From Telco to Techco

Telco to techco – what does it mean?

The concept of changing from a telco to a techco (a telecoms operator to a technology company) has recently become popular.

It is a new way to reflect a long-standing desire of telcos to change. Many telco CEOs and boards would like to make the companies they run more capable of growing and adapting to changes in their environments. They would also like to embrace concepts developed in techcos, such as agile methods, that allow more rapid change.

Why change from telco to techco?

The desire to change from a telco to a techco has a number or drivers.

First, techcos are usually more highly valued by investors and stock markets than telcos. The chart below shows that the combined market value of leading telcos is significantly less than that of techcos in comparison to their revenues. Put simply, that means the shares in techcos are usually worth relatively more that shares in telcos.

Chart of the relative market capitalisation of telcos versus Internet players like Google, Apple, Facebook. et al

Source: STL Partners

This is because investors think that techcos are more likely to grow than telcos and will therefore worth more money in the future.

Secondly, techcos are typically able to change and develop more quickly. This means that they can adapt to their market environment more quickly and find new opportunities and combat new threats better.

This is sometimes described as being strategically agile. This is desirable because it means an organisation can address opportunities and threats faster.

How do you change from telco to techco?

Changing from telco to techo has a number of related components.

Capex and opex: Spending differently to grow

Financially, telcos have tended to spend more in capital expenditure (capex). This means things like networks – towers, cables, radio antennas, etc, and less on operational expenditure (opex) in areas like new service development.

The chart below shows the relative spending by telcos (in red) and techcos (in yellow). The telcos are at the bottom of the chart and spend a similar proportion on capex to techcos – about 10-20%.

However, telcos spend much less on research and development (opex) – significantly less than 3%. Techcos typically spend 10-25% on this.

So telcos are spending a lot on building their networks and relatively little on creating new things to sell. Unfortunately for the telcos, all that network spending is not generating much or any new growth revenues.

Source: STL Partners

Another consequence this spending pattern is that telcos have become very dependent on their technology partners to develop new things for them. This has reduced their own scope to innovate and grow independently.

These are some of the reasons why STL says that telco CFOs (Chief Financial Officers) need to drive business model change. They need to drive more telco investment in the activities and areas that create the new value – on R&D and service development investments.

Telco cloud helps – but it’s only a start

Cloud and software developments are typically accounted for as opex. Hence becoming more telco cloud focused has shifted some telco expenditure into opex.

However, telcos need to do more than replace traditional telco network capex with telco cloud opex spending. Yes, telco cloud investments will help them become more flexible in the long term. But they also need to invest in service development opex to create new things.

This has proved something of a challenge for telcos so far, as many have struggled to successfully work out what new things to do. Understandably, most customers aren’t too keen to spend any more money on telecoms. So what else can a telco do – and sell – that is worth paying for?

Purpose and proposition: serving new needs

This leads to a fundamental question: what is a telco’s purpose – what is it for? What new needs is it going to solve for its customers?

To resolve this requires another change: telcos need to redefine their purpose – what are they trying to achieve in their markets? Connectivity is important and a given, but it is not sufficient to create growth. This is particularly true in markets where penetration is already high and competition is mature. So what else should telcos do?

STL Partners believes that the answer to what new purpose to serve can be found in The Coordination Age. This analysis shows that:

  • All customers are today seeking to get better use of their resources (time, land, money, carbon, etc.)
  • And that connecting technologies (e.g. 5G, fibre, AI, automation) are an integral tool to enable this.

Telcos cannot serve all the possibilities. They will have to choose which propositions to develop to serve different markets, whether consumer or enterprise.

Transformation and Innovation

Accompanying this evolution of purpose and the development of new propositions to support it, is a need to evolve how telcos operate. This is often talked about as transformation. Serving new needs takes new knowledge and skills, as well as the new skills in advancing technologies (like 5G and AI) that make the new things possible.

Telcos also need to employ new operational concepts like agile development. This an approach to innovation pioneered by techcos and software companies.

Working with Ecosystems

Plus, telcos need to work in new ecosystems – groupings of related companies that together help to deliver new outcomes to customers. Healthcare provides a good example of an ecosystem. It takes pharmacies, doctors, nurses, paramedics, pharmaceutical companies, hospitals, health authorities and insurance companies (plus many others) acting in a coordinated way to deliver healthcare.

Telco to techco – how much does it matter?

To conclude, changing from telco to techco is really another way of saying ‘telcos need to transform’. It is a little more descriptive because it gives a hint of what a telco might need to be, but it is still just another soundbite to try to advance the change agenda.

In STL Partners’ view, it is another attempt to chivvy the industry on a little – a call to change and a partial vision at least. But the realisation of true change needs much more as we outline here and in our research overall:

  • a change of financial priorities
  • a new and grounded purpose
  • new propositions to deliver to that purpose
  • and new ways of working.

You can also see Andrew Collinson, Amy Cameron and Dean Bubley discussing this with Harry Baldock of Total Telecom in the video below. From the look of the still photo here they made it an enjoyable experience.

MWC 2022 – 10 Observations

SK Telecom Stand at MWC 2022 – STL Partners

GSMA’s Mobile World Congress – MWC 2022 revealed a subtle but significant shift taking place in the telco industry, showing how the market’s need is changing to ‘connecting technologies’ rather than ‘connectivity’. This has deep implications for the industry and telcos in particular.

Here are 10 observations the STL Partners’ research team came across as they traversed the halls of the Fira Gran Via Exhibition Centre, Barcelona at MWC 2022. A full overview and analysis of the event is available in our report: MWC 2022: Sensing the winds of change

1. CAMARA, the Telco Global API Alliance

Deutsche Telekom exhibited CAMARA, a new Telco Global API Alliance, which includes many leading telcos such as AT&T, Vodafone, Telefónica and Orange, as well as technology players such as Ericsson, Google Cloud and Microsoft. DT was at pains to demonstrate that it had learned from past mistakes, emphasising the inclusion of a wide range of partners – beyond just operators. Its first API came quickly to market within six months of establishing the alliance. The “Quality-on-Demand” API prioritises data packets to ensure high reliability and stability. One proof of concept (PoC) in Munich is enabling BMW to deliver Automated Valet Parking, where a BMW driver can leave their car at the entrance to a parking lot and the car drives autonomously to an available parking spot.

2. Becoming better partners

Operator’s discussed how to partner better, both on the network technology side as operations move to the cloud, and with start-ups, content and industry specific service providers to build and expand new services. Some operators expressed their wish to kill off request for proposals (RFPs) explaining how they can limit the scope of what can be achieved in a partnership, while also taking away from the customer outcome as the priority of the partnership. Some expressed instead a need to shift away from narrow partnerships with a specific focus, to more broad ranging ones that covering multiple areas across both B2C and B2B. 

3. Metaverse

It didn’t take long to find the Metaverse at MWC 2022. As the buzzword de jour, it was pretty much everywhere, often accompanied by NFTs – non-fungible tokens or certified digital goods. MTN, SK Telecom and Telefónica were among the telcos talking up the Metaverse. MTN Group, for example, claimed to be first African company to enter the Metaverse by purchasing land in Africarare while SK Telecom presented its ifland social VR and virtual meet-up metaverse platform as part of its “4D Metaverse” exhibition which also demonstrated future urban air mobility transportation.  There was surprisingly little discussion about the one thing that will determine whether these concepts fly and flop – trust. Neeraj Roy, founder of Hungama Digital Media conveyed that it will be critical for “the seven big tech companies who’ve all sort of announced their plans of the Metaverse” to ensure their creations are interoperable – it ought to be a single Metaverse. If not, people won’t be able to move their digital identities and assets from one platform to another, limiting the usefulness of the whole concept. 

4. AR and VR Applications

Metaverse and VR applications were popular throughout the show highlighting an emerging ecosystem of VR/AR and 3D developers seeking to build metaverse applications for both consumer, enterprise and government (education). VR for enterprise solutions included facilitating company meetings, sales and marketing of products as well as company training. Meanwhile Korea Telekom (KT) also showcased its developmental K-pop dance coaching smartphone app called “KT Real Dance” which features KT video-based AI capabilities. Users dance to a virtual dance instructor displayed on their phone. 

5. Video and AI 

SKT showcased its camera and vision AI service which offers real-time safety applications for enterprise and smart city by analysing and processing live video in the cloud to monitor real-time human activity and provide alerts in cases such as patient falls in hospital settings, driver behaviour monitoring to detect when drivers’ heads drop as they are falling asleep and social distancing regulations. The camera and vision AI service is part of SKT’s efforts to enter the era of hyper connected intelligence connecting people, things and society. 

6. Sustainability

Operators such as Deutsche Telekom and Vodafone showcased their sustainability efforts which included Deutsche Telekom’s Fairphone 4, a modular 5G device with interchangeable parts that enable easy repairs and increase the overall lifetime of the device – which has a guaranteed service life of five years. Vodafone also highlighted that where customers hold on to their phone for an additional year, the device’s carbon lifetime impact is reduced by 29%. At MWC 2022, Vodafone announced its circular economy plan for extending the lifetime of devices and encourage reuse and recycling. 

7. Heavy and highly physical industry emphasis

There was a new emphasis on heavy and highly physical industries: ports, airports, mining, manufacturing, construction, energy, logistics and healthcare for example. In the next ten years STL Partners believes the efficiency and productivity issues of these businesses must be addressed. To reach sustainability and carbon goals anywhere near net-zero, the profile of emissions, waste and efficiency in these businesses must be radically improved. There were a plethora of examples and use cases on show, widely varying in quality and depth, but nonetheless demonstrating what can and is being done.

8. Telco cloud

Operators such as Telefónica outlined their progress in Open RAN deployment citing its four main markets: Spain, UK, Germany and Brazil where the operator is in its last phase of its pilot programmes. The operator indicated that carrying out interoperability testing (12 weeks minimum) is a timely exercise and that due to high integration costs, open RAN as of now is more, not less, expensive, than legacy RAN. Meanwhile, Dish Network’s Marc Rouanne spoke enthusiastically of the operator’s cloud native standalone core and open RAN architecture that delivered an all software, fully autonomous, self-healing network. Having outsourced all its cloud operation to AWS in 2020, Dish’s network architecture team consists of fewer than 20 people. 

9. Further Analytics, AI and automation use cases

Spirent, with IBM and Palo Alto Networks, demoed a slice management solution with integrated security. Spirent’s active assurance product emulates security attacks both at activation and on an ongoing basis. It also, provides assurance for validation of initial end-to-end provisioning and any further scaling by IBM Cloud Pak. Lastly, the Spirent solution emulates traffic loads that trigger faults to identify the fault, apply impact policy and automatically trigger remediation to the orchestrator.  

Nokia demoed the use of its Network Data and Analytics Function (NWDAF) product within the telco ecosystem. Nokia discussed the ability to share network insights with an ecosystem of partners; allowing them to understand real-time quality of experience and past trends. It also provides predictive analytics from the NWDAF data to allow simple controls for the partners such as spinning up new slices or traffic rerouting when future issues were expected. 

10. Xiaomi AIoT and Huawei

Xiaomi showcased a range of IoT consumer electronics, (some) with artificial intelligence (marketed as AIoT), including its popular electronic scooters. A representative of the Chinese electronics manufacturer highlighted its three-pronged strategy focuses on growing smart home, smartphone and its retail footprint (stores and telesales). The company has experienced increased demand for its smartphones, particularly from customers who were previously Huawei device owners. Huawei mobile services such as Petal Search, Petal Maps, the Huawei App Gallery (App Store) and Huawei Ads was a reminder to the removal of Google’s Android Apps and services from its devices. 

