Tag: verticals

What do enterprises want from telcos?

Enterprises are striving for success…

All enterprises want success. The language and specifics that define this may differ across sectors – but the underlying drivers are the same. They include financial, strategic, operational and market-facing factors, as described below.

Success drivers

enterprise

Source: STL Partners

…against a new, transformed backdrop

Demand and supply forces have changed: Customers expect more, but resources are increasingly constrained. Enterprises are pondering the range of new technologies and practices to help them meet the challenges of a Coordination Age:

  • Coordinating outcomes and experiences for customers
  • Collaborating to enable the delivery of more value
  • Bridging the digital and physical worlds

The Coordination Age

Enterprise

Source: STL Partners

Telcos’ national scope and assets mean they are well placed to participate in some of the new opportunity areas of the Coordination Age. Although technologies and applications running over the telcos’ connectivity are often developed at global scale, how they are implemented within local and national markets is likely to vary from one country to the next, owing to regulatory constraints and how these have shaped the structure and priorities of the market. Telcos can help enterprises navigate this path.

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Do enterprises believe telcos can help?

What enterprises think of telcos depends on their tech maturity, their knowledge and experience of telcos, the telcos’ technology capability and the sector that they are in, as shown below.

Factors influencing enterprise consideration

 

enterprisesSource: STL Partners

Telcos must work to understand enterprise needs in their specific markets and how they are best placed to serve those needs.

Table of contents

  • Executive summary
  • Introduction
  • Understanding telco enterprise strategies
  • Seven enterprise growth opportunities

Related research

STL Partners has a research solution focused on growing enterprise revenues. Reports that could be of interest include:

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How video analytics can kickstart the edge opportunity for telcos

Processing video is a key use for edge computing

In our analysis and sizing of the edge market, STL Partners found that processing video will be a strong driver of edge capacity and revenues. This is because a huge quantity of visual data is captured each day through many different processes. The majority of the information captured is straightforward (such as “how busy is this road?”), therefore it is highly inefficient for the whole data stream to be sent to the core of the network. It is much better to process it near to the point of origin and save the costs, energy and time of sending it back and forth. Hence “Video Analytics” is a key use for edge computing.

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The edge market is evolving rapidly

Edge computing is an exciting opportunity. The market is evolving rapidly, and although still fairly nascent today, is expected to scale significantly over the next 2-3 years. STL partners has estimated that the total edge computing addressable market was worth $10bn in 2020, and that this will grow to $534bn in 2030. This is driven by the increasing number of connected devices, and the rising adoption of IoT, Industry 4.0 and digital transformation solutions. While cloud adoption continues to grow in parallel, there are cases where the increasingly stringent connectivity demands of new and advanced use cases cannot be met by cloud or central data centres, or where sending data to the cloud is too costly. Edge answers this problem, and offers an alternative option with lower latency, reduced backhaul and greater reliability. For the many enterprises who are adopting a hybrid and multi-cloud strategy – strategically distributing their data across different clouds and locations – running workloads at the edge is a natural next step.

Developments in the technologies enabling edge computing are also contributing to market growth. For example, the increased agility of virtualised and 5G networks enables the migration of workloads from the cloud to the edge. Compute is also developing, becoming more lightweight, efficient, and powerful. These more capable devices can run workloads and perform operations that were not previously possible at the edge.

Defining different types of edge

Edge computing brings processing capabilities closer to the end user or end-device. The compute infrastructure is therefore more distributed, and typically at smaller sites. This differs from traditional on-premise compute (which is monolithic or based on proprietary hardware) because it utilises the flexibility and openness of cloud native infrastructure, i.e. highly scalable Kubernetes clusters.

The location of the edge may be defined as anywhere between an end device, and a point on the periphery of the core network. We have outlined the key types of edge computing and where they are located in the figure below.

The types of edge computing

It should be noted that although moving compute to the edge can be considered an alternative to cloud, edge computing also complements cloud computing and drives adoption, since data that is processed or filtered at the edge can ultimately be sent to the cloud for longer term storage or collation and analysis.

Telcos must identify which area of the edge market to focus on

For operators looking to move beyond connectivity and offer vertical solutions, edge is an opportunity to differentiate by incorporating their edge capabilities into solutions. If successful, this could result in significant revenue generation, since the applications and platforms layer is where most of the revenue from edge resides. In fact, by 2030, 70% of the addressable revenue for edge will come from the application, with only 9% in the pure connectivity. The remaining 21% represents the value of hardware, edge infrastructure and platforms, integration, and managed services.

Realistically, operators will not have the resource and management bandwidth to develop solutions for several use cases and verticals. They must therefore focus on key customers in one or two segments, understand their particular business needs, and deliver that value in concert with specific partners in their ecosystem. As it relates to MEC, most operators are selecting the key partners for each of the services they offer – broadcast video, immersive AR/VR experiences, crowd analytics, gaming etc.

When selecting the best area to focus on, telcos should weigh up the attractiveness of the market (including the size of the opportunity, how mature the opportunity is, and the need for edge) against their ability to compete.

Value of edge use cases (by size of total addressable market by 2030)

Source: STL Partners – Edge computing market sizing forecast

We assessed the market attractiveness of the top use cases that are expected to drive adoption of edge over the coming years, some of which are shown in the figure above. This revealed that the use cases that represent the largest opportunities in 2030 include edge CDN, cloud gaming, connected car driver assistance and video analytics. Of these, video analytics is the most mature opportunity, therefore represents a highly attractive proposition for CSPs.

Table of Contents

  • Executive Summary
  • Introduction
    • Processing video is a key use for edge computing
    • The edge market is evolving rapidly
    • Defining different types of edge
    • Telcos must identify which area of the edge market to focus on
  • Video analytics is a large and growing market
    • The market for edge-enabled video analytics will be worth $75bn by 2030
  • Edge computing changes the game and plays to operator strengths
    • What is the role of 5G?
  • Security is the largest growth area and operators have skills and assets in this
    • Video analytics for security will increasingly rely on the network edge
  • There is empirical evidence from early movers that telcos can be successful in this space
    • What are telcos doing today?
    • Telcos can front end-to-end video analytics solutions
    • It is important to maintain openness
    • Conquering the video analytics opportunity will open doors for telcos
  • Conclusion
  • Index

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Microsoft, Affirmed and Metaswitch: What does it mean for telecoms?

What is Microsoft doing, and should telcos be worried?

Over the past two years, Microsoft and its cloud business unit Azure have intensified and deepened their involvement in the telecoms vertical. In 2020, this included the acquisition of two leading independent vendors of cloud-native network software, Affirmed Networks and Metaswitch. This move surprised many industry observers, as it represented an intensification of Microsoft’s involvement in telco networking.

In addition, in September 2020, Microsoft announced its ‘Azure for Operators’ strategy. This packages up all the elements of Microsoft’s and Azure’s infrastructure and service offerings for the telecoms industry – including those provided by Affirmed and Metaswitch – into a more comprehensive, end-to-end portfolio organised around Microsoft’s concept of a ‘carrier-grade cloud’: a cloud that is truly capable of supporting and delivering the distinct performance and reliability that telcos require from their network functions, as opposed to the mainstream cloud devoted to enterprise IT.

In this report, our discussion of Microsoft’s strategy and partnership offer to telcos is our own interpretation based on our research, including conversations with executives from Microsoft, Affirmed Networks and Metaswitch.

We examine Microsoft’s activities in the telecoms vertical in the light of three central questions:

  • What is Microsoft doing in telecoms, and what are its intentions?
  • How should telcos respond to Microsoft’s moves and those of comparable hyperscale cloud providers? Should they consume the hyperscalers’ telco cloud products, compete against the hyperscalers, or collaborate with them?
  • And what would count as success for telcos in relationship to Microsoft and the other hyperscalers? Are there any lessons to be learned from what is happening already?

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Microsoft’s telecom timeline

The last couple of years has seen Microsoft and Azure increasing their involvement in telecoms infrastructure and software while building partnerships with telcos around the world. This march into telecoms stepped up a level with Microsoft’s acquisition in 2020 of two independent virtual network function (VNF) vendors with a strong presence in the mobile core, among other things: Affirmed Networks and Metaswitch. Microsoft was not previously known for its strength in telco network software, and particularly the mobile domain – prompting the question: what exactly was it doing in telecoms?

The graphic below illustrates some of the key milestones in Microsoft’s steady march into telecoms.

Microsoft’s move on telecoms

Microsoft’s five partnership and service models

Microsoft Azure’s key initiatives over the past two years have been to expand its involvement in telecoms, culminating in Microsoft’s acquisition of Affirmed and Metaswitch, and the launch of the Azure for Operators portfolio.

As a result of these initiatives, we believe there are five models of partnership and service delivery that Microsoft is now proposing to operators, addressing the opportunities arising from a convergence of network, cloud and compute. Altogether, these five models are:

Five business models for partnerships

  • A classic telco-vendorrelationship (e.g. with Affirmed or Metaswitch) – helping telcos to evolve their own cloud-native network functions (CNFs), and cloud infrastructure and operations
  • The delivery and management of VNFs and CNFs as a cloud service, or ‘Network Functions-as-a-Service’ (NFaaS)
  • Enabling operators to pursue a hybrid-cloud operating model supporting the delivery of their own vertical-specific and enterprise applications and services, or Platform-as-a-Service (PaaS)
  • Rolling out Azure edge-cloud data centres into telco and enterprise edge locations to serve as a cloud delivery platform for third-party application developers providing low latency-dependent and high-bandwidth services, or ‘Network-as-a-Cloud Platform’ (NaaCP)
  • Using such Azure edge clouds – in enterprise and neutral facilities alongside telco edge locations – as the platform for full-fledged ‘net compute’ services, whether these are developed collaboratively with operators or not.

Table of Contents

  • Executive Summary
    • Microsoft wants to be a win-win partner
    • What should telcos and others do?
    • Next steps
  • Introduction
    • What is Microsoft doing, and should telcos be worried?
  • What has Microsoft done?
    • Microsoft’s telecom timeline
  • What is Microsoft’s strategy?
    • Microsoft’s five partnership and service models
    • The ‘Azure for Operators’ portfolio completes the set
    • 5G, cloud-native and net compute: Microsoft places itself at the heart of telco industry transformation
    • Cellular connectivity – particularly 5G – is pivotal
  • Telco-hyperscaler business models: What should telcos do?
    • Different hyperscalers have different telco strategies: comparison between Azure, AWS and Google Cloud
    • What should telcos do? Compete, consume or collaborate?
  • Microsoft’s ecosystem partnership model: What counts as success for telcos?
    • More important to grow the ecosystem than share of the value chain
    • Real-world examples: AT&T versus Verizon
  • Conclusion: Telcos should stay in the net compute game – and Microsoft wants be a partner
  • Appendix 1: Analysis of milestones of Microsoft’s journey into telecoms
  • Appendix 2: Opportunities and risks of different types of telco-hyperscaler partnership
  • Index

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Recovering from COVID: 5G to stimulate growth and drive productivity

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Related webinar: How will 5G transform transport and logistics?

In this webinar, we share learnings from 100+ interviews and surveys with industry professionals. During the presentation we will look to answer:

  • How will 5G accelerate digital transformation of the transport and logistics industry?
  • What are the key 5G-enabled use cases and what benefits could these deliver?
  • What must change within the industry to unlock this transformation?
  • What is the role for telcos – how can they work with industry leaders to increase adoption of 5G and build new revenues beyond core communication services?

Date: Thursday 10th September 2020
Time: 4pm BST

View the webinar recording

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The 5G opportunity and value to verticals

In October 2019, STL Partners published research highlighting the benefits 5G-enabled use cases could unlock for industries. Our forecast predicted a potential $1.4 trillion increase in global GDP by 2030 across eight key industries.

In this short paper we look to update these numbers and explore new insights and conclusions based on two key factors:

  1. STL Partners has produced new research on the impact of 5G on the transport and logistics industry. This has led to more granular insight on the unique benefits and use cases for this vertical.
  2. COVID has changed the global landscape. It has increased demand for some 5G use cases, such as remote patient monitoring or video analytics solutions that determine if the public are respecting social distancing, but has also brought about economic uncertainty. We reflect these nuances in our updated figures.

5G enabled use cases could increase GDP by $1.5 trillion by 2030 – an increase from our original forecast

Source: STL Partners

5G’s impact on transport and logistics: Fresh analysis and new use cases

In 2019, we deep-dived into the 5G opportunity within two key verticals: healthcare and manufacturing. We have since performed a similar deep-dive on the transport and logistics industry, consisting of primary research with experts in the industry. We interviewed 10 enterprises, solutions providers, and members of 5G testbeds who were focused on transport and logistics, as well as surveying 100+ individuals who work in the industry to test the impact they predicted for three key 5G use cases. We will shortly be publishing a full report on these findings in detail.

We have revised our estimation on the impact of 5G on the transport and logistics industry. In 2019, we predicted 5G enabled use cases could increase the GDP value of the transport and logistics industry by 3.5% in 2030. We now believe the impact could be as high as 6%, though importantly some of these benefits are indirect rather than direct.

New forecasts show a bigger impact to the transport and logistics industry

Source: STL Partners

The three 5G-enabled solutions newly explored in detail in our study were:

  • Real-time routing and optimisation: Sensors collect data throughout the supply chain to improve visibility and optimise processes through real-time dynamic routing and scheduling;
  • Automated last 100 metres delivery: Using drones or automated delivery vehicles for the last ‘hundred yards’ of delivery, where the delivery van acts as a mobile final distribution point;
  • Connected traffic infrastructure: Smart sensors or cameras are integrated into traffic infrastructure to collect data about oncoming traffic and trigger real-time actions such as rerouting vehicles or changing traffic lights.

Benefits from these use cases include fewer traffic jams, more efficient supply chains, less fuel required and fewer accidents on the roads.

COVID has changed the landscape and appetite for 5G services

COVID-19 has caused a global economic slowdown. There has been a widespread fall in output across services, production, and construction in all major economies. Social distancing and nationwide lockdowns have led to a significant fall in consumer demand, to business and factory closures, and to supply chain disruptions. The pandemic’s interruption to international trade has far exceeded the impact of the US-China trade war and had a major impact on national economies. Lower international trade, coupled with a precipitous fall in passenger air travel, has also caused the air industry to enter a tailspin.

Table of Contents

  • Preface
  • The 5G opportunity: Updated forecast on value to verticals
  • 5G’s impact on transport and logistics: Fresh analysis and new use cases
    • Increased productivity through more efficient roads: An impact beyond transport and logistics
  • COVID has changed the landscape and appetite for 5G services
    • COVID has impacted the GDP of every country – and outlook for recovery is still unclear
    • Operators’ 5G strategies and roll out have also been impacted
    • Appetite for 5G-enabled healthcare services has been accelerated
  • Conclusion: Where next for the industry?

5G: ‘Just another G’ – yet a catalyst of change

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5G: Cutting through the hype

This briefing document is being published in June 2018. This report does not re-hash the familiar background story to 5G – the original specifications, the much-ballyhooed early thoughts on use cases, nor the breathless rhetoric about how it is going to change the world (or in the risible words of one hyperbolic tech CEO, “be more important than electricity”). Neither is it a hatchet job decrying the whole exercise as worthless. Instead, it looks at the factors acting as brakes and accelerants for 5G, and how they may affect the overall ecosystem’s evolution.

What is needed, however, is a way to cut through the spin – especially where it is aimed at policymakers and investors, who often latch on to simple but unrealistic stories. Some of the most absurd ‘5G-wash’ hyperbole emanates from Brussels and Washington DC, and in the run up to the next World Radio Congress in 2019 (where spectrum allocations are debated) it is critical that rationality and critical thought prevails over glossy lobbying. It is harmful to us all if 5G hype means it ends up overshadowing worthy parallel developments in satellite communications, private wireless and other technologies that also deserve attention, spectrum or subsidised research projects.

It is understandable that many in the industry ‘talk up their own book’, especially given consolidation and profitability concerns in the vendor space. The 2018 market for telecoms infrastructure is expected to decline, and there are huge hopes at Ericsson, Nokia and Huawei that 5G can help turn it around in 2019–20. But that is not an adequate excuse to exaggerate. Neither is it an excuse to mislabel and market diverse other technologies (advanced versions of 4G, Wi-Fi and so on) as ‘5G’ – although such egregious duplicity is one of the few certainties here. It is probably enhancements and capacity additions for 4G that will prove the biggest moneyspinners over the next 12–24 months.

The next 24 months for 5G

In theory, the next 24 months should be when it all happens for 5G. Early demonstrations and trials have been well publicised, including various global cities’ testbeds and the South Korean Winter Olympics in Pyeongchang. Almost every week yields new press releases, lauding everything from medical diagnosis (NTT DoCoMo) to self-driving snowploughs (Telenor). It is unclear how much any of these shiny announcements actually accelerate real, commercial deployments – or real business models.

This period is also a critical juncture for standards, starting with the formalisation of the first phase of standards at the June 3GPP meeting (Release 15), leading up to the full ratification of 5G as the official IMT2020 technology by the International Telecoms Union (ITU ) in 2020.

Much of the technology media is trying to pitch the development and deployment of 5G as a race, either between countries or individual operators. The first fixed-wireless deployments are under way, while the earliest mobile devices are expected by the year end (probably portable 5G/Wi-Fi hotspot modems). 2019 should see a flurry of early launches and the first 5G-capable smartphones becoming available.

Yet those forms of 5G broadband – fixed or ‘enhanced mobile’ – are hardly novelties, despite the gigabit speeds and low latencies promised. In many ways, they risk being overshadowed by continued evolution of 4G networks, which is occurring in parallel.

There are also plenty of IoT-type demonstrations, whether for delivery drones, autonomous vehicles or automated industrial machinery. Yet these seem much less real for now – the value-chains are far from clear, and often they will need networks to be built in new locations, rather than reusing existing towers and backhaul. It also isn’t obvious that large enterprises are willing to pay much for such connectivity, and whether they’ll be happy with ‘slices’ of MNO-controlled networks or if they want to own them outright.

There remain many hard-to-answer questions about 5G’s emergence:

  • Will global consumers switch to 5G phones en masse in 2021–22 or more from 2023–24?
  • Will today’s mobile operators consolidate further or will there be an explosion of new niche providers targetting verticals or specific uses?
  • Is there a ‘race’ between countries to deploy 5G, and if so, why? Do arguments about 5G ‘leadership’ really translate to economic benefit and jobs, and if so, for whom?
  • Will the US, Japan, South Korea and maybe China take a significant lead on 5G, or is it more about geopolitical grandstanding in the Trump/Xi age, and helping national-champion vendors and operators gain a reputational boost?
  • Will 5G, NFV, SDN and edge computing work in true synergy, or will delays or limitations in one area have knock-on impacts on the others?
  • What are the unexpected practical ‘gotchas’ for 5G that might add friction, cost or delay to deployment, or complexity to operations? Is fibre availability for backhaul a critical prerequisite?
  • Does 5G pose an opportunity for new niche suppliers of technology – for example in small cells – or will thinning margins and price pressure from operators and open source force many aspirant vendors out of the market?
  • Will ‘verticals’ and IoT really matter for 5G, and if so will telcos view enterprises more as customers, partners or even suppliers and competitors? Which industries are realistic opportunities for 5G’s new capabilities for low latency or ‘massive IoT’?
  • Who, if anyone, will make a profit from 5G-enabled networks, devices, services and embedded capabilities?

The truth is that many of these questions cannot be definitively answered today, despite the emphatic nature of a lot of industry comment. Here, we present some scenarios and especially look at the idea of pre-requisites: what needs to be done first, for 5G to be successfully deployed or monetised? There are potential bottlenecks ahead, as well as opportunities.

Hopefully, we have plotted the roadmap, even if the industry cannot ‘drive autonomously’ yet.

The rest of this report is structured into the following sections:

  • 5G positive signals – standards, trials and enthusiasm
  • 5G cautions – prerequisites, questions and complexities
  • Verticals – huge opportunity or more market fragmentation and competition?
  • Timelines and practicalities

Think of this report as a weather forecast. 5G will be much like the UK climate: patchy clouds, with rays of sunshine and the occasional storm. The summer will be late but warm, but you’d best pack a 4G or Wi-Fi umbrella just in case.

And just as with weather, trying to do long-range forecasts is very risky. There’s a good chance that circumstances will prove you wrong. But despite that, we have some qualitative predictions stretching out to 2026, at which point we expect to be bombarded with 6G hype, alongside 5G reality.

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5G positive indicators: reasons to be happy!

In many ways, the development of 5G is going remarkably well, especially compared to some of the partisan inter- and intra-technology standards warfare of the past.

In the recent past we have seen:

  • Approval by 3GPP of the first New Radio (NR) specifications in December 2017, for Non- Standalone mode, which means that 5G NR can be deployed using the existing 4G core networks.
  • Early engagement by the cellular industry with various industries’ representatives, notably automotive, manufacturing and healthcare. A number of joint bodies have been set up, with the objective of defining ‘vertical’ and especially IoT-centric requirements and testbeds.
  • A timeline for silicon and device availability that aligns much better with that for networks than was the case with 3G or 4G.
  • A whole range of cool demonstrations in Pyeongchang at the South Korean Winter Olympics in early 2018.
  • Research labs for 5G set up around the world.
  • High awareness of 5G among governments, businesses and media, even if it is often over-hyped,as that is hardly unusual for new technologies.
  • An ongoing procession of spectrum auctions for frequencies suitable for 5G, and ready availability of test licences.
  • Good (albeit uneven) progress in adjacent mobile areas such as NFV, SDN, edge computing, cloud RAN, network slicing, automation of processes, AI and so forth.
  • Continued growth of 4G usage, and likelihood of capacity constraints driving the need for future upgrades.
  • Commendable work by both large and small vendors in creating early equipment, and approaching target speeds and latencies more closely than many observers (including the author) thought were probable.
  • Some good early results from trials, especially of high-frequency mmWave networks, which show decent propagation properties and even indoor penetration – albeit through glass, not solid walls – exceeding the (admittedly low) expectations. For instance, AT&T has tested for weather resistance of its mmWave 5G trials – important as some have expected rain or snow to have an impact on propagation.
  • The effectiveness of MIMO (multiple-in, multiple-out) antennas appears to negate some of the poor notional radio properties of midband spectrum in the 3–4GHz range as well. Essentially beam-forming and beam-steering allows radio ‘spikes’ to concentrate power towards actual users’ positions (including indoors), rather than radiating uniformly and thus wastefully.
  • No major fights (yet) over IPR and costly patent licences.
  • Encouraging forecasts from some analysts (not published by us, so we won’t quote them) and trade associations about 5G subscriptions and related services.

Early trial results and 5G deployment plans

While many operators and international laboratories and organisations are testing 5G, a few of the experiments stand out.

Probably the most high profile have been the various South Korean initiatives that took place during the Pyeongchang Winter Olympics, and Verizon’s work on fixed-wireless access in the US. KT and SKT showed various approaches to 5G-connected cars, novel camera footage from 5G-connected drones, real-world usage of mmWave radios and numerous other showcases. Korea is expecting to see launches of commercial 5G services around March 2019.

Verizon announced at the end of 2017 that it was aiming to light up a handful of cities – Sacramento, California most notably – by the end of this year. More details have become clearer recently: initially it will launch fixed 5G for mostly residential users, with mobile variants following around six months afterwards. Samsung has had its 28GHz-band routers approved for both indoor and outdoor use in the US, and these are expected to feature in Verizon’s early offerings. (STL Partners is writing a separate briefing report digging more deeply into Verizon’s 5G strategy, which includes an estimate of its huge investment into fibre for back/fronthaul).

(Mobile launches usually lag fixed-wireless services, as they need more coverage, more testing and a lot more complexity around cell-to-cell handoffs. And within mobile uses, it is usually easier to provide simple devices such as modems or cellular/Wi-Fi hotspots, as phones and voice access require even more work.)

AT&T is being aggressive with its ‘proper’ 5G rollout, as well as its controversial “fake” branding of advanced 4G as ‘5G Evolution’. It is intending to launch standards-based 5G, capable of supporting mobile devices (initially mobile Wi-Fi hotspot ‘pucks’) in at least 12 cities by the end of 2018.

AT&T started demonstrating and testing pre-5G technology in late 2016, including an enterprise trial in mmWave bands, together with Intel. In June 2017, it extended the trials to residential users in Austin, Texas, doing video streaming over fixed-wireless access. This was followed by a small-business fixed- wireless trial in Waco, Texas, which generated good results including 1.2Gbps throughput speeds and 9–12 millisecond latencies. That said, it seems less enthusiastic than Verizon about the general fixed- wireless opportunity1, especially given the backhaul fibre investment needed.

Telco operators that are well advanced on 5G plans include:

  • Japanese operators: NTT DoCoMo, KDDI and SoftBank have all been running multiple trials, for a wide variety of use cases and deployment scenarios. All are expected to have networks up and running in time for the 2020 Summer Olympics. NTT in particular has been very visible, signing contracts with vendors including Nokia and NEC.
  • Chinese operators: Spurred on by its government and Huawei as national champion vendor, all three telcos are deploying significant test networks, in a total of 16 cities across the country. Importantly, the regulator has shown commitment to issuing 5G spectrum in large tranches, and also seems to be encouraging infrastructure both between the operators and also China’s electricity grid operator. Chinese operators have also been quite aggressive on other key technical enablers such as AI/automation and network slicing.
  • Sprint and T-Mobile US: Both operators had previously been talking up 5G, but this has taken on a new perspective since the announcement of their potential merger. T-Mobile’s plan to use 600MHz spectrum for 5G is fairly unique and points to a possible nationwide network much earlier than its peers. Sprint’s hoard of 2.5GHz frequency is also extensive and could be a key differentiator given that the US has been slower to release 3.5–4.5GHz ‘midband’ spectrum than other markets. If their merger goes ahead (possibly a big if, given previous regulatory reluctance) the new T-Mobile may try to do for 5G what Verizon did for 4G – use it as a competitive differentiator to gain market share. It may face challenges getting devices supporting its unique 600MHz band, though – a similar problem that plagued it with the early days of 4G.
  • Deutsche Telekom: Aligning with its US arm, the domestic German arm of DTAG is perhaps the most vocal early enthusiast for 5G in Europe, deploying a growing test network in Berlin in particular. It is also getting its backhaul house in order, deploying tens of thousands more fibre kilometres annually.
  • Telstra: In Australia, local operator Telstra has launched a number of trials, including 5G for fixed-access backhaul to some publicly available Wi-Fi hotspots on the Gold Coast.
  • Spark: In New Zealand, local operator Spark has signalled an intent to deploy 5G (probably for fixed wireless) as early as possible, if it can get spectrum.
  • MTN: One of the few notable developing market 5G trials is that by MTN in South Africa, with Huawei.
  • India: The Indian government has signalled that it expects to announce its overall 5G strategy in June 2018. Although some are talking of 2020, it seems unlikely to gain a broad deployment fast, given economic limitations, especially driven by the 4G rollout and subsequent price war and consolidation between operators.

There are some notable absentees from this list. The UK has various government and MNO-sponsored trials, but little commitment by the telcos to move towards commercial launches yet. The Scandinavian operators, early on 3G and 4G, also seem more diffident this time. So too are the smaller countries in developed Asia; Singapore and Taiwan are also (comparatively) lagging the timelines that might be expected, again reflecting caution over business case.

In the Middle East, Ooredoo, Etisalat and STC have all been keen to be early to market with demo networks, but it’s unclear whether that will translate to broader, rapid deployments.

5G Spectrum

As always with new mobile networks, one of the input requirements is suitable radio spectrum. Generally, 5G seems to be doing fairly well in this regard. Many countries have started initial awards or have them planned for the next year or so.

Various European countries are releasing 3.5GHz ‘mid-band’ spectrum, while the US has earmarked both 600MHz (which T-Mobile has large amounts of) and 28GHz as priorities. Japan’s early focus is on 4.5GHz. In addition, there is a strategy by many operators to progressively switch off old 2G and 3G networks, and ‘refarm’ the bands for 5G.

The general expectation is that 5G will require a combination of three broad sets of frequencies:

  • Low-band, mostly below 2GHz, for wide-area coverage and good indoor penetration
  • Mid-band between 3GHz and 6GHz, for densified, mostly urban networks, probably with complex MIMO antennas
  • High-band above 6GHz, and probably mostly from 20–40GHz, although some are speaking of 90GHz or even higher for local usage.

Notably, many markets are not waiting for the official seal of approval from ITU and its World Radio Congress at the end of 2019, which was supposed to define the first set of ‘harmonised’ 5G frequencies (more accurately, IMT2020). A second set is expected, based on ITU’s ridiculously leisurely process, to be ratified only in 2023. Instead of this timeline, many regulators are either pre- guessing the outcomes (fairly uncontroversial for the 3.5GHz band) or just ignoring them (such as 28GHz in the US and South Korea). We wrote about 5G spectrum in early 2017, discussing this in more depth.

Watch a replay of the free webinar with the report’s authors – (Wednesday 8 August, 4pm BST)

5G is becoming real

In other words, 5G is becoming ‘real’, it’s getting a lot of interest and investment, and the basic technology enablers seem to work, at least in the lab and limited field trials. There are plenty of suggested use cases, and even if some of them prove far away or unrealistic, there should be some that make it through the funnel, plus others that are unanticipated.

That said, there is a cliché that states that any parts of a sentence or speech before the ‘but’ should probably be ignored.

Contents of the 5G report

  • Executive Summary
  • Introduction
  • 5G positive indicators: reasons to be happy!
  • Early trial results and deployment plans
  • Spectrum
  • Summary – the good news!
  • But what are the obstacles to 5G?
  • Densification and network sharing
  • In-building coverage
  • A lack of 5G business models
  • 5G-specific models in a hybrid-network world?
  • Devices and silicon
  • Other issues and concerns
  • Verticals: customers, partners or competitors?
  • Overview
  • Operator networks for verticals? Or private 5G?
  • Thoughts on specific verticals
  • Vendor attitudes to verticals and private networks
  • Timelines and practicalities
  • 5G in name only?
  • Conclusions

Figures:

  • Figure 1: 5G predicted timeline, 2018–2026
  • Figure 2: Who are the 5G bulls and bears?
  • Figure 3: 5G antennas may be larger and heavier than 4G equipment
  • Figure 4:  Multiple dimensions for future wireless networks’ use cases and requirements
  • Figure 5:  Creating private 5G networks involves significant complexity for enterprises
  • Figure 6: Predicted 5G relevance to verticals, 2023-25 timeframe
  • Figure 7:  Numerous applications of machine learning and AI for 5G networks
  • Figure 8: Overall 5G predicted timeline, 2018–26

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Telco 2.0: Choose your future – while you still can

Introduction

Time to update Telco 2.0

Telcos are facing difficult choices about whether and how to invest in new technologies, how to cut costs, and how to create new services, either to pair with their core network services or to broaden their customer bases beyond connectivity users.

Through the Telco 2.0 vision (our shorthand for ‘what a future telco should look like’), STL Partners has long argued that telcos need to make fundamental changes to their business models in response to the commoditisation of connectivity and the ‘softwarisation’ of all industries, including telecoms. At the very least this means digitalising operations to become more data-centric and efficient in the way they deliver connectivity. But to generate significant new revenue growth, we still believe telcos need to look beyond connectivity and develop (or acquire) new product and service offerings.

The original Telco 2.0 two-sided business model

original telco 2.0

Source: STL Partners

Since 2011, a handful of telcos have made significant investments into areas beyond connectivity that fall into these categories. For example:

  • NTT Docomo has continued to expand its ‘dmarket’ consumer loyalty scheme, media and sports content and payment services, which accounted for nearly 20% of total revenues for FY2017.
  • Singtel acquired digital advertising provider Amobee in 2012, followed by several more acquisitions in the same area to build an end-to-end digital marketing platform. Its digital services accounted for more than 10% of quarterly revenues by December 2017, and was the fourth largest revenue segment, ahead of voice revenues.
  • TELUS first acquired a health IT company in 2008, and has since expanded its reach and range of services to become Canada’s largest provider of health IT solutions, such as a nation-wide e-prescription system. Based on a case study we did on TELUS, we estimate its health solutions accounted for at least 7% of total revenues by 2017.

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However, these telcos are the exception rather than the rule. Over the last decade, most telcos have failed to build a significant revenue stream beyond their core services.

While many telcos remain cautious or even sceptical about their ability to generate significant revenue from non-connectivity based products and services, “digitalising” operations has become a widespread approach to sustain margins as revenue growth has slowed.

In Figure 3 we illustrate these as the two ‘digital dimensions’ along which telcos can drive change, where most telcos are prioritising an infrastructure play, but few are putting significant resources into product innovation, and only a small number with the ability to do both.

  • Digitalising telecoms operations: Reduction of capex and opex by reducing complexity and automating processes, and improving customer experience
  • Developing new services: This falls into two categories on the right-hand side of Figure 3
    • Product innovation: New services that are independent from the network, in which case digitalising telecoms operations is only moderately important
    • Platform (& product): New services that are strongly integrated with the network and therefore require the network to be opened up and digitalised

Few telcos are putting real resources into product & platform innovation

2 digital dimensions

Source: STL Partners

Four developments driving our Telco 2.0 update

  • AI and automation technology is ready to deploy at scale. AI is no longer an over-hyped ideal – machine and deep learning techniques are proven to deliver faster and more accurate decision-making for repetitive and data-intensive tasks, regardless of the type of data (numerical, audio, images, etc.). This has the potential to transform all areas of operators’ businesses.
  • We live and work in a world of ecosystems. Few services are completely self-sufficient and independent from everything else, but rather enable, complement and/or augment other services. Telcos must accept that they are not immune to this trend, just because connectivity is one of the key enablers of content, cloud and IoT ecosystems (see Figure 4).
  • Software-defined networks and 5G are coming. This is happening at a different pace in different markets, but over the next five to ten years these technologies will drastically change the ‘thing’ that telcos operate: the ‘network’ will become another cloud service, with many operational functions instantiated in near real-time in hardware at the network edge, so never even reaching a centralised cloud. So telcos need to become more proficient in software and computing, and they should think of themselves as cloud service providers that operate in partnership with many other players to deliver end-users a complete service.
  • As other industries go through their own digital transformations, the connectivity and IT needs of enterprises have become much more complex and industry specific. This means the one-size-fits-all approach does not apply for operators or for their enterprise customers in any sector.

Telcos and connectivity are not a central pillar, but an enabler in a much richer ecosystem

telco myth vs reality

Source: STL Partners

We are updating the Telco 2.0 Vision in light of these realities. Previously, we proposed six opportunity areas for new revenue growth, and expected large, proactive telcos to be able to address many of them. But telcos have been slow to change, margins are tighter now, implementing NFV/SDN is hard, and software skills are necessary for succeeding in any vertical. So telcos can no longer hope to do it all and must make choices of where to put their bets. As NTT Docomo, Singtel and TELUS show, it also takes time to succeed, so telcos need to choose and commit to a strategy now for long term success.

Contents:

  • Executive Summary
  • Introduction
  • Time to update Telco 2.0
  • Four developments driving our Telco 2.0 update
  • Analysing the current market state
  • Options for the future
  • If connectivity won’t drive growth, do telcos’ network strategies matter?
  • Imagining the future telecoms stack
  • Conclusions

Figures:

  • Figure 1: The telco stack
  • Figure 2: The original Telco 2.0 two-sided business model
  • Figure 3: Few telcos are putting real resources into product & platform innovation
  • Figure 4: Telcos and connectivity are not a central pillar, but an enabler in a much richer ecosystem
  • Figure 5: The network cloud platform within the telco stack
  • Figure 6: Steps to becoming a cloud platform
  • Figure 7: Horizontal specialisation within the telco stack
  • Figure 8: Vertical specialisation within the telco stack
  • Figure 9: Enterprise verticals
  • Figure 10: Consumer services and applications
  • Figure 11: Network technology company versus lean network operator
  • Figure 12: Example of a fixed telco stack
  • Figure 13: Example of a telco IoT stack
  • Figure 14: Example of a lean network operator stack

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Indoor wireless: A new frontier for IoT and 5G

Introduction to Indoor Wireless

A very large part of the usage of mobile devices – and mobile and other wireless networks – is indoors. Estimates vary but perhaps 70-80% of all wireless data is used while fixed or “nomadic”, inside a building. However, the availability and quality of indoor wireless connections (of all types) varies hugely. This impacts users, network operators, businesses and, ultimately, governments and society.

Whether the use-case is watching a YouTube video on a tablet from a sofa, booking an Uber from a phone in a company’s reception, or controlling a moving robot in a factory, the telecoms industry needs to give much more thought to the user-requirements, technologies and obstacles involved. This is becoming ever more critical as sensitive IoT applications emerge, which are dependent on good connectivity – and which don’t have the flexibility of humans. A sensor or piece of machinery cannot move and stand by a window for a better signal – and may well be in parts of a building that are inaccessible to both humans and many radio transmissions.

While mobile operators and other wireless service providers have important roles to play here, they cannot do everything, everywhere. They do not have the resources, and may lack site access. Planning, deploying and maintaining indoor coverage can be costly.

Indeed, the growing importance and complexity is such that a lot of indoor wireless infrastructure is owned by the building or user themselves – which then brings in further considerations for policymakers about spectrum, competition and more. There is a huge upsurge of interest in both improved Wi-Fi, and deployments of private cellular networks indoors, as some organisations recognise connectivity as so strategically-important they wish to control it directly, rather than relying on service providers. Various new classes of SP are emerging too, focused on particular verticals or use-cases.

In the home, wireless networks are also becoming a battleground for “ecosystem leverage”. Fixed and cable networks want to improve their existing Wi-Fi footprint to give “whole home” coverage worthy of gigabit fibre or cable connections. Cellular providers are hoping to swing some residential customers to mobile-only subscriptions. And technology firms like Google see home Wi-Fi as a pivotal element to anchor other smart-home services.

Large enterprise and “campus” sites like hospitals, chemical plants, airports, hotels and shopping malls each have complex on-site wireless characteristics and requirements. No two are alike – but all are increasingly dependent on wireless connections for employees, visitors and machines. Again, traditional “outdoors” cellular service-providers are not always best-placed to deliver this – but often, neither is anyone else. New skills and deployment models are needed, ideally backed with more cost—effective (and future-proofed) technology and tools.

In essence, there is a conflict between “public network service” and “private property” when it comes to wireless connectivity. For the fixed network, there is a well-defined “demarcation point” where a cable enters the building, and ownership and responsibilities switch from telco to building owner or end-user. For wireless, that demarcation is much harder to institutionalise, as signals propagate through walls and windows, often in unpredictable and variable fashion. Some large buildings even have their own local cellular base stations, and dedicated systems to “pipe the signal through the building” (distributed antenna systems, DAS).

Where is indoor coverage required?

There are numerous sub-divisions of “indoors”, each of which brings its own challenges, opportunities and market dynamics:

• Residential properties: houses & apartment blocks
• Enterprise “carpeted offices”, either owned/occupied, or multi-tenant
• Public buildings, where visitors are more numerous than staff (e.g. shopping malls, sports stadia, schools), and which may also have companies as tenants or concessions.
• Inside vehicles (trains, buses, boats, etc.) and across transport networks like metro systems or inside tunnels
• Industrial sites such as factories or oil refineries, which may blend “indoors” with “onsite”

In addition to these broad categories are assorted other niches, plus overlaps between the sectors. There are also other dimensions around scale of building, single-occupant vs. shared tenancy, whether the majority of “users” are humans or IoT devices, and so on.

In a nutshell: indoor wireless is complex, heterogeneous, multi-stakeholder and often expensive to deal with. It is no wonder that most mobile operators – and most regulators – focus on outdoor, wide-area networks both for investment, and for license rules on coverage. It is unreasonable to force a telco to provide coverage that reaches a subterranean, concrete-and-steel bank vault, when their engineers wouldn’t even be allowed access to it.

How much of a problem is indoor coverage?

Anecdotally, many locations have problems with indoor coverage – cellular networks are patchy, Wi- Fi can be cumbersome to access and slow, and GPS satellite location signals don’t work without line- of-sight to several satellites. We have all complained about poor connectivity in our homes or offices, or about needing to stand next to a window. With growing dependency on mobile devices, plus the advent of IoT devices everywhere, for increasingly important applications, good wireless connectivity is becoming more essential.

Yet hard data about indoor wireless coverage is also very patchy. UK regulator Ofcom is one of the few that reports on availability / usability of cellular signals, and few regulators (Japan’s is another) enforce it as part of spectrum licenses. Fairly clearly, it is hard to measure, as operators cannot do systematic “drive tests” indoors, while on-device measurements usually cannot determine if they are inside or outside without being invasive of the user’s privacy. Most operators and regulators estimate coverage, based on some samples plus knowledge of outdoor signal strength and typical building construction practices. The accuracy (and up-to-date assumptions) is highly questionable.

Indoor coverage data is hard to find

Contents:

  • Executive Summary
  • Likely outcomes
  • What telcos need to do
  • Introduction to Indoor Wireless
  • Overview
  • Where is indoor coverage required?
  • How much of a problem is indoor coverage?
  • The key science lesson of indoor coverage
  • The economics of indoor wireless
  • Not just cellular coverage indoors
  • Yet more complications are on the horizon…
  • The role of regulators and policymakers
  • Systems and stakeholders for indoor wireless
  • Technical approaches to indoor wireless
  • Stakeholders for indoor wireless
  • Home networking: is Mesh Wi-Fi the answer?
  • Is outside-in cellular good enough for the home on its own?
  • Home Wi-Fi has complexities and challenges
  • Wi-Fi innovations will perpetuate its dominance
  • Enterprise/public buildings and the rise of private cellular and neutral host models
  • Who pays?
  • Single-operator vs. multi-operator: enabling “neutral hosts”
  • Industrial sites and IoT
  • Conclusions
  • Can technology solve MNO’s “indoor problem”?
  • Recommendations

Figures:

  • Indoor coverage data is hard to find
  • Insulation impacts indoor penetration significantly
  • 3.5GHz 5G might give acceptable indoor coverage
  • Indoor wireless costs and revenues
  • In-Building Wireless face a dynamic backdrop
  • Key indoor wireless architectures
  • Different building types, different stakeholders
  • Whole-home meshes allow Wi-Fi to reach all corners of the building
  • Commercial premises now find good wireless essential
  • Neutral Hosts can offer multi-network coverage to smaller sites than DAS
  • Every industrial sector has unique requirements for wireless

Monetising IoT: Four steps for success

Introduction

The internet of things (IoT) will revolutionise all industries, not just TMT. In addition to the benefits of connecting previously unconnected objects to monitor and control them, the data that IoT will make available could play a pivotal role in other major technological developments, such as big data analytics and autonomous vehicles.

It seems logical that, because IoT relies on connectivity, this will be a new growth opportunity for telcos. And indeed, as anyone who has attended MWC in the last few years can testify, most if not all major telcos are providing some kind of IoT service.

But 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.

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Figure 1: Telcos are moving beyond IoT connectivity

Telcos are moving beyond IoT connectivity

Source: STL Partners

Although telco IoT strategies have evolved significantly over the past five years, this is a complicated and competitive area that people are still figuring out how to monetise. To help our clients overcome this challenge we are publishing a series of reports and best practice case studies over the next 12 months designed to help individual operators define their approach to IoT according to their size, market position, geographic footprint and other key characteristics such as appetite for innovation.

This report is the first in this series. The findings it presents are based upon primary and secondary research conducted between May and September 2017 which included:

  • A series of anonymous interviews with operators, vendors and other key players in the IoT ecosystem
  • A brainstorming session held with senior members from telco strategy teams at our European event in June 2017
  • An online survey about telcos’ role in IoT, which ran from May to June 2017

Contents:

  • Executive Summary
  • Introduction
  • A four-step process to monetise IoT
  • Step 1: Look beyond connected device forecasts
  • Step 2: Map out your IoT strategy
  • Step 3: Be brave and commit
  • Step 4: Develop horizontal capabilities to serve your non-core verticals
  • Result: The T-shaped IoT business model
  • IoT data is a secondary opportunity
  • Conclusion

Figures:

  • Figure 1: Telcos are moving beyond IoT connectivity
  • Figure 2: IoT verticals and use-cases
  • Figure 3: Four possible roles within the IoT ecosystem
  • Figure 4: Telcos can play different roles in different verticals
  • Figure 5: IoT connectivity can be simplified into four broad categories
  • Figure 6: As the IoT field matures, use-cases become more complex
  • Figure 7: The technical components of an IoT platform
  • Figure 8: The T-shaped IoT business model

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Digital M&A and Investment Strategies – July 2017 update

Introduction

Digital M&A as a telco strategy

In June 2016 STL Partners published our inaugural Digital M&A and Investment Strategies report and accompanying database, focussing on key digital acquisitions and investments for 22 operators during the period 2012 – H1 2016. We have now updated this report to cover the following 12 months (H2 2016 – H1 2017), to examine new developments in telco digital M&A and a comparison with previous activities.

Communications service providers have long used M&A as a key growth strategy, with the most common approach being to acquire other operators to build scale organically. As growth in telecommunications slowed and user behaviour swung towards mobile, so M&A activity in the mobile sector has increased. However, acquisition opportunities in mature markets are becoming limited as consolidation reduces the number of telcos, whilst in Europe and North America the regulatory environment has made M&A consolidation strategies less viable.

As operators continue to build digital capabilities and strive to deliver digital services and content, M&A and investment beyond ‘traditional telecoms’ is increasing. Telcos need to move beyond a traditional, slow ‘infrastructure-only’ approach, to one focused on agility rather than stability, enablement rather than end-to-end ownership and delivery of solutions, and innovation as well as operational excellence. This report explores the drivers of digital M&A and the strategies of different operators including ‘deep-dive’ analysis of Verizon, AT&T and SoftBank. There is an accompanying database which tracks telco M&A activity for the period.

Drivers for operator M&A and majority investment

Figure 1: Drivers for operator M&A and majority investment – traditional and digital

digital M&A graphic

Source: STL Partners

Traditional/Telco 1.0 drivers: reach and scale

As illustrated in Figure 1, what we refer to as ‘traditional’ or ‘Telco 1.0’ drivers for M&A and investment are well-established:

  1. Extending geographic footprint is a common trend, as many operator groups look to:
    • Enter new markets that are adjacent geographically (e.g. DTAG’s numerous investments in CEE region operators, America Movil’s investments in LatAm),
    • Enter markets that are linked culturally or linguistically (e.g., Telefonica’s acquisitions and investments in Latin American operators),
    • Enter markets that simply offer good opportunities for expanded footprint and increased efficiencies of operation in emerging regions where demand for mobile services is still growing strongly (e.g., SingTel and Etisalat’s numerous investments in operators in Asia and Africa, respectively).
  2. Extending traditional communications offerings is currently the most significant trend, as mobile operators look to acquire fixed network assets and vice versa, to develop compelling multiplay and converged offers for their customers. The recent BT acquisition of EE in the UK is one example.
  3. Consolidation has slowed to some extent, as regulators and competitors fight against mergers or acquisitions that remove players from the market or concentrate too much market power in the hands of stronger service providers. This has been a particular issue in the European Union, where regulators have refused to approve several proposed telecoms M&A deals recently, including Telia and Telenor in Denmark in 2015, and the proposed Hutchison acquisition of Telefónica’s O2 to merge with its subsidiary 3 UK in 2016. Other deals, such as the proposed Orange-Bouygues Telecom merger in France which was abandoned in April 2016, have failed due to the parties involved failing to reach agreement. However, our research shows continued interest in operator M&A for consolidation, with recent examples including Orange’s acquisition of Sun Communications in Moldova in 2016, and Vodafone’s merger with Indian rival Idea in 2017.
  4. The acquisition of service partners – primarily channel partners, or partner companies providing systems integration and consultancy capabilities, typically for enterprise customers – has proved an important driver of M&A for many (mainly converged) operators.
  5. Finally, operator M&A is also being driven by the enthusiasm of sellers. Many operators are looking to sell off assets outside of their home markets, pulling back from markets that have proven too competitive, too small or simply too complicated, as part of a strategy to pay down debt and/or free up assets for investment in other higher-growth areas:
    • Telia’s pullback from its non-core markets has seen it sell off its majority stakes in Spanish operator Yoigo to Masmovil and in Kazakhstan’s Kcell to Turkcell in 2016
    • Telefonica’s attempt to sell its O2 UK mobile unit to CK Hutchison having failed, the Spanish operator is now looking to other ways of raising capital both to pay down its debt, including a planned IPO of O2 UK.

Contents:

  • Executive Summary
  • Evaluating operator digital investment strategies
  • Key findings
  • Recommendations
  • Introduction
  • Drivers for operator M&A and majority investment
  • Evaluating operator digital investment strategies
  • 22 players across 5 regions: US shows the most aggressive M&A activity
  • Comparison with previous period (H1 2012 – H1 2016)
  • European telcos remain largely focussed on Telco 1.0 M&A
  • Which sectors are attracting the most interest?
  • Telco M&A investment is falling behind other verticals
  • What are the cultural challenges to digital M&A in the boardroom?
  • Operator M&A Strategies in detail: Consolidation, content and technology
  • M&A as a telco growth strategy
  • Adapting telco culture to ensure digital M&A success
  • Recommendations

Figures:

  • Figure 1: Drivers for operator M&A and majority investment – traditional and digital
  • Figure 2: Number of operator digital acquisitions and majority investments, H2 2016-H1 2017
  • Figure 3: Largest 7 telco digital M&A and majority investments, H2 2016-H1 2017
  • Figure 4: Number of operator digital acquisitions and majority investments, H1 2012 – H1 2016
  • Figure 5: Operator digital acquisitions and majority investments, H1 2012-H1 2017
  • Figure 6: Largest 10 telco digital M&A and majority investments, H1 2012 – H1 2016
  • Figure 7: Mapping of operator digital M&A strategies
  • Figure 8: Number of digital M&A and majority investments by sector/category, H2 2016-H1 2017
  • Figure 9: Comparison of investment in digital M&A as a percentage of service revenues, 2012-H1 2017

B2B growth: How can telcos win in ICT?

Introduction

The telecom industry’s growth profile over the last few years is a sobering sight. As we have shown in our recent report Which operator growth strategies will remain viable in 2017 and beyond?, yearly revenue growth rates have been clearly slowing down globally since 2009 (see Figure 1). In three major regions (North America, Europe, Middle East) compound annual growth rates have even been behind GDP growth.

 

Figure 1: Telcos’ growth performance is flattening out (Sample of sixty-eight operators)

Source: Company accounts; STL Partners analysis

To break out of this decline telcos are constantly searching for new sources of revenue, for example, by expanding into adjacent, digital service areas which are largely placed within mass consumer markets (e.g. content, advertising, commerce).

However, in our ongoing conversations with telecoms operators, we increasingly come across the notion that a large part of future growth potential might actually lie in B2B (business-to-business) markets and that this customer segment will have an increasing impact of overall revenue growth.

This report investigates the rationale behind this thinking in detail and tries to answer the following key questions:

  1. What is the current state of telco’s B2B business?
  2. Where are the telco growth opportunities in the wider enterprise ICT arena?
  3. What makes an enterprise ICT growth strategy difficult for telcos to execute?
  4. What are the pillars of a successful strategy for future B2B growth?

 

  • Executive Summary
  • Introduction
  • Telcos may have different B2B strategies, but suffer similar problems
  • Finding growth opportunities within the wider enterprise ICT arena could help
  • Three complications for revenue growth in enterprise ICT
  • Complication 1: Despite their potential, telcos struggle to marshal their capabilities effectively
  • Complication 2: Telcos are not alone in targeting enterprise ICT for growth
  • Complication 3: Telcos’ core services are being disrupted by OTT players – this time in B2B
  • STL Partners’ recommendations: strategic pillars for future B2B growth
  • Conclusion

 

  • Figure 1: Telcos’ growth performance is flattening out (Sample of sixty-eight operators)
  • Figure 2: Telcos’ B2B businesses vary significantly by scale and performance (selected operators)
  • Figure 3: High-level structure of the telecom industry’s revenue pool (2015) – the consumer segment dominates
  • Figure 4: Orange aims to expand the share of “IT & integration services” in OBS’s revenue mix
  • Figure 5: Global enterprise ICT expenditures are projected to growth 7% p.a.
  • Figure 6: Telcos and Microsoft are moving in opposite directions
  • Figure 7: SD-WAN value chain
  • Figure 8: Within AT&T Business Solutions’ revenue mix, growth in fixed strategic services cannot yet offset the decline in legacy services

Digital Health: How Can Telcos Compete with Google, Apple and Microsoft?

Introduction

With the ever-increasing amount of data collected by smartphones, fitness monitors and smart watches, telcos and other digital players are exploring opportunities to create value from consumers’ ability to capture data on many aspects of their own health and physical activity. Connected devices leverage inbuilt sensors and associated apps to collect data about users’ activities, location and habits.

New health-focused platforms are emerging that use the data collected by sensors to advise individual users on how to improve their health (e.g. a reminder to stand up every 60 minutes), while enhancing their ability to share data meaningfully with healthcare providers, whether in-person or remotely. This market has thus far been led by the major Internet and device players, but telecoms operators may be able to act as distributors, enablers/integrators, and, in some cases, even providers of consumer health and wellness apps (e.g., Telefonica’s Saluspot).

High level drivers for the market

At a macro level, there are a number of factors driving digital healthcare.  These include:

  • Population ageing – The number of people globally who are aged over 65 is expected to triple over the next 30 years , and this will create unprecedented demand for healthcare.
  • Rising costs of healthcare provision globally – Serving an aging population, the increase globally in lifestyle and chronic diseases, and rising underlying costs, is pushing up healthcare spending – while at the same time, due to economic pressures there are more limited funds available to pay for this.
  • Limited supply of trained clinicians – Policy issues and changes in job and lifestyle preferences are limiting both educational capacity and ability to recruit and retain appropriately trained healthcare staff in most markets.
  • Shift in funding policy – In many countries, funding for healthcare is shifting away from being based on reimbursement-for-events (e.g., a practice or hospital is paid for every patient visit, for each patient they register, for each vaccination administered), to a greater emphasis on ‘value-based care’ – reimbursement based on successful patient health outcomes.
  • Increased focus on prevention in healthcare provision – in some cases funding is starting to be provided for preventative population health measures, such as weight-loss or quit-smoking programmes.
  • Development of personalised medicine – Personalised medicine is beginning to gain significant attention. It involves the delivery of more effective personalised treatments (and potentially drugs) based on an individual’s specific genomic characteristics, supported by advances in genotyping and analytics, and by ongoing analysis of individual and population health data.
  • Consumerisation of healthcare – There is a general trend for patients – or rather, consumers – to take more responsibility for their own health and their own healthcare, and to demand always-on access both to healthcare and to their own health information, at a level of engagement they choose.

The macro trends above are unlikely to disappear or diminish in the short-to-medium term; and providers, policymakers and payers  are struggling to cope as healthcare systems increasingly fall short of both targets and patients’ expectations.

Digital healthcare will play a key role in addressing the challenges these trends present. It promises better use and sharing of data, of analytics offering deep insight on health trends for individuals and across the wider population, and of the potential for greater convenience, efficacy and reach of healthcare provisioning.

While many (if not most) of the opportunities around digital health will centre on advances in healthcare providers’ ICT systems, there is significant interest in how consumer wellness and fitness apps and devices will contribute to the digital health ecosystem. Consumer digital health and wellness is particularly relevant to two of the trends above: consumerisation of healthcare, and the shift to prevention as a focus of both healthcare providers and payers.

Fitness trackers and smartwatches, and the associated apps for these devices, as well as wellness and fitness apps for smartphone users, could open up new revenue streams for some service providers, as well as a vast amount of personal data that could feed into both medical records and analytics initiatives. The increasing use of online resources by consumers for both health information and consultation, as well as cloud-based storage of and access to their own health data, also creates opportunities to make more timely and effective healthcare interventions.  For telcos, the question is where and how they can play effectively in this market.

Market Trends and Overview

The digital healthcare market is both very large and very diverse. Digital technologies can be applied in many different segments of the healthcare market (see figure below), both to improve efficiency and enable the development of new services, such as automated monitoring of chronic conditions.

The different segments of the digital healthcare market

Source: STL Partners based on categories identified by Venture Scanner

The various segments in Figure 1 are defined as below:

Wellness

  • Mobile fitness and health apps enable consumers to monitor how much exercise they are doing, how much sleep they are getting, their diet and other aspects of their lifestyle.
  • Wearable devices, such as smart watches and fitness bands, are equipped with sensors that collect the data used by fitness and health apps.
  • Electronic health records are a digital record of data and information about an individual’s health, typically collating clinical data from multiple sources and healthcare providers.

Information

  • Services search are digital portals and directories that help individuals find out healthcare information and identify potential service providers.
  • Online health sites and communities provide consumers with information and discussion forums.
  • Healthcare marketing refers to digital activities by healthcare providers to attract people to use their services.

Interactions

  • Payments and insurance – digital apps and services that enable consumers to pay for healthcare or insurance.
  • Patient engagement refers to digital mechanisms, such as apps, through which healthcare providers can interact with the individuals using their services.
  • Doctor networks are online services that enable clinicians to interact with each other and exchange information and advice.

Research

  • Population health management refers to the use of digital tools by clinicians to capture data about groups of patients or individuals that can then be used to inform treatment.
  • Genomics: An individual’s genetic code can be collated in a digital form so it can be used to understand their likely susceptibility specific conditions and treatments.
  • Medical big data involves capturing and analysing large volumes of data from multiple sources to help identify patterns in the progression of specific illnesses and the effectiveness of particular treatment combinations.

In-hospital care

  • Electronic medical records: A digital version of a hospital or clinic’s records of a specific patient. Unlike electronic health records, electronic medical records aren’t designed to be portable across different healthcare providers.
  • Clinical admin: The use of digital technologies to improve the efficiency of healthcare facilities.
  • Robotics: The use of digital machines to perform specific healthcare tasks, such as transporting medicines or spoon-feeding a patient.

In-home care

  • Digital medical devices: All kinds of medical devices, from thermometers to stethoscopes to glucosometers to sophisticated MRI and medical imaging equipment, are increasingly able to capture and transfer data in a digital form.
  • Remote monitoring involves the use of connected sensors to regularly capture and transmit information on a patient’s health. Such tools can be used to help monitor the condition of people with chronic diseases, such as diabetes.
  • Telehealth refers to patient-clinician consultations via a telephone, chat or video call.

The wellness opportunity

This report focuses primarily primarily on the ‘wellness’ segment (highlighted in the figure below), which is experiencing major disruption as a result of devices, apps and services being launched by Apple, Google and Microsoft, but it also touches on some of these players’ activities in other segments.

This report focuses on wellness, which is undergoing major disruption

Source: STL Partners based on categories identified by Venture Scanner

 

  • Executive summary
  • Introduction
  • High level drivers for the market
  • Market Trends and Overview
  • Market size and trends: smartwatches will overtake fitness brands
  • Health app usage has doubled in two years in the U.S.
  • Are consumers really interested in the ‘quantified self’?
  • Barriers and constraining factors for consumer digital health
  • Disruption in Consumer Digital Wellness
  • Case studies: Google, Apple and Microsoft
  • Google: leveraging Android and analytics capabilities
  • Apple: more than the Watch…
  • Microsoft: an innovative but schizophrenic approach
  • Telco Opportunities in Consumer Health
  • Recommendations for telcos

 

  • Figure 1: The different segments of the digital healthcare market
  • Figure 2: This report focuses on wellness, which is undergoing major disruption
  • Figure 3: Consumer digital health and wellness: leading products and services, 2016
  • Figure 4: Wearable Shipments by Type of Device, 2015-2020
  • Figure 5: Wearable OS Worldwide Market Share, 2015 and 2019
  • Figure 6: Take-up of different types of health apps in the U.S. market (2016)
  • Figure 7: % of health wearable and app users willing to share data US market (2016)
  • Figure 8: Elements of the ‘quantified self’, as envisioned by Orange
  • Figure 9: Less than two-third of US wearable buyers wear their acquisition long-term
  • Figure 10: Google Consumer Health and Fitness Initiatives
  • Figure 11: Snapshot of Google Fit User Interface, 2016
  • Figure 12: Google/Alphabet’s areas of focus in the digital healthcare market
  • Figure 13: Apple’s Key Digital Health and Wellness Initiatives
  • Figure 14: Apple Health app interface and dashboard
  • Figure 15: Apple’s ResearchKit-based EpiWatch App
  • Figure 16: Apple’s current areas of focus in the digital healthcare market
  • Figure 17: Microsoft Consumer Fitness/Wellness Device Initiatives
  • Figure 18: Microsoft Health can integrate data from a range of fitness trackers
  • Figure 19: Microsoft Consumer Fitness/Wellness Applications and Services
  • Figure 20: The MDLive Telehealth Proposition, August 2016
  • Figure 21: Microsoft’s areas of focus in the digital healthcare market
  • Figure 22: Telefónica’s Saluspot: Interactive online doctor consultations on-demand