Video analytics is a large and growing market

Video analytics is the processing and analysis of visual data (images or videos). When artificial intelligence is used to extract information from the data, it is referred to as intelligent video analytics or computer vision, although video analytics is often still used as a shorthand.

Video analytics stands out as a huge opportunity. It has the potential to be a killer application for edge computing, due to:

  • The large and growing market – In 2021 there were an estimated one billion surveillance cameras operational around the world. With the number of cameras predicted to grow by 20% in the period 2017-2024, AI and analytics will become increasingly important to capture value from the wealth of video footage being collected each day.
  • The ability for edge computing to grow the market – Without edge computing, video analytics is hindered by challenges with data sovereignty, and the cost of sending high-bandwidth data to the cloud (a problem that is heightened as video streams increase in quality). Edge computing therefore plays a key role in enabling video analytics, including more advanced AI/ML-enabled analytics, in a cost-effective way.
  • Its relevance to almost all industries – Video analytics can address a wide variety of use cases, from understanding consumer habits in retail, to analysing how football players kick a ball. In the case of video analytics for security, it is relevant across virtually all industries – education, transport, manufacturing, the list goes on.

The market for edge-enabled video analytics will be worth $75bn by 2030

Video analytics is a huge application for private 5G and edge computing, accounting for a quarter of edge revenues in 2021 (topped only by cloud gaming). In 2021 the edge-enabled video analytics market was worth over $5 billion globally. This is predicted to grow to $75 billion by 2030 at a CAGR of 34%.

video analytics

There are many application areas for video analytics, of which three are shown in the figure above. Of the three, video ingest and analysis for security and surveillance is the biggest short-term opportunity, representing an estimated 21% of the total edge computing market in 2021. This is due to the large base of installed security cameras that already exists, to which video analytics solutions can easily be retrofitted.

However, by 2030, video analytics for production and maintenance will be a larger opportunity. This will grow throughout the decade along with the move to Industry 4.0 and increase in automation resulting in an increase in sensors and analytics. Verticals like manufacturing, oil and gas and logistics will therefore be key adopters of this use case.

For more information about the video analytics opportunity at the edge, check our report How video analytics can kickstart the edge opportunity for telcos and STL Partners – Edge computing market sizing forecast


Live events: An opportunity for telcos

For telcos, live events present specific challenges and opportunities. Providing millions of people with high quality images and audio simultaneously can soak up large amounts of bandwidth on networks, forcing telcos to invest in additional capacity. Yet, it should be feasible to make a return on that investment: live events are an enormously popular form of entertainment on which people around the world are prepared to spend vast sums of money.

New technologies can be used to enhance live events, enabling many more people to enjoy both the immediacy and the interactivity of the event, while increasing immersion. The combination of low-cost high definition cameras and microphones, high-speed connectivity and artificial intelligence are set to dramatically improve the experience of sports, concerts and talent shows.

The most obvious advance is the ability to stream very high-definition video from multiple angles, giving the viewer the opportunity to watch the action in a more personalised and immersive manner. Added to this, artificial intelligence (AI) can be used to help automate the production and editing of this footage. For example, image recognition can be used to enable football fans to track the movements of their favourite player, automatically switching between camera angles as appropriate. Similarly, image recognition solutions are increasingly being used to support referees and judges by automatically detecting infringements in real-time.

At the same time, AI can also be used to enable real-time analysis of live action, as it unfolds. In a game of football, for example, AI can be used to show how the formation of a team changes during attack and defence or the predominant style of play of individual players. That data can also be used to enable bookmakers to offer spectators more precise odds to support in-game gambling. Real-time footage, underpinned by low latency connectivity, is a key enabler of in-game betting and in-event competitions, such as quiz questions that spectators need to answer in a short window of time or head-to-head contests between viewers. In a similar vein, low latency connectivity can support in-event messaging and social media by ensuring everyone is viewing the same action at the same time.

Telcos have many of the key technological enablers required to deliver such enhancements to live entertainment. They could and should, of course, be in pole position to provide very high-speed connectivity to the event venue. They can also provide services such as digital identification/authentication (via a one-time password in a SMS message, the Mobile Connect specification or another mechanism for matching a mobile number to a specific individual) to prevent ticket fraud, authenticate access to VIP or member areas in a venue and more.

Telcos could also provide supplementary services, such as wireless connectivity (using either Wi-Fi 6 or private 5G) within the event venue and data processing/analytics at the edge of the network. Moreover, telcos can support ticketing and in-venue payments, via carrier billing or another digital payments offering.

In the professional entertainment market, the live events opportunity is a B2B2C play: Most of the services would be provided to an event organiser/broadcaster, rather than direct to consumers. However, there is a potential direct-to-consumer (B2C) opportunity too. The table below highlights B2C services for amateur events, and the enablers that telcos could leverage to support these.

Potential telco live events services for consumers

Source: STL Partners

Some telcos already sell high definition televisions and other kit, such as virtual reality headsets to consumers. Live events services such as the above would not be out of place among them.

Hundreds of millions of people around the world participate in amateur sports, drama and concert performances. These events can be of interest to hundreds of people who have friends or relatives among the participants, as well as the athletes, performers and musicians themselves. While amateurs won’t be able to afford to employ dozens of 360-degree cameras and microphones, many could deploy two high definition cameras, such as those sold by Danish start-up Veo. Its solution is comprised of a single unit housing two 4K cameras pointing in different directions. The cameras can simultaneously film both halves of a pitch or court, without the need for a camera operator. Additionally Veo uses artificial intelligence to track the ball and produce footage of the game that follows the action. The current model costs £700 in the UK and US$800 in the U.S.. The solution is currently being used by more than 6,200 clubs.

