is often transient

KPN: a brief case study in disruption

KPN, a mobile operator in the Netherlands, started to report a gradual reduction in SMS / user statistics in early 2011, after a long period of near continuous growth.

Figure 2 – KPN’s SMS stats per user started to change at the end of 2010

Telco 2.0 Figure 2 KPNs SMS stats per user stated to change at the end of 2010

Source: STL Partners, Mobile World Database

KPN linked this change to the rapid rise of the use of WhatsApp, a so-called over-the-top (OTT) messaging application it had noticed among ‘advanced users’ – a set of younger Android customers, as shown in Figure 3.

Figure 3 – WhatsApp took off in certain segments at the end of 2010

Telco 2.0 Figure 3 WhatsApp took off in certain segments at the end of 2010

Source: KPN Corporate Briefing, May 2011

There was some debate at the time about the causality of the link, but the longer term picture of use and app penetration certainly supports the connection between the rise of WhatsApp take-up among KPN’s broader base (as opposed to ‘advanced users’ in Figure 3) and the rapid decline of SMS volumes as Figure 4 shows.

Figure 4 – KPN’s SMS volumes have continued to decline since 2010

Telco 2.0 Figure 4 KPN’s SMS volumes have continued to decline since 2010

Source: STL Partners estimates, Mobile World, Telecomspaper, Statista, Comscore, KPN.

How did that happen then?

KPN’s position was particularly suited to a disruptive attack by WhatsApp (and other messaging apps) in the Netherlands because:

  • It had relatively high unit prices per SMS.
  • KPN had not ‘bundled’ many SMSs into its packages compared to other operators, and usage was very much ‘pay as you go’ – so using WhatsApp offered immediate savings to users.
  • Its market of c.17 million people is technologically savvy with high early smartphone penetration, and densely populated for such a wealthy country, so well suited to the rapid viral growth of such apps.

KPN responded by increasing the number of SMSs in bundles and attempting to ‘sell up’ users to packages with bigger bundles. It has also embarked on more recent programmes of cost reduction and simplification. But as far as SMS was concerned, the ‘horse had bolted the stable’ and the decline continues as consumers gravitate away from a service perceived as losing relevance and value.

We will look in more depth at disruptive pricing and product design strategies in the section on ‘Free is not enough, nor is it the real issue’ later in this report. This case study also presents another challenge for strategists: why did the company not act sooner and more effectively?

Denial is not a good defence

One might be forgiven for thinking that the impact of WhatsApp on KPN was all a big surprise. And perhaps to some it was. But there were plenty of people that expected significant erosion of core revenues from such disruption. In a survey we conducted in 2011, the average forecast among 300 senior global telecoms execs was that OTT services would lead to a 38% decline in SMS over the next 3-5 years, and earlier surveys had shown similar pessimism.

Having said that, it is also true that there was some shock in the market at the time over KPN’s results, and subsequent findings in other markets in Latin America and elsewhere. It is only recently that it has become more of an accepted ‘norm’ in the industry that its core revenues are subject to attack and decline.

Perhaps the best narrative explanation is one of ‘corporate denial’, akin to the human process of grief. Before we reach acceptance of a loss, individuals (and consequently teams and organisations by this theory) go through various stages of emotional response before reaching ‘acceptance’ – a series of stages sometimes characterised as ‘denial, anger, negotiation and acceptance’. This takes time, and is generally considered healthy for people’s emotional health, if not necessarily organisations’ commercial wellbeing.

So what can be done about this? It’s hard to change nature, but it is possible to recognise circumstances and prepare forward plans differently. In the digital era, leaders, strategists, marketers, and product managers need to recognise that profit pools are increasingly transient, and if you are skilful or lucky enough to have one in your portfolio, it is critical to anticipate that someone is probably working on how to disrupt it, and to gather and act quickly on intelligence on realistic threats. There are also steps that can be taken to improve defensive positions against disruption, and we look at some of these in this report. It isn’t always possible because sometimes the start point is not ideal – but then again, part of the art is to avoid that position.

 

  • Executive Summary: five principles
  • Introduction
  • Digital value is often transient
  • KPN: a brief case study in disruption
  • How did that happen then?
  • Denial is not a good defence
  • Timing a disruptive move is critical
  • Disruption visibly destroys value
  • So when should strategists choose disruption?
  • Free is not enough, nor is it the real issue
  • How market winners meet needs better
  • How to compete with ‘free’?
  • Build the platform, feed the flywheel
  • Nurture the ecosystem
  • …don’t price it to death

 

  • Figure 1 – A business model is the commercial architecture of a business: how it makes money
  • Figure 2 – KPN’s SMS stats per user started to change at the end of 2010
  • Figure 3 – WhatsApp took off in certain segments at the end of 2010
  • Figure 4 – KPN’s SMS volumes have continued to decline since 2010
  • Figure 5 – Free’s disruptive play is destroying value in the French Market, Q1 2012-Q3 2014
  • Figure 6 – Verizon is winning in the US – but most players are still growing too, Q1 2011-Q1 2014
  • Figure 7 – How ‘OTT’ apps meet certain needs better than core telco services
  • Figure 8 – US and Spain: different approaches to disruptive defence
  • Figure 9 – The Amazon platform ‘flywheel’ of success

Free Mobile: A Prototype for Disruption?

Summary: Free.fr’s entry to the French mobile market has achieved extraordinarily rapid market share gains and resulted in comprehensive disruption. An analysis of its technology, tactics, and business model, and a high-level assessment of the applicability of its approach to other markets. (February 2013, Executive Briefing Service Dealing with Disruption Stream).

Mobile Market Share in France 2012 - Free 2013

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Below is an extract from this 25 page Telco 2.0 Briefing Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and Dealing with Disruption Stream here. We’ll be publishing more on Digital Commerce in in 2013 and it will be a key theme at our Executive Brainstorms in Silicon Valley (March 2013), and Europe (London, June 2013). Non-members can subscribe here and for this and other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Introduction: A Wave of Disruption

A major theme in our work on mobile operator strategy recently has been the potential for disruption on price. In the European Mobile: The Future’s not Bright, it’s Brutal report, we forecast a substantial decline in voice and messaging revenues across Europe, and identified a group of relatively high-priced markets in challenging Southern European economies that were especially at risk from a competitive shock. 

In the subsequent Europe’s Brutal Future: Vodafone & Telefonica hit hard we responded to the announcement of grim results at Telefonica and Vodafone’s southern European units. And in Sprint-Softbank: how it will disrupt the US market, we looked at the state of the US mobile market as Sprint is acquired by Softbank and investment starts to flow into T-Mobile USA.

Further, since we published the Sprint-Softbank note, 3UK has announced that it is planning to launch LTE later this year, as soon as the disbursed 1800MHz spectrum from the EverythingEverywhere merger becomes available. The service will be launched at a zero price premium to their 3G tariffs. This contrasts with EE’s initial pricing, which tried to define 4G as a premium product, and suggests that whatever pricing power their go-it-alone LTE deployment gave them will be very short-lived.

So it appears that structural pressures, like macroeconomic problems, the concentration of unemployment among the young (an early-adopter demographic), and the increasing availability and adoption of alternatives (Skype, BBM, Whatsapp, etc), are bearing down on prices in many markets. One outcome is that eventually operators will be forced to cut prices and therefore accept gradual reductions in their profit margins. Another outcome is more radical disruption through the entry of new players, which if successful can have a much higher impact on incumbent players. 

In this note, we will look at the disruption of the French MNO market brought about by the entry of Free Mobile, which is both a case study of best practice and also one that illustrates some of the key constraints on disruption. We identify a new class of operator, the low-cost disruptor, empowered by software to go after incumbents’ margins, and look at the criteria for their success.

Market Background

In France, everything was stable pre-2012

France, before Free’s entry to the market, was one of the less competitive and pricier mobile markets in Europe with three operators only, one of them being the part-nationalised incumbent France Telecom. Immediately before Free Mobile’s launch, Fitch Ratings estimated the price of a minute of mobile voice in France at €0.10, compared to €0.07 in the UK or Germany . In terms of monthly ARPU, we can see that the cheapest French operator (interestingly, the incumbent) has usually been around €15 a month dearer than the average German operator and about €10 a month dearer than the average British operator. 

Figure 1: France, a high-price market
Monthly ARPU in France & EU Markets Feb 2013

Source: STL

The regulator, ARCEP, was often characterised as being relatively weak, or else committed to a strategy of letting the operators have more margin in the hope of encouraging infrastructure development.

Politically, this isn’t quite accurate. Importantly, ARCEP wasn’t the only actor involved – the ministries and regional governments also had a substantial voice in policy, and the incumbent enjoyed special access to the top level of politics as a major state enterprise. (In fact, for part of the 2000s, the French minister of finance’s previous job was CEO of France Telecom.) 

Although the European Union’s Information Society, Competition, and Internal Market directorates also influenced the regulatory environment, telecoms is one of the fields where responsibility is shared between the EU and national authorities, and France is a big enough power within the EU to largely shape its own policy. This typically expresses a preference for the development of large national champion companies, and for infrastructure development over either competition or consumer protection.

On the other hand, ARCEP was one of the first regulators to permit independent ISPs to use the incumbent’s civil works infrastructure, and the public sector was very active in investing in middle-mile dark fibre. The upshot of this was that France has a fixed ISP market that offers customers remarkable value – FTTH is more available, speeds are better, and voice pricing is better for comparable rates to those prevailing in the UK, which has a roughly comparable market structure.

Free.fr’s fixed market entry

A major driver of this was a disruptive entrant, Free.fr. Free has been intensively studied, but we will briefly recap some key points. Free’s flagship service offering is €29.99/mo for everything, that including their fastest Internet service, unlimited VoIP to many destinations, and a variety of IT services. Over time, the purity of this price point has been diluted, but it still exists for new subscribers. Free.fr has no marketing department in a classical sense, and their tech support is largely provided by a network of partners recruited from the subscriber base.

On the other hand, they have historically invested without compromise in technology. Not only does Free develop its own software, it developed a succession of very successful set-top boxes, and it even developed its own ADSL2+ equipment. Further, they were an early adopter of FTTH, benefiting from the regulated access to civil works and the public investment in middle-mile fibre. Free was one of the first ISPs to provide IPv6 to end users. The TVPerso service was a pioneering user-generated content platform that provided multicast live streaming years ahead of anyone else. 

Figure 2: A disruptive product play – one product, everything, one price, €30
Logica February 2013

Source: Rudolf van den Berg, Logica 

In mobile, however, the picture was rather different. Only three operators, and one of those being the main supplier of backhaul connectivity, resulted in relatively little competition and high ARPUs and margins in the international context. Market share, particularly, has been remarkably, almost suspiciously, stable over time, as the following chart demonstrates.

Figure 3: Market share in France since 2005
Market Share in France 2005-2011 February 2013

Source: STL

Until, of course, Free became a mobile operator, launching on the 10th January 2012.

Free.fr enters mobile: a pure happy pipe strategy

Free Mobile’s product strategy could not have been simpler. It had two key points: price, and quantity. As with the fixed ISP product, the strategy was to offer big bundles at low prices, notably by unbundling the price of the mobile device from the service contract. The best deal was the bring-your-own-device option. (We also saw this with Softbank.) 

Specifically, there were two options at launch. New subscribers could pay €20/mo for unlimited national calls and international calls to 40 countries, unlimited messaging, and 3GB/mo of Internet service. Existing subscribers to fixed service benefited from a discount to €16/mo. There was also an ultra-low cost plan, which offers 60 minutes of voice and 60 text messages for €2/mo with no contractual commitment and no phone, and overage set at €0.05/minute. This was free as an add-on to an existing fixed subscription. In general, Free Mobile customers remain free to switch provider on a rolling basis, rather than being tied in for the duration of the contract.

As Diffraction Analysis’ Benoit Felten points out, the company traditionally targeted two groups, technology-focused early adopters, and price-driven discount chasers . As a result, as well as bringing your own phone, you could also have the latest iPhone, unlocked, if you were willing to pay an additional €19.99/mo.

Bigger bundles at lower prices suggest a material cost advantage over other players. This is the essence of a Telco 2.0 Happy Piper: engineer operations for efficient bulk IP traffic delivery and ensure prices remain below those offered by competitors and, at the same time, deliver acceptable margins.

Impact

Free rapidly gained subscribers from the other MNOs and from the MVNO sector, and probably also from new adopters on the ultra-low cost tariffs. By the end of March, it had gained 2.6 million subscribers, 4% of the market, and declared a target of between 15 and 25 per cent market share.  By mid-year, its market share had passed 5%, and by the end of Q3 2012 (the last published results), 6.4%, or 4.4 million subscribers with a run-rate of 270,000 net-adds per month.

Figure 4: Free Mobile Reaches 6.4% Share in 9 Months
Market Share in France, 1st 9 Months 2012 February 2013

 Source: WCIS, STL

This resulted in a price shock across the entire market and a rapid rise in indicators of competition generally. It also resulted in a surge of additional subscriber growth.

To read the note in full, including the following sections detailing support for the analysis…

  • How did Free.fr get there?
  • The fight for a license
  • The ‘MVNO plus’ network strategy
  • The role of Freebox set-top boxes
  • Getting Beyond the Unlimited Data Wars
  • Low-Cost Disruptors: International Examples
  • USA: Republic Wireless
  • Global voice-focused: Truphone
  • A failed attempt: UK01
  • Wholesale: Virgin Media
  • Key factors in the business model
  • Technical Arbitrage
  • Software Power
  • The Regulatory and Economic Environment
  • Could it happen here?
  • STL Partners and the Telco 2.0™ Initiative
  • Telco 2.0™ ‘two-sided’ telecoms business model

…and the following figures…

  • Figure 1: France, a high-price market
  • Figure 2: A disruptive product play – one product, everything, one price, €30
  • Figure 3: Market share in France since 2005
  • Figure 4: Free Mobile Reaches 6.4% Share in 9 Months
  • Figure 5: Contract-free subscribers in France, 2008-2012
  • Figure 6: Mobile number portability usage in France, 2007-2012
  • Figure 7: An overview of the disruption
  • Figure 8: ARPUs driven down industry-wide
  • Figure 9: 4th Mobile Operators’ Performance Over 1st 6 Years
  • Figure 10: The Urban Core – Orange Dominates the Base Station Count
  • Figure 11: The Disparity Is Much Less In The Suburbs
  • Figure 12: % of time connected to Free’s own network; 900MHz refarming causes a sharp spike
  • Figure 13: Use cases for software-defined networking in the Free context 

Members of the Telco 2.0 Executive Briefing Subscription Service and Dealing with Disruption Stream can download the full 25 page report in PDF format hereNon-Members, please subscribe here. For this or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.