Analysys Mason - Digital Economy and Strategies for Telecoms
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    Analysys Mason - Digital Economy and Strategies for Telecoms Analysys Mason - Digital Economy and Strategies for Telecoms Document Transcript

    • MOBILE AND THE DIGITAL ECONOMY analysysmason.com
    • CONTENTS Introduction p3 Mobile handset data revenue will be driven by volume in emerging markets and value in developed countries p4 OTT messaging volumes will nearly double in 2014 p6 Almost 40% of tablet users worldwide use devices bought by friends and family p8 Three essential M2M strategic considerations for small operators p10 Operators must play on current strengths and develop new competencies to thrive in the digital economy p12 Big data will not automatically lead to deep insights p14 LTE predictions for 2014: operators will reap the benefits of carrier aggregation but VoLTE will have limited impact p16 M2M services other than connectivity will account for 53% of M2M revenue in 2016 p18 Customer experience management – value-based delivery and service support p20 The four critical policy criteria for mobile spectrum renewal p22 Network virtualisation opportunities for CSPs begin in the core of next-generation networks p24 LTE to be deployed worldwide by 2018: Asia–Pacific and Latin America dominate network launch plans p26 Monetising LTE services: developing new revenue streams through differentiation and innovative pricing p28 What we offer p30 2
    • Analysys Mason is proud to present our latest insights on the most important trends driving the development of the mobile sector. As consulting and research specialists with over 25 years of experience in telecoms, media and technology, the Analysys Mason team offers a winning combination of extensive industry knowledge, advisory expertise and unique research methodologies. Our clients rely on us as a trusted partner in developing strategies for success across the entire mobile telecoms and media value chain. BRAM MOERMAN Chief Executive Officer Analysys Mason Our expertise in mobile trends and topics is unsurpassed, drawing on the strategic expertise of our senior consultants, the recognised thought leadership of our team of specialist mobile analysts, and a suite of in-depth research programmes covering mobile services, networks, content, technologies and devices. To help you get the most out of 2014, members of our team have shared their thoughts on some of the key issues that will be important to you during the next 12 months. Some of the key articles in this collection include: • Three essential M2M strategic considerations for small operators • Operators must play on current strengths and develop new competencies to thrive in the digital economy • LTE predictions for 2014: operators will reap the benefits of carrier aggregation but VoLTE will have limited impact • The four critical policy criteria for mobile spectrum renewal. We hope you find these opinion pieces and expert commentaries of interest and value. We welcome your feedback and encourage you to contact the authors directly if you would like to discuss any of the points they have raised, or are looking to understand how a specific issue or trend will affect your business. To find out more about our experience and services, please visit www.analysysmason.com, and you can also follow us on Twitter at @AnalysysMason. We look forward to working with you to support your success in the mobile market in 2014 and beyond. INTRODUCTION 3
    • Mobile handset data will be the single largest source of revenue growth in telecoms markets during the next 6 years, as the shift from voice to data looks robust in developed countries, and smartphone penetration gains momentum in emerging markets. Traditional voice and messaging services are declining and new data services are taking their place, driven by next-generation mobile networks and the increased ownership of smart devices. Telecoms retail revenue worldwide will reach USD1.64 trillion in 2018, up from USD1.50 trillion in 2012. Mobile handset data revenue will lead the growth – it will increase by about USD160 billion, at a CAGR of more than 10%, to reach USD358 billion in 2018 – 22% of total retail revenue. Our report Global telecoms market: interim forecast update 2013–2018 (available at www.analysysmason. com/GTF-interim-2013), presents our latest analysis of the key trends in telecoms markets worldwide. Compared with our previous forecasts, we have revised up our expectations for mobile handset data revenue to take into account the faster-thanexpected shift from voice to data in the mostdeveloped markets, and the better-than-expected take-up of smartphones in some emerging markets. Our