  • Veo charges a monthly subscription fee of £36 to buyers of its cameras, which gives them unlimited access to the Veo Editor, unlimited storage of recordings and the ability to download highlights. There are volume discounts, but that subscription fee represents a major financial commitment for an amateur sports team (on top of the up-front price of the camera), suggesting the Veo is primarily aimed at serious clubs (youth academies and adults playing in competitive leagues).
  • A team can also pay an additional £10 a month for Veo Analytics service, which uses AI to create heat-maps and other stats about the game.
  • Live streaming functionality carries a £13 a month charge, and clubs will need to provide their own SIM card and data plans, if Wi-Fi coverage isn’t good enough.

If live streaming of high definition videos of amateur events becomes commonplace, it could generate a significant volume of traffic for mobile operators. However, this is not expected to be a huge opportunity in the near term, as smaller amateur events are unlikely to be streamed because there won’t be sufficient interest to justify the additional hassle and expense. In cases where an amateur event is live streamed, there may also be demand for instant replays, statistics and highlights, all of which could be generated by AI. Over time, Veo and similar systems may even be able to provide a referee with an instant replay on their smartphone so they can check a decision.

As with professional event organisers, amateur clubs and societies may wish to run competitions around events and facilitate live chat among their distributed fan base.

BT is an example of an operator that is testing the live events market. In April 2021, BT announced that it had connected 70 grassroots football clubs across the UK with broadband/Wi-Fi, as part of a new initiative. The telco said it planned to connect 100 clubs by the end of the summer. The connected clubs are reported to be using the Wi-Fi for live streaming of matches, setting up contactless payments and guest Wi-Fi. As things stand, BT is providing the service on a pro bono basis: the telco is the lead partner with each of the four home nation football associations – The FA, Scottish FA, Irish FA and FA of Wales.

For more detail please see our report Telco plays in live entertainment.

Edge computing forecast 2020-2030: 20 use cases

STL Partners has developed extensive expertise in edge computing, working with telcos and tech companies to identify their strategies and select suitable use cases.

Based on our industry knowledge, we have developed an Edge computing market forecast model to estimate the size of the edge computing market over the next 10 years (2020-2030) in terms of revenue, broken down for the entire value chain: what we call total edge computing addressable revenue. Our analysis provides country-level revenue forecasts for 186 countries, 7 regions and the world. STL Partners analysed the demand for edge computing from 20 main use cases and the projected spend over the next 10 years.

These 20 use cases are listed below with In-hospital patient monitoring displayed for illustrative purposes. Our assumptions for high-income countries show how application processing will migrate from its current locations (mainly on-device and cloud) to edge infrastructure (on-prem and network edge) during the forecast period.

The use cases that represent the biggest opportunities in 2030 are edge CDN, cloud gaming, connected car driver assistance, video ingest & analysis for production and maintenance, and edge application delivery network (ADN).

You can access STL Partner’s country-level revenue forecast and 20 uses cases in our December 2021 report Edge computing market sizing forecast

  1. Advanced predictive maintenance
  2. AR/VR for training
  3. Automated guided vehicles
  4. Cloud gaming
  5. Connected car driver assistance
  6. Contextual DOOH advertising
  7. Drone inspection and navigation
  8. Edge ADN (Application Delivery Network) & web content optimisation
  9. Edge CDN
  10. Flow analysis – video ingest and analytics
  11. In-hospital patient monitoring……..(see use case graphic below)
  12. Live video/broadcast
  13. MR for working safety & productivity
  14. Production & maintenance – video ingest and analytics
  15. Real-time collaboration in design and engineering
  16. Real-time precision monitoring and control
  17. Remote monitoring and care
  18. Security – video ingest and analytics
  19. Smart city traffic management
  20. Temporary compute for events

Edge computing forecast model and use case

Source: STL Partners

Additional resources

STL Partner’s Edge Insights Service offers extensive reports and articles as well as our Edge Computing Use Case Directory and our Edge Computing Ecosystem Tool

 

What does the semiconductor shortage mean for telecoms?

Telecoms semiconductor demand is beginning to outstrip supply

Digital acceleration since COVID-19 has brought about a surge in demand for semiconductors across most sectors including telecoms, which is in the process of rolling out 5G, deploying cloud network functionality, cloud services and by extension, connecting volumes of IoT devices that previously did not have connectivity or require sophisticated integrated circuits (IC) i.e. chips.

This boom in consumer and business demand, combined with COVID-19, geopolitical tensions, and other disruptions (furloughing, weather, accidents) to the supply chain have all contributed to shortages in a sector where the supplier/vendor ecosystem is highly interdependent. Semiconductor chip production requires large investments in R&D and building fabrication plants, specialist knowledge and intellectual property, as well as specialist manufacturing equipment and raw materials.

While shortages are said to be limited to certain categories of semiconductor, it is estimated that the situation will continue in the production chain into 2022 and 2023 until foundry capacity, substrates and component demand softens out.

The ongoing semiconductor supply crunch has the potential to disrupt inventories for production of smartphones, routers and IoT devices, which in turn could impact device sales and service revenues for telecoms operators.

So far, media reports have focused mainly on the current semiconductor shortage in the auto industry where car manufacturers halted production for extended periods over 2021 due to a lack of chip component supply. In May, it was estimated the auto industry would lose $110bn in sales due to production being hampered by shortages.

This has been partly attributed to semiconductor producers focusing on higher margin chips to meet a more stable and consistent customers such as the electronics sector and de-prioritising less stable and more inconsistent customers such as the auto sector, which initially pulled orders on the outbreak of COVID-19. However, much of the supply constraint is more pronounced on specific manufacturing nodes where there is demand from multiple sectors such as telecoms, electronics and autos, with further potential shortages across all these sectors should demand continue to exceed supply.

TrendForce, a semiconductor research specialist, attributed record Q1 2021 foundry revenues to increasing wafer prices and to foundries adjusting their product mixes to ensure profitability – essentially focusing on more profitable / premium semiconductors and meeting the semiconductor needs of more reliable and profitable sector customers.