AI and the Future of Work

The Fourth Industrial Revolution is one of four major shifts that will have an impact on the Future of Work at telcos (others include societal and culture change, business environment change and pandemic related change)

The term Fourth Industrial Revolution is often used interchangeably with the technologies involved in Industry 4.0. However, in STL’s report The future of work: How AI can help telcos keep up, a broader definition is used (quoted from Salesforce):

“The blurring of boundaries between the physical, digital, and biological worlds. It’s a fusion of advances in artificial intelligence (AI), robotics, the Internet of Things (IoT), 3D printing, genetic engineering, quantum computing, and other technologies.” 

Analyst coverage of the Fourth Industrial Revolution in relation to the Future of Work focuses on the impact of new technologies on the economy, workforce and overall job market. These impacts are summarised below, and colour-coded based on the envisaged impact for telcos.

Expected impact of the Fourth Industrial Revolution

Source: Charlotte Patrick Consult, STL Partners


There are two scenarios for the world economy. The first is a boom/bust scenario caused by the rise of productivity, and in turn demand (the blue boxes), facilitated by the use of more technology and automation. The other is a period of lacklustre economic growth, which will follow if automation and technology adoption is slower. The second scenario is regarded as more likely – and the impact on telcos is expected to be less severe than the first.


The skills shortage caused by the ongoing lag in government educational policy may be somewhat compensated for by machines in the mid-term. The Bain report Labor 2030: The Collision of Demographics, Automation and Inequality forecasts that a shortage of high-skilled workers will remain a significant issue for businesses.

Job market

The overall impact of new technology deployment may eliminate between 20% and 25% of current jobs according to MIT. But some job areas will experience growth.

Future of Work readiness

Telcos will have to respond to the changes introduced by the Fourth Industrial Revolution (and those introduced by the other shifts described above) to be ready for the “Future of Work”. Potential responses fall into three areas – strategic direction, skills development, and organisation and culture. Analytics, AI and automation (A3) tools can be useful in each. For example:

  • Data and analytics can help to improve organisational flexibility, particularly the speed of decision making in complex situations to inform strategic direction. The benefits of machine learning remain a promising future prospect.
  • More support from machines will be required to facilitate employee skills development (re-skill and upskill), plus onboard the increasing numbers of outside (contract) workers anticipated. Machines are also important to give workers the information they need to do their jobs.
  • Telcos will need to build trust levels around technology/A3 (algorithms to check machine decision making, explainable AI) to get humans and machines to work better together.

These are just a few of the ways in which A3 can help to tackle challenges of the Fourth Industrial Revolution and improve telco fitness for the Future of Work. For more, please see our report The future of work: How AI can help telcos keep up.

More learning types and greater reach to achieve organisational learning

Learning telco

While the telcos cited so far have demonstrated progressive learning practices, they are not equally progressive in all areas, or across the whole organisation. We’ve assessed the position of six telcos – Elisa, Spark, Telenor, TELUS Digital, Telia and Deutsche Telekom – on seven dimensions:

  1. The prominence of learning in their corporate values/culture (i.e. learning is explicitly referenced)
  2. They are clear on the collective purpose for organisational learning, e.g. greater customer
    centricity or continuous improvement which relies on everyone working together
  3. Content-based learning is available to all employees (self-led, “in the flow of work”)
  4. There are structures/frameworks for knowledge sharing (person-led learning)
  5. Process-led learning is widely adopted
  6. Trial, reflection and practice of learning are supported and encouraged (e.g. coaching, feedback,
    implementation support)
  7. People are regularly recognised/rewarded for sharing and acquiring new knowledge/skills
    (beyond course attendance certificates).
    The assessment is based largely on information available in the public domain, so may not be
    complete, or represent the latest picture. It is intended as a tool to help those plotting their course to
    become learning organisations.

Most of the telcos profiled are vocal about their commitment to learning as an organisational priority. This appears less explicit in the stated values and culture of TELUS Digital (though it could be considered implied). Deutsche Telecom recently added “Stay curious and grow” to its list of “guiding principles” (2020).

For Elisa and Spark, there is a clear link between learning and their customer focus and improvement objectives. For Telenor and Deutsche Telekom, the link between learning and a shared corporate objective is less clear (learning is focused on skills acquisition). For TELUS Digital and Telia there is greater sense of a shared learning objective.

In terms of learning types:

  • Elisa and Spark offer a full range of learning experiences across the organisation (not only content-based, but person- and process-led). TELUS Digital is reasonably advanced in terms of person- and process-led learning, but it is not clear whether all employees have access to the full range of experiences, or if it is limited to its product organisation (it has not been possible to evaluate its content-based learning portals based on public information). Deutsche Telekom is also promoting the three styles of learning, but person- and process-led learning appear less developed in terms of roll out/reach.
  • Telia has been investing in its learning and development platform and there is evidence of initiatives to support knowledge sharing (e.g. leadership programmes to drive the culture and behaviour change), even though this does not appear embedded across the organisation. Process-led learning (e.g. design thinking) is taking place in some areas.
  • Telenor appears to emphasize content-based “self-learning” more so than knowledge sharing and process-led learning (within a team). There is little evidence in the public domain of frameworks or structure for person- and process-led learning.

While most of these organisations are recognising the importance of different learning types, the reach of person- and process-led learning must increase in order to advance the collective intelligence in the organisation and minimise resistance to change from legacy practices.

For more detail on this, please check our report Building the learning telco

Stakeholders: turn growth killers into growth makers

The seven stakeholder groups

This report identifies seven stakeholder groups, and the ideal relationships within each group that lead to the best conditions for driving growth.

An ideal growth company can demonstrate these relationships with their stakeholders

Source: STL Partners


To be successful, we believe that management needs to exhibit three broad behaviours and capabilities.

1. Stable and committed long term vision for growth aligned with the Coordination Age.

2. Suitable knowledge, experience and openness.

3. Effective two-way engagement with stakeholders. (N.B. We cover the board and most senior management in this group. Other management is covered in the People stakeholder group.)


However good the senior management team, an organisation’s ability to deliver growth and change depends on the capabilities of a much wider group of people, which we articulate within three sets:

• People in general: the company’s people support the vision generally, and it has a suitable culture

• People in key units: the business areas which enable new growth have the differentiating skills and experience(s) needed

• General management: the broader management of the company is open to new ideas, close to customer needs, and diverse

Customer propositions

A company’s ability to grow is directly connected to its ability to produce and develop valued products and services. It is what customers pay for and hence drives the revenue element of growth. Even when companies are valued based on their expected growth (e.g. have a higher P/E ratio), it is with the belief and expectation that profits will grow in the future, and this is largely driven by expected improvements in demand or a company’s ability to address new demand. In other words, revenue growth.

Many of the factors that enable a company to create, design and deliver great propositions relate to the capabilities in other stakeholder groups. For example, the ease of making changes and adding partners (Technology and partners), the skills of its people (People), and the customer orientation of its culture and the experience of its management team (People and management).

The factors that are more generically revealed in externally visible signs of a company’s capabilities are:

• The track record of the company in building new propositions, such as how good its existing customer relationships are and how far it has successfully moved into new areas

• Its investment focus, to indicate the degree to which the company is backing its desire to get into new areas that will grow in the Coordination Age by investing in them.

Partners & technology

The role of partners and technology in creating new propositions and market plays is complex and multifaceted, and they contribute to many different aspects of business performance.

Their ability to contribute to a company’s growth will depend on the extent to which any new initiative needs to use the existing company’s ecosystems, and how the experience of the company’s technology team can contribute to the new area. In general though, three characteristics of the existing ecosystems will give some indication of how well equipped they are to support new initiatives.

• The company’s adoption of disruptive new technologies and business models that embrace and enable change

• Resilient economics of scale in the core business so that it can deal with changes with minimum impact on growth investments

• Effective use of technology so that it is easy and fast to change and reconfigure internal and external offerings on demand


Getting and keeping the support of investors for growth is a critical part of the puzzle for management, and telcos sometimes bemoan their inability to get investor support for their growth plans.

This is because growth investments are generally riskier than investments to bolster a mature concern like a telecoms network, and therefore should be accompanied by the chance of superior returns from an investors’ perspective. In contrast, most investors choose to place money with telcos because they consider it relatively ‘safe’ and therefore accept a lower promise of return.

In an ideal situation to support growth, the three characteristics showing supportive investors are:

• A stable investor base, so that agreed strategies have a better chance of running their course

• Investors’ historical happiness and relationship with the management – nothing to suggest fundamental unrest

• A match between current and projected returns and investor expectations

Government & regulatory

Three characteristics that convey the basis of the government and regulatory relationship are:

• The tone of the government and regulatory environment

• Current status of regulatory discussions

• The company’s approach to government and regulatory relationships


The model looks at three components of the company’s engagement with the broader societies to which it belongs.

• Brand presence, engagement and image

• Company alignment with societal priorities

• Media portrayal

Save energy and extend network coverage

Stratospheric Platforms Limited (SPL) has developed an alternative to traditional, terrestrial cell sites as a means of achieving network coverage in rural locations. The solution (Stratomast HAP) consists of a fleet of hydrogen-powered High Altitude Platform (HAP)-mounted antennas designed to provide 4G and 5G coverage to locations across the UK.

Rural areas typically have poor mobile coverage because it is unprofitable to deploy and run under-used network cells. Traditional cells consume large amounts of energy, when they are only required to deliver relatively small data volumes to a few customers. This is not only resource inefficient, it is also a big Capex and Opex outlay. STL Partners estimates a cumulative energy saving of over 4.5 million MWh for 4G networks in the UK up to 2035 if operators were to adopt High Altitude Platform (HAP)-mounted antennas and decommission inefficient terrestrial sites for rural coverage. The chart shows three scenarios based on rate of decommissioning.

Over 4.5 million MWh of energy savings in the UK by 2035

Modelling scenarios

Source: STL Partners

Our modelling shows that by 2035, the use of HAP-mounted antennas could save over 4.5 million MWh of energy in an accelerated scenario as a result of energy savings from two key mechanisms:

  • Cell sites not built: these are terrestrial cell sites which would have been built by operators to fulfil coverage goals but will no longer be required thanks to Stratomast HAP-type solutions. We forecast over 4,600 cell site build-outs could be averted.
  • Cell sites decommissioned: these are terrestrial cell sites currently part of the network which could be decommissioned by operators when HAP solutions serve the area. These will either be sites which are more expensive to run than they are to decommission, or sites which need renewal and are cheaper to decommission than to re-invest. We modelled different scenarios based upon the rate of decommissioning, in the most conservative estimate we would expect over 4,100 cell sites to be decommissioned between the four UK operators by 2035, with over 8,300 decommissioned in the fastest scenario.

Additionally, this type of solution can also help to reduce the carbon emissions used to provide rural mobile services by 95%. Even in the most conservative estimate, over 2.7 MTCO2 could be cumulatively saved by 2035 (at the peak of the accelerated scenario in 2027, nearly 0.5 MTCO2 are saved annually). This will advance the telco journey to net zero.

For more detail on this, please see our report Stratospheric Platforms: A faster route to mobile net zero.

Related research can be found on our Sustainability Hub.

The Coordination Age Companies: First Release

Which companies are bringing the Coordination Age to life, and how can the telecoms industry learn from or partner with them?

This is the first report in a series outlining companies that we think are lighting the path on the journey to the Coordination Age. Its goal is to deepen understanding of the Coordination Age and to inspire innovation and engagement in this crucial transition.

