The new telcos: A field guide

Introduction

The traditional industry view is that “telcos” are a well-defined and fairly cohesive group. Industry associations like GSMA, ETNO, CTIA and others have typically been fairly homogeneous collections of fixed or mobile operators, only really varying in size. The third-ranked mobile operator in Bolivia has not really been that different from AT&T or Vodafone in terms of technology, business model or vendor relationships.

Our own company, STL Partners used to have the brand “Telco 2.0”. However, our main baseline assumption then was that the industry was mostly made up the same network operators, but using a new 2.0 set of business models.

This situation is now changing. Telecom service providers – telcos – are starting to emerge in a huge variety of new shapes, sizes and backgrounds. There is fragmentation in technology strategy, target audiences, go-to-market and regional/national/international scope.

This report is not a full explanation of all the different strategies, services and technological architecture. Instead of analysing all of the “metabolic” functions and “evolutionary mechanisms”, this is more of a field-guide to all the new species of telco that the industry is starting to see. More detail on the enablers – such as fibre, 5G and cloud-based infrastructure – and the demand-side (such as vertical industries’ communications needs and applications) can be found in our other output.

The report provides descriptions with broad contours of motivation, service-offerings and implications for incumbents. We are not “taking sides” here. If new telcos push out the older species, that’s just evolution of those “red in tooth and claw”. We’re taking the role of field zoologists, not conservationists.

Enter your details below to request an extract of the report


 

Field guides are collections/lists of natural & human phenomena

animal-species-telcos-stl-partners

Source: Amazon, respective publishers’ copyright

The historical landscape

The term “telco” is a little slippery to define, but most observers would likely agree that the “traditional” telecoms industry has mostly been made up of the following groups of CSPs:

  • MNOs: Countries usually have a few major mobile network operators (MNOs) that are typically national, or sometimes regional.
  • Fixed operators: Markets also have infrastructure-based fixed telcos, usually with one (or a small number) that were originally national state-owned monopolies, plus a select number of other licensed providers, often with greenfield FTTX fibre. Some countries have a vibrant array of smaller “AltNets”, or competitive carriers (originally known as CLECs in the US).
  • Converged operators: These combine fixed and mobile operations in the same business or group. Sometimes they are arms-length (or even in different countries), but many try to offer combined or converged service propositions.
  • Wholesale telcos: There is a tier of a few major international operators that provide interconnect services and other capabilities. Often these have been subsidiaries (or joint ventures) of national telcos.

In addition to these, the communications industry in each market has also often had an array of secondary connectivity or telecom service providers as a kind “supporting cast”, which generally have not been viewed as “telecom operators”. This is either because they fall into different regulatory buckets, only target niche markets, or tend to use different technologies. These have included:

  • MVNOs
  • Towercos
  • Internet Exchanges
  • (W)ISPs
  • Satellite operators

Some of these have had a strong overlap with telcos, or have been spun-out or acquired at various times, but they have broadly remained as independent organisations. Importantly, many of these now look much more like “proper telcos” than they did in the past.

Why are “new telcos” emerging now?

To some extent, many of the classes of new telco have been “hiding in plain sight” for some time. MVNOs, towercos and numerous other SPs have been “telcos in all but name”, even if the industry has often ignored them. There has sometimes been a divisive “them and us” categorisation, especially applied when comparing older operators with cloud-based communications companies, or what STL has previously referred to as “under the floor” infrastructure owners. This attitude has been fairly common within governments and regulators, as well as among operator executives and staff.

However, there are now two groups of trends which are leading to the blurring of lines between “proper telcos” and other players:

  • Supply-side trends: The growing availability of the key building blocks of telcos – core networks, spectrum, fibre, equipment, locations and so on – is leading to democratisation. Virtualisation and openness, as well as a push for vendor diversification, is helping make it easier for new entrants, or adjacent players, to build telecom-style networks
  • Demand-side trends: A far richer range of telecom use-cases and customer types is pulling through specialist network builders and operators. These can start with specific geographies, or industry verticals, and then expand from there to other domains. Private 4G/5G networks and remote/underserved locations are good examples which need customisation and specialisation, but there are numerous other demand drivers for new types of service (and service provider), as well as alternative business models.

Taken together, the supply and demand factors are leading to the creation of new types of telcos (sometimes from established SPs, and sometimes greenfield) which are often competing with the incumbents.

While there is a stereotypical lobbying complaint about “level playing fields”, the reality is that there are now a whole range of different telecom “sports” emerging, with competitors arranged on courses, tracks, fields and hills, many of which are inherently not “level”. It’s down to the participants – whether old or new – to train appropriately and use suitable gear for each contest.

Virtualisation & cloudification of networks helps newcomers as well as existing operators

virtualisation-cloudification-networks-STL-Partners

Source: STL Partners

Where are new telcos likeliest to emerge?

Most new telcos tend to focus initially on specific niche markets. Only a handful of recent entrants have raised enough capital to build out entire national networks, either with fixed or mobile networks. Jio, Rakuten Mobile and Dish are all exceptions – and ones which came with a significant industrial heritage and regulatory impetus that enabled them to scale broadly.

Instead, most new service providers have focused on specific domains, with some expanding more broadly at a later point. Examples of the geographic / customer niches for new operators include:

  • Enterprise private 4G/5G networks
  • Rural network services (or other isolated areas like mountains, offshore areas or islands)
  • Municipality / city-level services
  • National backbone fibre networks
  • Critical communications users (e.g. utilities)
  • Wholesale-only / shared infrastructure provision (e.g. neutral host)

This report sets out…

..to through each of the new “species” of telcos in turn. There is a certain level of overlap between the categories, as some organisations are developing networking offers in various domains in parallel (for instance, Cellnex offering towers, private networks, neutral host and RAN outsourcing).

The new telcos have been grouped into categories, based on some broad similarities:

  • “Evolved” traditional telcos: operators, or units of operators, that are recognisable from today’s companies and brands, or are new-entrant “peers” of these.
  • Adjacent wireless providers: these are service provider categories that have been established for many years, but which are now overlapping ever more closely with “traditional” telcos.
  • Enterprise and government telcos: these are other large organisations that are shifting from being “users” of telecoms, or building internal network assets, towards offering public telecom-type services.
  • Others: this is a catch-all category that spans various niche innovation models. One particular group here, decentralised/blockchain-based telcos, is analysed in more detail.

In each case, the category is examined briefly on the basis of:

  • Background and motivation of operators
  • Typical services and infrastructure being deployed
  • Examples (approx. 3-4 of each type)
  • Implications for mainstream telcos

Table of contents

  • Executive Summary
    • Overview
    • New telco categories and service areas
    • Recommendations for traditional fixed/mobile operators
    • Recommendations for vendors and suppliers
    • Recommendations for regulators, governments & advisors
  • Introduction
    • The historical landscape
    • Why are “new telcos” emerging now?
    • Where are new telcos likeliest to emerge?
    • Structure of this document
  • “Evolved” traditional telcos
    • Greenfield national networks
    • Telco systems integration units
    • “Crossover” Mobile, Fixed & cable operators
    • Extra-territorial telcos
  • Adjacent wireless providers
    • Neutral host network providers
    • TowerCos
    • FWA Fixed Wireless Access (WISPs)
    • Satellite players
  • Enterprise & government telcos
    • Industrial / vertical MNOs
    • Utility companies offering commercial telecom services
    • Enterprises’ corporate IT network service groups
    • Governments & public sector
  • New categories
    • Decentralised telcos (blockchain / cryptocurrency-based)
    • Other “new telco” categories
  • Conclusions

Related Research

 

Enter your details below to request an extract of the report


 

 

How telcos can provide a tonic for transport

5G can help revolutionise public transport

With the advent of 5G, STL Partners believes telcos have a broad opportunity to help coordinate better use of the world’s resources and assets, as outlined in the report: The Coordination Age: A third age of telecoms. Reliable and ubiquitous connectivity can enable companies and consumers to use digital technologies to efficiently allocate and source assets and resources.

In urban and suburban transport markets, one precious resource is in short supply – space. Trains can be crowded, roads can be congested and there may be nowhere to park. Following the enormous changes in working patterns in the wake of the pandemic, both individuals and policymakers are reviewing their transport choices.

Enter your details below to request an extract of the report


 

This report explores how the concept of mobility-as-a-service (MaaS) is evolving, while outlining the challenges facing those companies looking to transform public transport. In particular, it considers how telcos and 5G could support the development and deployment of automated shuttle buses, which are now beginning to appear on the world’s roads. Whereas self-driving cars are taking much longer to develop than their proponents expected, automated shuttle buses look like a more realistic mid-term prospect. Running on relatively short set routes, these vehicles are easier to automate and can be monitored/controlled by dedicated connectivity infrastructure.

This report also examines the role of 5G connectivity in other potentially-disruptive transport propositions, such as remotely controlled hire cars, passenger drones and flying cars, which could emerge over the next decade. It builds on previous STL Partners research including:

Where is transport headed?

Across the world, transport is in a state of flux. Growing congestion, the pandemic, concerns about air quality and climate change, and the emergence of new technologies are taking the transport sector in new directions. Urban planners have long recognised that having large numbers of half-empty cars crawling around at 20km/hour looking for somewhere to park is not a good use of resources.

Experimentation abounds. Many municipalities are building bike lanes and closing roads to try and encourage people to get out of their cars. In response, sales of electric bikes and scooters are rising fast. The past 10 years has also seen a global boom (followed by a partial bust) in micro-mobility services – shared bikes and scooters. Although they haven’t lived up to the initial hype, these sharing economy services have become a key part of the transport mix in many cities (for more on this, see the STL Partners report: Can telcos help cities combat congestion?).

Indeed, these micro-mobility services may be given a shot in the arm by the difficulties faced by the ride hailing business. In many cities, Uber and Lyft are under intense pressure to improve their driver proposition by giving workers more rights, while complying with more stringent safety regulations. That is driving costs upwards. Uber had hoped to ultimately replace human drivers with self-driving vehicles, but that now looks unlikely to happen in the foreseeable future. Tesla, which has always been bullish about the prospects autonomous driving, keeps having to revise its timelines backwards.

Tellingly, the Chinese government has pushed back a target to have more than half of new cars sold to have self-driving capabilities from 2020 to 2025. It blamed technical difficulties, exacerbated by the coronavirus pandemic, in a 2020 statement issued by National Development and Reform Commission and the Ministry of Industry and Information Technology.

Still, self-driving cars will surely arrive eventually. In July, Alphabet (Google’s parent) reported that its experimental self-driving vehicle unit Waymo continues to grow. “People love the fully autonomous ride hailing service in Phoenix,” Sundar Pichai, CEO Alphabet and Google, enthused. “Since first launching its services to the public in October 2020, Waymo has safely served tens of thousands of rides without a human driver in the vehicle, and we look forward to many more.”

In response to analyst questions, Pichai added: “We’ve had very good experience by scaling up rides. These are driverless rides and no one is in the car other than the passengers. And people have had a very positive experience overall. …I expect us to scale up more through the course of 2022.”

More broadly, the immediate priority for many governments will be on greening their transport systems, given the rising public concern about climate change and extreme weather. The latest report from the Intergovernmental Panel on Climate Change calls for “immediate, rapid and large-scale reductions in greenhouse gas emissions” to stabilise the earth’s climate. This pressure will likely increase the pace at which traditional components of the transport system become all-electric – cars, motorbikes, buses, bikes, scooters and even small aircraft are making the transition from relying on fossil fuel or muscle power to relying on batteries.

The rest of this 45-page report explores how public transport is evolving, and the role of 5G connectivity and telcos can play in enabling the shift.

Table of contents

  • Executive Summary
  • Introduction
  • Where is transport headed?
    • Mobility-as-a-service
    • The role of digitisation and data
    • Rethinking the bus
    • Takeaways
  • How telcos are supporting public transport
    • Deutsche Telekom: Trying to digitise transport
    • Telia: Using 5G to support shuttle buses
    • Takeaways
  • The key challenges
    • A complex and multi-faceted value chain
    • Regulatory caution
    • Building viable business models
    • Takeaways
  • Automakers become service providers
    • Volvo to retrieve driving data in real-time
    • Automakers and tech companies team up
    • Takeaways
  • Taxis and buses take to the air
    • The prognosis for passenger drones
    • Takeaways
  • Conclusions: Strategic implications for telcos

 

Enter your details below to request an extract of the report


 

Why the consumer IoT is stuck in the slow lane

A slow start for NB-IoT and LTE-M

For telcos around the world, the Internet of Things (IoT) has long represented one of the most promising growth opportunities. Yet for most telcos, the IoT still only accounts for a low single digit percentage of their overall revenue. One of the stumbling blocks has been relatively low demand for IoT solutions in the consumer market. This report considers why that is and whether low cost connectivity technologies specifically-designed for the IoT (such as NB-IoT and LTE-M) will ultimately change this dynamic.

NB-IoT and LTE-M are often referred to as Massive IoT technologies because they are designed to support large numbers of connections, which periodically transmit small amounts of data. They can be distinguished from broadband IoT connections, which carry more demanding applications, such as video content, and critical IoT connections that need to be always available and ultra-reliable.

The initial standards for both technologies were completed by 3GPP in 2016, but adoption has been relatively modest. This report considers the key B2C and B2B2C use cases for Massive IoT technologies and the prospects for widespread adoption. It also outlines how NB-IoT and LTE-M are evolving and the implications for telcos’ strategies.

This builds on previous STL Partners’ research, including LPWA: Which way to go for IoT? and Can telcos create a compelling smart home?. The LPWA report explained why IoT networks need to be considered across multiple generations, including coverage, reliability, power consumption, range and bandwidth. Cellular technologies tend to be best suited to wide area applications for which very reliable connectivity is required (see Figure below).

IoT networks should be considered across multiple dimensions

IoT-networks-disruptive-analysis-stl-2021
Source: Disruptive Analysis

 

Enter your details below to request an extract of the report


 

The smart home report outlined how consumers could use both cellular and short-range connectivity to bolster security, improve energy efficiency, charge electric cars and increasingly automate appliances. One of the biggest underlying drivers in the smart home sector is peace of mind – householders want to protect their properties and their assets, as rising population growth and inequality fuels fear of crime.

That report contended that householders might be prepared to pay for a simple and integrated way to monitor and remotely control all their assets, from door locks and televisions to solar panels and vehicles.  Ideally, a dashboard would show the status and location of everything an individual cares about. Such a dashboard could show the energy usage and running cost of each appliance in real-time, giving householders fingertip control over their possessions. They could use the resulting information to help them source appropriate insurance and utility supply.

Indeed, STL Partners believes telcos have a broad opportunity to help coordinate better use of the world’s resources and assets, as outlined in the report: The Coordination Age: A third age of telecoms. Reliable and ubiquitous connectivity is a key enabler of the emerging sharing economy in which people use digital technologies to easily rent the use of assets, such as properties and vehicles, to others. The data collected by connected appliances and sensors could be used to help safeguard a property against misuse and source appropriate insurance covering third party rentals.

Do consumers need Massive IoT?

Whereas some IoT applications, such as connected security cameras and drones, require high-speed and very responsive connectivity, most do not. Connected devices that are designed to collect and relay small amounts of data, such as location, temperature, power consumption or movement, don’t need a high-speed connection.

To support these devices, the cellular industry has developed two key technologies – LTE-M (LTE for Machines, sometimes referred to as Cat M) and NB-IoT (Narrowband IoT). In theory, they can be deployed through a straightforward upgrade to existing LTE base stations. Although these technologies don’t offer the capacity, throughput or responsiveness of conventional LTE, they do support the low power wide area connectivity required for what is known as Massive IoT – the deployment of large numbers of low cost sensors and actuators.

For mobile operators, the deployment of NB-IoT and LTE-M can be quite straightforward. If they have relatively modern LTE base stations, then NB-IoT can be enabled via a software upgrade. If their existing LTE network is reasonably dense, there is no need to deploy additional sites – NB-IoT, and to a lesser extent LTE-M, are designed to penetrate deep inside buildings. Still, individual base stations may need to be optimised on a site-by-site basis to ensure that they get the full benefit of NB-IoT’s low power levels, according to a report by The Mobile Network, which notes that operators also need to invest in systems that can provide third parties with visibility and control of IoT devices, usage and costs.

There are a number of potential use cases for Massive IoT in the consumer market:

  • Asset tracking: pets, bikes, scooters, vehicles, keys, wallets, passport, phones, laptops, tablets etc.
  • Vulnerable persontracking: children and the elderly
  • Health wearables: wristbands, smart watches
  • Metering and monitoring: power, water, garden,
  • Alarms and security: smoke alarms, carbon monoxide, intrusion
  • Digital homes: automation of temperature and lighting in line with occupancy

In the rest of this report we consider the key drivers and barriers to take-up of NB-IoT and LTE-M for these consumer use cases.

Table of Contents

  • Executive Summary
  • Introduction
  • Do consumers need Massive IoT?
    • The role of eSIMs
    • Takeaways
  • Market trends
    • IoT revenues: Small, but growing
  • Consumer use cases for cellular IoT
    • Amazon’s consumer IoT play
    • Asset tracking: Demand is growing
    • Connecting e-bikes and scooters
    • Slow progress in healthcare
    • Smart metering gains momentum
    • Supporting micro-generation and storage
    • Digital buildings: A regulatory play?
    • Managing household appliances
  • Technological advances
    • Network coverage
  • Conclusions: Strategic implications for telcos

 

Enter your details below to request an extract of the report


 

Commerce and connectivity: A match made in heaven?

Rakuten and Reliance: The exceptions or the rule?

Over the past decade, STL Partners has analysed how connectivity, commerce and content have become increasingly interdependent – as both shopping and entertainment go digital, telecoms networks have become key distribution channels for all kinds of consumer businesses. Equally, the growing availability of digital commerce and content are driving demand for connectivity both inside and outside the home.

To date, the top tier of consumer Internet players – Google, Apple, Amazon, Alibaba, Tencent and Facebook – have tended to focus on trying to dominate commerce and content, largely leaving the provision of connectivity to the conventional telecoms sector. But now some major players in the commerce market, such as Rakuten in Japan and Reliance in India, are pushing into connectivity, as well as content.

This report considers whether Rakuten’s and Reliance’s efforts to combine content, commerce and connectivity into a single package is a harbinger of things to come or the exceptions that will prove the longstanding rule that telecoms is a distinct activity with few synergies with adjacent sectors. The provision of connectivity has generally been regarded as a horizontal enabler for other forms of economic activity, rather than part of a vertically-integrated service stack.

This report also explores the extent to which new technologies, such as cloud-native networks and open radio access networks, and an increase in licence-exempt spectrum, are making it easier for companies in adjacent sectors to provide connectivity. Two chapters cover Google and Amazon’s connectivity strategies respectively, analysing the moves they have made to date and what they may do in future. The final section of this report draws some conclusions and then considers the implications for telcos.

This report builds on earlier STL Partners research, including:

Enter your details below to download an extract of the report


Mixing commerce and connectivity

Over the past decade, the smartphone has become an everyday shopping tool for billions of people, particularly in Asia. As a result, the smartphone display has become an important piece of real estate for the global players competing for supremacy in the digital commerce market. That real estate can be accessed via a number of avenues – through the handset’s operating system, a web browser, mobile app stores or through the connectivity layer itself.

As Google and Apple exercise a high degree of control over smartphone operating systems, popular web browsers and mobile app stores, other big digital commerce players, such as Amazon, Facebook and Walmart, risk being marginalised. One way to avoid that fate may be to play a bigger role in the provision of wireless connectivity as Reliance Industries is doing in India and Rakuten is doing in Japan.

For telcos, this is potentially a worrisome prospect. By rolling out its own greenfield mobile network, e-commerce, and financial services platform Rakuten has brought disruption and low prices to Japan’s mobile connectivity market, putting pressure on the incumbent operators. There is a clear danger that digital commerce platforms use the provision of mobile connectivity as a loss leader to drive to traffic to their other services.

Table of Contents

  • Executive Summary
  • Introduction
  • Mixing connectivity and commerce
    • Why Rakuten became a mobile network operator
    • Will Rakuten succeed in connectivity?
    • Why hasn’t Rakuten Mobile broken through?
    • Borrowing from the Amazon playbook
    • How will the hyperscalers react?
  • New technologies, new opportunities
    • Capacity expansion
    • Unlicensed and shared spectrum
    • Cloud-native networks and Open RAN attract new suppliers
    • Reprogrammable SIM cards
  • Google: Knee deep in connectivity waters
    • Google Fiber and Fi maintain a holding pattern
    • Google ramps up and ramps down public Wi-Fi
    • Google moves closer to (some) telcos
    • Google Cloud targets telcos
    • Big commitment to submarine/long distance infrastructure
    • Key takeaways: Vertical optimisation not integration
  • Amazon: A toe in the water
    • Amazon Sidewalk
    • Amazon and CBRS
    • Amazon’s long distance infrastructure
    • Takeaways: Control over connectivity has its attractions
  • Conclusions and implications for telcos in digital commerce/content
  • Index

Enter your details below to download an extract of the report


Fixed wireless access growth: To 20% homes by 2025

=======================================================================================

Download the additional file on the left for the PPT chart pack accompanying this report

=======================================================================================

Fixed wireless access growth forecast

Fixed Wireless Access (FWA) networks use a wireless “last mile” link for the final connection of a broadband service to homes and businesses, rather than a copper, fibre or coaxial cable into the building. Provided mostly by WISPs (Wireless Internet Service Providers) or mobile network operators (MNOs), these services come in a wide range of speeds, prices and technology architectures.

Some FWA services are just a short “drop” from a nearby pole or fibre-fed hub, while others can work over distances of several kilometres or more in rural and remote areas, sometimes with base station sites backhauled by additional wireless links. WISPs can either be independent specialists, or traditional fixed/cable operators extending reach into areas they cannot economically cover with wired broadband.

There is a fair amount of definitional vagueness about FWA. The most expansive definitions include cheap mobile hotspots (“Mi-Fi” devices) used in homes, or various types of enterprise IoT gateway, both of which could easily be classified in other market segments. Most service providers don’t give separate breakouts of deployments, while regulators and other industry bodies report patchy and largely inconsistent data.

Our view is that FWA is firstly about providing permanent broadband access to a specific location or premises. Primarily, this is for residential wireless access to the Internet and sometimes typical telco-provided services such as IPTV and voice telephony. In a business context, there may be a mix of wireless Internet access and connectivity to corporate networks such as VPNs, again provided to a specific location or building.

A subset of FWA relates to M2M usage, for instance private networks run by utility companies for controlling grid assets in the field. These are typically not Internet-connected at all, and so don’t fit most observers’ general definition of “broadband access”.

Usually, FWA will be marketed as a specific service and package by some sort of network provider, usually including the terminal equipment (“CPE” – customer premise equipment), rather than allowing the user to “bring their own” device. That said, lower-end (especially 4G) offers may be SIM-only deals intended to be used with generic (and unmanaged) portable hotspots.
There are some examples of private network FWA, such as a large caravan or trailer park with wireless access provided from a central point, and perhaps in future municipal or enterprise cellular networks giving fixed access to particular tenant structures on-site – for instance to hangars at an airport.

Enter your details below to request an extract of the report


FWA today

Today, fixed-wireless access (FWA) is used for perhaps 8-9% of broadband connections globally, although this varies significantly by definition, country and region. There are various use cases (see below), but generally FWA is deployed in areas without good fixed broadband options, or by mobile-only operators trying to add an additional fixed revenue stream, where they have spare capacity.

Fixed wireless internet access fits specific sectors and uses, rather than the overall market

FWA Use Cases

Source: STL Partners

FWA has traditionally been used in sparsely populated rural areas, where the economics of fixed broadband are untenable, especially in developing markets without existing fibre transport to towns and villages, or even copper in residential areas. Such networks have typically used unlicensed frequency bands, as there is limited interference – and little financial justification for expensive spectrum purchases. In most cases, such deployments use proprietary variants of Wi-Fi, or its ill-fated 2010-era sibling WiMAX.

Increasingly however, FWA is being used in more urban settings, and in more developed market scenarios – for example during the phase-out of older xDSL broadband, or in places with limited or no competition between fixed-network providers. Some cellular networks primarily intended for mobile broadband (MBB) have been used for fixed usage as well, especially if spare capacity has been available. 4G has already catalysed rapid growth of FWA in numerous markets, such as South Africa, Japan, Sri Lanka, Italy and the Philippines – and 5G is likely to make a further big difference in coming years. These mostly rely on licensed spectrum, typically the national bands owned by major MNOs. In some cases, specific bands are used for FWA use, rather than sharing with normal mobile broadband. This allows appropriate “dimensioning” of network elements, and clearer cost-accounting for management.

Historically, most FWA has required an external antenna and professional installation on each individual house, although it also gets deployed for multi-dwelling units (MDUs, i.e. apartment blocks) as well as some non-residential premises like shops and schools. More recently, self-installed indoor CPE with varying levels of price and sophistication has helped broaden the market, enabling customers to get terminals at retail stores or delivered direct to their home for immediate use.

Looking forward, the arrival of 5G mass-market equipment and larger swathes of mmWave and new mid-band spectrum – both licensed and unlicensed – is changing the landscape again, with the potential for fibre-rivalling speeds, sometimes at gigabit-grade.

Enter your details below to request an extract of the report


Table of contents

  • Executive Summary
  • Introduction
    • FWA today
    • Universal broadband as a goal
    • What’s changed in recent years?
    • What’s changed because of the pandemic?
  • The FWA market and use cases
    • Niche or mainstream? National or local?
    • Targeting key applications / user groups
  • FWA technology evolution
    • A broad array of options
    • Wi-Fi, WiMAX and close relatives
    • Using a mobile-primary network for FWA
    • 4G and 5G for WISPs
    • Other FWA options
    • Customer premise equipment: indoor or outdoor?
    • Spectrum implications and options
  • The new FWA value chain
    • Can MNOs use FWA to enter the fixed broadband market?
    • Reinventing the WISPs
    • Other value chain participants
    • Is satellite a rival waiting in the wings?
  • Commercial models and packages
    • Typical pricing and packages
    • Example FWA operators and plans
  • STL’s FWA market forecasts
    • Quantitative market sizing and forecast
    • High level market forecast
  • Conclusions
    • What will 5G deliver – and when and where?
  • Index

Network convergence: How to deliver a seamless experience

Operators need to adapt to the changing connectivity demands post-COVID19

The global dependency on consistent high-performance connectivity has recently come to the fore as the COVID-19 outbreak has transformed many of the remaining non-digital tasks into online activities.

The typical patterns of networking have broken and a ‘new normal’, albeit possibly a somewhat transitory one, is emerging. The recovery of the global economy will depend on governments, healthcare providers, businesses and their employees robustly communicating and gaining uninhibited access to content and cloud through their service providers – at any time of day, from any location and on any device.

Reliable connectivity is a critical commodity. Network usage patterns have shifted more towards the home and remote working. Locations which were previously light-usage now have high demands. Conversely, many business locations no longer need such high capacity. Utilisation is not expected to return to pre-COVID-19 patterns either, as people and businesses adapt to new daily routines – at least for some time.

The strategies with which telcos started the year have of course been disrupted with resources diverted away from strategic objectives to deal with a new mandate – keep the country connected. In the short-term, the focus has shifted to one which is more tactical – ensuring customer satisfaction through a reliable and adaptable service with rapid response to issues. In the long-term, however, the objectives for capacity and coverage remain. Telcos are still required to reach national targets for a minimum connection quality in rural areas, whilst delivering high bandwidth service demands in hotspot locations (although these hotspot locations might now change).

Of course, modern networks are designed with scalability and adaptability in mind – some recent deployments from new disruptors (such as Rakuten) demonstrate the power of virtualisation and automation in that process, particularly when it comes to the radio access network (RAN). In many legacy networks, however, one area which is not able to adapt fast enough is the physical access. Limits on spectrum, coverage (indoors and outdoors) and the speed at which physical infrastructure can be installed or updated become a bottleneck in the adaptation process. New initiatives to meet home working demand through an accelerated fibre rollout are happening, but they tend to come at great cost.

Network convergence is a concept which can provide a quick and convenient way to address this need for improved coverage, speed and reliability in the access network, without the need to install or upgrade last mile infrastructure. By definition, it is the coming-together of multiple network assets, as part of a transformation to one intelligent network which can efficiently provide customers with a single, unified, high-quality experience at any time, in any place.

It has already attracted interest and is finding an initial following. A few telcos have used it to provide better home broadband. Internet content and cloud service providers are interested, as it adds resilience to the mobile user experience, and enterprises are interested in utilising multiple lower cost commodity backhauls – the combination of which benefits from inherent protection against costly network outages.Request a report extract

Network convergence helps create an adaptable and resilient last mile

Most telcos already have the facility to connect with their customers via multiple means; providing mobile, fixed line and public Wi-Fi connectivity to those in their coverage footprint. The strategy has been to convert individual ‘pure’ mobile or fixed customers into households. The expectation is that this creates revenue increase through bundling and loyalty whilst bringing some added friction into the ability to churn – a concept which has been termed ‘convergence’. Although the customer may see one converged telco through brand, billing and customer support, the delivery of a consistent user experience across all modes of network access has been lacking and awkward. In the end, it is customer dissatisfaction which drives churn, so delivering a consistent user experience is important.

Convergence is a term used to mean many different things, from a single bill for all household connectivity, to modernising multiple core networks into a single efficient core. While most telcos have so far been concentrating on increasing operational efficiency, increasing customer loyalty/NPS and decreasing churn through some initial aspects of convergence, some are now looking into network convergence – where multiple access technologies (4G, 5G, Wi-Fi, fixed line) can be used together to deliver a resilient, optimised and consistent network quality and coverage.

Overview of convergence

Source: STL Partners

As an overarching concept, network convergence introduces more flexibility into the access layer. It allows a single converged core network to utilise and aggregate whichever last mile connectivity options are most suited to the environment. Some examples are:

  • Hybrid Access: DSL and 4G macro network used together to provide extra speed and fallback reliability in hybrid fixed/mobile home gateways.
  • Cell Densification: 5G and Wi-Fi small cells jointly providing short range capacity to augment the macro network in dense urban areas.
  • Fixed Wireless Access: using cellular as a fibre alternative in challenging areas.

The ability to combine various network accesses is attractive as an option for improving adaptability, resilience and speed. Strategically, putting such flexibility in place can support future growth and customer retention with the added advantage of improving operational efficiency. Tactically, it enables an ability to quickly adapt resources to short-term changes in demand. COVID-19 has been a clear example of this need.

Table of Contents

  • Executive Summary
    • Convergence and network convergence
    • Near-term benefits of network convergence
    • Strategic benefits of network convergence
    • Balancing the benefits of convergence and divergence
    • A three-step plan
  • Introduction
    • The changing environment
    • Network convergence: The adaptable and resilient last mile
    • Anticipated benefits to telcos
    • Challenges and opposing forces
  • The evolution to network convergence
    • Everyone is combining networks
    • Converging telco networks
    • Telco adoption so far
  • Strategy, tactics and hurdles
    • The time is right for adaptability
    • Tactical motivators
    • Increasing the relationship with the customer
    • Modernisation and efficiency – remaining competitive
    • Hurdles from within the telco ecosystem
    • Risk or opportunity? Innovation above-the-core
  • Conclusion
    • A three-step plan
  • Index

Request STL research insights overview pack

 

 

The changing consumer landscape: Telco strategies for success

Winning in the evolving “in home” consumer market

COVID-19 is accelerating significant and lasting changes in consumer behaviours as the majority of the population is being implored to stay at home. As a result, most people now work remotely and stay connected with colleagues, friends, and family via video conferencing. Consumer broadband and telco core services are therefore in extremely high demand and, coupled with the higher burden on the network, consumers have high expectations and dependencies on quality connectivity.

Furthermore, we found that people of all ages (including non-digital natives) are becoming more technically aware. This means they may be willing to purchase more services beyond core connectivity from their broadband provider. At the same time, their expectations on performance are rising. Consumers have a better understanding of the products on offer and, for example, expect Wi-Fi to deliver quoted broadband speeds throughout the house and not just in proximity to the router.

As a result of this changing landscape, there are opportunities, but also challenges that operators must overcome to better address consumers, stay relevant in the market, and win “in the home”.

This report looks at the different strategies telcos can pursue to win “in the home” and address the changing demands of consumers. It draws on an interview programme with eight operators, as well as a survey of more than 1100+ consumers globally . As well as canvassing consumers’ high level views of telcos and their services, the survey explores consumer willingness to buy cybersecurity services from telcos in some depth.

Request a report extract

With increasing technical maturity comes an increasingly demanding market

Consumers are increasing in technical maturity

The consumer market as a whole is becoming much more digital. Over the past decade there has been a big shift towards online and self-service models for B2C services (e.g. ecommerce, online banking, automated chatbots, video streaming). This reflects the advent of the Coordination Age – connecting people to machines, information, and things – and the growing technical maturity of the consumer market.

COVID-19 has been a recent, but significant, driver in pushing consumers towards a more digital age, forcing the use of video conferencing and contactless interactions. Even people who are not considered digitally native are becoming increasingly tech savvy and tech capable customers.

Cisco forecasts that, between 2018 and 2023, the number of Internet users globally will increase from 51% to 66% . It has also forecast an increase in data volumes per capita per month from 1.5GB in 2017 to 9.7GB in 2022 . Depending on the roll out of 5G in different markets, this number may increase significantly as demand for mobile data increases to meet the potential increases in supply.

Furthermore, in our survey of 1,100+ consumers globally, 33% of respondents considered themselves avid users and 51% considered themselves moderate users of technology. Only 16% of the population felt they were light users, using technology only when essential for a limited number of use cases and needing significant support when purchasing and implementing new technology-based solutions.

Though this did not vary significantly by region or existing spend, it did vary (as would be expected) by age – 51% of respondents aged between 25 and 30 considered themselves avid users of technology, while only 18% of respondents over 50 said the same. Nevertheless, even within the 50+ segment, 55% considered themselves moderate users of technology.

Self-proclaimed technical maturity varies significantly by age

Source: STL Partners consumer survey analysis (n=1,131)

The growing technical maturity of consumers suggests a larger slice of the market will be ready and willing to adopt digital solutions from a telco, providing an opportunity for potential growth in the consumer market.

Consumers have higher expectations on telco services

Coupled with the increasing technical maturity comes an increase in consumer expectations. This makes the increasing technical maturity a double edged sword – more consumers will be ready to adopt more digital solutions but, with a better understanding of what’s on offer, they can also be more picky about what they receive and more demanding about performance levels that can be achieved.

An example of this is in home broadband. It is no longer sufficient to deliver quoted throughput speeds only within proximity to the router. A good Wi-Fi connection must now permeate throughout the house, so that high-quality video content and video calls can be streamed from any room without any drop in quality or connection. It must also be able to handle an increasing number of connected devices – Cisco forecasts an increase from a global average of 1.2 to 1.6 connections per person between 2018 and 2023 .

Consumers are also becoming increasingly impatient. In all walks of life, whether it be dating, technology or experiences, consumers want instant gratification. Additionally, with the faster network speeds of 4G+, fibre, and eventually 5G, consumers want (and are used to) continuous video feeds, seamless streaming, and near instant downloads – buffering should be a thing of the past.

One of our interviewees, a Northern European operator, commented: “Consumers are not willing to wait, they want everything here, now, immediately. Whether it is web browsing or video conferencing or video streaming, consumers are increasingly impatient”.

However, these demands extend beyond telco core services and connectivity. In the context of digital maturity, a Mediterranean operator noted “There is increasing demand for more specialized services…there is more of a demand on value-added, rather than core, services”.

This presents new challenges and opportunities for operators seeking growth “in the home”. Telcos need to find a way to address these changing demands to stay relevant and be successful in the consumer market.

Table of Contents

  • Executive summary
  • Introduction
  • Growing demand for core broadband and value-added services
    • COVID-19 is driving significant, and likely lasting, change
    • With increasing technical maturity comes an increasingly demanding market
  • Telcos need new ways to stay relevant in B2C
    • The consumer market is both diverse and difficult to segment
    • Should telcos be looking beyond the triple play?
  • How can telcos differentiate in the consumer market?
    • Differentiate through price
    • Differentiate through new products beyond connectivity
    • Differentiate through reliability of service
  • Conclusions and key recommendations
  • Appendices
    • Appendix 1: Consumer segments used in the survey
    • Appendix 2: Cybersecurity product bundles used in the conjoint analysis

Request STL research insights overview pack

$1.4tn of benefits in 2030: 5G’s impact on industry verticals

Understanding the 5G opportunity in other industries

The aim of this report is to highlight the impact that 5G will have on global GDP between 2020 and 2030. To do this, we have focused on eight industries where we feel 5G will have the largest impact. Often when 5G is discussed, the focus is on the impact it will have on the consumer market. Here, we argue that 5G will unlock significant new revenue opportunities in the enterprise space, enabling innovative use cases that are currently impossible to scale commercially (with existing technologies).

Insight from this report is explored further in the following publications:

The document was researched and written independently by STL Partners, supported by Huawei. STL’s conclusions are entirely independent and built on ongoing research into the future of telecoms. STL Partners has written widely on the topic of 5G, including a recent two-part series into the short- and long-term opportunities unlocked by 5G, and lessons that can be learnt from early movers.

Comparing apples with apples: How to compare nascent 5G with established 4G

If you compare the technological specifications for 3GPP release 14 and 3GPP release 15 (the first 5G release), you might be underwhelmed. Despite the hype that 5G will be transformative, it does not appear to be delivering much more than incremental increases in speed and reliability. But, of course, 4G is now a mature form of connectivity (having been in-life for 6+ years) whereas 5G is still nascent.

To compare apples with apples, it makes sense to compare 5G release 16, where capabilities such as ultra-reliable low-latency and network slicing are being added, with LTE today.

Mature 5G benchmarked against the capabilities of mature 4G

Mature 5G benchmarked against mature 4G

Source: ITU, Nokia, ublox, gps world

Of course, these figures represent a best-case scenario occurring in a laboratory environment. This is true for both the 4G and 5G numbers. It’s also true that, in reality, it will take time before we see commercialised rollout of enhanced mobile broadband (“pure 5G”) rather than enhanced mobile broadband with 4G fall-back alongside fixed wireless access. Despite this, these figures make clear that when 5G reaches maturity, it will far outstrip the capabilities of 4G, and unlock new use cases.

Our assumption is that by 2025 5G technology will be mature, enabling massive M2M / IoT use cases as well as those that require ultra-reliable low-latency communications. Several of the 5G use cases we’ll go on to explore in more detail are reliant on this technology, so it is important to acknowledge that their commercialisation is only likely to start from around 2023 and in many markets they still won’t be fully deployed in 2030.

It’s not all about LTE: 5G must be compared to all available technology

Mobile is not the only form of connectivity used by enterprises. Plenty of industries are also making use of Wi-Fi, LPWAN, Zigbee, Bluetooth and fixed connectivity as part of their overall connectivity solution. When 5G is rolled out, in some cases, it will need to integrate with these existing technologies rather than replace them. The table below summarises some of the key benefits and shortcomings of current technologies, including highlighting the sorts of situations in which industries are making use of them.

Current technologies will not be entirely replaced by 5G, but it can address some of they key shortcomings

current technologies will not be entirely replaced by 5G, but it can address some of their key shortcomings

There are clear scenarios where 5G will be superior to existing technologies and bring significant benefits to industrial users. Ultimately, in particular, 5G will enable:

  1. Low latency and high bandwidth requirements for wireless connectivity
  2. Massive IoT through ability to handle high cell density
  3. Ultra-reliable and secure connectivity.

Table of Contents

  • Preface
  • Executive Summary
    • 5G enabled solutions are estimated to add c.$1.4 trillion to global GDP in 2030
    • Operators must embrace new business models to unlock significant revenues with 5G
    • Recommendations for operators: how to capitalise on the 5G opportunity
  • Introduction
    • Background
    • Comparing apples with apples: how to compare nascent 5G with established 4G
    • It’s not all about LTE: 5G must be compared to all available technology
    • 5G deployment: 5G will mature over the next ten years
  • 5G will add more than $1.4 trillion to the global economy by 2030
  • Mobile network operator strategic options with 5G
    • 5G alone will not change the game for operators
    • Strategic options for operators to add more value with 5G
  • 5G-enabled digital transformation in healthcare
    • Example 5G use case: Remote patient monitoring
    • Implications for telcos
  • 5G-enabled digital transformation in manufacturing
    • 5G can create $740bn in additional GDP by 2030
    • Example 5G use case: Advanced predictive maintenance
    • Implications for telcos
  • Conclusions for operators: how to capitalise on the 5G opportunity

Table of Figures

  • Figure 1: Mature 5G benchmarked against the capabilities of mature 4G
  • Figure 2: Current technologies will not be entirely replaced by 5G, but it can address some of their key shortcomings
  • Figure 3: Forecast of 5G deployment in major regions
  • Figure 4: Responses from industry surveys
  • Figure 5: 5G will contribute ~$1.4 trillion to global GDP by 2030
  • Figure 6: Manufacturing, energy & extractives and media, sports & entertainment industries will see the largest upticks to their industry thanks to 5G use cases
  • Figure 7: In 2030, manufacturing and construction will be the largest industry sectors (in 2030)
  • Figure 8: High income countries will see almost 75% of the benefit of 5G in 2025, but the share is more even across all geographies by 2030
  • Figure 9: 4G rollout did not produce sustainable revenue increase
  • Figure 10: What should telcos’ role be in 5G B2B?
  • Figure 11: As telcos move beyond just connectivity, they can increase their share of the wallet
  • Figure 12: Telcos must focus efforts in specific verticals – some are already doing this
  • Figure 13: Global impact of 5G on healthcare across four key contact points
  • Figure 14: Remote patient monitoring enables wearables to send data about the patient to the hospital for monitoring
  • Figure 15: Estimated impact of 5G-enabled remote patient monitoring
  • Figure 16: The potential roles for telcos can within healthcare
  • Figure 17: The TELUS Health Exchange as a point of coordination
  • Figure 18: There is opportunity for telcos’ to play multiple roles higher up the value chain in healthcare
  • Figure 19: Estimated impact of 5G on manufacturing GDP (USD Billions) by use case
  • Figure 20: Advanced predictive maintenance enables many sensors to send data about machinery for monitoring and optimisation

Consumer Wi-Fi: Faster, smarter and near-impossible to replace

Introduction

This briefing, part of the Network Futures and (Re-)Connecting with Consumers research streams examines the connectivity and network options for the home – especially looking at the role of Wi-Fi (and its newest evolution, Wi-Fi 6) within the home and other consumer spaces, as a platform for connecting smartphones, PCs, IoT devices, and entertainment/media systems.

It build on the report exploring how telcos could play a coordination role in the smart home market in January 2019 (Can telcos create a compelling smart home?) with a focus on security and remote-management of assets in the home.

This report focuses primarily on developed markets (and China) in which most homes have a fixed-line connection. In developing countries where fixed-lines are scarce, Wi-Fi also plays an important background role, albeit within the constraints imposed by the more limited bandwidth available via cellular or fixed wireless connections to the Internet.

In developed markets, homes now commonly have between five and 20 Wi-Fi enabled endpoints. 

Wi-Fi is a core consumer service

As discussed in this report, STL does not believe that 5G poses any general threat to the dominant use of Wi-Fi in homes. This document does not look in depth at trends in either enterprise Wi-Fi, or public hotspots – although in the latter case, cellular substitution is more of a genuine issue.

For the residential consumer market, readers should first be aware that Wi-Fi remains incredibly important even for “non-smart” homes. It is important to look at this space through the lens of normal broadband and ISP service delivery, even without connecting new consumer products and services. A sizeable part of both broadband customer satisfaction, and complaints/support issues stems from the quality and manageability of residential Wi-Fi.

This year is the 20th anniversary of consumer Wi-Fi, kickstarted by Apple’s introduction of the AirPort access-point (AP) in 1999. Since then, Wi-Fi has grown to encompass over 30 billion cumulative shipped devices, notably including virtually every PC and phone in use today. Over four billion Wi-Fi products are shipped annually, with over 13 billion in regular use.[1] It has evolved in speed, features and maturity – and is often seen by consumers as being synonymous with Internet connectivity itself.

It’s also about to evolve, encompassing a set of changes into a new packaged specification named ‘Wi-Fi 6’.

While a large part of Wi-Fi’s early success can be attributed to its use in enterprises, or through “hotspots” in public spaces like cafes and hotels, the real core of its adoption has been for residential use. The bulk of Internet access delivered in-home travels its last few metres over Wi-Fi – even for products like televisions. Many notebook PCs no longer have an Ethernet port for a wired connection.

Wi-Fi has a huge economic impact for users, SPs and industry

Chart showing the global value of Wi-Fi at the advent of Wi-Fi 6
The global value of Wi-Fi at the advent of Wi-Fi 6

Source: Wi-Fi Alliance, ValueOfWiFi.com

Telcos and Wi-Fi

While telcos have always been wary of Wi-Fi’s substitutional role vs. cellular in public spaces, within the home the majority of operators view it as a huge positive – and even a source of new revenue and differentiation.

All fixed/cable operators are advocates of home Wi-Fi, as it allows more data usage, from more devices, increasing the value of both Internet connectivity and “on-network” services such as IPTV and IP-based PSTN telephony. As this report discusses, Wi-Fi (sometimes combined with Bluetooth or other short-range wireless technologies) can help telcos connect new IoT systems and participate in their ecosystems, such as eHealth, smart metering, security and more. Some operators are directly monetising “premium Wi-Fi” products or using them to encourage customers to upgrade to higher-ARPU bundles.

While mobile operators sometimes dislike third-party Wi-Fi for its ability to “break out” data locally, rather than routing traffic through their cores (and billing engines), they nevertheless appreciate its ability to support Wi-Fi calling to extend voice telephony to rooms lacking good coverage. They also usually like the (network-driven or user-initiated) means to offload wireless data, that could be expensive to serve to users through walls from outdoor macro cell-sites. With 5G, this comes even further to the fore, as most of the early spectrum bands, such as 3.5GHz or 24-28GHz, will struggle with in-building penetration. We can also expect the majority of fixed-wireless access 5G to marry an external- (or window-) mounted antenna to an indoor Wi-Fi AP for final connection to most devices.

About half of all IP traffic across all devices is delivered via Wi-Fi

PrChart showing proportion of telecoms traffic delivered by Wi-Fi forecast 2019 to 2022
Proportion of telecoms traffic delivered by Wi-Fi forecast 2019 to 2022

*Wireless traffic includes Wi-Fi and mobile. Source: Cisco VNI Global IP Traffic Forecast, 2017-2022

In the rest of this report we discuss telcos’ love/hate relationship with Wi-Fi, including why the newest generation is a game changer for smart homes and the technology’s relationship with 4G/5G and IoT.

Contents:

  • Executive Summary
  • Introduction
  • Part of the broader battle for home/consumer services
  • Unlicensed spectrum – why it matters
  • What’s in a name? Why WiFi 6 is important
  • Wi-Fi and telcos: A complex relationship
  • Telco residential Wi-Fi evangelists
  • Wi-Fi technology evolution
  • Whole-home Wi-Fi: A game-changer
  • New revenue for telcos?
  • Is Wi-Fi threatened by 4G/5G?
  • Wi-Fi and IoT
  • Competition vs. Bluetooth, Zigbee & Z-Wave
  • Competition vs. cellular and LPWA?
  • The vendor / internet space
  • Arrival of the major technology firms
  • Beyond connectivity: New use-cases for Wi-Fi
  • Conclusions and recommendations
  • Recommendations for fixed and cable operators / ISPs
  • Recommendations for mobile operators
  • Recommendations for regulators and policymakers

Figures:

  1. Consumer Wi-Fi is a new control-point for smart home connections
  2. Wi-Fi has a huge economic impact for users, SPs and industry
  3. About half of all IP traffic, across all devices is delivered via Wi-Fi
  4. Simpler, more consumer-friendly branding for Wi-Fi
  5. What’s new with Wi-Fi 6 / 802.11ax?
  6. Wi-Fi is a double-edged sword for telcos; better for fixed ISPs than MNOs
  7. There are multiple determinants of good home broadband experience
  8. Some broadband operators market their service based on Wi-Fi performance
  9. MU-MIMO enables gigabit speeds for Wi-Fi
  10. Wi-Fi companion apps are becoming commonplace
  11. Mesh networks can provide a connectivity backbone for smart homes
  12. In-home Wi-Fi boosters or mesh improve satisfaction significantly
  13. KPN’s Wi-Fi tuner app enables optimal coverage & performance
  14. Some telcos & ISPs are using mesh Wi-Fi to offer QoS/coverage guarantees
  15. Whole-home Wi-Fi offers better indoor awareness than cellular
  16. Huawei’s 5G home FWA blends an outdoor mmWave unit with indoor Wi-Fi
  17. Consumer Wi-Fi is a new control-point for smart home connections
  18. Wi-Fi silicon specialists sometimes work directly with telcos
  19. Software, cloud and security capabilities are likely to be exploited by CSP Wi-Fi in future
  20. Motion-detection is one of the most intriguing future Wi-Fi capabilities
  21. Wi-Fi plus voice integration will accelerate with the Amazon/eero acquisition

[1] Source: Wi-Fi Alliance

Keywords, companies and technologies referenced: Wi-Fi 6, 5G, cellular, fixed wireless access (FWA), KPN, BT,  Blutooth, Zigbee, LPWA, IoT, smart home, Amazon, Cisco, Apple.

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

If you don’t subscribe to our research yet, you can download an extract of the report for free as part of our sample report series.

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.

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

Telcos and GAFA: Dancing with the disruptors

Introduction

Across much of the world, the competing Internet ecosystems led by Amazon, Apple, Facebook and Google have come to dominate the consumer market for digital services. Even though most telcos continue to compete with these players in the service layer, it is now almost a necessity for operators to partner with one or more of these ecosystems in some shape or form.

This report begins by pinpointing the areas where telcos are most likely to partner with these players, drawing on examples as appropriate. In each case, it considers the nature of the partnership and the resulting value to the telco and to the Internet ecosystem. It also considers the longer-term, strategic implications of these partnerships and makes recommendations on how telcos can try to strengthen their negotiating position.

This research builds on the findings of the Digital Partnerships Benchmarking Study conducted between 26th September and 4th November 2016 by STL Partners and sponsored by AsiaInfo. That study involved a survey of 34 operators in Europe and Asia Pacific. It revealed that whereas almost all operators expected to grow their partnerships business in the future, they differed on how they expected to pursue this growth.

Approximately half (46%) of the operator respondents wanted to scale up and partner with a large number of digital players, while the other half (49%) wanted to focus in on a few strategic partnerships.  Those looking to partner with a large number of companies were primarily interested in generating new revenue streams or increasing customer relevance, while many of those who wanted to focus on a small number of partnerships also regarded increasing revenues from the core business as a main objective (see Figure 1).

Figure 1: The business objectives differ somewhat by partnership strategy

Source: Digital Partnerships Benchmarking Study conducted in late 2016 by STL Partners and sponsored by AsiaInfo

Respondents were also asked to rank the assets that an operator can bring to a partnership, both today and in the future. These ranks were converted into a normalized score (see Figure 2): A score of 100% in Figure 2 would indicate that all respondents placed that option in the top rank.

Figure 2: Operators regard their customer base as their biggest asset

Source: Digital Partnerships Benchmarking Study conducted in late 2016 by STL Partners and sponsored by AsiaInfo

Clearly, operators are aware that the size of their customer base is a significant asset, and they are optimistic that it is likely to remain so: it is overall the highest scoring asset both today and in the future.

In the future, the options around customer data (customer profiling, analytics and insights) are given higher scores (they move up the ranks). This suggests that operators believe that they will become better at exploiting their data-centric assets and – most significantly – that they will be able to monetize this in partnerships, and that these data-centric assets will have significant value.

The findings of the study confirm that most telcos believe they can bring significant and valuable assets to partnerships. This report considers how those assets can be used to strike mutually beneficial deals with the major Internet ecosystems. The next chapter explains why telcos and the leading Internet players need to co-operate with each other, despite their competition for consumers’ attention.

Contents:

  • Executive Summary
  • Strategic considerations
  • Delivering bigger, better entertainment
  • Improving customer experience
  • Extending and enhancing connectivity
  • Developing the networks of the future
  • Delivering cloud computing to enterprises
  • Introduction
  • Telcos and lnternet giants need each other
  • Delivering bigger, better entertainment
  • Content delivery networks
  • Bundling content and connectivity
  • Zero-rating content
  • Carrier billing
  • Content promotion
  • Apple and EE in harmony
  • Value exchange and takeaways
  • Improving the customer experience
  • Making mobile data stretch further
  • Off-peak downloads, offline viewing
  • Data plan awareness for apps
  • Fine-grained control for consumers
  • Value exchange and takeaways
  • Extending and enhancing connectivity
  • Subsea cable consortiums
  • Free public Wi-Fi services
  • MVNO Project Fi – branded by Google, enabled by telcos
  • Value exchange and takeaways
  • Developing the networks of the future
  • Software-defined networks: Google and the CORD project
  • Opening up network hardware: Facebook’s Telecom Infra Project
  • Value exchange and takeaways
  • Delivering cloud computing to enterprises
  • Reselling cloud-based apps
  • Secure cloud computing – AWS and AT&T join forces
  • Value exchange and takeaways
  • Conclusions and Recommendations
  • Google is top of mind
  • Whose brand benefits?

Figures:

  • Figure 1: The business objectives differ somewhat by partnership strategy
  • Figure 2: Operators regard their customer base as their biggest asset
  • Figure 3: US Internet giants generate about 40% of mobile traffic in Asia-Pacific
  • Figure 4: Google and Facebook are now major players in mobile in Africa
  • Figure 5: Examples of telco-Internet platform partnerships in entertainment
  • Figure 6: BT Sport uses YouTube to promote its premium content
  • Figure 7: Apple Music appears to have helped EE’s performance
  • Figure 8: Amazon is challenging Apple and Spotify in the global music market
  • Figure 9: Examples of telco-Google co-operation around transparency
  • Figure 10: YouTube Smart Offline could alleviate peak pressure on networks
  • Figure 11: Google’s Triangle app gives consumers fine-grained control over apps
  • Figure 12: Examples of telco-Internet platform partnerships to deliver connectivity
  • Figure 13: Project Fi’s operator partners provide extensive 4G coverage
  • Figure 14: Both T-Mobile US and Sprint need to improve their financial returns
  • Figure 15: Examples of telco-Internet platform partnerships on network innovation
  • Figure 16: AWS has a big lead in the cloud computing market
  • Figure 17: Examples of telco-Internet platform partnerships in enterprise cloud
  • Figure 18: AT&T provides private and secure connectivity to public clouds
  • Figure 19: Amazon and Alphabet lead corporate America in R&D
  • Figure 20: Telcos need to be wary of bolstering already powerful brands
  • Figure 21: Balancing immediate value of partnerships against strategic implications
  • Figure 22: Different telcos should adopt different strategies

Why closing Telefonica Digital should make Telefonica more digital (and innovative)

Several different CSP organisation designs for Telco 2.0 Service Innovation

Telefonica is one of the companies that we have analysed in depth in the Telco 2.0 Transformation Index research. In this report, we analyse Telefonica’s recent announcement that it is restructuring its Digital Business unit. We’ll also be exploring strategies for transformation at the OnFuture EMEA 2014 Brainstorm, June 11-12, London.

Telco 2.0 strategy is a key driver of organisation design

We have defined Telco 2.0 and, specifically, Telco 2.0 Happy Piper and Telco 2.0 Service Provider strategies in other reports  so will not focus on the implications of each on service offerings and customer segments here.  It is, however, important to understand the implications each strategy has on the organisation in terms of capability requirements and, by definition, on organisation design – structure, processes, skills and so forth.

As Figure 1 shows, the old Telco 1.0 world required CSPs to focus on infrastructure-oriented capabilities – cost, service assurance, provisioning, network quality of service, and congestion management.

For a Telco 2.0 Happy Piper, these capabilities are even more important:

  • Being low-cost in a growing telecoms market gives a company an advantage; being low-cost in a shrinking telecoms market, such as Europe, can mean the difference between surviving and going under.
  • Congestion management was important in the voice-oriented telecoms market of yesteryear but is even more so in the data-centric market in which different applications (including voice) co-exist on different networks – 2G, 3G, 4G, Wi-Fi, Fibre, Copper, etc.

Telco 2.0 Happy Pipers also need to expand their addressable market in order to thrive – into Infrastructure Services, M2M, Embedded Connectivity and, in some cases, into Enterprise ICT including bespoke vertical industry solutions.  For sure this requires some new Service Development capabilities but, perhaps more importantly, also new partnerships – both in terms of service development and delivery – and a greater focus on Customer Experience Management and ‘Customer data/Big data’ in order to deliver valuable solutions to demanding enterprise customers.

For a Telco 2.0 Service Provider, the range of new capabilities required is even greater:

  • The ability to develop new platform and end-user (consumer and enterprise) services.
  • Brand management – not just creating a stolid telecoms brand but a vibrant end-user one.
  • New partners in other industries – financial services, media, advertising, start-ups, developers and so forth.


Figure 1: Capabilities needed for different Telco 2.0 strategies

Fig1 Capabilities need for different Telco 2.0 Strategies

Source: STL Partners/Telco 2.0

Most leading CSPs are pursuing a Telco 2.0 ‘Service Provider’ strategy

STL Partners analysis suggests that the majority of CSPs (and certainly all the tier 1 and 2 players) have at least some aspirations as a Telco 2.0 Service Provider.  Several, such as AT&T, Deutsche Telekom Orange, SingTel, Telefonica and Telenor, have been public with their ‘digital services’ aspirations.

But even more circumspect players such as Verizon and Vodafone which have to date largely focused on core telecommunications services have aspirations to move beyond this.  Verizon, for example, is participating in the ISIS joint venture on payments, albeit something of a slow burn at present.  Vodafone has also pushed into payments in developing markets via its successes with mPesa in Kenya and is (perhaps a slightly reluctant) partner in the WEVE JV in the UK on digital commerce.

Further back in their Telco 2.0 development owing to the attractiveness of their markets from a Telco 1.0 perspective are the players in the rapidly developing Middle Eastern and Asian markets such as Axiata, Etisalat, Mobily, Ooredoo, and Zain.  These players too aspire to achieve more than Happy Piper status and are already pushing into advertising, content and payments for consumers and M2M and Cloud for enterprises.

Telco 2.0 Service Providers are adopting different organisation designs

It is clear that there is no consensus among management about how to implement Telco 2.0 services. This is not surprising given how new it is for telecoms operators to develop and deliver new services – innovation is not something associated with telcos.  Everyone is learning how to take their first tentative steps into the wonderful but worrisome world of innovation – like toddlers stepping into the shallow beach waters of the ocean.

There is no tried and tested formula for setting up an organisation that delivers innovation but there is consensus (among STL Partners’ contacts at least) that a different organisation structure is needed to the one that manages the core infrastructure business.  Most also agree that the new skills, partnerships, operational and financial model associated with Telco 2.0 innovation needs to be ring-fenced and protected from its mature Telco 1.0 counterpart.

The degree of separation between the old and new is the key area of debate.  We lay out the broad options in Figure 2.

Fig 2 Organisation design models for Telco 2.0 Service Innovation

Fig 2 Organisation design models for Telco 2.0 Service Innovation

Source: STL Partners/Telco 2.0

For some, a central independent strategy unit that identifies potential innovations and undertakes an initial evaluation is a sufficient degree of separation.  AT&T and Verizon in the US have gone down this route – see Figure 3.

Fig 3 Organisation design approaches of 9 CSPs across 4 regions

Fig 3 Organisation design approaches of 9 CSPs across 4 regions

Source: STL Partners/Telco 2.0

In this model, ideas that are deemed promising are handed over the operating units to develop and deliver where, frankly, many are ignored or wallow in what one executive described to us as ‘Telco goo’ – the slow processes associated with the 20-year investment cycles of an infrastructure business.

Players such as Etisalat, Mobily and Ooredoo that are taking their first steps into Telco 2.0 services, but harbouring great aspirations, have gone a step further than this and set up Central Innovation Units.   In additional to innovation ideation and evaluation, these units typically undertake piloting, investment and, in some cases, some modest product development.  This approach is a sensible ‘first step’ into innovation and echoes the earlier attempts by many multi-national European players in the early 2000’s that had central group marketing functions that undertook proposition development for several countries.  The benefit is that the company can focus most resources on growth in existing Telco 1.0 services and Telco 2.0 solutions do not become a major distraction.  The downside is that Telco 2.0 services are seen as small and distant are always far less important than voice, messaging and connectivity services or devices ranges that can make a big impact in the next 3-6 months.

Finally, the most ambitious Telco 2.0 Service Providers – Deutsche Telekom, SingTel, Telenor, Telefonica and others – have developed separate New Business Units  The Telco 2.0 New Business Unit is given end-to-end responsibility for Telco 2.0 services.  The units find, develop, launch and manage new digital services and have full P&L responsibility.

STL Partners has long been a fan of this approach.  Innovation is given room to develop and grow under the guidance of senior management.  It has a high profile within the organisation but different targets, processes, people and partnerships to the core business which, left unchecked, would intentionally or unintentionally kill the new ‘rival’ off.

Five Principles for developing a Telco 2.0 New Business Unit

  1. Full control and responsibility.  The unit must have the independence from the core business to be able to control its own destiny and not be advertently or inadvertently impeded by the core business.  Telefonica, for example, went as far as to give its unit a separate physical location in central London.
  2. Senior management support.  While the unit is largely independent, it must be part of the corporate strategy and decisions about it must be made at the highest level.  In other words, the unit must be tied to the core business right at the top of the organisation – it is not completely free and decisions must be made for the overall good of the company.  Sometimes those decisions will be to the benefit or detriment of either the core business or the new business unit.  This is inevitable and not a cause for alarm – but these decisions need to be considered carefully and rationally by the senior team.
  3. Go OTT to start with.  One of the challenges faced by senior managers is how to leverage the capabilities of the core business – the network, customer data, retail outlets, brand, etc. – in the digital services offered by the new unit.  Clearly, it makes sense to use these assets to differentiate against the OTT players.  However, STL Partners recommends not trying to do this initially as the complexity of building successful interfaces between the new unit and the core business will prove too challenging.  Instead, establish some momentum with OTT services that the new unit can develop and deliver independently, without drawing on the core business, before then adding some specific core business capabilities such as location data, customer preference data or network QoS.
  4. Don’t forget to change management incentives …There is no point in filling the new business unit with senior management and fresh talent imbued with new skills and undertaking new business processes and practices unless they are clearly incentivised to make the right decisions!  It seems an obvious point but CSPs have a long and successful infrastructure legacy which means that management incentives are typically suitable for this type of business.  Managers typically have to hit high EBITDA margins, revenue targets that equate to around 50% of the capital base being generated a year, strong on-going capital investment – things that are at odds with a product innovation business (lower EBITDA margins, much lower capital intensity).  Management incentives need to change to reflect this and the fact that they business is a start-up not a bolt-on the core business.  These incentives need to be specific and can affect those in the core business as well as new unit.For example, if collaboration between the new unit and the core business units is a key requirement for long-term success (to build Telco 2.0 services that leverage core assets), then instigate a 360º feedback programme for all managers that measures how effectively they collaborate with their counter-parties in the other business units.  Scores here could be used to determine bonuses, share options or promotion – a sure way to instigate the required behaviour!
  5. …and investor metrics.  As mentioned above, a product innovation business has a different financial model to an infrastructure business.  Because of this, a new set of investor metrics is required focusing on lower margins and capital intensity.  Furthermore, users will often be a key metric rather than subscribers.  In other words, many users will not directly generate revenue (just as they do not for Google or Facebook) but remain an important driver of third-party sponsorship and advertising revenues.  Linked to this, ARPU will become a less important metric for the new business unit because the end user will be one of several revenue sources.

Many of the leading telecoms players have, therefore, done the right thing with the development of their digital units. So why have they struggled so much with culture clashes between the core telecoms business and the new digital innovations?  The answer lies in the way the units have been set up – their scope and role, the people that reside within them, and the processes and metrics that are used to develop and deliver services. This is covered in the next section of this report.

 

  • Even the boldest players are too Telco-centric with their digital business units
  • Defining traditional and new Telco 2.0 services
  • Current digital business units cover all the new Telco 2.0 services but should they?
  • Option: Reduce the scope of the Digital Business Units
  • Telefonica’s recent closure of Telefonica Digital
  • How might Telefonica’s innovation and ‘digital services’ strategy play out?

 

  • Figure 4: Defining Telco 2.0 new services
  • Figure 5: The mixed bag of services found in current digital business units
  • Figure 6: Separate new Telco 2.0 Services from traditional telecoms ones
  • Figure 8: The organisation structure at Telefonica
  • Figure 9: Telefonica’s strategic options for implementing ‘digital services’