The graphic below shows how semiconductor components required for smartphones is roughly even across chip categories and the telecom sector is just as vulnerable to shortages in discrete, analog and other (optoelectronics) DAO semiconductors as the auto industry.

Semiconductor sales by category across sectors

Semiconductor-sales-category-SIA

Source: BCG & Semiconductor Industry Association report: Strengthening the Global Semiconductor Supply Chain in an Uncertain Era – April 2021

Stockpiling is amplifying the supply shortage

Apple is an example of how demand for consumer products is impacting component supplies. The company is one of the pandemic winners in terms of sales revenue and has experienced a boom in demand for its Mac, iPad and 5G iPhone, which launched in late 2020. The company’s Q1 2021 revenue increased 54% to $89.6bn and its iPhone sales increased 66% to $47.9bn – effectively 54% of all revenues in Q1 2021. Part of this success has been achieved through its ability to avoid shortages by stockpiling critical components.

Up until now, many sectors including telecoms have been able to shelter themselves from shortages by advance ordering and stockpiling. Susquehanna Financial Group’s ongoing trend research on the lead time between ordering a chip and taking delivery illustrates the extent of the supply situation, where in July 2021 the lead time increased to 20.2 weeks up from 17 weeks in April.

  • Susquehanna points in particular to the increase by four weeks in April (to 23.7 weeks) for power management integrated circuits (PMICs) which regulate power to devices and various telecoms equipment.
  • At Apple’s Q3 2021 results, Tim Cook said he expected supply constraints for both the iPhone and iPad in the quarter for September to be greater than the previous (June) quarter due to constraints on silicon with legacy nodes, although there was no issue with supply from the latest nodes.

Stockpiling is contributing to lengthening chip delivery schedules

Source: Bloomberg, Susquehanna Financial Group data

Both Susquehanna and Bloomberg analysis suggest the increasing lead time gap is an indicator of buyers committing to future supply orders in order to avoid shortages down the line, but also evidence of stockpiling and over ordering which further exacerbates the situation.

And the practice continues. with the CFO of semiconductor producer Taiwan Semiconductor Manufacturing Company (TSMC) in July (Q2 2021) noting that its customers and the supply chain in general will “gradually prepare higher levels of inventory in the second half of the year [2021] as compared to the historical seasonal level given the industry’s continued need to ensure supply security following supply chain disruptions due to COVID-19 and uncertainties brought about by geopolitical tensions”.

Future outlook: Can the semiconductor industry meet growing telecoms demand?

The situation has the potential to impact the telecommunications industry where there are shortages of semiconductors in areas such as power management, memory, and screen display for telecommunications equipment. In April 2021, Bloomberg reported broadband providers (ISPs) were facing delays more than a year on internet router orders with carriers been quoted twice the normal order lead time of up to 60 weeks. The potential lack of supply of broadband routers could for example impact ISP broadband subscription sales/upgrades.

KPMG’s Q4 2020 industry survey of 156 semiconductor senior executives highlighted the categories where chips would be in most demand in 2021, with the top three being:

  1. Sensors/MEMS (microelectromechanical systems) – where IoT applications and automotive are seen as the top growth categories.

Consumer and industrial IoT remain ongoing growth drivers for semiconductors with low power IoT devices (wearables, hearables, health monitoring) continuing to grow in demand. Smart homes also drive growth in connectivity and sensor categories as demand rises for smart speakers, cameras and presence monitoring applications such as heat and motion detection, smart energy consumption and room occupancy. eSIM penetration is also expected to be heavily driven by the automotive sector (see STL Report eSIM: How to break through the barriers), while security is also expected to rise in prominence across all IoT devices.

Advanced vision sensing will be increasingly required for facial recognition, computational photography, long range scanning, augmented reality and robotics. In July 2021, Semiconductor Engineering highlighted a shortage in CMOS image sensors, which enable camera functions for cars, smartphones, security cameras, and industrial/medical systems, assisting also in computational photography and augmented reality applications.

Application areas of semiconductor demand

KPMG-Semiconductor-outlook-2021

Source: KPMG report; Surviving the silicon storm 2021

2.  Analog/radio frequency (RF) / mixed signal (SoC) – Semiconductor Engineering highlighted shortages in areas such power management integrated chips (PMIC) and display driver integrated chips (DDIC) in July 2021. PMICs manage flow and direction of power in products such as smartphones as well as wearables and hearables. PMIC are also critical for PCs and servers.

In terms of power demands, the shift to 5G brings with it large increases in data and computing power, and with it an increase (densification) in base station antenna across multiple locations requiring connectivity, power and sensors.

5G (and 4G) smartphone penetration will also continue to drive demand for semiconductors well into 2022.  While smartphone sales contracted in 2020 during lockdown, IDC reports a rebound in shipment volumes up 13.2% in Q2 2021 (y-o-y) as consumers transition to the latest 5G handsets. The PC market also remains strong despite the expectation that demand will ease as people return to work.

Susquehanna’s May 2021 research highlighted power management lead times of 23.7 weeks in April, an increase of four weeks on the previous month, however in August research indicated a reduction in lead times for power management chips. DDIC manage power to flat-panel displays such as liquid-crystal displays (LCDs) and organic light-emitting diodes (OLEDs). The shortages are impacting automotive, PCs, smartphones, TVs and industrial equipment. Flat-panel displays are also in increasing demand in the automotive sector.

A recent Financial Times highlighted how the constraints in OLED supply impact smartphone profit margins. The EU’s drive for a common charging port such as USB-C is also expected to drive demand for USB controllers for suppliers such as Infineon.

Power and sensor semiconductors are in high demand for 5G networks

Semiconductor-5Gtransition

Source: Infineon Q2 2021 

3.  Microprocessors (including GPU/MCU/MPU) to support ongoing cloud (data centre) and virtualisation applications.

Cloud computing (server) requirements have increased further as people have shifted to fully or partially working from home. Hyperscalers such as Amazon, Microsoft and Google continue to make considerable investments in cloud infrastructure and platforms that also aim to support network operators. Semiconductor Engineering (July 2021) and Susquehanna Financial Group research highlighted shortages in microcontroller MCUs which integrate CPU and memory on the same chip and are used across cars, communications equipment, appliances and industrial equipment. Semiconductor Engineering also noted comments from the CEO of Tokyo Electron that DRAM (flash short term memory) supply was also “tight due to higher 5G mobile, PC, and data center demand”. Smartphones such as the 5G iPhone 12 for example come with 4GB DRAM.

Semiconductor market risks to watch

Semiconductor producers include fabless companies (such as Qualcomm, Broadcom, NVIDIA, AMD) which mainly innovate and design semiconductor chips and outsource manufacturing production to foundries such as TSMC, Samsung and SMIC.

Integrated device manufacturers (IDMs) such as Intel, Infineon and Samsung design and manufacture their own chips. Samsung is an IDM but also operates a foundry business. Although Intel is now entering the foundry business with investments announced in the US.

Some semiconductor companies are also fab-lite producing some but not all their own semiconductors and relying on foundries for production. The final production stage of assembly and test can be carried out by the foundry or by outsourced semiconductor assembly and test (OSAT) vendors.

In the foundry market, TSMC holds 54% market share and reported revenues of $12.9bn in Q1 2021 according to TrendForce (up 2% quarter-on-quarter).

  • Of TSMC 2020 revenues, only 3% came from automotive chips, while 48% come from smartphones, 8% from IoT and 33% from high performance computing (HPC) chips (CPUs GPUs, NPUs, AI accelerators for PCs, tablets, game consoles, servers, and base stations)

Commenting on the shortage situation in its Q2 2021 analyst call, TSMC acknowledged the challenges caused by a structural increase long-term market demand as well as the short-term imbalances in the supply chain caused by COVID and geopolitical tensions. While the foundry does rule out an inventory correction in future, the CEO confirmed that he expected capacity to remain tight throughout this year and extend at least into 2022. TSMC believes even if an inventory correction were to occur the strength in demand for 5G and HPC applications means the downturn will be less volatile.

TSMC 2020 revenue by platform

TSMC-FY2020-revenue
Source: TSMC Q42020 Earnings Call

Market concentration but global interdependencies

The semiconductor production and business model varies across semiconductor domains and over the last 20-30 years, specific semiconductor markets have become concentrated and specialised with vendors across the entire value chain possessing deep R&D and process knowledge in specific product market areas. A recent report from Stiftung Neue Verantwortung (SNV) highlighted just three players – Samsung, SK Hynix and Micron – holding 95% market share of DRAM (flash short term memory) in 2019 compared to eight players in 2005. However, because analog integrated circuits (ICs) tend to depend on domain expertise and are designed for specific tasks in specific market sectors, the analog chip market is much less concentrated than the memory chip and processor market, where 10 prominent analog producers held 62% market share in 2019.

While Asia is a dominant region for manufacturing, when taking the entire semiconductor value chain into perspective, SNV highlight interdependencies do exist between different geographic regions (across design and IP, manufacturing equipment for fabrication, wafers, chemicals and assembly). According to SNV “today’s ICT systems depend on DRAM from South Korea, NAND from Japan, analog chips from the United States and IP from Europe. No country currently has the entire production stack in its own territory. Instead, the semiconductor value chain relies on collaboration and trade between the United States, Taiwan, South Korea, Japan, Europe and China.”

However, the combination of the current shortage with geopolitical tensions has resulted in governments stepping up efforts to ensure security of supply such as CHIPS for America Act and actions in Europe, China, India, Japan and South Korea.

In June the semiconductor trade body SEMI reported construction for 19 new high-volume fabs would begin by the end of 2021 and chip manufacturers would break ground on another 10 by the end of 2022. The equipment spend on the 29 fabs is set to exceed $149bn.

  • Adding semiconductor capacity requires significant upfront costs. According to SNV, a modern fab costs in excess of $15bn while the business model and profit margin varies across semiconductors.
  • TSMC is investing $100bn over three years in new production including a facility in the US while South Korea’s Samsung Electronics and SK Hynix is investing $442bn in R&D and production between now and 2030 as part of a national government effort in this area.

Highlighting the value of free trade in the sector – semiconductors are the world’s fourth most traded product – the Semiconductor Industry Association estimate the cost of self-sufficiency where each region meets its own needs would require at least $1tr in investment and a rise in semiconductor prices of between 35% and 65% for end users/consumers.

Semiconductor supply chain based on geographic specialisation

Semiconductor-supply-chain-geographic-specialisation

Geopolitics impact on supply chain

The US-China trade war has also impacted semiconductor supply. In September 2020 the US commerce department mandated that US suppliers of selected equipment to the Chinese chip maker Semiconductor Manufacturing International Corporation (SMIC) apply for export licenses following the department’s determination that the equipment could be used for military purposes. In December 2020, SMIC was one of 70+ companies added to an Entity list denying it licensed access to US technology, in effect, preventing SMIC from producing semiconductors at advanced technology levels 10 nanometers or below. (SMIC is the largest Chinese semiconductor manufacturer in China and the fifth largest in the world holding 4% of the worldwide foundry market share in 2020 according to TrendForce.)

Companies relying on Chinese semiconductor suppliers such as SMIC were required to find new (foundry) suppliers such as TSMC that produce similar chips. Suppliers to the automotive sector must ensure their components meet regulatory safety standards which further narrows sources of supply for automakers.

Supply chain issues

Global shipping continues to be an issue across many sectors of the economy as shortage fears lead to over ordering of supplies across many sectors, which in turn contributes to container shortages (as containers are used for temporary storage). This combined with staff furloughing has created bottlenecks across global supply chains.