In this report, we selected ten companies that embody some of the different aspects of the concept of the Coordination Age. We believe that telcos can learn from these companies as they look to grow in this new age, evolve their strategies and explore new ways to innovate. These companies are represented in two categories:

  • Natives: companies that have been formed within the Coordination Age
  • Transformers: established companies learning to adapt and reinvent themselves

Introduction to the Coordination Age

What is a Coordination Age company?

A Coordination Age company delivers better use of resources to their customers by combining:

  • Connectivity (IoT, 4G, 5G, Wi-Fi, etc.)
  • Cloud/edge computing
  • AI and machine learning
  • Automation

It operates in a B2B2X environment, bringing together previously siloed data, processes, companies, and customers.

A Coordination Age company usually operates across physical and digital worlds, but in some cases the resources can be predominantly digital too (e.g. in financial services or entertainment).

Coordination Age natives vs transformers


  • Some companies have emerged within the Coordination Age era, hence are Coordination Age native
  • Coordination Age natives are unique in that they are more adept with B2B2X environments; their business models are built around this to begin with, and they do not need to change any legacy business models
    • E.g. they have up-to-date IT systems and do not need to build new ones; the whole company is embracing CA acorss all the departments; there is no need to create a cultural mindset or shift it as the company already thinking that way
  • However, despite this, Coordination Age natives will also have to change at some point too
  • To be a Coordination Age native it must be good at adapting to change. It cannot have a rigid business model that puts it at risk of finding itself in the position of today’s transformers


  • Other companies have transformed since the Coordination Age era and are being transformed over time
  • Crucially, due to this transformation process, some of the Coordination Age companies have only achieved this status in some areas of their business
    • If a company is not a Coordination Age native, it must figure out what the process is to become a transformer
  • The process of becoming a Coordination Age transformer, and what this entails, is why these companies are interesting and must be learnt from
  • Besides Rakuten and Dish, all telcos are transformers

This report will cover both Coordination Age natives and transformers – the companies profiled were selected on how well they exemplify what a Coordination Age native and transformer looks like.

Download the full report

Vonage: What is Ericsson’s end game?

Rationale for acquisition

In late November 2021, Ericsson announced it would purchase Vonage, a global cloud-based communications provider for $6.2bn. The acquisition is part of Ericsson’s expansion into the enterprise segment through Vonage’s communication platform as a service (CPaaS) offerings and follows on from Ericsson’s purchase of US-based Cradlepoint in late 2020. Cradlepoint’s enterprise solutions include wireless wide area networks (WAN) over LTE and 5G edge routers delivered as an all-in-one solution with more than a million (NetCloud) endpoints under subscription. Ericsson believes the enterprise market offers attractive software as a service (SaaS) revenue opportunities that can be scaled and aligned to strengthen its core business. Vonage is the latest acquisition in this strategic direction.

STL Partners has been talking extensively about the growing need for greater network intelligence amongst applications and platforms as a key opportunity to provide unique value in a B2B2X environment. We believe if Ericsson can leverage the developer community in the way it wants, it has the potential to become a strategic partner and a channel for operators to access developer communities, perhaps even challenge the hyperscalers by acting as an aggregation point for developers and network operators to engage with each other.

However, it may be too early to tell how Vonage’s existing developer community will see value and differentiation in the network APIs and 5G capabilities Ericsson and its operator base has to offer. Given many developers still do not have strong understanding of 5G technology, its capabilities and applicability to them, the opportunity for Ericsson rides on its ability to successfully encourage the developer community to see the value in leveraging these advanced network capabilities and programmability.

The Vonage Communication Platform

Founded in 2001 as a consumer VoIP provider, from 2013 Vonage has evolved through acquisitions into an integrated communications platform as a service provider (CPaaS) with sales of $1.24 billion in 2020 and $1.4bn expected in 2021. Of the company’s two business divisions, its cloud-based Vonage Communications Platform (VCP) accounted for over 73% of Vonage’s 2020 revenues serving over 120,000 customers, from SME to large enterprise business across a range of sectors (healthcare, finance, education, retail).

The Vonage Communication Platform (VCP) has three offerings:

  • Application Programming Interface (API) platform enables developers to embed communication services such as messaging, voice and video services into their applications and services. Through acquisition of Nexmo’s API platform and TokBox’s WebRTC programmable video integration, Vonage offers a range of communication APIs (such as voice, SMS, video, verify, messages and dispatch, number insight) enabling businesses to integrate programmable capabilities such as communication and authentication quickly into their products.

Vonage Communications Platform 


Source: Ericsson Vonage Announcement Presentation November 2021

  • Unified Communications as a Service (UCaaS) – Vonage Business Communications (VBC) is the company’s cloud-native over-the-top unified communication service. Vonage also offer a Business Enterprise unified communication and collaboration service in the US (offering voice, data, video, mobile and contact centre services) for mid-market and enterprise customers delivered over a private secure IP MPLS network.
  • Contact Centre as a Service (CCaaS) solutions – Vonage Contact Centre is a cloud-based contact centre as a service (CCaaS) aimed at the middle market. The service integrates Vonage’s unified communications service and its APIs to deliver a full communication suite for enterprises.
    • Vonage’s unified communication (UCaaS) and contact centre (CCaaS) services come with third-party enterprise software applications to support workflow and productivity. Integrations include Salesforce, Microsoft Dynamics, Teams, NetSuite, Zendesk, and Hubspot, which are available via Vonage App Centre ecosystem. According to Vonage, its Contact Centre solution currently holds the esteemed position of “Premier partner status” on the Salesforce AppExchange with a five-star rating and number one ranking across 800 reviews.

In late 2020, Vonage’s API revenues overtook UCaaS and CCaas revenues highlighting the growing demand for its API solutions from its developer network. Vonage’s recent API business growth has been driven by the popularity of its messaging and video APIs. It’s API revenue grew 43% year-on-year in Q3 2021.

The Vonage acquisition offers Ericsson the opportunity to introduce network and API capabilities to a wide developer community. Announcing the acquisition, Ericsson CEO said the company’s first step will be to embed its advanced network capabilities into Vonage’s existing communication APIs which have the potential to be adopted quickly on the back of existing 4G and 5G network build outs.

API business driving VCP growth

Source: STL Partners, Vonage Q3-21 results

Multi-vendor and multi-operator developer ecosystem

In announcing the acquisition, Ericsson’s CEO pointed out how the company has already developed quality of service APIs, but up to now they have only been tested in operator networks around the world. Accessing Vonage’s developer community would put the APIs into the hands of developers and convert them from “nice to know” capabilities into user friendly and valuable APIs.

Ericsson wants an engaged developer community/ecosystem to take these APIs and advanced network features and design real-world applications leveraging the capabilities of 4G and 5G advanced networks. It believes it can unlock value from its network APIs and 5G advanced capabilities by combining its deep network expertise of 26,000 R&D specialists with Vonage’s 1.1 million global developer community, 780 API platform engineers and Vonage’s back-end connections across over 200 CSPs.

These 200+ CSP connections are made possible by underlying technology supplied by vendors such as Ericsson. The developer and API ecosystem will be open to competitor network vendors and the wider MNO community in order to ensure the fullest possible participation in 5G innovation for enterprise. Ericsson is confident its worldwide market share position (outside China) and network capabilities will give it a strong starting position in developing new applications and that the openness of this developer, vendor and MNO ecosystem will be good for the industry overall.

It is hoped this developer ecosystem can leverage next generation of 5G advanced services and functionalities such as latency (across device types for example), quality on demand and network slicing across industry verticals and that developer/enterprise innovation will drive usage of the CSPs networks, providing an ROI on their 4G and 5G network investments.

  • A key test will be whether the developer ecosystem will see the value in Ericsson network APIs and capabilities, and whether Vonage hosts the right app developers that can see value in and will actually use these new network APIs (e.g. slice configuration, dynamic traffic routing, bandwidth management etc.)

Up to now, telecom operators have established their own API platforms or used third-party API developer platforms to attract developers and foster innovation on their networks. Ericsson wants to ensure that it is compensated for the innovation that occurs on its next generation (5G) network equipment as opposed to losing value to over-the-top players. It may believe it can reach a more global developer community more efficiently than MNOs.

Competing with Twilio at API and ‘super network’ level

Given that Ericsson (among other vendors) supplies the underlying network technology to and has extensive relationships with network operators globally, it may be in a position to compete with other communication platform players such as Twilio by having the advantage of advanced 5G network knowledge and capabilities in addition to its close MNO relationship ties.
Twilio’s developer-first platform approach consists of four core elements; its Programmable Communications Cloud, it Super Network, its Business Model and its Engagement Cloud or Customer Data Platform.

  • Programmable Communications Cloud consists of the APIs that enable developers to embed voice, messaging and video capabilities into their applications.
  • The Super Network is Twilio’s software layer enabling its customer’s software (Amazon, Airbnb) to communicate with connected devices globally by connecting to CSP networks and internet service providers in 80 countries. Twilio has agreements in place with CSPs globally to route communication through their networks. The Super Network also contains a set of APIs giving Twilio customers access to more foundational components of the platform such as phone numbers, and SIP Trunking.
    • Twilio highlights its extensive carrier agreements ensure resiliency and redundancy for its customers. By using real-time feedback data on handset deliverability from carriers and across geographic markets, the Twilio Super Network can detect issues and make routing decisions quickly. It can optimise communications flow through its platform based on network quality and cost.
    • According to Twilio, network service provider fees account for a substantial majority of its costs particularly outside the US.
    • Twilio has said its Super Network provides it with massive volumes of data from end users, their applications and from communications. As more communication is handled by Twilio, the Super Network “becomes more robust, intelligent and efficient” improving its performance in terms of quality and cost, making it, according to Twilio, difficult for others to replicate.
  • Segment Customer Data Platform / Engagement Cloud – Twilio offers their customers (Amazon, Airbnb) the ability to gather and analyse customer data from across all their communication channels. This helps Twilio customers generate new customer insights which they can use for personalised targeted marketing communication.
  • Business Model – To empower developers to experiment and innovate on its platform, Twilio offers a low friction model that eliminates up-front costs, offers a free-trial and free developer resources, and more importantly, adopts usage-based consumption pricing.

Twilio customer engagement platform


Source: Twilio investor presentation, March 2021

Mavenir and Telestax

There may be parallels between Ericsson’s tie up with Vonage and Mavenir’s (August 2021) acquisition of Telestax, a global communication platform as a service (CPaaS) enablement and application provider.

Mavenir has said it expects Telestax to enhance its Mavenir Engage solution, a cloud-based customer engagement and messaging monetisation solution offering RCS Business Messaging, A2P and P2A campaign management, templated chatbots, visual flow builders, payment integrations and advanced analytics. Mavenir’s CEO Pardeep Kohli has stated CPaaS can help service providers enhance their 5G enterprise offerings in areas such as IoT, Smart cities and Automotive. The rationale being that 5G capabilities and associated APIs will be integrated into these 5G enterprise use case verticals creating new value and new revenue opportunities.

Ericsson’s view of the market opportunity

Overall Ericsson believes Vonage will see strong growth across its three VCP offerings as enterprises accelerate their digitalisation. Ericsson cites analyst expectations of 17% growth in the CPaaS business up to 2025 and a total addressable market (TAM) worth $69 billion by 2025.

It expects Vonage to outperform due to its strong position in the API market, citing Vonage’s 7% share of the API market today. Ericsson expects the total API market to be worth more than 50% of the global RAN market by 2025 and conservatively estimated the global API market to be worth $8bn by 2030.

The question is: what role is Ericsson seeking to play as a result of this acquisition? If Ericsson is able to successfully leverage Vonage’s developer ecosystem to drive the use of 4G and 5G APIs, then it could play an interesting role as a strategic partner and channel for operators as a means of accessing developer communities. Ericsson could position itself a potential alternative to the hyperscalers as an aggregation point for developers and network operators to enable both to engage with each other. However, whether Vonage’s existing ecosystem of developers see 5G as a means of competitive differentiation (either by enabling new types of applications or enhancing existing ones) or whether Vonage’s customer base will be interested in leveraging 5G capabilities, is still up for debate.

Vonage Communication Platform future market opportunity


Source: Ericsson Vonage Accouchement Presentation November 2021

During 2021, Vonage found itself under the scrutiny of the activist investor Jana Partners, who urged management to consider selling all or parts of the business. The activist investor believed Vonage’s growing API business was undervalued (compared to pure play API players such as Twilio) and that its overall valuation was weighed down by its legacy consumer VoIP business for which it is better known. In February 2021, Vonage abandoned plans to sell the consumer VoIP business citing the unit’s $600m projected cash flow generation over the next five years.

No, the Metaverse is not the killer app for 5G

Let’s stop the next cliche before it even starts

Most knowledgeable people now roll their eyes in derision whenever they hear the words 5G and autonomous driving (or robotic surgery) mentioned in the same sentence. But the mobile industry’s hypesters are always casting around for some new trope – and especially the mythical “killer app” that could help to justify the costs and complexity.

And as if on cue, the Metaverse – essentially a buzzword meaning a hybrid of AR/VR with the social web, collaboration and gaming – has captured the headlines.

Facebook metaverse presentation

The Metaverse and How We’ll Build It Together – Facebook Connect 2021

The growing noise around Metaverse technologies – and especially Facebook’s recent rebrand to Meta – is attracting a whole slew of bandwagon-jumpers. The cryptocurrency community has been the first to trumpet its assumed future role – perhaps unsurprisingly, since they tend to be even more fervent and boosterish than the mobile sector. But we’re also seeing the online shopping, advertising and gaming worlds hail the ‘Verse as the next big thing.

Next up – I can pretty much guarantee it – will be the 5G industry talking about millisecond latency and buying a “Metaverse network slice”. We’ll probably get the edge-computing crowd popping up shortly afterwards too. I’ve already seen a few posts hailing the Metaverse as the possible next big thing for MNOs (mobile network operators).

They’re wrong.

The elephant in the room

If you’ve found this article without knowing my normal coverage themes, you might be surprised to read that the single biggest issue for connecting Metaverse devices and users will be real, physical walls.

If you go through Facebook CEO Mark Zuckerberg’s lengthy video intro to Meta and his view of future technologies, you’ll notice that a high % of scenarios and use-cases are indoors. Gaming from your sofa. Virtual living rooms. Hybrid work environments blending WFH with in-person meetings, and so on.

This shouldn’t be a huge surprise. The more immersive a technology is – and especially if it’s VR rather than AR based – the more likely people will take part while seated, or at least not while walking around an outdoor environment with obstacles and dangers. Most gaming, and most business collaboration takes places indoors too.

And indoor environments tend to have particular ways that connectivity is delivered to devices. Generally, Wi-Fi tends to be used a lot, as the access points are themselves indoors, at the end of broadband connection or office local area network.

Basically, wireless signals at frequencies above 2-3GHz don’t get inside buildings very well from outside, and the higher the performance, the worse that propagation tends to be. Put simply, 5G-connected headsets and other devices will generally not work reliably indoors, especially if they have to deliver consistent high data speeds and low latencies which need higher frequencies. We can also expect the massive push for Net Zero in coming years to mean ever-better insulated buildings, which will make matters even worse for wireless signals as a side-effect.

For sure, certain locations will have well-engineered indoor 5G systems that will work effectively – but software developers generally won’t be able to assume this. Airports, big sports venues, shopping malls and some industrial sites like factories will be at the top of the list for these types of solutions. For those locations, 5G Metaverse connections may well be widely used and effective. However, those are the exceptions – and it will take many years to deploy new in-building systems, or upgrade existing infrastructure anyway.

In particular, most homes and offices will have patchy or sometimes no 5G coverage, especially in internal rooms, elevators or basements. (There might be a 5G signal or logo displayed on the device, but that doesn’t mean that the famously-promised gigabit speeds or millisecond latencies will actually be deliverable).

In those locations, expect Metaverse devices to use Wi-Fi as a baseline – and increasingly the Wi-Fi 6/6E/7 generations with better capabilities than previous versions.

What the Meta video tells us

I’m aware that the Metaverse is more than just Facebook / Meta, but the 1h17 video from Zuck (link) is not a bad overview of what to expect in terms of experiences, devices and business models. Obviously there will be different views from Epic Games, Microsoft’s various initiatives around Hololens and Mesh, plus whatever Apple is quietly cooking up, but this is a decent place to start.

The first thing to note is the various Horizon visions that Meta is pitching – Home, Worlds and Workrooms. These are (broadly) for close social interaction, gaming/larger-scale social and business collaboration – especially hybrid work.

Mostly, the demos and visions are expected to take place from the participant’s home, office, school or similar venue. There’s a couple of outdoor examples of enhanced sports, or outdoor art/advertising as well. Virtual desktops, avatars that mimic eye and facial movements and so on.

In terms of devices, there’s a large emphasis on headsets (obviously the Oculus Quest, and also the new high-end Cambria device promised for 2022) as well as discussions of AR glasses, from the RayBan Stories recently launched, to a forthcoming project called Nazare.

The technology discussion is all around the functional elements, not the connectivity. Optics, sensors, batteries, displays, speakers, cameras and so on. There are developer tools for hand and voice interaction, and presence / placement of objects in the virtual realm. There’s lots of discussion around creators, advertising and the ability to own (and interoperate) virtual avatars, costumes and furniture. There are also nods to privacy, as would be expected.

There’s no mention of connectivity, apart from noting that Cambria will have radios of some sort. The section on the “Dozen major technological breakthroughs for next-gen metaverse” doesn’t mention wireless, 5G or anything else.

The Metaverse and How We’ll Build It Together – Facebook Connect 2021

It’s worth noting that Oculus devices and the RayBan glasses today use Wi-Fi. We can also expect the gesture-control in future will likely lean on UWB sensors. Outside of Facebook / Meta essentially all of today’s dedicated AR/VR headsets connect with Wi-Fi or a cable, to a local network or broadband line. (That might be 5G fixed-wireless to the building for a few % of homes, but that will still use Wi-Fi on the inside).

Where cellular 4G/5G takes a role in XR is where the device is tethered to a phone or modem, or is experienced actually on the smartphone itself – think Pokemon Go, or the IKEA app that lets you design a room with virtual furniture.

We can expect the same with the Metaverse. If you’re using a smartphone to access it, then obviously 5G will play a role, just as it will for all mobile apps in 3-4 years time when penetration has increased.

Will Cambria and future iterations feature 5G built-in? Maybe but I doubt it, not least because of the extra cost and engineering involved, as well as multiple versions to support different regional frequency options. Would a future Apple AR/Metaverse headset feature cellular, like some versions of the Watch? Again, that’s possible but I wouldn’t bet on it.

In the second half of the decade, later versions of 5G (Release 17 & 18) will have useful new features like centimetre-accuracy positioning that could be useful for Metaverse purposes – but again, that’s reliant on having decent coverage in the first place. There will likely be some useful aspects outdoors though – for instance accurate measurement of vehicles on roadways.

Facebook Connectivity becomes Meta too

One other thing I noticed is a reference on LinkedIn to Facebook’s often-overlooked Connectivity division, which does all sorts of interesting programmes and initiatives like TIP (which does OpenRAN and other projects), Terragraph 60GHz mesh, Express Wi-Fi and the low-end Basics “FB-lite” platform for developing markets with limited network infrastructure.

Faceboook connectivity solutions

Facebook Connectivity

Apparently it’s now being renamed Meta Connectivity – partly I guess because of the reorganisation and rebranding of the group overall, but also as a longterm part of the Metaverse landscape.

To me, that also indicates that the Metaverse is going to use multiple wireless (and wired) technologies – which aligns with Zuckerberg’s view that it’s more of a reinvention of the Internet/Web overall, rather than a particular app or experience.

Bandwidth-heavy? Or perhaps not….

One other thing needs to be considered around the Metaverse and connectivity. The immediate assumption is that such a “rich” environment, either full-virtual or overlaid onto a view of the real world, will need lots of data – and therefore the types of bandwidths promised by 5G. If we all use Metaverse devices to project “virtual TV screens” onto virtual surfaces, it will use lots of capacity, supposedly.

But it strikes me that avatars (even photo-realistic ones) & 3D reconstructions of real-world scenes will likely need less bandwidth than actual video. Realtime rendering will likely be done on-device in most cases, just sending the motion/sensor data or metadata about objects over the network.

Clearly this will depend on the exact context and application, but if your PC or phone or headset has a model of your friend’s virtual house, or your virtual conference room – and all the objects and people/avatars in it – then it doesn’t actually need realtime 4K video feeds to show different views.

In addition, the integration of eye-tracking allows pre-emptive downloads or actions, so “pseudo-latency” can seem very low, irrespective of the network’s actual performance. If the headset sees you looking at a football, it can start working on the trajectory of a kick 10’s or even 100’s of milliseconds before you move your virtual leg.

That said, the sensor data uplink & motion control downlink will need low latency, but I suspect that will be more about driving localised breakout and peering rather than genuine localised compute. If you’re in a hybrid conference with distant colleagues, the main role for edge-computing is to offload your data to the nearest Internet exchange with as few hops as possible.

(Some of the outdoor scenes in the Meta video from Connect seem rather unrealistic. They show groups of people playing table tennis and a virtual basketball match with “friends on the other side of the world”, which would involve some interesting issues with the speed of light and how that would impact latency.)


In a nutshell – no, the Metaverse isn’t the killer app for 5G.

The timelines align between the two, so where ‘Verse apps are used on smartphones they’ll increasingly use 5G if it’s available and the user is out-and-about. But that’s correlation, not causation. Those smartphones will typically be connected via Wi-Fi when at home, school or work. I suspect the main impact on smartphones will be on the need for better 3D graphics capability and enhanced sensors and cameras, rather than the network side.

Will we see some headsets or glasses with built-in cellular radios, some with 5G support? Sure, there will certainly be a few emerging in coming years, especially for enterprise / private network use. I’d expect field-workers, military, or industrial employees to exploit various forms of AR and VR in demanding situations well-suited to cellular, although many will tether a headset or glasses to a separate modem / module to reduce weight.

Many devices will also include various other wireless technologies too – Wi-Fi, Bluetooth, maybe Thread/Matter, UWB and so on.

But if anything, I suspect that the Metaverse may turn out to be the killer app for WiFi7, especially for home and office usage. That doesn’t mean that 5G won’t benefit as well – but I don’t see it as a central enabler, given the probable heavy indoor bias of the main applications. (I don’t think that cryptocurrency or edge-computing are key enablers either, but those are debates for another day)


Reproduced article from Dean Bubley, Disruptive Analysis and Associate Director, STL Partners

AT&T / WarnerMedia’s HBO MAX performance

In October 2016, AT&T announced it would acquire Time Warner and completed the acquisition in June 2018 for $85.4bn ($108.7bn including debt) branding the business as WarnerMedia.

Despite the COVID-19 pandemic, which created real disadvantages in a number of areas, AT&T successfully launched HBO MAX in May 2020.

Indoor restrictions affected its 5,550 retail store footprint, which would have been heavily involved driving HBO MAX adoption, especially across its wireless, broadband and pay-TV offerings. Cinema closures impacted movie releases and resulted in AT&T adopting a unique hybrid distribution model whereby movies would be released on HBO MAX simultaneously alongside the theatrical release. Live sports also shut down as did content production for HBO MAX originals.

In June 2020, one month after launch, AT&T reported a combined subscriber base of 36.3 million US HBO and HBO MAX subscribers, up from 34.6 million domestic customers at the end of 2019. The operator reported a total of 4.1 million subscribers had activated their MAX account. Almost three million were retail HBO MAX subscribers18 and more than one million were wholesale subscribers through AT&T. In effect, a large number of HBO subscribers from wholesale partners had yet to switch across to HBO MAX.

AT&T noted that while more rapid activation occurred amongst existing HBO digital subscribers, more had to be done to educate and motivate the exclusively linear subscriber base and AT&T would work with wholesale partners to drive the activation rates.

In Q4 2020 the WarnerMedia unit wrote down $780 million of its business due to the impact of COVID-19 on content production and inventory with $520 million accounting for the closure of theatres and the dual same day release of movies on HBO MAX.

AT&T finished 2020 with almost 6.9 million retail HBO MAX customers and a cumulative HBO MAX activation rate of 17.1 million subscribers.

In April 2021, AT&T reported 11 million customers combining one or more of its connectivity products with HBO or HBO MAX, and that same day theatrical releases had been a catalyst for HBO MAX subscriptions despite underpinning a write down to the business.

In October 2021 AT&T reported a global HBO and HBO MAX subscription base of 69.4 million subscribers consisting of 45.18 million domestic and 24.23 million international. Domestic wholesale subscribers fell in Q3 2021 reflecting AT&T’s decision to “no longer cede customer control through Amazon’s channels offering” and close this element of Amazon’s wholesale platform.

AT&T now blends HBO and HBO MAX subscriptions and no longer reports HBO MAX activations.

HBO MAX performance from launch

In 2019 AT&T originally set out to obtain 50 million HBO MAX domestic subscribers by 2025. It now raised global expectations to 70–73 million by the end of 2021 on the back of launching its AVoD domestic service as well as HBO MAX (SVoD) internationally in Latin America in June 2021 and in Spain and Northern Europe in October 2021. AT&T expects the bulk of HBO MAX subscriptions to come from Latin America in the second half of 2021. It expects to have between 120–150 million subscribers by 2025.

The graphic below compares HBO MAX ARPU to competitors Netflix and Disney+.

Netflix, Disney, HBO/HBO MAX ARPU, Q3 2021

AT&T Spins off WarnerMedia

In May 2021, AT&T announced it would spin off WarnerMedia into a new entity with Discovery, a media company specialising in unscripted content. Subject to approval by mid-2022, the deal is worth $43bn to AT&T in the form of cash, debt securities and WarnerMedia’s retention of certain debt. 

STL Partner’s report Lessons from AT&T’s bruising entertainment experience looks at AT&T’s media purchases of DirecTV and Time Warner which combined cost the company over $175bn. AT&T believed owning TV and streaming subscription video on demand (SVoD) services would take its broadband communications business into the next decade, spurring growth in fixed and mobile broadband, reducing churn, growing advertising and new revenue streams in global SVoD streaming. However, global streaming services require significant investment in original content production as does rolling out 5G and fibre nationwide, and AT&T found itself unable to do both under one roof with the approach it applied.

Our report looks at AT&T’s decisions and actions over six years running DirecTV and WarnerMedia and their consequences, and the lessons for others attempting adjacent market moves and M&A.


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:

How telco innovation can avoid the ‘hot air’ in Silicon Valley

A recent (August 2021) opinion piece in the Financial Times – “Telecoms innovation talk may be nothing but hot air” described some of the start-up and incubator initiatives over the last decade such as Telefónica Digital’s first London incubator, Three’s early innovations in video and music (x-Series) as well as Vodafone’s early initiatives in mobile commerce and wallets as “a history of squandered opportunity [that] bodes ill for technology growth” in the telco sector.

There are an array of varied and ever-expanding innovation models available today: scouting, crowdsourcing, idea competitions, collaborative design and development, spin-outs, corporate ventures, incubators, joint ventures, in- and out-licensing of intellectual property, consortia, innovation platforms and ecosystems to name but a few. Increasingly, this activity is taking place in clusters – auspicious geographic concentrations of interconnected companies and institutions – the most famous of which is Silicon Valley.

Hundreds of organisations of various sizes and industries – even those with plentiful local R&D talent in their home markets – have been drawn to the Valley in the hope of importing outside-in innovation, identifying new products and partners, and harnessing its ecosystem to solve strategic problems. Telcos are no exception: since the early 2000s, telcos’ core businesses have come under increasing pressure from OTT players as well as wider market forces to innovate and grow.

Open Innovation is the antithesis of telcos’ traditional, vertically-integrated approach of translating their own R&D efforts into internally-developed products and services, typically tightly linked to their existing customer bases and offerings. Operators are hoping some of the Valley’s magic dust of disruptive thinking and speed of execution will rub off on them.

However, insiders sometimes quip that the Boeing 747s flying out of San Francisco International Airport have “amnesic” properties. The executive groups that typically descend upon the Valley, hoping to learn from its incumbents both large and small, take copious notes and leave fired up about re- energising innovation in their home base. But once back within the corporate environment, the seeds of innovation struggle to germinate and the majority of initiatives fail to generate any substantial return on objectives. There appears to be a degree of cognitive dissonance between the expectation of such engagements, and their impact.

It is one thing to send a management team to the Valley for a week, and another to embed learnings from such a trip within the business and align efforts to expectations.

What should telcos do differently?   ….Establish appetite and capacity for change

Before charting a course for innovation, telcos need to identify their individual appetite and capacity for change. This is a function of innovation competence (the ability to come up with and implement new ideas) and innovation commitment (the importance of innovation to the company and how much resource and effort it invests in innovation).

Innovation maturity matrix

More talk than action – Despite having internal R&D functions, many telcos have outsourced cutting-edge innovation to vendors with the necessary global reach/funding to enable innovations to scale profitably. This has resulted in a significant decline in telco R&D spend over the last 30 years. Telco CEO may have a vision and enthusiasm for innovation, but they stop short of translating ideation into action or, frustrated by their structure and a lack of resources, they struggle with execution. Or they may introduce formal innovation programmes and pay close attention to signals emanating from the Valley and elsewhere, but they have yet to implement any defined innovation initiatives.

Good intentions – These operators are achieving the baseline level of innovation they need to stay in the game over the long term. They say they place innovation at the heart of company culture, yet their advances are mostly incremental and offerings brought to market only make a modest splash. Their appetite for innovation is not yet matched by their capacity to identify unmet needs and/or the capabilities required to support execution at pace and scale. These operators should look to place bets on a few self-contained, ad hoc initiatives to spread risk, test their value quickly and cheaply, and develop and embed those with promise, all while accumulating knowledge, experience and confidence in the process.

Potential stars are “accidental innovators” who generate a lot of new ideas but lack an over- arching strategy to harness them. They are not fully committed to internal investment (possibly believing that in-house innovation delivers incremental gains rather than game-changers), and may lean heavily on OTT players or other specialist third parties for execution. While this can be a faster, more cost-effective route to market, with lower implementation risks, a prolonged reliance may increase the risk of telco deskilling or leave the organisation struggling to refresh its resource pool with digital natives. Potential stars may set up external innovation labs or venture- build to turn their concepts into reality. This category could also be referred to as “Stars at risk” – if they do not internalise and systematise innovation practices, performance may decline over time.

World class innovators – this group is typified by agile, growth-phase start-ups who eat, sleep and breathe innovation, and the GAFA behemoths. Telcos are keen to emulate elements of both, but can be constrained by factors such as their size, regulation, cultural and structural legacy and, in some cases, financial inflexibility (whether due to the need for network investments, a debt-laden capital structure or sky-high investor demands). Despite some having large subscriber bases, they cannot match the global scale of digital platform titans to roll out new products and services that truly change the game. Telcos tend to make their existing customer bases the primary focus for new initiatives, measuring success in terms of impact on telecoms services customer loyalty rather than in its own right. This can lead to competitive convergence – a shared conventional wisdom across the industry about who their customers are, what they value, and the scope of products and services telcos should offer – which can stifle innovation and prevent telcos from looking for unoccupied territory that could provide breakthrough value. Additionally, by delivering their GTM strategies through existing channels rather than new ones, it makes it harder for non-telecoms customers to find a point of entry into such services.

Through honest self-appraisal to identify the quadrant they currently occupy, telcos can make more informed and pragmatic decisions about how to build their commitment and/or competence (e.g. internal or external innovation). This requires serious strategic thought and dialogue, not only in terms of advancing their own position but how to take all stakeholders – shareholders, employees and customers – along on the journey.

To learn more about….

  • The dominant innovation outpost models in Silicon Valley;
  • The four “levels of learning” which broadly categorise the learning maturity of corporates making forays into Silicon Valley;
  • The types of innovation and innovator archetypes;
  • Whom to learn innovation lessons from in Silicon Valley;
  • In terms of people: Who goes to the Valley, and who stays home;
  • Dos and Don’ts in Valley approach;
  • The telco dynamics and challenges such as culture and how capital-intensive infrastructure companies have a bigger turning circle

Strengths and capabilities of different private network stakeholders

The different private network requirements and vertical dynamics, along with the need for flexible private network deployment options and scenarios, will drive various opportunities and business cases for new operators and owners to emerge across these industries. Traditional and new telcos have varying strengths and limitations across spectrum holdings/access, asset ownership, and telecoms and vertical expertise.

In addition to leveraging spectrum and public network infrastructure to support different deployment scenarios, MNOs’ major advantage over other players is that they know how to build and manage a cellular network, which grants them a leading role in many private network projects even if the deployment uses local spectrum and is isolated from the public network. Traditional telcos can also leverage private networks to access new regional markets where they do not own spectrum but want to support their international enterprise clients. An example is Verizon which is looking for private network opportunities in Europe.

In contrast, vertical players usually lack telecoms expertise, but their knowledge about specific industry applications, IT networking and stakeholders’ requirements is often a crucial factor in successfully designing and building a private network. Some players in industries such as railway and utility services often already have experience using wireless networks and technologies, and have highly specialised and mission-critical needs, and will therefore be less inclined to engage with telcos when developing their private networks.

Our report Private networks: Lessons so far and what next explores the recent developments in the private network market, regulatory activities and policies on local and shared spectrum, and the different deployment approaches and business cases for traditional telcos and the expanding range of other stakeholders.

See our in-depth research on private networks

The case for disruptive innovation

Disruptive forces could help telcos discover new opportunities for innovation and growth in the longer term. John McDonald is a strategist in disruptive innovation in the health industry in Canada. He takes a highly strategic approach to building alignment on emerging risks and opportunities three to five years out, centred on disruptive innovation, helping corporates see the world like a disruptor, and helping disruptors see the world like a corporate. He has evolved a couple of methods to help leaders build alignment around the forces of disruption, which appear unstructured and unpredictable, but which are easily understandable with the right structure.

  • John argues that telcos need a genuine understanding of the forces of disruption, which are unfolding at an ever-increasing rate across all sectors. It’s not possible to innovate unless you are aware of the forces and can imagine an alternate future. This foundational thinking is what drives what you’re willing to place bets on. Before creating a strategy and plan, it is critical to put a thesis in place which describes what you believe to be true. As John McDonald explains: “We act based on what we believe to be true. Place bets on what you believe and how you think it will work out.”

John says that most disruption comes not from initiatives at the centre but experiments on the periphery. This might only appear as less than 5% of the picture to those running existing businesses. The challenge is to learn from and share the underlying assumptions and insights behind these innovations.

John suggests the discovery journey that triggers open discussion about disruptive forces and business models, starts with a trigger that asks, “Do I need to care about this?” Initial exploration might imply there is no need to care. However, exposure to disruptive forces can provide the conviction to go deeper.

Uncovering the forces for disruptive innovation

John has developed a methodology he calls FORCECASTING™ to help leaders crystallise their theses. In this method, leaders get together to identify the forces that are unfolding, such as AI, to deconstruct the forces, identifying which matter the most, how fast they are moving, and how they are unfolding. It creates alignment around where risks and opportunities are emerging and where to place the bets.

One methodology sets aside a whole day and uses the following process:


Source: STL Partners, John McDonald

This then forms the collective thesis and the basis to move into strategy and planning.

Blurring the line

A key learning for John, having worked with over 60 companies in the health sector, is that innovation often comes from the crossing over of two disciplines e.g. inside healthcare and outside healthcare. This enables the creation of big enough datasets to apply machine learning and to connect the dots across the two domains. This will enable the outside learning in to be brought in, to blur the line across the sectors.

John cites the classic example of the Apple Watch. It has a medical grade electrocardiogram, although Apple is not a health company. Apple built a massive dataset and deep insight through machine learning, outside healthcare. They also had data inside the healthcare domain, and they joined the two and blurred the line to break through. This was at times counter intuitive to healthcare professionals, who are accustomed to operating within very clearly defined silos of expertise and compliance.

It is now commonly accepted that wearables are key to enabling more preventative healthcare services. There will be further scope to bring inside and outside domains together, creating opportunities for telcos e.g. in sustainability. A potential and very powerful application could be the combination of AI and consumer environmental apps will enable users to make small daily changes that reduce their carbon footprint.

Full report

STL’s July 2021 report: Finding growth: How to identify and meet new customer needs outlines innovation best practice in identifying and scaling new business opportunities, in terms of how to organise, the necessary culture, where to start, who to involve, and how to exit. The report identifies best practice for telcos based on discussions of the critical success factors with leading telcos Elisa and Telia and with a strategist in disruptive innovation.

Related research:

The telco agility flywheel

Telco agility


In 2015, STL Partners published a report on ‘The Agile Operator: 5 key ways to meet the agility challenge’, exploring the concept and characteristics of telco agility, including what it means to telcos, key areas of agility and the challenges in agile-focused transformation. Today, the definition of agility remains as broad as in 2015 but many concepts of agility have crystallised through wider acceptance of the importance of the construct across different parts of the organisation.

Agility today is a pervasive philosophy of incremental innovation learned from software development that emphasises both speed of innovation at scale and carrier-grade resilience. This is achieved through cloud native modular architectures and practices such as sprints, DevOps and continuous integration and continuous delivery (CI/CD). Six years ago, telcos were largely looking to borrow only certain elements of cloud native for adoption in specific pockets within the organisation, such as IT. Now, the cloud model is more widely embraced across the business and telcos profess ambitions to become software-centric companies. Telco agility is required:

  • To realize both near-term and future imagined commercial opportunities unlocked by new types of value-added services and the capabilities that 5G can bring.
  • To participate in non-traditional, non-linear supply models, involving interconnected ecosystems of customers and partners for the purposes of innovation (ecosystems allow the disparate needs of participants to be met through highly configurable assets rather than waiting for a centralised player to understand the complete picture).

Telcos’ need for agility has moved beyond the area of IT and network architecture: operators are accelerating towards agility organisation-wide. They are moving from traditional waterfall approaches to product and service development towards more agile iterative sprints, co-creating with customers and building ecosystems to deliver more precisely what customers’ demand. This requires not only technological transformation, i.e. core capabilities that are programmable by design and exposed through APIs, but processes and organisational change as well.

Telco agility improvement depends not only on agile technology, but also agility in the products and services as well as acceptance and adoption of agile working practices across the organisation. If operators only focus on a discrete area where they want to drive agility, they will be held back by other areas. Equally, bold attempts to simultaneously drive agility across-the-board can meet with resistance that ultimately stymies success. A stepwise virtuous cycle targeting incremental gains in turn across the three highlighted fronts is required. We call this the agility flywheel.

The flywheel refers to a mechanism that is driven by rotational speed – it requires significant initial effort to kickstart the motion and build momentum, but once that initial inertia is overcome, it is designed to efficiently accelerate to much greater speeds in a stable manner. Therefore, leadership’s aim should be first to break the inertia of the flywheel and accelerate the cycle speed, ideally ‘snowballing’ under its own momentum.

For more information, check out our report Driving the agility flywheel: the stepwise journey to agile.

See our other in-depth research on telco transformation:


Can VodaPay transfer Alipay to South Africa?

Vodacom is working with Alipay to launch a lifestyle consumer application, merchant commerce and financial services platform that brings together to all ecosystem participants. What are the opportunities, and what will it take to succeed?

The VodaPay and AliPay alliance: Can it succeed?

In July 2020 Vodacom announced a partnership with Alipay to launch a super app in South Africa under its current payments brand VodaPay. It is an initiative that has been under development for the past two years. Ant Group’s Alipay will provide Vodacom with fintech experience from its knowledge of both financial services and trade merchant relationships to Alipay’s core capabilities in app development, data analytics and machine learning.

Alipay’s beginnings stem from a need to resolve the trust issue between buyers and sellers transacting on Alibaba’s marketplaces such as Taobao, tmall, and The Alipay app reaches over one billion users and 80 million merchants. It is the primary method used by buyers and sellers to complete payment transactions on Alibaba’s platforms.

In this sense, Alipay benefited and was born into an established and successful marketplace ecosystem with multiple Chinese merchants across all FMCG sectors. This was also serendipitous in establishing a lifestyle platform that is Alipay today – hosting over 1,000 daily life services and over two million mini programs.

Vodacom has been making its own efforts to develop a marketplace platform attracting 4,500 small merchants to its VodaTrade program by offering payment solutions, invoice financing and loan facilities. The VodaPay super app is due to launch in the coming months hosting most of South Africa’s leading retail brands across all key verticals, according to its CEO Shameel Joosub.

The success of the platform will come down to the value Vodacom can offer its merchants as well as its end consumers. Merchants stand to benefit from SME financing and other financial business support as well as other capabilities Alipay can offer using customer insights and data analytics to target and reach customers and develop new product and service offerings.

Alipay benefits from the wealth of insights generated across Alibaba platforms from payment, commerce, logistics, local services, merchant services, digital entertainment, offline store visits and map navigation. Vodacom will be relying on its network data and online and offline properties in addition to data generated as customers interact and consume services on the new VodaPay super App.

All South Africans stand to benefit from universal access to the VodaPay platform with Vodafone customers enjoying the privilege zero-rated data use. Alipay’s consumer daily life offerings have been a key driving engagement with 60% of users coming to the app to access daily life services. This will also be a key success factor for VodaPay and is essential in driving Vodacom’s financial services business.

Alipay has been thoughtful and innovative in how it has opened up lifestyle and financial services to customers otherwise unreachable to the traditional bricks and mortar merchants and financial institutions. It has developed hugely successful advance credit products such as Huabei and Jiebei. These financial services benefit all ecosystem participants – enabling the consumer to buy now and pay later, stimulating commerce on the platform for merchants and earning commission for the financial institutions underwriting the loan, in VodaPay’s case, whether that is Vodacom Financial Services or a partnering bank.

Vodacom is already developing advanced credit products in areas such as airtime and vouchers which suggests this is the beginning for more innovation in this area.

Alipay’s ability to lower the barriers to entry when purchasing investment and insurance products has attracted not only those on low incomes, but also younger customers that may not otherwise purchase an investment or insurance product. Low entry fee products educate customers and build awareness and increase the chances of selling more advanced higher value products. Vodacom will also be looking for similar wins with its established insurance.

South Africa’s VodaPay services will be a proving ground for daily life services across other parts of Africa where M-PESA rules and offers up the potential for a larger international ecosystem for trade on the continent.

Expanding VodaPay into a digital lifestyle app

In its current form, VodaPay is a simplified payments application (digital wallet) supported by Mastercard (Masterpass) enabling customers to link their banking credit or debit card to make payments online or in-stores and where SnapScan or Zapper QR payments is supported. Anyone with a South African phone number and bank account can use the service. Vodacom Financial Services also offer a range of insurance products such as device, life, funeral, health cover and business cover as well as a range of assistance packages covering home appliance and motor assistance.

The Alipay initiative will see VodaPay application become application hosting lifestyle and digital financial services under one platform. In July 2020, CEO Shameel Joosub described the current VodaPay app as a learning experience for the ultimate solution which would test launch to a small user group around (Q4) March or April 2021, followed by a full launch soon after. Joosub described the new platform (app) as a game changer, and transformational in terms of the lifestyle services that will be available.

Vodacom has been working on the project over the last two years and announced in July 2020 it had built a team of 100 people, mainly software engineers, to work on the platform. As of February 2021, the team was actively working on three streams; the customer journey, merchant sign-up and financial services infrastructure.

Alipay (Ant Group) is providing insight and development support utilising its partnering experience from other international market partners. The Ant Group has acquired deep knowledge and expertise in design and development of financial services products in addition to its technology platform capabilities.

In May 2021, Joosub outlined the super app would launch in the coming months hosting most of South Africa’s leading retail brands across all key verticals. See section: VodaTrade: Getting merchants on board

Vodapay super app


Source: Vodacom Annual Results for year ending 31 March 2021 (May 18th 2021)

South Africa has a well-established banking sector where 75% of South Africans have a bank account. This was one of the issues which led to Vodacom shuttering its M-PESA operation in South Africa in 2016. Joosub highlighted the dynamics of the Chinese market, the popularity of super apps and of people’s attitude towards not using cards and cash, indicating the potential transferability to the South African market.

The VodaPay super app will be similar to the Alipay App (see Figure 2) and has the potential to accelerate Vodacom’s financial services strategy in South Africa, enabling merchants to promote their daily lifestyle products and services through the app, while providing a range financial services to finance purchases and cross sell other consumer and SME finance products.

According to Ant Group, Alipay contains over 1,000 daily life services and over two million mini programs offering mobility services, local services and municipal services. The company has cited 60% of users come to the Alipay app for daily life services (as of 30 June 2020, see Figure 2).

Vodacom is already in the process of developing a micro credit and lifestyle competency. Its Airtime Advance product is delivering ARPU and revenue growth with ZAR 12bn ($867m) advanced to 10.8 million customers in the financial year ending March 2021. In Q4 2020, Airtime Advance amounted to 43% of total prepaid recharges.  On the back of this momentum, Vodacom has launched Voucher Advance providing active customers with voucher credit starting at ZAR 15 ($1.08) interest free towards a restaurant meal or new appliance. The company has also launched a new lifestyle rewards program called VodaBucks in September 2020 where 24 million unique customers have so far participated.

Daily life use cases from the Alipay App



Source: Ant Group IPO Prospectus October 2020

A lifestyle app

According to Vodacom’s Joosub, the VodaPay super app would be a full ecosystem and lifestyle app enabling customers to make peer to peer money transfers, borrow, save and invest, shop online, stream music and movies, play games, book travel and movies and hail taxis without leaving the app.

Joosub has championed the data analytics capabilities underlying the Alipay (VodaPay) app saying this would benefit users inters of in-app advertising of daily offers, promotions and gifts.

Joosub provided a use case scenario, using Uber as an example to re-enforce the concept of being able hail a taxi from the App. If the customer did not have enough money for taxi ride, VodaPay could advance the [Uber] ride. The VodaPay platform’s ability to assess customer credit worthiness overlayed with partnerships from financial institutions that provide a micro credit line is a key underlying capability of the Alipay platform.

In our April 2021 report, Are telcos smart enough to make money work?  STL highlighted how most telcos have the capabilities required to develop a compelling financial services proposition, except for three – industry knowledge, consumer app development and data analytics/machine learning expertise. To address those gaps, most telcos will need to partner with specialist fintech players.

The Alipay-VodaPay initiative is a case in point where Vodacom provides distribution capability and behavioural data from its installed base while Alipay provide deep industry knowledge, technical app development capabilities in addition to data analytics and machine learning.

Figure 3 is a shortened extract highlighting the capabilities needed to provide compelling financial services. The full graphic can be found here. It may also provide illumination for the success of Alipay in China given the synergistic relationship between Alipay and Alibaba’s marketplace ecosystem.

Financial service capabilities by service provider

telecoms vodapay alipay financial services capabilities

Source: STL Partners analysis

VodaPay is open to both Vodacom and non-Vodacom customers and this remains as the app transitions to a super app however, only Vodacom customers will benefit from a zero-rated experience in terms of data usage.

From a lifestyle perspective, CEO Jossub envisions the super app enabling users to shop from multiple (ideally thousands) of merchants on the platform, from clothing to groceries with VodaPay earning a commission from each transaction. Customers will be able to browse products (including any supported video advertising or demo) with the option to purchase the item outright or obtain credit and pay in instalments.

  • Advance credit to buy now pay later for online purchases has become hugely popular as Fintech players such as Klarna and Affirm enable consumers to spread out payments for both big and small ticket items.

Retailers will continue to manage their own delivery and logistics as is the practice with other Alipay implementations across Asia according to Jossub. Services such as grocery delivery is a common feature on super app platforms and such players will likely access the platform.

Joosub analogised a South African grocer such as Pick ’n Pay or Woolies having a mini app presence on the platform, where the user orders and purchases through the VodaPay app without leaving the platform. In this except from its May 2021 annual results presentation Vodacom showcased VodaPay’s capabilities. The key challenge will be getting merchants to join the app, although Vodacom is making inroads here, too (we go into more detail in the section on VodaTrade).

Opening new revenue streams

Vodacom has highlighted new revenue streams that could be derived from payments to merchants and lending. All transactions through the app’s mini programmes (merchants) are processed through Vodacom’s own payment gateway. Vodacom charges merchants a commission (or margin) on transactions when users make a purchase on VodaPay. Monetisation opportunities will be similar to those of the M-PESA business according to Mariam Cassim, chief officer for financial services at Vodacom. Cassim also highlighted that during the first 12 months from launch of the super app, Vodacom will focus on driving downloads and developing an active user base with high visit frequency. This is necessary before monetising the customer according to Cassim. As an indication of how these revenue streams could evolve, we highlight Alipay’s services in the following sections: Payments as a primary revenue source, CreditTech services for financial institutions, InvestmentTech services for financial institutions and InsureTech services for financial institutions.

Payments and transactions

Users will be able to move funds to the wallet or stored value (similar to M-PESA) on the VodaPay app or have transactions pass through on a linked credit or debit card. A virtual card will also be available where customers can link to their bank account.  Customers can also fund the wallet through an electronic funds transfer (ETF) or by visiting a Vodacom outlet.

The Vodacom/Alipay relationship

Ant Group’s relationship with Vodacom regarding Alipay is exclusive in South Africa. Joosub pointed out it is the first time the partnership with Alipay does not involve an equity stake. (Ant Group holds a 30.33% stake in Indian e-wallet PayTM.) Joosub described the deal as having no revenue share but instead pure vender software (and maintenance) agreement.

The service is being rolled out in South Africa only, at least initially. In terms of expansion and roll out across the group, there will be no revenue share across international markets according to Joosub. While the full (Alipay) platform is being rolled out in South Africa, elements of the software (service) will be rolled out on M-PESA (again with no revenue share).

VodaPay South Africa and M-PESA across Africa

Although Alipay platform will be exclusive to Vodacom in South Africa, Vodacom intends to further develop and evolve M-PESA into an open lifestyle app similar to what is being launched in South Africa. According to Joosub, “the Alipay deal is separate from M-PESA establishing a lifestyle platform and a super app capability which is not what M-PESA does today”.

M-PESA has 41.5 million active customers and operates in seven markets; Democratic Republic of Congo (DRC), Egypt, Ghana, Kenya, Lesotho, Mozambique and Tanzania.

Joosub highlighted that the fact M-PESA does not operate in South Africa makes it easier for Vodacom to roll out the VodaPay (Alipay) platform super app in a greenfield site and in a market where smartphone penetration is higher.

Vodacom intends to introduce elements of the VodaPay (Alipay) super app service into M-PESA. Joosub highlighted this would involve an upgrade of the underlying Huawei platform (G2 to G3), which once in place will enable Vodacom to implement the equivalent mini app capability on top of M-PESA, to give users a similar service experience to that on VodaPay.

The aim is to share best practice between the two services, drawing go-to-market lessons from the lifestyle capabilities launched in South Africa when expanding into M-PESA and other markets.

According to Joosub, M-PESA has already been evolving through the introduction of lending and overdraft facilities such as Songesha and Fuliza across its markets and through its expanding merchant capabilities. Where M-PESA is currently open to a small number of vendors, the new implementation will enable thousands of vendors to sell through the platform, aggregating a variety of services. In Kenya, M-PESA already works with 300,000 merchants.

The following graphic highlights Vodacom’s M-PESA Vision 2025 and how it plans to scale and develop the opportunities from VodaPay to M-PESA.

Vision for M-PESA

Source: Vodacom Annual Results for year ending 31 March 2021 (May 18th 2021)

VodaTrade: Getting merchants on board

Vodacom Financial Services has been building up a competency in South Africa’s small, medium and micro-enterprises (SMMEs) sector, including among merchants that offer the daily life services which will be key to driving engagement on VodaPay.

Its VodaTrade unit introduced VodaPay Max – a vending and lending point of sale solution for SMEEs that not only accepts payments but also offers a merchant portal for monitoring transactions, loans and invoice financing with the ability to connect with FMCG suppliers and access legal assistance.  The device will soon be able to vend prepaid airtime, electricity and other services according to Cassim.

VodaPay Max is part of the company’s payment strategy in developing new sources of revenue outside of voice and data. Updating investors in February 2021, Cassim highlighted the company signed up just over 1,200 active merchants in the last few months since launch and currently process approximately ZAR 100 million ($7.22m) worth of transaction value per month.

Cassim has previously highlighted its trading business, includes over 4,500 small merchants and all of South Africa’s major FMCG players processing over ZAR 200 billion ($14.45bn) worth of transaction value per annum.

“Connectivity with merchants is an important part of our ecosystem approach and our trading platform [VodaTrade] will form the basis for these interactions.”

VodaPay Max terminal for merchant SMMEs


Source: Vodacom Business South Africa

Alipay: A formidable financial services partner

In 2004, as China’s e-commerce economy was taking off, Alibaba created Alipay to resolve the trust issue between buyers and sellers transacting online. Ant Group’s Alipay was spun off from Alibaba 2011 however the relationship with Alibaba e-commerce remains highly synergistic and is a key element of an ecosystem that consists of consumers, merchants, financial institutions, third-party service providers and strategic alliance partners. The Alipay platform provides utility and value to consumers and small businesses whose financial needs are significantly underserved in China.

Ant Group’s Alipay platform is a leading digital payments provider and lending digital finance platform in China based on total payment volume (TPV) and total transaction volume (TTV) according to iResearch and Oliver Wyman[1]. In the twelve months to June 30, 2020, total payment volume on the Alipay platform in mainland China amounted to CNY 118 trillion ($18.46trn). It also has an international payments business with a TPV of CNY 622 billion ($97.3bn) over the same period.

  • The Alipay app reaches over one billion users (711 million monthly active) and 80 million merchants. 729 million users transacted one or more digital finance services in the 12 months to June 2020.

iResearch estimated Alipay’s market share in digital payment services to be 55% in June 2020, compared to Tencent’s 40% share. Tencent operates Weixin Pay and WeChat Pay within its own app ecosystem.

  • The Alipay platform is built on three pillars: digital payments, digital finance, and daily life services.

The platform overcomes the constraints of traditional bricks and mortar financial institutions that cannot reach underserved consumers and small business and lack market reach and customer insight to underwrite risk to provide of credit loans and insurance.

The Alipay super app delivers value to three principal ecosystem participants:

Consumers can make payments, access digital finance, such as consumer credit, investment and insurance products. Access third-party daily life services such as food delivery, transportation, entertainment as well as municipal resources.

Businesses can receive payments, access digital finance such as SMB credit and investment products. Use the Alipay app and its mini program app infrastructure to promote daily life services which can be easily discovered on the app through search or with customised icon placement.

Financial institutions can issue credit, investment and insurance products over the Alipay utilising the platform’s intelligent decisioning, dynamic risk management solutions and technology infrastructure. Alipay acts as a collaborative partner to financial institutions as opposed to a competitor.

Ant Group cites ease of access and frequent customer engagement with a broad range of digital life services within the Alipay platform as key to the app’s stickiness and retention. The app’s digital finance services complement its digital payments and daily life services creating a virtuous growth cycle with strong network effects across the ecosystem of services.

Alipay’s deep expertise in financial services and analytics

Alipay’s ecosystem participants (consumers, merchants, financial institutions) benefit from the company’s deep domain knowledge and expertise in financial services, its unrivalled customer insights and intelligent decisioning systems as well as its superior technology infrastructure.

  • Vodacom has previously commented that it will receive support from Alipay as part of its vendor agreement. Vodacom stands to benefit from Ant Groups knowledge in financial services and super app product development in addition to the access to the Alipay platform’s technical capabilities in data analytics, proprietary algorithms and technology resources. Ant Group also has the experience of partnering with others internationally such as with PayTM in India.  We discuss the varying capabilities telcos and fintech players can share in developing new products and services in our April 2021 report: Are telcos smart enough to make money work?.

The company’s domain expertise consists of payment specialists with knowledge of payment network architecture, and security. Banking personnel with experience in product design, credit assessment, fraud protection, and monitoring. It’s investment services team also offer product design, suitability, asset allocation and risk management. The insurance team also possess product design knowledge, underwriting and claim management experience across a range of insurance products.

Alipay platform capabilities for financial institutions


Source: Ant Group IPO Prospectus October 2020

  • The platform offers broad and targeted reach to over one billion Alipay app users with tailored financial products
  • It offers Intelligent real-time decisioning systems using AI and proprietary algorithms to assess risk and match products with customers. Through its detailed insights on customers and small business data, Alipay can deploy solutions that assess suitability of a wide variety of credit, investment and insurance product features for a given customer. They can determine a customer’s ability and willingness to repay and likelihood of a accepting an offer. Much of its data on customers is derived from its rich synergy with Alibaba.
  • Dynamic risk management systems with risk-detection algorithms to assist financial institutions in their decision making. Alipay offers risk solutions for KYC, fraud, AML, credit, liquidity, operations, security and data privacy.
  • Technology infrastructure in the form of AI, computing, proprietary algorithms and other technologies such as AntChain (blockchain) which enable Alipay’s financial institutional partners to serve customers. The company developed technologies to handle periods of peak volume trade (such as shopping festivals, holidays) such as SOFAStack (Scalable Open Financial Architecture Stack) a middleware architecture to support a high volume of concurrent transactions and OceanBase, a distributed relational database to deal with Alipay’s growing volume of transactions. Ant Group highlight, during the 11.11 shopping festival in China in 2019, OceanBase dealt with a peak of 60 million processes per second.

Overview of Alipay’s digital finance platform

Payments as a primary revenue source

Alipay digital payments enable merchants to transact online and offline. The company primarily makes digital payment service revenues by charging merchants transaction fees based on a percentage of the volume.

  • In its 2019 financial year, digital payment and merchant services accounted for 43% of Ant Group revenues, CreditTech 34.7%, InvestmentTech 14.1% and InsureTech 7.4% of revenues.

Alipay provides the transactions on Alibaba’s marketplaces such as Taobao, tmall, and and is the primary method used by buyers and sellers to complete payment transactions on Alibaba’s platforms. In addition to merchant fees, users also pay for personal transactions such as money transfers to bank accounts and credit repayments. Alipay also offers cross border payment and merchant services with consumers and merchants being able to transact and make payments internationally. The platform supports 40 currencies. Alipay offer payment and digital marketing solutions to merchants such as Alibaba’s AliExpress and Lazada.

Customer can fund and make online and offline payments in five ways; through their e-wallet account balance, linked debit and credit card accounts, Yu’ebao balance, and Huabei credit line. The Alipay users can set their default payment method carry out regular banking activities such as transfers to their own or other accounts and carrying out borrowing and investment transactions.

Alipay offer merchants marketing tools such as loyalty programs and the ability to organise mass marketing events. One such shopping festival consisted of a nationwide campaign enabling offline merchants to offer e-coupons through the app which could be redeemed in stores. Seven million merchants signed up for the event.

Alipay app


Source: Ant Group IPO Prospectus October 2020

With 60% of users coming to the app for daily life services merchants benefit from Alipay’s centralised app interface and the ability to engage with its large customer base. Merchants benefit from Alipay’s customer insights such as Alipay’s trust score Zhima Credit, allows merchants to access the trustworthiness of customers before offering their daily life services such as hotel booking, ride sharing, shared power bank rental or car rental.

CreditTech services

Alipay’s CreditTech services address the unmet and underserved credit needs of both consumers and SMBs in China. The Alipay platform originates loans which are underwritten by partnering financial institutions which numbered 100 partner banks in June 2020.

Alipay generates technology service fees from their partner financial institutions based on the interest income they generate on loan credit balances originated through the Alipay platform. As of 30 June 2020, approximately 98% of loans (credit balance) originating on the platform were underwritten by partnering financial institutions or securitized. This may have unnerved Chinese regulators prior to Alipay’s IPO.

In the 12-month period to 30 June 2020 the total outstanding credit balance originated totalled CNY 1,732bn ($271bn) for consumers and CNY 422bn ($66bn) for small businesses, making it the largest online consumer and SMB credit provider in China according to Oliver Wyman research. In the 12 months ending 30 June 2020, Alipay had arranged credit for 500 million consumers and over 20 million small business merchants.

CreditTech products include:

  • Huabei:a digital unsecured revolving consumer credit line product for daily expenditure.The Huabei credit line is based on Alipay’s customer insights and credit assessment models and is instantly accessible at the point of sale. Customers get an interest-free period of up to 40 days from purchase and can make repayments over three to 12 months. In the 12 months ending 30 June 2020, the Huabei loans (users) paid an interest rate at or below 0.4% and the average Huabei outstanding balance was CNY 2,000 ($313). Huabei offers customers a convenient credit source and the ability to build their credit history. According to Oliver Wyman research, it is now the largest digital consumer credit product by credit balance in China.
  • Jiebei is also an instant short term unsecured credit product for lager loans and is usually offered to users who have already established a credit history.

InvestmentTech services

Alipay’s InvestmentTech services enable partnering asset managers to provide users investment products which are transparent, personalised, easy to understand and come with low investment commitment. As of June 2020, Alipay had 170 partnering asset managers – from mutual funds, and insurers to banks and securities companies across China offering over 6,000 products through the platform.

Alipay earns technology service fees from partners based on the volume of investment products distributed (or assets under management – AUM) via the platform. The company uses AI techniques to match investment products with customers based on their risk tolerance and other customer insights.

As 30 June 2020, Alipay was the largest online investment services platform by AUM having matched and distributed CNY 4,099bn ($641.2bn) according to Oliver Wyman research. Ant Group’s own licensed asset management subsidiary Tianhong accounted for 33% of this value. In the 12 months to 30 June 2020, over 500 million users invested in Alipay’s InvestmentTech services.

InvestmentTech products include:

  • Yu’ebao: an investment product where consumers can make small regular investments from a little as CNY 1 ($0.16) and earn interest (yield on unutilised cash) while still being able to redeem funds instantly for everyday purchases. The minimum investment threshold helps to ensure the widest possible inclusion of Alipay users. According to Ant Group, Yu’ebao has deepened Alipay’s relationship with its users by increasing engagement and driving higher payment volume through the platform.Alipay also offers an investment management product for SME called Yulibao.
  • In April 2020, Alipay launched Bangnitou in partnership with Vanguard (an international investment company) offering users/investors customised advisory services based on user’s investment objectives, time horizon, and risk preferences. Bangnitou’s AI algorithms dynamically invests and allocates investment portfolios from over 6,000 mutual funds for a service fee. The minimum investment required is CNY 800 ($125). In its first 100 days, Ant Group said over 200,000 customers purchased the product and investing CNY 2.2bn ($344.17m).

Summary of Alipay financial partnerships

alipay ant group financial services customers and partners

Source: Ant Group IPO Prospectus October 2020

InsureTech services

As an online insurance services platform, Alipay’s 90 insurance partners (June 2020) offer over 2,000 customised insurance products covering life, health and property and casualty (P&C) insurance which address both consumer and business needs. According to Ant Group, in the 12 months ending 30 June 2020, over 570 million Alipay users purchased insurance or were insured on our platform or participated in its Xianghubao mutual aid program.

The company earns technology service fees based on a percentage of the insurance premiums and contributions generated through the platform. The size and scale of the Alibaba ecosystem enables Alipay to develop new insurance products for consumers and businesses. Oliver Wyman research estimated Alipay is the largest online insurance services provider in terms of the CNY 52bn ($8.13bn) in premiums and contribution value generated through the platform in the 12 months ending 30 June 2020.

InsureTech products developed or co-developed with insurance partners include:

  • Jiankangjin offers free health protection of up to CNY 20,000 ($3,129) for Alipay users to claim outpatient reimbursements and other medical needs. Users scan a copy of the claim form into the Alipay App for reimbursement. Alipay says the product has served as an effective tool in educating users on the benefits of insurance products and opens up the potential for further cross and upselling selling of insurance products.
  • Quanminbao is pension annuity product with flexible premiums as low as CNY 1 ($0.16) which has brought pension cover to those on low incomes. When policyholders reach retirement, they can receive payments via the Alipay app on a monthly basis. Quanminbao is co-developed with PICC Life, a leading life insurance company in China
  • Haoyibao or long-term medical insurance is an affordable health insurance product covering almost 100 critical illnesses. Ant Group highlight the lower priced premiums on this product compared to competitors has attracted younger customers to purchase health insurance. In May 2020, Alipay launched Haoyibao Lifetime Cancer Protection to customers under 70 with an annual premium starting at CNY 89 ($13.92).
  • Xianghubao is a mutual aid insurance program covering over 100 critical illnesses.The cost of claims is shared equally by all members in the program. There is no upfront payment for joining. In 2019, the annual contribution paid by each Xianghubao member was CNY 29 ($4.53). Claims are submitted via the Alipay app for review. One-time pay-outs vary by age: with CNY 300,000 ($46,932) for those aged one month to 39 years, and CNY 100,000 ($15,644) for members aged between 40 and 59 years of age. The policy covers critical illnesses such as lung, breast and thyroid cancer as well as brain injuries. The program had 100 million active members on 30 June 2020. Ant Group say it is another product which has increased users awareness and willingness to purchase insurance
  • Alipay offer shipping and return insurance for online purchases between consumers and merchants on Alibaba’s marketplaces such as Taobao. According to Ant Group, premiums for shipping return insurance are usually less than CNY 1 ($0.16) but depend on the nature of the merchant’s type of business activity. Shipping insurance lowers barriers to e-commerce transactions.

Alibaba fuels Alipay’s success: A major customer and major supplier

Since Alipay developed out of a need to process transactions between customers and merchants on Alibaba, the relationship between both entities has remained strategic and highly synergistic. In addition to its 33% share of Ant Group, Alibaba is a major customer and major supplier to Ant Group’s Alipay.

Fast and reliable payments infrastructure and innovation in digital finance products facilitate growth in commerce and consumption across Alibaba’s platforms. Ant Group’s (50 year) payment services commercial agreement with Alibaba is strategically important to Alipay.

In its IPO filing, Ant Group also highlighted Alibaba was its largest customer over recent years (2017, 2018 and 2019 track record). Alibaba generated 8.1% (or CNY 9,773 million $1.52bn) of revenues in 2019.

Consumer activity across Alibaba platforms and marketplaces both online and offline provide Alipay with valuable insights. Ant Group highlight the valuable commercial insights garnered from users interacting with the Alibaba ecosystem when buying goods and services, food and merchandise delivery, offline store visits, accessing entertainment, navigation and work collaboration. These insights are used for developing digital finance products and services for customers, improving the customer experience and enhancing the value offered to digital finance partners.

Ant Group highlights both companies collaborate in a number of areas including: (i) jointly serving consumers and merchants across consumption and daily life use cases; (ii) sharing insights derived from platform activity; and (iii) expanding cross-border activities.

While financial institutions represent important suppliers to Ant Group, Alibaba was also its largest supplier in recent years in areas such as payments, technology services (such as cloud services) and shared services.

Ant Group has a data sharing agreement with Alibaba with a term of 50 years. Both companies operate their own data platform, with independent computing and analytical capabilities and do not operate from a shared data pool.

A cross license agreement enables both parties license to elements of each other’s intellectual property rights on a royalty free basis. A trademark agreement allows Ant Group to use certain Alibaba trademarks and domain names royalty free for 50 years.

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The private cellular networking opportunity matrix

STL Partners represents the private networking opportunity across two dimensions: level of stakeholder alignment vs. degree of cellularity. With the aim of helping others evaluate the extent to which they can take advantage of private cellular networks, we identified 4 archetype situations below for deploying private 4G or 5G.

Segment 1: The sweet spot for private LTE and 5G networks

Private networking opportunities should be strongest when there is both a strong need for cellular networking characteristics and high stakeholder alignment. The strong need for cellularity is why we see the majority of live deployments today (not only trials) focused in industries such as oil and gas, mining and ports where there is a clear need for outdoor coverage, coverage from 100m to several km range and/or support for mobility use cases.

Segment 2: Value constrained by internal challenges

The potential value and return on investment (ROI) of a private cellular network are constrained by the number of use cases and applications it can support and your ability to implement these. Both ultimately depend on internal alignment of application owners and other stakeholders, which can be challenging for certain organisations. This can derail a potential private cellular deployment, even when there is a clear business and technical need for one.

Segment 3: Wider role of connectivity as an enabler

Many enterprise projects and transformations have heterogenous connectivity needs. We see private cellular as an important part of the toolkit, but it should be viewed within a boarder context and strategy rather than an end in itself. Each tool has its own unique capabilities and benefits but enterprises should think about how they can simplify their toolkit and select key tools that can help them address the majority of their current and future needs.

Segment 4: The battle of connectivity solutions

The advantage of deploying a private network is rarely clear-cut. It will be more difficult to justify the private cellular business case where its enhanced capabilities are seen as more of a “nice to have”, especially when there is a higher CapEx or OpEx associated with it. In many cases, alternative forms of connectivity may be more appropriate for most use cases, given the level of investment required for a private network.

For more information, check our latest report Navigating the private cellular maze: when, where and how? or

See our other in-depth research on private cellular: