Telco 1.0: Death Slide Starts in Europe

Telefonica results confirm that global telecoms revenue decline is on the way

Very weak Q1 2014 results from Telefonica and other European players 

Telefonica’s efforts to transition to a new Telco 2.0 business model are well-regarded at STL Partners.  The company, together with SingTel, topped our recent Telco 2.0 Transformation Index which explored six major Communication Service Providers (AT&T, Verizon, Telefonica, SingTel, Vodafone and Ooredoo) in depth to determine their relative strengths and weaknesses and provide specific recommendations for them, their partners and the industry overall.

But Telefonica’s Q1 2014 results were even worse than recent ones from two other European players, Deutsche Telekom and Orange, which both posted revenue declines of 4%.  Telefonica’s Group revenue came in at €12.2 billion which was down 12% on Q1 2013.  Part of this was a result of the disposal of the Czech subsidiary and weaker currencies in Latin America, in which around 50% of revenue is generated.  Nevertheless, the negative trend for Telefonica and other European players is clear.

As the first chart in Figure 1 shows, Telefonica’s revenues have followed a gentle parabola over the last eight years.  They rose from 2006 to 2010, reaching a peak in Q4 of that year, before declining steadily to leave the company in Q1 2014 back where it started in Q1 2006.

The second chart, however, adds more insight.  It shows the year-on-year percentage growth or decline in revenue for each quarter.  It is clear that between 2006 and 2008 revenue growth was already slowing down and, following the 2008 economic crisis in which Spain (which generates around quarter of Telefonica’s revenue) was hit particularly hard, the company’s revenue declined in 2009.  The economic recovery that followed enabled Telefonica to report growth again in 2010 and 2011 before the underlying structural challenges of the telecoms industry – the decline of voice and messaging – kicked in, resulting in revenue decline since 2012.

Figure 1: Telefonica’s growth and decline over the last 8 years

Telco 2.0 Telefonica Group Revenue

Source: Telefonica, STL Partners analysis

One thing is clear: the only way is down for most CSPs and for the industry overall

The biggest concern for Telefonica and something that STL Partners believes will be replicated in other CSPs over the next few years is the accelerating nature of the decline since the peak.  It seems clear that Telco 1.0 revenues are not going to decline in a steady fashion but, once they reach a tipping point, to tumble away quickly as:

  • Substitute voice and messaging products and alternate forms of communication scale;
  • CSPs fight hard to maintain customers, revenue and share in voice, messaging and data products, via attractive bundles

The results of the European CSPs confirms STL Partners belief that the outlook for the global industry in the next few years is negative overall.  It is clear that telecoms industry maturity is at different stages globally:

  • Europe: in decline
  • US: still growing but very close to the peak
  • Africa, Middle East, Latin America: slowing growth but still 2(?) years before peak
  • Asia: mixed, some markets growing, others in decline

Given these different mixes, STL Partners reaffirms its forecast of 2012 that overall the industry will contract by up to 10% between 2013 and 2017 as core Telco 1.0 service revenue decline accelerates once more and more countries get beyond the peak.  This is illustrated for the mobile industry in Figure 2, below.

Figure 2: Near-term global telecoms decline is assured; longer-term growth is dependent on management actions now

Global mobile telcoms revenue

Source: STL Partners

Upturn in telecoms industry fortunes after 2016 dependent on current activities

If the downturn to 2016 is a virtual certainty, the shape of the recovery beyond this, which STL Partners (tentatively) forecasts, is not. The industry’s fortunes could be much better or worse than the forecast owing to the importance of transformation activities which all players (CSPs, Network Equipment Providers, IT players, etc.) need to make now.

The growth of what we have termed Human Data (personal data for consumers and business customers, including some aspects of Enterprise Mobility), Non-Human Data (connection of devices and applications – Internet of Things, Machine2Machine, Infrastructure as a Service, and some Enterprise Mobility) and Digital Services (end-user and B2B2X enabling applications and services) requires CSPs and their partners to develop new skills, assets, partnerships, customer relationships and operating and financial models – a new business model.

As IBM found in moving from being hardware manufacturer to a services player during the 1990’s, transforming the business model is hard.  IBM was very close to bankruptcy in the early 90’s before disrupting itself and re-emerging as a dominant force again in recent years.  CSPs and NEPs, in particular, are now seeking to do the same and must act decisively from 2013-2016 if they are to enjoy a rebirth rather than continued and sustained decline.

Telco 2.0: Making Money from Location Insights

Preface

The provision of Location Insight Services (LIS) represents a significant opportunity for Telcos to monetise subscriber data assets. This report examines the findings of a survey conducted amongst representatives of key stakeholders within the emerging ecosystem, supplemented by STL Partners’ research and analysis with the objective of determining how operators can release the value from their unique position in the location value chain.

The report concentrates on the Location Insight Services (LIS), which leverage the aggregated and anonymised data asset derived from connected consumers’ mobile location data, as distinct from Location Based Services (LBS), which are dependent on the availability of individual real time data.

The report draws the distinction between Location Insight Services that are Person-centric and those that are Place-centric and assesses the different uses for each data set.

In order to service the demand from specific use cases as diverse as Benchmarking, Transport & Infrastructure Planning, Site Selection and Advertising Evaluation, operators face a choice between fulfilling the role of Data Supplier, providing the market with Raw Big Data or offering Professional Services, adding value through a combination of location insight reports and interpretation consultancy.

The report concludes with a comparative evaluation of options for operators in the provision of LIS services and a series of recommendations for operators to enable them to release the value in Location Insight Services.

Location data – untapped oil

The ubiquity of mobile devices has led to an explosion in the amount of location-specific data available and the market has been quick to capitalise on the opportunity by developing a range of Location-Based Services offering consumers content (in the form of information, promotional offers and advertising). Industry analysts predict that this market sector is already worth nearly $10 billion.

The vast majority of these Location Based Services (LBS) are dependent on the availability of real time data, on the reasonable assumption that knowing an individual’s location enables a company to make an offer that is more relevant, there and then.  But within the mobile operator community, there is a growing conviction that a wider opportunity exists in deriving Location Insight Services (LIS) from connected consumers’ mobile location data. This opportunity does not necessarily require real time data (see Figure 9). The underlying premise is that identification of repetitive patterns in location activity over time not only enables a much deeper understanding of the consumer in terms of behaviour and motivation, but also builds a clearer picture of the visitor profile of the location itself.

Figure 1:  Focus of this study is on Location Insight Services
Focus of this Study on Location Insight Services

  • As part of our Telco 2.0 Initiative, we have surveyed a number of companies from within the evolving location ecosystem to assess the potential value of operator subscriber data assets in the provision of Location Insight Services. This report examines the findings and illustrates how operators can release the value from their unique position in the location value chain.

Location Insight Services is a fast growing, high value opportunity

The demand is “Where”?

For operators to invest in the technology and resources required to enter this market, a compelling business case is required. Firstly, various analysts have confirmed that there is a massive latent demand for location-centric information within the business community to enable the delivery of location-specific products and services that are context-relevant to the consumer. According to the Economist Business Unit, there is a consensus amongst marketers that location information is an important element in developing marketing strategy, even for those companies where data on customer and prospect location is not currently collected.3

Figure 2: Location is seen as the most valuable information for developing marketing strategy
Location is seen as the most valuable information for developing marketing strategy

Source: Mind the marketing gap – A report from Economist Business Intelligence Unit

Scoping the LIS opportunity by industry and function

In order to understand the market potential for Location Insight Services, we have considered both industry sectors and job functions where insights derived from location data at scale improve business efficiencies. Our research has suggested that Location Insight Services have an application to many organisations that are seeking to address the broader issue of how to extract the benefits concealed within Big Data.

A recent report from Cisco concentrating on how to unlock the value of digital analytics suggested that Big Data has an almost universal application and

“Big Data could help almost any organization run better and more efficiently. A service provider could improve the day-to-day operations of its network. A retailer could create more efficient and lucrative point-of-sale interactions. And virtually any supply chain would run more smoothly. Overall, a common information fabric would improve process efficiency and provide a complete asset view.” 

Our research suggests that the following framework facilitates understanding of the different elements that together comprise the market for non-real time Location Insight Services.

The matrix considers the addressable market by reference to vertical industry sectors and horizontal function or disciplines.

We have rated the opportunities High, Medium and Low based on a high level assessment of the potential for uptake within each defined segment. In order to produce an estimate of the potential market size for non-real time Location Insight Services, STL Partners have taken into account the current revenue estimates for both industry sectors and functions.

Figure 3:  Location Insight Market Overview (telecoms excluded)
Location Insight Services Market Taxonomy

Report Contents

  • Preface
  • Executive Summary
  • Location data – untapped oil
  • Location Insight Services is a fast growing, high value opportunity
  • Scoping the LIS opportunity by industry and function
  • Location Insight Services could be worth $11bn globally by 2016
  • Which use cases will drive uptake of LIS?
  • Use cases – industry-specific illustrations
  • How should Telcos “productise” location insights services?
  • Operators are uniquely placed to deliver location insights and secure a significant share of this opportunity
  • What is the operator LIS value proposition?
  • Location insight represents a Big Data challenge for Telcos.
  • There is a demand for more granular location data
  • Increasing precision commands a premium
  • Meeting LIS requirements – options for operators
  • What steps should operators take?
  • Methodology and reference sources
  • References
  • Appendix 1 – Opportunity Sizing
  • Definition
  • Methodology

 

  • Figure 1: Focus of this study is on Location Insight Services
  • Figure 2: Location is seen as the most valuable information for developing marketing strategy
  • Figure 3: Location Insight Market Overview (telecoms excluded)
  • Figure 4: The value of Global Location Insight Services by industry and sector (by 2016)
  • Figure 5: How UK retail businesses use location based insights
  • Figure 6: Illustrative use cases within the Location Insights taxonomy
  • Figure 7: How can Telcos create value from customer data?
  • Figure 8: Key considerations for Telco LIS service strategy formulation
  • Figure 9: Real time service vs. Insight
  • Figure 10: The local link in global digital markets
  • Figure 11: Customer Data generated by Telcos
  • Figure 12: Power of insight from combining three key domains
  • Figure 13: Meeting LIS Requirements – Options for Operators

Personal Data: how to make it a viable, customer-centred industry

Content:

  • Guiding Principles
  • The Market: evolving use cases
  • Industry Structure: the Personal Data Landscape
  • Legal: creating a bridging framework
  • Technical Stream: creating a universal language
  • Personal Data Rights Language (PDRL)
  • Next Steps

 

  • Figure 1 – A Selection of Other Legal Principles and Guidelines Examined
  • Figure 2 – Updated draft of the WEF Personal Data Principles
  • Figure 3 – The emerging landscape of uses
  • Figure 4 – The Personal Data Landscape
  • Figure 5 – The ‘BLT’ Approach – Business, Legal, Technical Mapping
  • Figure 7- ’System Rules Architecture’ for Legal Frameworks
  • Figure 7 – Rough Example of PDRL ‘Mark Up’ Language
  • Figure 8 – WEF Personal Data Milestone Roadmap

Mobile TV: going ‘Round The Side’ of telco networks?

Summary: Dyle TV, a new mobile TV broadcast network (supported by Fox), was presented at the Silicon Valley Brainstorm against the backdrop of Cisco’s VNI (Visual Networking Index) research on forecast growth in mobile video traffic. It was argued that Dyle’s model can both take the pressure off mobile operator data capacity by taking video traffic ‘round the side’ and make good use of TV Broadcasters’ spectrum. Could this model work, not only in the US but elsewhere around the world? (May 2012, Executive Briefing Service)

Dyle Mobile TV Image Telco 2.0

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Below is an extract from this 19 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service here. Non-members can subscribe here, buy a Single User license for this report online here for £595 (+VAT for UK buyers), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003. We’ll also be discussing our findings at the London (12-13 June) New Digital Economics Brainstorm.

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Background

This is an extract of the analysis of a session at the Digital Entertainment 2.0 stream of the Silicon Valley New Digital Economics Executive Brainstorm, that took place on the 28th March, 2012. Using a widely acclaimed interactive format called ‘Mindshare’, the Digital Entertainment 2.0 stream enabled specially-invited senior executives from across the communications, entertainment and technology sectors to discuss and explore key strategic issues on the theme of ‘New Business Models in a multi-screen, 3D/HD, mobile world’. Presentations from the event can be found here and further STL Partners research on entertainment and content can be found here.

Mobile Video: How to Reduce Complexity

The hypothesis explored at this session (one of three) was that content owners and carriers want to deliver live video content to their customers but face significant barriers: hundreds of device types, various network conditions, bandwidth congestion, hundreds of simultaneous sessions, and a painful workflow.

Key questions:

  • How are new devices, formats and enabling technologies improving the situation?
  • What use cases are most compelling – for different markets, in different geographies?
  • What are the viable cost models? 
 
Presenters and Panellists:
  • Chris Osika, Senior Director IBSG, Cisco Systems presented an overview of Cisco’s VNI study of the future impact of video on communications networks;
  • Erik Moreno, SVP, Corporate Development, Fox Networks Group, presented on Dyle TV, a new innovation in Mobile TV in the US market; 
  • Andre James, Partner, Media Practice, Bain, also joined the panel.

The session was hosted and moderated by Andrew Collinson, Research Director, STL Partners. This Briefing summarises some of the high-level findings and includes the verbatim output of the brainstorm.

Stimulus presentations

Cisco’s VNI Study

Opening the session, Chris Osika, Senior Director IBSG, Cisco Systems, gave some background to mobile broadband data growth and especially video traffic, citing Cisco’s own VNI (Visual Networking Index) forecasts. As well as a summary of top-level findings below, here is a video of his presentation in full.

 

He covered changing end-user behaviours and business models in the TV and video sectors, citing tablets, multi-tasking and “TV Everywhere” services as catalysts of change, and you can see a video of this presentation below.

Figure 1 – Cisco VNI forecast growth of mobile data traffic

Mobile TV 'Round the Side' Telco 2.0 image

Source: Cisco
[Note: STL Partners will shortly be issuing its own analysis of the new Cisco VNI mobile data forecasts]

Counter-intuitively, he disagreed with part of the central notion of “Social TV”, stating that while consumers might use two devices simultaneously, it will likely be for two different experiences, not a single converged one. He also touched on the risks of video “breaking the network”, and subtly introduced the idea of using WiFi for offload, suggesting that this might be part of a service provider’s arsenal (rather than driven by the user, as is currently typical).

Figure 2 – Adoption of tablets & other examples of new consumer behaviour

Mobile TV 'Round the Side' Telco 2.0 image Fig 2

Source: Cisco

Dyle TV

Next, Erik Moreno, SVP Corporate Development, Fox Networks Group, introduced Dyle, a new partnership for mobile TV which Fox is working on with partners such as Comcast/xfinity. (Currently, five out of the top 7 US broadcast networks are participating – excluding ABC and CBS at present). It intends to use existing broadcasting technology to provide live TV onto mobile devices (including tablets & automotive screens). In essence, this is another attempt to create a mobilised version of broadcast (this technology is called ATSC-MH), complete with new chipsets to be included into handsets, and apps to decrypt and play back content. 

Figure 3 – An introduction to the Dyle mobile TV business model & technology

Mobile TV 'Round the Side' Telco 2.0 image Fig 3

Source: Fox Networks

However, unlike previous misadventures in mobile TV (think DVB-H in Europe, and Qualcomm’s MediaFlo network in the US), this time Dyle might be able to exploit a changing consumer behaviour mindset about on-the-go content (e.g. on tablets), coupled with different economics to 3G/4G usage – i.e. no data caps – as well as smarter and more user-friendly devices. Also, initially Dyle will be free-to-air, rather than demanding upfront monthly subscriptions, which has proven a major obstacle for occasional users.

He discussed the complexities of getting the service to market, juggling 11 different partnerships, cutting deals with content publishers, obtaining the first ATSC-MH integrated handset (from Samsung), starting build-out in 32 initial markets, gaining a distribution deal with MetroPCS and outlining its future roadmap such as an iPad antenna accessory from Belkin.

Figure 4 – Dyle mobile TV form-factors

Mobile TV 'Round the Side' Telco 2.0 image Fig 4

Source: Dyle

He sees four potential future revenue streams

  • Direct to consumer, which he thinks is “hard”
  • Wrapped up into MVPD services from cable companies wanting to offer TV Everywhere propositions
  • Targeted advertising – potentially location-based as well as individualised.
  • Distributed as an add-on to telcos’ voice and data plans

Figure 5 – Dyle has multiple business & distribution models

Mobile TV 'Round the Side' Telco 2.0 image Fig 5

Source: Fox Networks

Mr Moreno said that for mobile, “IP networks don’t scale” – especially for multiple viewers of live TV in the same location.

As part of the business rationale for Dyle, STL Partners thinks that it could help the TV industry justify continued ownership of spectrum in the face of a concerted effort by the telecoms industry to push regulators to repurpose it for mobile broadband.

To read this report in full, including…

  • Background
  • Mobile Video: How to Reduce Complexity
  • Stimulus presentations
  • Cisco’s VNI Study
  • Dyle TV
  • Panel Discussion & Delegate Input
  • Audience Q&As on presentations
  • Panel Discussion
  • Will Dyle work in the US and elsewhere? (Votes by region)
  • Verbatim delegate questions
  • What are the compelling mobile device video use cases? 
  • Conclusions and next steps
  • Key takeaways
  • Next steps

… and the following figures….

  • Figure 1 – Cisco VNI forecast growth of mobile data traffic
  • Figure 2 – Adoption of tablets & other examples of new consumer behaviour
  • Figure 3 – An introduction to the Dyle mobile TV business model & technology
  • Figure 4 – Dyle mobile TV form-factors
  • Figure 5 – Dyle has multiple business & distribution models
  • Figure 6 – Vote on Dyle model in the US
  • Figure 7 – Vote on Dyle model in Europe
  • Figure 8 – Vote on Dyle model in Asia

Members of the Telco 2.0 Executive Briefing Subscription Service can download the full 24 page report in PDF format hereNon-Members, please subscribe here, buy a Single User license for this report online here for £595 (+VAT for UK buyers), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Key terms referenced: Cisco, Dyle. Mobile TV, mobile operators, telcos, US, Europe, Asia, MediaFlo, VNI.

Patent Wars, part of the ‘Great Game’ (STL Partners Presentation)

In Amazon, Apple, Facebook, Google, Skype – the Great Game. Presentation by Keith McMahon, Senior Analyst, STL Partners, covering key patent wars between the leading technology players and telcos. Presented at EMEA Brainstorm, November 2011.

Cloud EMEA Nov 2011 BT Financial Sector

Download presentation here.

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

Extracted example slide:

Slide on Patent Wars, STL Partners, Telco 2.0, Google, Apple, Facebook, Amazon, Skype, Microsoft Nov 2011

The ‘Great Game’ – Google, Apple, Facebook, Skype, Amazon (STL Presentation)

In Amazon, Apple, Facebook, Google, Skype – the Great Game. Presentation by Chris Barraclough, Chiref Strategist and MD STL Partners, covering some of the key insights from the Telco 2.0 Strategy Report  Dealing with the ‘Disruptors’: Google, Apple, Facebook, Microsoft/Skype and Amazon. Presented at EMEA Brainstorm, November 2011.

Cloud EMEA Nov 2011 BT Financial Sector

Download presentation here.

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

Extracted example slide (NB revenue values shown are ‘orders of magnitude’:

Slide on great game, STL Partners, Telco 2.0, Google, Apple, Facebook, Amazon, Skype, Microsoft Nov 2011nancial Services Nov 2011