The fear of shortages itself became a self-fulfilling prophecy as companies fearing shortages (due to high demand, Brexit, upcoming US trade embargos) over ordered and stockpiled inventory to ensure supplies.

  • Even Chinese companies such as Huawei, SMIC built up stockpiles in anticipation of facing trade embargos. In Q1 2021 SMIC revenue increased by 12% quarter-on-quarter to $1.1bn. TrendForce noted in May the company continued to operate normally despite being placed on the entity list because it built up a high inventory level of input production materials and equipment parts before being designated by the US.
  • Nevertheless, in September 2021 Huawei releases its latest P50 smartphone with no 5G chipset, resorting to 4G and Wi-Fi 6 connectivity instead due to the ongoing sanctions and lack of 5G chipsets. The company was the first to launch a 5G handset in 2019.

Speaking at JP Morgan Conference in May 2021, John Stankey of AT&T commented “if there’s anything that I kind of sit back in and worry about a little bit, I’ve mentioned it before, supply chains are stressed in a way I’ve never ever seen. And it doesn’t matter whether you need pool equipment for your home, broadband routers for your customers or connectors, everything seems to be in short supply and kind of hand to mouth. And that worries me at times because as we’re stepping up investment and we’re doing things like going to a new air interface on 5G, just like a particular chip that needs to be in a dashboard of a car needs to show up on time, we need the same thing. And I think it maybe still a little bit rocky on parts and places.”

Stankey’s remarks highlight the supply chain constraints faced by one of the largest telcos in the world with significant buying power compared to smaller telecom players, which may face greater delays or be less able to absorb rising costs.

What has Microsoft done in telecoms?

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

The graphic below illustrates some of the key milestones in Microsoft’s partnerships and acquisitions from 2018 to 2020 that contributed to the development of a multi-faceted offer to telcos on Microsoft’s part, involving services and partnership options ranging from cloud delivery of telco network functions to supporting the delivery, and even co-developing, compute-driven services from the telco edge.

Microsoft’s move on telecoms microsoft telecoms

These milestones are discussed analysed in greater depth in our report Microsoft, Affirmed and Metaswitch: What does it mean for telecoms?

See our other in-depth research on telco edge computing and hyperscalers:

The adoption of private networks and 5G in airports

Much of the analysis on the private networks market assumes that a network will service a relatively homogeneous set of use cases. However, in practice, many deployments will be in locations that serve multiple types of stakeholders, all with very different requirements in terms of security, reliability, latency, etc.

We explore a few case studies of private networks deployments in airports because they are among the most complex campus environments, with different types of user groups and operational zones. The network (or perhaps several separate networks) serving such an environment will have to accommodate the varying and, sometimes competing, critical requirements across all these end users efficiently and cost effectively.

This level of complexity might make it harder for traditional players such as public network operators and vendors without vertical knowledge to move quickly into these specialised areas. For example, Air France, which collaborated with Ericsson and other airport stakeholders to deploy private networks in Paris-area airports, has highlighted this challenge from a customer perspective. In that example, the airport stakeholders had to provide the necessary vertical-specific expertise, realising that telco vendors, while being experts in deploying public networks, lacked the full vertical knowledge to lead the project single-handedly.

Given the aviation industry’s current economic woes, it would be unsurprising if some private network owners – perhaps including airlines like Lufthansa and Air France – attempt to monetise their early experience by offering consulting or deployment services to other airports.

Examples of airport private network projectsprivate networks airports

Our report Airports: The roles of 5G & private networks is a deep dive into the role of 5G at airports, and the scope for specialised deployments and solutions. It also highlights potential new classes of partnerships – and the need to understand cellular in a wider context of wireless, spectrum management and applications.

See our in-depth case studies on private cellular networks

4 digital healthcare application focus areas for telcos

In April 2021, STL developed a new sizing model for 217 digital healthcare markets that reflects the recent impact of the COVID pandemic on the health sector, with the goal of identifying the new opportunities and risks presented to operators and others attempting or considering investment in the market.

Our model focuses specifically on four application areas within the digital healthcare space that we believe are most relevant for telecoms operators:

1. Remote monitoring;
2. Virtual care and telehealth;
3. Diagnostics and triage, and;
4. Population level data and analytics.

Within these four application areas, we then mapped out and listed 12 detailed use cases that we believe will have the most significant impact on healthcare delivery and estimated the pre- vs post-COVID penetration of digital health solutions and their impact on patient use of healthcare resources.

In the UK, diagnostics and triage account for by far the largest share of the value in terms of potential cost savings through digital health care. This is because a large proportion of patients attending A&E (accident & emergency) could be treated more effectively and cost efficiently through other healthcare services.

COVID impact on use of healthcare services in triage and diagnostics (UK analysis)

COVID-advanced-healthcare-model-stl

Source: STL Partners

Our forecasts for the potential impact of diagnostics and triage on healthcare costs in the UK are based on a range of supporting research from local digital health players and the NHS. For example, DoctorLink, which provides online and urgent care triage solutions to the NHS, estimates that approximately 4mn out of 25mn individuals who attended A&E in 2019/2020 could have been avoided.

This report and the accompanying database breaks application areas out into seven regions globally, and to country level data for Canada, China, India, UK and the US. Get in touch with the author to see country level data for other markets: amy.cameron@stlpartners.com

Further Research

For the last five years STL Partners has researched the opportunity for telecoms operators in healthcare, through case studies on leading operators such as TELUS in Canada and Telstra in Australia, and analysis of the digital health market landscape to understand where operators can play across the value chain and in specific application areas. 

data monetisation in telecoms: 10 use cases

value of telco data products by verticals

Big data monetisation in telecoms has been an area of activity for the last few years. However, telcos’ interest levels have varied over time due to the complexity of delivering and selling such a diverse range of products, as well as highly variable revenue opportunities depending on the vertical. Telcos’ appetite to pursue data monetisation strategies has also been heavily impacted by the fortunes of other new telco products, in particular IoT, owing to the link between many telco data and analytics products and IoT solutions. As illustrated in the graphic above, in many sectors IoT data monetisation is the main strategy, while in others telecoms operators can address opportunitinities independently of IoT services.

We explore the main data monetisation models and use cases across 10 verticals. We break these up into ones where data monetisation strategies are strongly linked to IoT, and those that are more independent.

IoT data monetisation opportunities

1. Agriculture

Most activity in the agriculture sector is seen from large multi-national telcos with mature IoT propositions. Not all the biggest telcos report pursuing such projects, though, with case studies most likely from those with a strong presence in developing markets, or with large multinational enterprise customers present in developing markets.

Most opportunities are related to IoT and sensors and include a mix of connectivity services with storage and analytics of the payload data. For more complex and specialist the use cases, telcos are much more likely to play a connectivity only role. For example, in crop management, NTT Docomo offers hardware and analytics, but many other telcos instead choose to work with specialist platform vendors.

2. Manufacturing

Much of the discussion about future telco activity in this vertical is linked to the provision of 5G services to allow Industry 4.0 capabilities1 . The most visible telco manufacturing solutions are often linked to historic associations with a particular industry; for example, Vodafone and T-Systems solutions within the automotive industry. Barriers for telcos to overcome include rolling out 5G capabilities fast enough to satisfy manufacturers and enable the swap out of LTE, creation of flexibility in their offerings and ease of access through on demand provisioning etc.

The table suggests that there is very little financial value for data/analytics in the vertical, but this is linked to the prevalence of IoT use cases where data analytics will not be sold as a separate service. It is likely that telcos which choose to focus aggressively on 5G and edge computing for manufacturing are most likely to take advantage of the data/analytics opportunities – predictive maintenance and the provision of analytics for autonomous vehicles on the factory floor look most promising.

Some of the solutions where telcos are most active in manufacturing, such as asset management, supply chain analytics and transportation/logistics solutions, are also provided to other verticals. These are therefore captured in the section considering horizontal solutions for all verticals.

3. Retail

Historically, this was one of the first verticals targeted by telcos with customer movement inside products. Developing the products was often hampered by the difficulties of finding the right person in a retail organisation and the likelihood of non-standard requirements from every retail customer. However, among larger telcos with ambitions in data/analytics there is now a reasonably mature retail product set.

Ongoing opportunities divide into three categories:

  • Customer movement insight products: These tend to be the most feasible project as they are more mature and use telco data, for example for store placement calculations.
  • Customer insight products: Related projects use customer insight (demographic, sociographic) rather than geolocation data. For example, the open data platform described above could be accessed by retailers, hoteliers or other types of customer in this vertical.
  • IoT/small cell opportunities: There are additional data/analytics opportunities which use small cell, video and CCTV data to track customers in small spaces or within a shopping mall – however, these are considered of lower feasibility because they require rollouts of these capabilities and potentially IoT related products such as sensors. These opportunities subdivide between those that require specialist analytics and those that require additional AI capabilities such as facial recognition. All of these use cases require a sustained focus on the retail sector and its needs, plus enough rollouts of small cells, wifi, beacons etc to make a business case for adding data/analytics on top.

4. Transportation

Like other verticals, most of the most accessible financial opportunity is from customer movement insight provided to passenger transport companies such as trains and buses. This is a reasonably mature use case for telcos. Much of the rest of the opportunity is related to mature fleet management markets where there are limited opportunities for adding data/analytics. Lastly the connected vehicle market provides various potentially feasible opportunities to add data/analytics to IoT deployments.

Independent data monetisation in telecoms

5. Finance

The feasibility of providing services for retail and investment banks and other companies within the financial services sector divides broadly into three categories:

  • Services live today: anecdotally, location-based card authentication (i.e. alerting a bank when a customer travels to a different country, which improves fraud management) is one of the highest revenue services for telcos today. There are additional services alerting retail banks to potentially fraudulent behaviours, but these seem less popular. Services using customer movement insight such as identification of where to open a bank branch are also popular, although the financial benefit is not seen in the table below as it is categorised with other similar services for other high street retailers.
  • Possible services not yet on the market: customer movement insight could also be used for optimising the location of bank ATMs and telco data could be added to specialist analytics for operating them, however example services have not yet been seen from telcos, so it is possible that there is limited demand.
  • Specialist services: data and analytics services on high speed, complex customer and market data which offer less attractive opportunities for telco services, but is not completely infeasible. For example, there are cases of telcos adding customer movement insight data to improve bank trading decisions and risk management. There are also examples of telcos, such as CenturyLink, who have purchased analytics companies because they host financial data, although it is not clear how much financial return this has delivered for them.

6. Insurance

Insurers use external data for risk management, actuarial calculation and underwriting decisions. There are compelling reasons for insurers to include new data sources, however, there are regulatory restrictions (as companies need data on individuals) and it needs to be verifiable and up to date. There has been very little telco activity in this field – except for the odd anecdotal data point that they may be working with specialist actuarial consultancies. The financial value ascribed to the provision of data is therefore mostly for niche products that do not need PII, while likelihood scores are low as the limited opportunity means a reduced sales focus for operators.

One area of insurance where there has been strong telco involvement is in telematics products for insurers, including usage-based insurance. Analytics create driver scores for pricing and risk management purposes. Tier 1 telcos including Verizon, Telefónica, Telstra and Orange have data monetisation products in this area – some create the analytics themselves while others partner.

7. Healthcare

Building new revenues in the healthcare vertical requires telcos to have a long-term strategy and a real understanding of the sector. From a data and analytics perspective, nearly all telco activities include the transport and storage of data. However, they also then require a mix of specific platforms, applications and smart devices dependent on the use case, which potentially offer the opportunity for addition of A3 (automation, analytics and AI). As the market matures, different strategies are seen towards investment (build or buy) up the value chain which allow telcos to develop A3 capabilities.

The opportunities divide into various categories:

  • Telemedicine use cases provide smart devices which generate payload data. The data requires transportation and storage, also providing opportunities for development of analytics to generate alerts or provide historical trends.
  • The management of electronic health records, medical images, electronic prescriptions and insurance claims. These require data transport, storage and then specific platforms for exchanging information between different parties.
  • Solutions for the pharmaceutical and life science industries including collaboration platforms for clinical trials.

 

8. Real estate and construction

This vertical offers a number of opportunities for customer movement insight products. Anecdotally, deal sizes are smaller than in, say, retail, although location mapping is useful for a variety of purposes. Use cases require a good deal of external data and open data from government platforms to be successful.

Potential opportunities include:

  • Use of customer movement insight to understand demographics, behaviours and requirements of a local community to improve development and investment decisions for both retail and commercial real estate companies
  • Use of the data for pricing, marketing and sales decisions within estate agents and brokers
  • Use of indoor data from small cell deployments within shopping malls to understand customer movement in order to position advertising, adapt opening hours according to foot traffic and change layouts to drive traffic to, say, food courts.

9. Telecom, media and technology

Provision of insight to entertainment/sporting venues is a relatively common use case today that uses customer movement insight and sensor data. There is also opportunity for analytics such as customer segmentation and behaviour. Projects telcos have reported participating in tend to include a significant consulting component, so this is best suited to operators with a consultancy team.

Other opportunities around content consumption patterns are more difficult for telcos. Telcos may well have insight from their set-top boxes and other platforms that will be of interest to content providers, but it is a mature market which is used to ingesting different types of data and it does not seem a popular use case.

10. Utilities

This market is split between products for consumers which seem to be increasingly hard for telcos to deliver, A review of telco websites suggests that, except for a couple of exceptions, most have retreated away from a variety of smart home products towards a focus on security. (STL has previously argued that the smart home in itself is not a viable product, but rather that telcos should focus on solving specific issues for households, such as security, entertainment, or energy efficiency. See STL report Can telcos create a compelling smart home?)

Products for the utilities themselves are mature and larger telcos have been successful. Telcos offer a range of monitoring and management capabilities for the grid and smart meters, with additional products including security, communication networking solutions, drone management and fleet management. There are three main categories of products in which customer movement insight data could be included alongside analytical solution using IoT payload data:

  • Grid distribution, monitoring and control: the largest telcos offer descriptive and diagnostic analytics on data about electricity, water and gas networks. 5G will offer new opportunities for real-time prescriptive activity using digital twins. Meanwhile, shifting the energy market from fossil fuels to renewables will require matching demand to supply (when the sun shines and the wind blows), as opposed to the current environment of matching supply to demand whenever it occurs, which will in turn require very advanced analytics and automation across all levels of the energy market.
  • Smart metering control and management: currently a mature market, with opportunities to add prescriptive analytics that enable better management of problems. This area will also evolve significantly over the coming decades towards smart “just in time” energy usage in homes and businesses.
  • Site and network planning: Opportunities for customer movement insight data to be added to give information about the population to enable new installations (pylons, sub-stations, water facilities, green-energy installations etc).

For more information, check our report Telco data monetisation: What’s it worth?

 

Digital health is among telcos’ top investment priorities in 2021

STL Partners believes that healthcare is a vertical that is well suited to telecoms operators’ strategic scope:

  • Healthcare is a consistently growing need in every country in the world
  • It is a big sector that can truly move the needle on telcos’ revenues, accounting for nearly 10% of GDP globally in 2018, up from 8.6% of GDP in 2000 according to WHO data
  • It operates within national economies of scale (even if the technology is global, implementation of that technology requires local knowledge and relationships)
  • The sector has historically been slower than others in its adoption of new technologies, partly due to quality and regulatory demands, factors that telcos are used to dealing with
  • Improving healthcare outcomes is meaningful work that all employees and stakeholders can relate to.

Many telcos also believe that healthcare is a vertical with significant opportunity, as demonstrated by operators’ such as TELUS and Telstra’s big investments into building health IT businesses, and smaller but ongoing efforts from many others. See STL Partners’ report How to crack the healthcare opportunity for profiles of nine telecoms operators’ strategies in the healthcare vertical.

Our research into the telecoms industry’s investment priorities in 2021 shows that the accelerated uptake of digital health solutions throughout the COVID pandemic has only shifted health further up the priority list for operators.

See our other in-depth research on digital healthcare:

Telco investment priorities: Healthcare and Government in top spots

accelerated opportunities

STL Partners survey on telcos’ investment priorities for 2021 reveals that, among Enterprise verticals, Healthcare and Government are the top-rated sectors seeing the biggest acceleration in investment priority.  Healthcare is the most accelerated opportunity.

Healthcare’s top spot seems predictable given that the world is in the midst of a pandemic. However there are challenges to success in this vertical. Indeed, it is some of the things that make Healthcare difficult that make it attractive for telcos compared to other players: it’s national boundaries, regulation, and need for strong relationships with multiple stakeholders – all of which telcos are used to dealing with. STL Partners believes that telco success in this vertical is possible with sufficient commitment.

The inclusion of Government as a vertical on the list of accelerated opportunities shows that other large institutions offer opportunities too, as do Transport and Manufacturing. The strength of appeal of the Government and Transport and manufacturing sectors is interesting as they relate to STL Partners’ Coordination Age vision of the economy’s needs to manage resources better, and to modelling we have undertaken on 5G forecasts by sector.

It’s interesting that Agriculture and Retail Sectors scored less well. Retail presumably because of the economic damage of the pandemic, while Agriculture customers tend to be widely distributed and the opportunities envisages often involve a large number of low cost / low value solutions in challenging environments.

These findings, and others, have formed the basis of our three-part ‘State of the Industry’ webinar series (9 to 11 March). All three installments will be available to watch on demand following the event. There is still time to register for the final installment, ‘5G, Cloud and Edge Ecosystems ’, which is tomorrow (11 March) at 10:00 GMT.

The adoption of eSIMs in IoT scenarios

For the next three years, the eSIM adoption will be shaped by the following factors.

  • A decisive rise of the use of eSIMs in smartphones will balance the attention on eSIM between consumer segments and the enterprise IoT segment.
  • In the enterprise IoT segment, cars will remain the key adopter of eSIMs.
  • The key driver of eSIMs outside of connected cars will be in commercial vehicle tracking and asset monitoring.
  • Smart meters will not grow rapidly due to regulation, fragmentation and long lifecycles and deployment times for technology in this sector. It will remain an important segment, but will not boost the adoption of IoT eSIM. Any acceleration will be driven by the less fragmented smart energy and gas market, while the smart water metering segment will be much more difficult because of market fragmentation and regulation.
  • eSIM in the IoT context will largely remain a matter of adoption for large enterprises, i.e. organisations with more than 250 employees and, in many cases, with international operations.

Based on those assumptions, the chart shows STL Partners’ expected breakdown of the eSIM market by segment in 2023.

We expect the eSIM market to grow rapidly between 2020 and 2023, passing from 195.5 million eSIMs in 2020 to 364 million eSIMs installed in 2023, with eSIM for consumers (smartphone, tablets, laptops, consumer wearables) increasing from a 26% market share in 2020 up to 41% by 2023. Aside from uptake in the consumer segment, we do not foresee a dramatic change in pace of adoption of eSIM in enterprise IoT (cars, smart meters, other IoT devices).

See our in-depth research on eSIM:

The telco health opportunity: Now or never

We know from looking at examples like TELUS, Telstra, Orange, KPN, Telia, etc. that building a new business in the healthcare vertical is not a quick win for telcos.

It requires significant time and effort to understand where, as a telco, you can bring the best value in your local healthcare market. You have to build these services and capabilities through internal development, acquisitions, and trial and error with customers. Only through this experience can telcos really build up a deep understanding of healthcare organisations’, doctors’, clinicians’ and patients’ pain points. Once you are confident that you understand what customers need, you still need to recruit and train a sales team that can clearly articulate how your solutions solve those problems.

Taking a “wait and see” approach to developing a digital health business, perhaps launching a couple of trials or PoCs and seeing if they deliver value, or investing in a digital health start-up or two, may have been a viable approach before the COVID pandemic hit, but this is no longer the case.

Cost of delivering core healthcare services in the UK across key metrics, comparing the pre-COVID base case vs. post-COVID reality*

UK high level post-covid digital health forecast

*key metrics include ER visits, GP appointments, outpatient appointments, etc.. Source: NHS statisctics, STL Partners analysis

The graph above compares a pre-COVID base case uptake of digital health and the resulting cost savings for the UK healthcare sector against the accelerated uptake in a post-COVID world, which clearly shows significant impact in 2020/2021 as healthcare systems and patients implement social distancing measures. Following the immediate COVID impact, we expect this market to reap the rewards of a step change during COVID and begin to mature rapidly from 2022-2023. Alongside the exponential increase in usage of digital health applications in 2020 – spurred in many countries by changing regulations around usage and reimbursement for digital health services – private investment into digital health companies also skyrocketed last year. Competition is heating up.

Cost savings by application area, as a percentage of total healthcare spend (UK)

UK post-covid digital health cost savings by app area

Source: NHS statistics, STL Partners analysis

We are still convinced this is a good market for operators to bring value to: healthcare is an everlasting need, it operates within national economies of scale (even if the technology is global, implementation of that tech requires local knowledge and relationships), it is a big sector that can truly move the needle on revenues, and improving healthcare outcomes is meaningful work that all employees and customers can relate to. But the window is closing. It will still take an operator several years to develop a strong digital health proposition, that is credible with healthcare professionals, and drives revenue growth. So if telcos do want to capture a share of our forecasted 2.6% total cost savings for the healthcare market, the time to commit is now. (Note: UK data is indicative of global forecasts included in forthcoming research.)

See our previous webinars and research on telcos in health:

Telco data monetisation: COVID-19 insight services

A key area of interest for telecoms operators seeking to build new businesses from their core assets is data analytics, aggregating their rich customer insights to bring value to customers in advertising, government, and other industry verticals.

Singtel’s DataSpark has had some success in telco data monetisation with propositions for customer groups such as:

  • Land-use and transport planners to understand when, how and why people travel;
  • Out-of-home media companies to understand user location and travel habits around outdoor advertising assets;
  • Radio network planners to optimise site capex.

These capabilities have been particularly valuable to its government customers during the COVID pandemic. In the example below, DataSpark provided this visualisation of local population movement for the Australian Transport and Tourism Forum (TTF), which shows the impact of TTF’s decision to close its border with New South Wales on the 8th July 2020 to manage the impact of the COVID-19 pandemic. Location data used here was collected from network probes and enriched by GPS signals, leveraging software that DataSpark has been developing since 2017.

 

telco data analytics

Source: DataSpark

While DataSpark has built up a range of internal and external data analytics capabilities, scaling the business remains a key challenge.

DataSpark has been set up as an autonomous business unit within the Group Digital Life business division of Singtel. This has given it the benefit of being able to shape its own destiny, but has also limited its access to core Singtel assets and made it more difficult to win business. In our research we explore DataSpark’s options within Singtel going forward, drawing lessons for other telcos building new businesses in analytics and other adjacent markets.

See our in-depth research on telco data monetisation: