Telco roadmap to net-zero carbon emissions: Why, when and how

Telcos’ role in reducing carbon emissions

There are over eighty telecoms operators globally that turn over $1 billion or more in revenues every year. As major companies, service providers (SPs) have a role to play in reducing global carbon emissions. So far, they have been behind the curve. In the Corporate Knights Global 100 of the world’s most sustainable corporations, only five of them are telcos (BT, KPN, Cogeco, Telus and StarHub) and none of them are in the top 30.

In this report, we explore the aims, visions and priorities of SPs in their journey to become more sustainable companies. More specifically, we have sought to understand the practical steps they are undertaking to reduce their carbon footprints. This includes discovering how they define, prioritise and drive initiatives as well as the governance and reporting used to determine their progress to ‘net-zero’.

Each SP’s journey is unique; we’ve explored how regional and market influences affect their journey and how different personas and influencers within the SP approach this topic. To do this, we have spoken to 40 individuals at SPs globally. Interviewees have varied, from corporate and social responsibility (CSR) representatives, to those responsible for the SP’s technology and enterprise strategies. This report reflects the strategies and ambitions we learnt about during these conversations.

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This report is informed by interviews from SPs globallytelcos carbon emissions

What do we mean by scope 1, 2 and 3?

Before diving in further, it’s important to align on the key terminology that all major SPs are drawing on to evaluate and report their sustainability efforts: in particular, how they disclose and commit to reducing their greenhouse gas emissions.

SPs divide their carbon emissions into scope 1, 2 and 3 – scope 3 is by far the most significant

For most SPs, scope 1 (e.g. emissions from the fleet of vehicles used to install equipment or perform maintenance tasks on base stations) and scope 2 (e.g. the electricity they purchase to run their networks) makes up less than 20% of their overall footprint. These emissions can be recorded and reported on accurately and there are established methodologies for doing so.

Scope 3, however, is where 80%+ of SP carbon emissions come from. This is because it captures the impact of the SP’s whole supply chain, e.g. the carbon emissions released from manufacturing the network equipment that they deploy. It also includes the carbon emissions arising from supplying customers with products and services that an SP sells, e.g. from shipping and de-commissioning consumer handsets or servers provided to enterprise customers.

Table of Contents

  • Executive Summary
  • Table of Figures
  • Introduction
    • What do we mean by scope 1, 2 and 3?
    • Where are SPs in their sustainability journey?
    • How does this differ by region?
    • What’s covered in the rest of the report?
  • Procurement and sustainable supply chain
    • Scope 1, 2 and 3: Where are procurement teams focused
    • Current priorities
    • Regional nuances
    • Best and next practices
  • Networking
  • IT and facilities
  • Enterprise products and services
  • Key recommendations and conclusion

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How to identify and meet new customer needs

Customer-led innovation at Telia and Elisa

In order to secure competitive advantage and long-term growth, telcos need to identify and meet new customer needs. The importance of this is confirmed by the STL Partner’s Telco investment priorities survey published in January 2021. Understanding customer needs and innovation, both essential for addressing new needs and driving growth, featured in the top ten priorities.

Telco top investment  priorities

top-telco-investment-priorities-stl

Source:  STL Partners, Telecoms priorities: Ready for the crunch?

This report seeks to identify best practice for telcos. Through in-depth interviews with senior managers in Elisa and Telia, and an expert in disruptive innovation, we identify the critical success factors and lessons learned in these organisations.

Telia created Division X in 2017, a separate business unit focused on commercialising and growing revenue from emerging businesses and technologies such as IoT (including 5G), data insights, and digital B2C services. Its focus is on customer needs and speed of execution, to spearhead and accelerate innovation, which it deems necessary in Telia’s drive to “reinvent better connected living”.

International Digital Services is Elisa’s third main business division, alongside Consumer and Corporate, which serve the domestic market. As International Digital Services has matured, it has focussed specifically on addressing new needs and developing new services, in both industrial and corporate domains.

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The report is based on interviews with:

  • Liisa Puurunen, Vice President, Brand, CX and start-ups, International Digital Services, Elisa — Liisa has a background in leading new businesses and start-ups in Elisa in the Consumer division and International Digital Services. Liisa’s role is to understand where there are new needs to be met, and to get best practise in place across the whole customer journey, within both industrial and corporate domains.
  • Annukka Matilainen, Development Director for Omnichannel and Smart Automation, Elisa —Annukka led the Consumer team’s response to COVID-19
  • Stephanie Huf, Head of Marketing, Division X, Telia — Stephanie’s role is to support the business lines in Division X to in engaging with customers to identify their needs. For example, her team identifies what customers want, defines the value propositions and works with product and business teams to test these in line with customer insight. (Since participating in this research Stephanie Huf has moved to a new role.)
  • Anette Bohman, Strategy Director, Division X, Telia  — Anette supports and guides Division X in defining Telia’s future.
  • John McDonald, FIRSTEP — John is a strategist in disruptive innovation in the health industry in Canada. He helps leaders create alignment around how the forces of disruption are unfolding and where to place the bets. FIRSTEP works with health organisations searching for fresh insights that spark new opportunities for growth.

Create a separate team to maximise new business opportunities

A separate team has many benefits

New business requires a separate, dedicated team. Its needs are different from day-to-day business and it needs its own focus.

One of the biggest learnings for Elisa in addressing new opportunities, is that there needs to be a ‘sandbox team’ with its own resources and budgets, rules, methods and mindset. It must have access to senior managers for decision making and funding, and strong leadership.

The sandbox team needs to be remote from the demands of day-to-day operations and implementation. If finding new needs is only part of someone’s job it is difficult to manage, as short-term demands will inevitably take precedence. Delivery and experimentation are different functions and they should be separate.

Liisa Puurunen’s team is a start-up in its own right. It is leaner than the usual Elisa approach and people are only brought into the team when there is a test to be done, keeping it flexible.

Rationale for a separate team

separate-team-rationale
Source: STL Partners

Contents

  • Executive Summary
    • Create a dedicated and separate team
    • Take a customer centric approach at all stages of innovation
    • Types of innovation will meet different new needs
  • Introduction
  • Create a separate team to maximise new business opportunities
    • A separate team has many benefits
    • Telia Smart Family: The case for a separate innovations team
    • Evaluate success in relevant ways that may be non-traditional
  • Take a customer centric approach to all stages of innovation
    • Ensure a customer centric culture
    • Start with a customer problem
  • Meeting needs and scaling bets
    • Co-create with customers, but choose them carefully
    • Elisa’s empowered teams enable a successful response to COVID-19
  • Types of innovation to meet different new needs
    • New needs in the core versus new businesses
    • Dedicate some resource to extreme innovation
    • Telia Data Insights: New Business innovation in response to COVID-19
    • The case for disruptive innovation
  • Plan exit strategies
    • Perseverance and pivoting can bring success
    • Be prepared to kill your darlings

Related research

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A new role for telcos in smart cities

This report considers how telecommunications operators could play a deeper role in smart city projects, arguing that the multi-stakeholder and multidisciplinary nature of smart city strategies requires a high level of coordination. Some telecommunications operators may be able to play that role. That will bring the operator closer to the citizens, who, in turn, are also their customers. This new position could enable new business models for telecommunications operators.

With the aim of identifying how telecoms operators can evolve and deepen their reach into the smart cities vertical, this report explores the various forms of smart city governance used or that could be used in the development of smart city strategies, and the potential value for telcos in participating in each of them.

The smart city lifecycle

The evolution of smart city strategies

The concept of smart city and smart community goes back to 1997 when the California Institute for Smart Communities developed a “Smart Communities Guidebook” in which smart community was defined as following:

“A smart community is simply that: a community in which government, business, and residents understand the potential of information technology, and make a conscious decision to use that technology to transform life and work in their region in significant and positive ways.”

Since then, the definition of smart city has evolved between an approach majorly focussed on the use of technology and another one towards a more collaborative approach among different disciplines trying to make the entire concept less technology centric. The latter has driven the attention on the concept of smart city. In fact, on the technology side, the advent of the Internet of Things (IoT) has provided the technological tools for simply implementing the definition by the California Institute for Smart Communities. On the socio-economics side, the continuous demographic pressure on cities and their increasing economic importance have pushed city administrations to re-think the purpose of the city and the services provided to citizens, businesses and other city stakeholders. The combination of the possibilities offered by technology and the increasing socio-economic importance of cities have brought the concept of the smart city to the top of the political agenda and challenged the business community to explore how to transform smart cities into a business opportunity.

Putting aside the socio-economic and political aspects of smart cities, the IoT has become an important technological framework for smart city development. The IoT transforms spaces into connected and intelligent ones. The data are gathered, exchanged, analysed and actions are taken based on that analysis. However, the data gathered within smart cities is spread across multiple different systems. The key role of IoT is therefore to provide the technological fabric for the smooth functioning of a smart city’s “system of systems” that benefits both citizens and businesses.

In practice, many smart city projects evolve organically, from the bottom up, rather than from a top-down technology driven model. Several cities have started experimenting with the application of IoT in their services, initially, focussing on a specific application. There have been then several smart parking projects, intelligent lighting projects, smart public safety solutions and so on. But that is only the first step. As per any IoT solution, the user appreciates the value of the IoT project outcome – the beauty of the data gathered and the value of its analysis – and wants then to explore more. In that way, the smart parking projects have expanded into environmental monitoring solutions and/or public safety solutions, gradually morphing into more complex projects.

Introducing the smart city strategy lifecycle

The evolution of smart city projects requires an overall smart city strategy that needs to be managed. The smart city strategy does not have a conclusion, but rather evolves continuously based on achievements, issues and new city needs. Therefore, it is important to see smart city strategies with a lifecycle approach, broken into five key phases.

Figure 1: Smart city strategy lifecycle

Smart city lifecycle: assessment > design > launch > implementation > monitoringSource: STL Partners

  • Smart city assessment: This phase looks at the needs of the city, as well as its level of digital maturity. The digital maturity can be addressed in a variety of ways through the monitoring framework (discussed in more detail later in the report). This phase needs to be very inclusive of all the city stakeholders: businesses, academia, public organisations and citizens’ groups. The output of the smart city assessment is then used in the strategy design phase.
  • Strategy design: A smart city strategy document should contain overall objectives, projects to implement, and resources to use. The strategy document should also include a monitoring framework.
  • Strategy launch: Following agreement on a smart city strategy, some cities run an external consultation with city stakeholders for a sort of wider evaluation. The launch phase’s main goal is to make the city aware of the strategy and the roadmap for implementation. The inclusiveness of the city as a whole in the process is a key factor of success.
  • Strategy implementation: The length of this phase really depends on the decisions in the roadmap. The roadmap could include both short-term and long-term projects.
  • Smart city monitoring: In this phase the monitoring framework established in the strategy design phase is put into operation. That framework should assess the evolution of the smart city strategy implementation. The output of the smart city monitoring can enable another cycle, starting with a fresh assessment. The repetition of the cycle can also be established in the smart city strategy.

Those participating in smart city monitoring, assessment and strategy design phases tend to be long-term, ongoing partners of municipalities, while the implementation phase includes many more partners on a project basis. For telcos seeking to play a broader role in smart cities, the goal is therefore to be more involved in the monitoring, assessment and strategy phases.

Table of contents

  • Executive Summary
  • Introduction
    • Research methodology
  • The smart city lifecycle
    • The evolution of smart city strategies
    • Introducing the smart city strategy lifecycle
    • Smart city monitoring framework: What smart cities are trying to achieve
  • Smart city governance models: How cities are working towards their goals
    • Defining smart city governance
    • Mapping smart city governance models
    • Smart governance case studies
  • The smart city coordination opportunity for telcos
    • Telcos’ current participation in smart city governance
    • How telcos can develop a coordination role in smart cities
  • Conclusions and recommendations

Telcos in healthcare: Winning in a long game, Babylon, and the impact of 5G

Introduction: telcos in healthcare

This is a summary of some of the learnings from another fascinating session at the TELUS Carrier Health Summit in Toronto, May 22nd 2019. This is an annual gathering that was hosted by TELUS Global Solutions for telcos and their partners in healthcare.

Of the hosts, Fawad Shaikh, VP TELUS Global Solutions, said it ran this years’ session because it wants “to develop an alliance of like-minded telcos in health”. David Thomas, VP TELUS Health Solutions, added that “healthcare has to be delivered locally, which is a real plus for telcos. Yet we all need to gain global scale to compete, so it is a great opportunity for non-competitive collaboration.”

About sixty people from telcos and health tech companies were there this year, and the audience was global, with representatives from Latin America, N America, Europe, the Middle East, Asia and Australasia.

STL Partners presented its research on nine telco healthcare studies, and caught up with participants, including Dr Ali Parsa, CEO and founder of Babylon Health, and Mairi Johnson, its Global Partnerships Director.

Healthcare: the problem to be solved

Healthcare is one of our favourite examples of the drive behind the Coordination Age. The explanation is simple:

The problem with healthcare in most economies is not that there isn’t great medicine and healthcare professionals. It’s getting it all delivered to the patients at the right time and at a cost that’s affordable.

This is fundamentally a coordination problem: bringing the right assets (whether physical or digital – a nurse, a treatment, or the patients’ records) together for the patient. Then maintaining the order throughout the patients’ treatment, and indeed, their lives.

All healthcare systems face multiple mounting pressures: growing and ageing populations, greater costs, skills challenges, and more pressure on funding from other sources to name a few.

There’s money in health

It’s also an area of HUGE expenditure. PWC’s Tara McCarville shared figures showing that:

  • Global healthcare spend is forecast to grow from $9.7 Trillion in 2014, to $18 Trillion in 2040, growing at 21% CAGR over the next 5 years.
  • Even so, it’s perhaps surprising that 84% of Fortune 50 companies are engaged in healthcare in some way.

Given this, it’s less surprising to note that the big tech players are seriously engaged in digital health too, with Amazon’s recent tie up with JP Morgan and Berkshire Hathaway to create the Haven Group being the most eye-catching. Others between CVS and Aetna, and Sanofi and Click Therapies involve less broadly familiar names, but are weighty nonetheless.

From a government perspective the numbers are big too. In the UK for example, which is one of the EU’s lower healthcare spenders per capita, the NHS’s annual bill is currently £154 billion, and it’s forecast to rise to £188 billion in 15 years (to 2033).

A 5% tax rise?

Without borrowing, this would lead to something like a 5% increase in overall taxation. Over 98% of UK tax funding is from ‘general taxation and national insurance’ – so mainly income tax, VAT and ongoing employment contributions.  In other words, people would have to pay.

Despite the UK’s love of the NHS, a permanent 5% tax rise would draw many concerned breaths from both politicians and the public. The need to find better solutions is genuinely pressing.

(NB Try out this calculator made by the Institute of Fiscal Studies if you fancy yourself as a policy guru. To fund healthcare, would you raise taxes, cut pensions, defence, or education?)

Figure 2: The Institute of Fiscal Studies’ (IFS) Health Budget Calculator

IFS NHS Budget Calculator
Meeting the NHS’s future funding needs would mean a 5% UK tax rise

Source: https://explore.ifs.org.uk/tools/nhs_funding/tool NB At £154bn, the Health spending category is already bigger than all those above.

The rest of the report contains:

  • The road to Babylon – one of the ways ahead?
  • Some telcos are scared by health, others are serious about it
  • 5G, Healthcare – or both?
  • Conclusions: telcos in healthcare – making a long game a good one

And includes the following figures:

  • Figure 1: How to succeed in telco health – key learnings from the Summit
  • Figure 2: The Institute of Fiscal Studies’ (IFS) Health Budget Calculator
  • Figure 3: Babyl has particular strength in Rwanda’s rural areas
  • Figure 4: A flavour of Babylon’s UK online offering
  • Figure 5: Pros and cons of telcos in healthcare
  • Figure 6: Telstra’s National Cervical Cancer Screening programme benefits
  • Figure 7: Telcos face a serious choice in Capex / Opex investments

Creating a healthy culture

Introduction

Creating a healthy culture is a key component of success in any organisation. It is particularly important – and challenging – where a company is building a new business operating in a new industry that combines people steeped in an existing cultures. This was the case for TELUS Health in Canada, so we spoke to its then CEO to understand the approach it took.

Three components of ‘Culture’

Whenever we ask our clients what the biggest problem they face is, there’s an excellent chance they will say ‘changing the culture’.

Yet it’s a bit of a coverall statement: what exactly do they mean?

It’s often a bit of a mish-mash of processes, organisation, behaviours and incentives: ‘the way we do things around here’.

Some of this is formalised, through organisation, line-management, how projects are managed and so on. Other aspects are softer – how companies expect people to behave when they are at work: how much autonomy do they have, can they work from home, etc.

To put some structure to this catch-all idea, it can be useful to think about three fundamental components of culture:

  • Shared purpose: what are we all trying to achieve?
  • Common values: what do we believe we need to be like to get there?
  • Processes and behaviours: how do we do things round here?

Looking at these definitions makes it clear why change needs to be led from the top, and why culture change is so challenging.

It needs to be led from the top because you cannot have a credible common purpose that conflicts with what the leadership says it wants, what it values, or how the organisation acts.

Even if you have clear direction from the top, it’s still hard to change because:

  • Most of your organisation will start from a position of ‘this is how we previously learned to be – and now you’re asking us to be different from that?’
  • Culture essentially means a set of behaviours or characteristics that have been socialised, and thereby enmeshed in a complex human web of habits and expectations.

According to Paul Lepage, President of TELUS Health, “culture eats why for breakfast”, paraphrasing the quote “culture eats strategy for breakfast” in a fascinating conversation we had recently.

What Paul meant was that one of the key drivers to creating a great culture is to ensure that your team is truly engaged with your organisation’s meaning or purpose, or ‘why are we doing this?’ beyond making money.

In the case of TELUS Health, this is ‘delivering better healthcare outcomes’, and in Paul’s case at least, this idea comes over very strongly in every interaction I have had with him.

Author’s note: I was talking to Paul because I am fascinated by the role that culture plays in business success. I have known some of the team at TELUS Health for several years, and I am always struck by the quality and consistency of their culture across all the people I have met at TELUS. Andrew Collinson, Partner and Research Director, STL Partners.

TELUS and TELUS Health: consistent internal and external KPIs

There is a notable consistency between TELUS’ results on internal measures of employee engagement, customer opinion, and commercial performance.

  • Employee engagement: TELUS’ overall employee engagement score consistently ranks within the top quartile and has risen steadily in recent years.  TELUS was also named as one of Canada’s Top 100 Employers and Achiever’s 50 Most Engaged Workplaces in 2017.
  • Customer recommendation: TELUS’ customers have given it improving ‘Likelihood to recommend’ scores since 2011.
  • Market valuation: TELUS’ share price has also grown steadily from 2011.

Figure: TELUS’ share price has also steadily grown

TELUS Annual share price chart
TELUS Annual share price, as at end August 2011-2018

Source: Google Finance, STL Partners

Is this a coincidence, or is there a link between these results? And if it is not a coincidence, how has it achieved this, and what can others learn?

TELUS and TELUS Health

Background

STL Partners has worked closely with TELUS and TELUS Health over the last few years, analysing the healthcare division’s progress in TELUS Health: Innovation leader case study. We’ve participated in its Healthcare Summits in Toronto and come to know several of its executives over the years. The following is a brief introduction to TELUS Health from our 2017 report.

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:

  1. 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.
  2. 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.
  3. Personal commitment from 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.
  4. 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. 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 2017/18 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.

TELUS Health: On leadership and culture

To get insight for this report, I spoke at length with Paul Lepage, President-TELUS Health and Payment Solutions at TELUS, on the recommendation of his colleagues, who’d told me that ‘culture’ was of deep importance to Paul. He has been instrumental in setting up TELUS Health, and holds joint responsibility for TELUS Health on the international markets with Dave Sharma, President, TELUS Partner Solutions and Senior Vice-president, Business Solutions Sales. Paul runs the operation on the ground in Canada, while Dave spearheads partnerships and international activity.

I also requested additional support material from TELUS Health, which is included in the Appendix of this report.

This report would not have been possible without their kind collaboration and openness. Nonetheless, its contents represent the opinion of STL Partners, and were not sponsored or commissioned by TELUS.

Contents

  • Executive Summary: For telcos and others wanting to change culture
  • Introduction
  • Three components of ‘Culture’
  • Culture eats ‘why’ for breakfast
  • TELUS and TELUS Health: consistent internal and external KPIs
  • Background
  • Why TELUS got into healthcare: a viable growth opportunity
  • TELUS Health: On leadership and culture
  • Culture = Purpose and process
  • Culture creates a yardstick for performance
  • The importance of a compelling ‘why?’
  • Fair Process
  • Diversity and talent
  • Measuring culture and results
  • Communicating, listening and reflecting is at least 50% of the job
  • Recruitment, partnerships and culture
  • The ‘why?’ must be genuine
  • Conclusions: TELUS Health – A consistent and compelling culture
  • Appendix: Prepared by TELUS Health External Communications

Figures

  • TELUS’ share price has increased steadily
  • Why is ‘why?’ important?
  • TELUS’ ‘Fair process’

MWC 2018: Desperately seeking a business case

What we found at MWC 2018

STL Partners were delighted to again be official partners of the GSMA for the Mobile World Congress (MWC 2018). Our team decamped to Barcelona for the week, and the following is an extract of our analysis of what we saw, heard and thought – and what telcos should do.

No big surprises, but plenty of nuance

As we expected (see MWC2018: 5 things to watch out for), IoT, 5G, NFV/SDN, edge computing and AI were the main topics of discussion, alongside telcos’ continuing struggles with the challenges of managing digital transformation and creating new revenues.

With consumers, and especially in more mature markets, telcos are fighting to retain and regain relevance with their customers, and struggling to justify why they should pay any more for data, lower latency or the insights IoT data can bring.

Hence the telco business cases for IoT, 5G, and edge computing are all eyeing the opportunity to digitalise and connect enterprise applications, sometimes hyped as ‘The Fourth Industrial Revolution’. But the enterprise market is notoriously difficult to serve due to its complex demands, so success requires a good understanding of industry-specific issues, and the business cases are hard to make.

So IoT, 5G, and edge computing are (somewhat inter-related) technologies that will initially deliver the same business benefits, i.e. helping enterprises adopt more efficient, agile and data-centric processes. AI is rather different and will have a more widespread impact in telecoms as we outline below. But each faces its own challenges.

5G: patchy to start

5G should deliver more than enterprise applications in the fullness of time. But most telcos are reluctant to step straight back into a major network capital investment cycle, and still have money to spend to meet the rising demand for 4G.

So, we think the market development of 5G will look different to the other ‘G’s, and the initial uptake of 5G will be patchy:

  • The US market is looking set to talk itself into a 5G war, with each operator having its own motivation to be seen as the leader in 5G. AT&T because it wants to do everything, Verizon because it has an instinct to retain its premium network tag, T-Mobile because it wants to punch all the other operators, and Sprint because it needs to find a way to differentiate. The US market is also big enough to tempt handset vendors into production – or at least into experimentation in 5G. From a PR perspective at least, the US operators’ fingers are twitching on their triggers, but it’s likely that the CFOs and shareholders will need a little more persuasion that it will work economically. This means there will probably be an initial period of ‘phoney war’ as they work out how to play it in various tests and trials, while making increasingly aggressive claims to win the opening propaganda contest.
  • South Korea and Japan also seem determined to head off on the 5G path, and are probably sufficiently advanced markets that are suited to taking the technology upgrade early.
  • Elsewhere though, the enthusiasm for 5G is a little more muted, but the enterprise applications could well make sense for reasons we discuss later in this brief report. Having said that, much of what we saw at MWC 2018 would best be described as “technology seeking a business case” – some interesting technical developments, but little coherent economic rationale that even vaguely approaches a credible business case. “If we build it they will come” may turn out to be the most pragmatic argument, so it is again initially likely to be something of a “test and pivot” approach, as operators dip a toe in the water to see what they can make work, and where, before betting more widely.
  • Wider new applications such as autonomous cars and AR/VR won’t move the needle until later in most markets. Autonomous cars because they won’t be able to rely on a network until it’s widespread and highly proven (see Autonomous cars: Where’s the money for telcos?), and AR/VR because it will take significant time to develop as a widespread and highly used technology (see AR/VR: Won’t move the 5G needle).

Many network vendors, notably Huawei, while hoping to bet big on 5G are sensibly taking an ‘incremental’ approach to 5G, and designing it as an add-on or upgrade to 4G or 4G+ solutions.

NB. We will soon be publishing a detailed report on our analysis of 5G’s progress.

Edge computing: the need to move beyond technology

MWC 2018 has shown that the industry is still mainly focussing on technology-focused PoCs in the area of edge computing. Key use cases that were demonstrated typically revolved around optimised video delivery, IoT edge gateways, and control of autonomous vehicles or drones.

However, it seems that the industry hasn’t got much closer to articulating viable business and monetisation models for these – technically impressive – use cases. Telcos still need to find out how to cope with three fundamental challenges and uncertainties which represent the key road blocks for success at the edge:

  • Commercialisation: It is – and will be for the foreseeable future – unclear which edge use cases will deliver significant commercial value to telcos (and to their customers for that matter). In addition, telcos lack clarity on which business models need to be employed to monetise individual use cases. We have addressed this issue in Edge computing: Five viable telco business models.
  • Operationalisation: Edge computing capabilities might be relevant for very different parts of the telco organisation – for both internal and external use cases, as well as wider efforts which are related to NFV and 5G. This calls for a certain degree of coordination within the organisation. Equally important is the need for an edge platform which ensures flexibility and speed in developing and onboarding applications.
  • Ecosystem orchestration: Telcos need to work out what their role in the wider distributed (multi-)cloud ecosystem should be, as edge computing is not solely a telco concept (see e.g. AWS Greengrass). This boils down to the question of who telcos should partner with and who they should compete with in the edge computing and edge cloud space. In addition, telcos are starting to acknowledge that there needs to be significant technical and commercial interoperability between operators providing edge computing capabilities to third parties. Otherwise, telcos will stumble over the usual problem of market fragmentation, which would make it unattractive for application providers and developers to offer their services through the telco edge cloud.

STL Partners is currently undertaking primary research on this topic to identify the key short-term and long-term strategic principles for telcos to overcome the above barriers and ensure commercial success at the edge. The findings will be discussed in an upcoming report.

IoT: the struggle to add value

What we saw at MWC 2018 lined up with what we said in Monetising IoT: Four steps for success. “IoT is not a quick win for telcos. The value of IoT connectivity is only a small portion of the total estimated value of the IoT ecosystem, and therefore telcos seeking to grow greater value in this area are actively moving into other layers, such as platforms and vertical end solutions.”

Telcos therefore face a conundrum in IoT. At one extreme, they can focus on the connectivity, and can do reasonably well by providing SIMs plus functionality in reporting and management. Above and beyond that, which is where the bulk of the economic value lies, industries need sophisticated and evolving solutions that integrate connectivity, applications, machines and data.

Such industry solutions need to be tailored to niche demands and limitations, such as specific regulations or legacy infrastructure. As an example, hospitals want to digitalise their operations, but they can’t afford to replace expensive medical equipment like 15-year-old MRI machines, which might not be compatible with the latest technologies and application programmes. On top of that, connecting sensitive medical data comes with sensitive data protection and security requirements. To make all this work well and securely is no small matter, and the province of some highly sophisticated specialist players, well beyond the appetite of most telcos. (NB. We discuss other possible healthcare approaches on page 8 of this report.)

To be successful at a wider level in Industrial IoT will take serious knowledge at both technical domain and sector level, and this is not easy to put together for even one industry, let alone several. It takes vision, commitment, time and investment.

NFV/SDN: grinding forward

NFV/SDN at MWC 2018 was again very much in line with our previous findings and expectations. Operators are making progress, but it is slow and piecemeal.

On the ‘progress’ side of the equation, two new open source initiatives to develop standards for RAN virtualisation were debuted at MWC: the Open RAN (ORAN) project (in which AT&T, China Mobile and Deutsche Telekom are pooling their efforts) and the Cisco-led Open vRAN initiative (vRAN and C-RAN will feature in our forward research). On the ‘piecemeal’ side of the equation, these developments only add to the sense of fragmentation in industry efforts to arrive at NFV standards and interoperability frameworks, which will be critical for realising the potential of NFV to support 5G use cases in areas such as IoT, edge computing and network slicing (as discussed above).

In our forthcoming reports on emerging NFV / SDN technology and use cases, we will build on the analysis in our recent report NFV/SDN deployment pathways: Three telco futures and attempt to show how strategic clarity about the type of telco they wish to be, and the social and economic functions they see their services as performing, is vital to inform operators’ engagement in NFV and SDN, and their selection of NFV / SDN use-cases and associated vertical markets (see discussion of expansion into new verticals below). The first of these reports will take in the MWC ‘hot topics’ of 5G, edge computing and network slicing, with subsequent analyses looking at SD-WAN / on-demand enterprise networking, and industrial and telco automation.

And of course, we are continuing to build our database of information on live, commercial deployments of NFV / SDN, the NFV Deployment Tracker, with further updates adding data on deployments in the Asia-Pacific region, the Middle East, Africa and Latin America, in addition to those recently completed for Europe and North America.

AI: Strategies taking form

AI is an exception to the other technologies because it has both

  • Internal applications for telcos, helping to streamline repetitive and data-intensive tasks across their businesses,
  • And the potential to complement external enterprise solutions.

While 5G, IoT and edge computing seem to be all about finding the use-cases, every sector and every part of telcos’ businesses, from network planning and operations, to back office functions, customer experience and product development, can be streamlined with more advanced data analytics and automation. So, it’s not surprising that all telcos are thinking about how to implement AI.

Tier 1 players such as AT&T, SK Telecom, Orange, Deutsche Telekom and Vodafone already have clear plans on what they are prioritising in the short-term, and what they want to do internally versus partner with vendors like IBM. Improving customer experience is by far the priority area right now, reflecting telcos’ desire to regain credibility with consumers, as well as the relative maturity and awareness of natural language processing within the wider field of AI/machine learning (ML).

Despite having clear ideas of what they want to do, most telcos are still in the early days of implementation. Any live telco chatbots still have limited capabilities and are only operational in one or two markets, so 2018 will be a year of scaling into new markets and channels.

The crucial initial promise of AI is to save costs across the business, and behind the highly hyped chatbot programmes there is evidence that telcos are taking steps towards using machine learning for predictive care (see our report AI in customer services: It’s not all about chatbots), back office resource planning, and network maintenance and operations.

The major question for telcos is how they should organise their AI initiatives and skills for the highest impact, and where and with whom they should partner. Right now, most telcos are taking a decentralised approach to deploying AI, so as not to stifle or hold back progress across various business units or opcos, with an aim to shift towards becoming more centralised.

Whether this is the right approach is still up for debate. We are addressing this question as part of an interview programme with telcos on their progress and strategies around AI and will publish our findings in a forthcoming report outlining the telco AI roadmap.

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Contents:

  • What we found at MWC 2018
  • No big surprises, but plenty of nuance
  • 5G: patchy to start
  • Edge computing: the need to move beyond technology
  • IoT: the struggle to add value
  • NFV/SDN: grinding forward
  • AI: strategies taking form
  • So, what should telcos do?
  • Next steps

Figures:

  • Figure 1: TELUS Health Exchange