new forecast for mobile handset data revenue during 2013–2018 is about 3% higher than our previous forecast. Growth drivers: value in developed countries, volume in emerging markets Mobile handset data revenue will grow during the next 6 years in all eight geographical regions that we have modelled (see Figure 1). However, market dynamics and challenges for telecoms service providers vary substantially by region. We have identified two major drivers of mobile handset data revenue growth. • Value. Increased spend per user on mobile handset data services will be the main driver of growth in developed regions (Central and Eastern Europe (CEE), developed Asia–Pacific (DVAP), North America (NA) and Western Europe (WE)). We forecast that about 85% of mobile handset data revenue growth during 2013–2018 will come from increased spend on data services as existing users upgrade to smartphones, and about 15% from new users entering the market. The average spend per user (ASPU) on handset data will increase by double digits in Europe, and single digits in NA and DVAP. • Volume. An increased number of smartphone users will be the main driver of growth in emerging regions (emerging Asia–Pacific (EMAP), Latin America (LATAM), Middle East and North Africa (MENA) and Sub-Saharan Africa (SSA)). The number of smartphones will increase at a CAGR of 26% – twice the rate that we expect in developed regions. Smartphone penetration of handsets will reach about 50% in EMAP in 2018 and about 60% in LATAM – we assume that handset subsidies, cheaper devices, and data package offerings will stimulate demand in countries where the addressable market is still very high but new users have less disposable income than established subscribers. Handset data ASPU will continue to be low in 2018 – about USD2 per month in EMAP and LATAM, and about USD1 per month in MENA and SSA. PABLO IACOPINO Senior Analyst Global Telecoms Forecasts and European Country Reports research programmes EMAP, NA and WE offer the greatest opportunities for handset data revenue growth Figure 1 shows that about 75% of mobile handset data revenue growth will come from three regions during the next 6 years. • Emerging Asia–Pacific. The region will account for about half of the growth in smartphone numbers during 2013–2018 because the addressable market in China and India is enormous. We forecast a solid smartphone growth (CAGR 24%) because MOBILE HANDSET DATA REVENUE WILL BE DRIVEN BY VOLUME IN EMERGING MARKETS AND VALUE IN DEVELOPED COUNTRIES 4
    • “Telecoms retail revenue worldwide will reach USD1.64 trillion in 2018, up from USD1.50 trillion in 2012. Mobile handset data revenue will lead the growth – it will increase by about USD160 billion, at a CAGR of more than 10%, to reach USD358 billion in 2018 – 22% of total retail revenue.” affordable devices such as the inexpensive Android handsets that are manufactured in the region will become abundant, which will drive handset data services among lower-spending users. EMAP will generate around USD80 billion in handset data revenue in 2017 when it will overtake DVAP to become the second-largest market after NA (about USD100 billion). • North America. Growth in the number of smartphones will continue to be solid, as the success of tethering plans for smartphones and multi-device plans shift to data spend from mobile broadband USB modems. At the end of 2018, 84% of handsets will be smartphones in NA, up from 54% in 2012. LTE take-up is stronger than we had expected in the USA, and most nationwide operators were expected to have widespread 4G coverage by the end of 2013. Mobile handset data revenue will grow at a CAGR of 10%, mainly driven by an 8% growth in handset data ASPU. The USA will remain the leading market in the world, with handset data revenue of about USD90 billion in 2018. • Western Europe. We expect handset data ASPU to double in WE (from USD4 per month in 2012 to USD8 in 2018), but will remain substantially lower than in NA and DVAP (both above USD20), and will not be enough to offset the big decline of voice and messaging. The actual growth of handset data revenue in the first half of 2013 slightly exceeded our expectation as the shift from mobile broadband continues, and operators tend to attribute more revenue to the data element, when this is part of a voice and data package. In 10 of the 16 Western European countries covered, year-to-date data suggests that the decline in large-screen mobile broadband connections is happening even faster than we previously forecast, with the Netherlands, Portugal, Spain and the UK representing some significant examples. For more information, please contact Pablo Iacopino, Senior Analyst, at pablo.iacopino@analysysmason.com 1 80% 40% 40% Connectivity (share of respondents using 3G/4G tablet SIM) 60% 20% Share of handsets: LTE Worldwide Middle East and North Africa Sub-Saharan Africa Central and Eastern Europe Latin America Developed Asia–Pacific Western Europe North America 0% Revenue 4 16 14 20 OTT IP messaging Operator IP messaging SMS venue (USD billion) 40 25 25% 20% 15% 10% U 50% Smartphone 45 30 30% 0% 50 35 35% 5% Figure 1: Mobile handset data revenue growth (2012–2018), and smartphones’ share and LTE’s share of handsets (2018), by region, worldwide [Source: Analysys Mason, 2014] essages (trillion) 2 45% Percentage of handsets 100% 160 140 120 100 80 60 40 20 0 Emerging Asia–Pacific Revenue growth (USD billion) 3 12 10 8 6 5
    • More than half of smartphone owners worldwide are already active users of OTT messaging apps, and there are no signs of the market slowing. Technological enablers and widespread adoption of mobile Internet access have lowered the barriers to entry in communication services markets. Over-the-top (OTT) messaging services, in particular, have proved popular and adoption levels soared in many countries in 2012 and 2013. This article provides an outlook for the messaging market to 2018 and considers the implications for mobile operators. IP messaging is turning out to be a ‘killer app’ for the mobile Internet Major Internet players such as Apple, Facebook and Google have identified the messaging market as a target for market disruption and one that can complement their core businesses. In addition, specialist start-ups such as Kakao, Line and WhatsApp have driven innovation in feature sets and supporting business models. The segment proved wildly successful, and we estimate that 55% of smartphone owners worldwide were active users of IP messaging services at the end of 2013. The services are driving much higher levels of user engagement compared with SMS. WhatsApp recorded an all-time high of 10 billion outgoing messages in a single day in June 2013, which equated to an average of more than 30 messages per user per day. We estimate that the total volume of messages sent from mobile devices via IP services exceeded the volume of SMS messages for the first time in 2013, at more than 10.3 trillion compared with 6.5 trillion worldwide (see Figure 1). These trends are set to continue, driven by increased adoption levels. We forecast the number of users on smartphones to increase from about 1 billion in 2013 to almost 3 billion in 2018. Messaging volumes associated with OTT services are expected to almost double in 2014 and will reach 37.8 trillion messages sent in 2018. Operators need to reassess their role in the messaging market The weakening role of operators in the messaging value chain suggests that it is only a matter of time before SMS services are dislodged from their current default position on smartphones. OEMs and OS providers are moving aggressively into the messaging market and it will be increasingly commonplace for alternative messaging services to be set as the default. The ubiquity of operator services is often cited as their key strength or unique selling point (USP). However, in messaging, intensive usage tends to be clustered within relatively small user groups, and many users switch rapidly between different services. Any interoperability issues are solved by an easy download of another app. In this fragmented market, operators could potentially be left as the third-rate fallback option, behind native capabilities provided by the OS (Android, iOS or Windows Phone) and behind the large-scale, cross-platform apps. Operators’ IP-based initiatives, whether industrystandard such as RCS or based on proprietary platforms, could serve to limit substitution in some markets, but are likely to only secure minority market shares. In most cases, the momentum behind OTT alternatives is too strong, and operators are lacking compelling means of differentiation in messaging. As operators decide whether or not to seriously compete in messaging, they should focus on the following. • Support for a broader consumer proposition built around voice and video: Operators will struggle to compete directly with the major Internet players and niche providers of messaging services. OTT MESSAGING VOLUMES WILL NEARLY DOUBLE IN 2014 6 STEPHEN SALE STEPHEN SALE Principal Analyst Principal Analyst Mobile Services and Next-Generation Services research programmes
    • “Major Internet players such as Apple, Facebook and Google have identified the messaging market as a target for market disruption and one that can complement their core businesses.” Instead, they need to focus efforts on supporting services where they are able to differentiate and derive revenue. 3 Revenue 80% 40% 40% Connectivity (share of respondents using 3G/4G tablet SIM) 60% 20% Worldwide Middle East and North Africa Sub-Saharan Africa 0% discussion of the different approaches available to players, whether mobile operators or alternative providers of OTT services. Central and Eastern Europe Latin America Developed Asia–Pacific Western Europe North America Emerging Asia–Pacific Our recent report OTT communication services worldwide: forecasts 2013–2018 (www. analysysmason.com/OTT-WWF-2013) provides a quantitative outlook for traditional and IP-based communication services in 47 countries and 8 regions. The report is partnered with OTT communication services worldwide: stakeholder strategies (www.analysysmason.com/OTTstrategy-2013), which provides more detailed 45% Percentage of handsets 100% Revenue growth (USD billion) • Improving the feature set available to the B2B, B2B2C and wholesale sectors: Given the limited opportunity in the consumer retail space, operators should focus their efforts on using their network assets and brand strengths to ensure that 1 they are well positioned to address opportunities in other segments. Working with partners and fostering ecosystems is critical to success in the broader communication services market. 160 140 • Cost reduction: Competition from major players 120 with extensive financial resources and indirect 100 business models further underlines the need for 80 operators to focus on cost reduction. Messaging 60 margins are very 40 vulnerable when services such as WhatsApp Messenger can run on operating costs 20 in the tens of cents per subscriber per year. 0 For more information, please contact Stephen Sale, Principal Analyst, at stephen.sale@analysysmason.com Share of handsets: LTE 35% 30% 25% 20% 15% 10% 5% U 0% 50% Smartphone 2 4 50 16 45 14 35 OTT IP messaging 30 Operator IP messaging 25 20 SMS 15 10 Revenue (USD billion) Messages (trillion) 40 12 10 8 6 4 2 5 0 2018 2017 2016 2015 2014 2013 2012 2011 2010 0 2013 Figure 1: Messages sent via mobile handsets by service type, worldwide, 2010–2018 [Source: Analysys Mason, 2014] Product management 7 20
    • On 22 October 2013 Apple announced that it has sold 170 million iPads since the launch of the tablet in 2010. The unprecedented use of tablets at a mass-market level in Western countries has many implications for operators and device manufacturers. According to Analysys Mason’s major worldwide survey of 43 000 tablet users across 17 countries (available at www.analysysmason.com/tabletsurvey-2013), 43% of respondents did not buy the tablet that they use. Instead, many tablets were given as gifts by friends and family (39%) or provided by an employer (4%). This partly explains the under-use of 3G/4G on tablets, because people are more likely to receive non-cellular tablets as gifts. Our survey shows that less than 10% of tablet respondents in the UK and the USA use cellular networks to connect their tablet, highlighting simultaneously the opportunity and the challenge that this market represents for operators. Wi-Fi availability and connectivity costs are major inhibitors to 3G and 4G adoption on tablets The survey results highlighted that usage of tablets varies widely by region. However, we observed some common trends, particularly when looking at the opportunities for cellular connectivity on tablets – 47% of respondents had a tablet with cellular connectivity, but only half of them actually used that capability. We identified the following three key factors that affect cellular connectivity attachment rates on tablets. • Wi-Fi satisfies the connectivity needs of most tablet users. 45% of respondents with a 3G/4G- capable tablet who did not use this capability stated that Wi-Fi availability was the main reason for not enabling a SIM in their device. Tablets are mostly used at home, at work and in public places, where Wi-Fi is commonplace, particularly in developed markets. Wi-Fi is also used while on the move via smartphone tethering. • The price of cellular connectivity is not declining as fast as the average retail price of tablets. This has increased the percentage of the total cost of ownership (TCO) that is attributed to service charges. For example, the TCO over 12 months for the LTE version of Amazon’s Kindle Fire HDX with a 5GB monthly data plan on AT&T is four times higher than the cost of a Wi-Fi-only Amazon Kindle Fire HDX, because of the high data charges. • There is a direct link between mobility and the use of 3G/4G on tablets. The shaded area in Figure 1 illustrates this link. However, some countries fall outside this correlation, particularly in the Middle East, where mobility is high but connectivity is low; and in South Africa, where mobile data connectivity is often used as a replacement for fixed services. RONAN DESALE STEPHEN RENESSE Principal Analyst Principal Analyst Mobile Devices and Digital Economy research programmes 43% of tablet users did not buy the tablet that they use Operators need to effectively use retail channels to promote and educate customers about their services and offers directly at the point of sale. For example, understanding ownership trends in terms of replacement cycles is critical for synchronising operator marketing strategies with actual tablet demand from new and current tablet users. However, a fundamental difference between purchase behaviour for tablets and smartphones is the impact that gifting or sharing has on their distribution and access. Overall, 43% of survey respondents did not originally buy the tablet that they used – 39% were acquired from a family member or a friend, who had either given it as a gift or who was simply lending or sharing the tablet. • 16% of respondents indicated that the tablet that they used did not belong to them. Among those, 60% of the devices belonged to a family member, most likely living in the same household, and 26% belonged to an employer. ALMOST 40% OF TABLET USERS WORLDWIDE USE DEVICES BOUGHT BY FRIENDS AND FAMILY 8
    • “Our survey shows that less than 10% of tablet respondents in the UK and the USA use cellular networks to connect their tablet, highlighting simultaneously the opportunity and the challenge that this market represents for operators.” • Family members accounted for a significant majority – 79% – of tablets given as gifts. Replacement rates for tablets are relatively long, particularly in the most mature markets. According to the survey results, 49% of tablet owners in the USA and 46% in the UK expect to keep their tablet for more than two years. Tablet users that do not own the device they use may therefore present a better target sales demographic than existing tablet users during the 2013 holiday season, particularly in countries where tablet adoption growth has significantly slowed down, potentially showing early signs of market saturation. 1 Questions: “How do you connect your tablet to the Internet? Please tick all that apply”, “Where do you regularly use your tablet? (please select all that apply)”. For more information, please contact Ronan de Renesse, Principal Analyst, at ronan.derenesse@analysysmason.com 8 3 100% 45% Connectivity (share of respondents using 3G/4G tablet SIM) 35% Fixed substitution? 30% Malaysia 25% 20% 15% 10% 5% Percentage of ARPC South Africa 40% Italy Singapore Poland Brazil Turkey Saudi Arabia Sweden Germany UAE Missed Spain opportunity? China UK France Mexico USA 47% 75% 79% 50% 32% 25% 13% 21% 8% 0% 3Q 2013 3Q 2016 0% 50% 60% 70% 80% 90% Mobility (share of respondents using their tablet out of home) 4 9 Figure 1: Relationship between tablet 3G/4G connectivity and tablet user mobility, by country [Source: Analysys Mason, 2014]1 16 Profit Revenue (USD billion) 14 Sell m produ and se 12 10 Net new subscribers 8 6 4 2 0 2013 2014 2015 2016 2017 2018 Loss Customer acquisition 9 Global head of M2M Tim
    • M2M is a growing market and is expected to generate USD15 billion of cellular connectivity revenue worldwide in 2018, according to our latest M2M forecasts (see Figure 1). Much of the value is tied to a small number of large contracts with players such as automotive manufacturers and utilities, but there is considerable value in the long tail of smaller contracts. We believe that small mobile network operators (MNOs) can position themselves effectively to win these M2M contracts, even if they lack the resources to win large single contracts. This article outlines three steps that smaller operators can take to strengthen their M2M strategy. Getting the basics right: infrastructure and dedicated teams The tools and processes that MNOs use for the consumer retail market cannot be used for M2M. Small MNOs (typically those that cover a local or small regional market) that want to compete with larger players need to recognise this and invest in the following two basic elements of an M2M service. • A device connectivity platform: For M2M, MNOs need the systems in place to automate the provisioning, in-life management (for example, fault monitoring and policy management) and decommissioning of SIMs because of the potentially large volume of M2M connections. Some global operators, such as Vodafone, have developed their own systems, but small operators should consider buying a device connectivity platform from a vendor such as Ericsson or Jasper Wireless as a low-cost and low-risk solution. At a low volume of 500 000 connections, this option represents an NPV increase of 78% in comparison with using legacy platform infrastructure, when calculated over a 5-year period. • A dedicated M2M team: Successful MNOs in the M2M sector have dedicated teams for M2M business activities, including marketing communications, product marketing, sales support, platform support and partnership management. These MNOs have the human resources required to best address the unique aspects of the M2M ecosystem, which include long sales cycles, intensive presales effort and a solutions-based sales approach. TeliaSonera provides a good example of how an operator should structure its M2M business unit (see Figure 2). For a more-detailed discussion on this, see Analysys Mason’s M2M insights for mobile network operators, available at www. analysysmason.com/M2M-insights-2013. Targeting established customer bases Challenger MNOs should prioritise their current enterprise customers as targets for M2M solutions. From interviews we have performed with enterprises buying M2M services, we know that they are more likely to look to their current telecoms provider than a new operator when adopting M2M services. To increase the effectiveness of their M2M business development effort, MNOs should segment their sales force based on the enterprise’s volume of connections rather than its number of employees, which is operators’ typical approach. Large enterprises do not necessarily have a high number of M2M connections, while small and medium-sized enterprises (SMEs) might. Avoiding highly competitive verticals Small MNOs should avoid M2M applications such as those for the automotive sector, in which large operators (such as AT&T, Telefónica and Vodafone) are likely to win the large contracts on offer. Instead, the contender operators should focus on a small number of verticals where they can offer greater differentiation. THREE ESSENTIAL M2M STRATEGIC CONSIDERATIONS FOR SMALL OPERATORS 10 NUNO AFONSO Consultant Custom Research
    • 100% 45% South Africa 40% 5% 20% Percentage of ARPC Percentage of ARPC Connectivity (share of respondents Connectivity (share of respondents tablet SIM) using 3G/4G using 3G/4G tablet SIM) 75% 35% As part of this approach, MNOs shouldFixed substitution? MNOs can struggle to decide which vertical markets analyse their 8 3 to focus on when thinking about entering the M2M established client base to identify groups of 30% Malaysia 100% 45% market because of the wide range of industries that customers that will require similar solutions, and 50% M2M can address. Large operators with significant then partner with applications 25% providers that can Italy Africa financial resources may want to invest in solutions help provide those solutions. For40% example, operators South Singapore Poland for multiple vertical markets, but small operators 75% could look to partner with companies such as: 20% 35% Brazil 25% need to be more selective in which applications they Fixed substitution? Turkey Saudi Arabia Sweden Germany • MB Connect Line (Germany) for remote offer. We recommend that they do so through 15% 30% maintenance of heavy equipment UAEMalaysia partnerships, rather than trying to develop their Missed Spain 50% 10% own opportunity? • Aerotel Medical Systems (Israel) for remote patient China solutions. 25% 0% Italy Singapore UK monitoring systems and personal trackersFrance 1 Mexico For further details, see Analysys Mason’s M2M device Poland connections and revenue: worldwide forecast 2013–2023, USA • Priva (the Netherlands) for building energy Brazil available at www.analysysmason.com/M2M-2013. 25% Turkey Saudi Arabia Sweden Germany 0% management systems. 15% For more information, please contact Nuno Afonso, UAE 50% 60% 70% 80% 90% Missed Consultant, at nuno.afonso@analysysmason.com Spain 10% opportunity? Mobility (share of China respondents 0% 5% 4 UK using their tablet out of home) France Mexico USA 50% 60% 4 12 4 2 0 32% 47% 79% 13% 21% 8% 3Q 2013 3Q 2016 32% 21% 8% 3Q 2013 70% 80% 90% 3Q 201 Profit Sell m produ and ser 9 10 16 6 79% 13% 9 Mobility (share of respondents using their tablet out of home) 14 8 47% 0% 16 Revenue (USD billion) Revenue (USD billion) P “Small MNOs should avoid M2M applications such as those for the automotive sector, in8 which large 3 operators (such as AT&T, Telefónica and Vodafone) are likely to win the large contracts on offer.” Profit 14 Net new subscribers Sell pro and s 12 10 8 6 2013 2014 2015 2016 2017 2018 Loss Net new subscribers Customer acquisition Tim 4 Figure 1: M2M cellular connectivity revenue, worldwide, 2013–2018 2 1 [Source: Analysys Mason, 2014] 0 2013 Product management Product management Global head of M2M 2014 2015 2016 Special sales Global head of M2M Special sales 2017 2018 Loss Customer acquisition Partner and marketing Partner and marketing Figure 2: TeliaSonera’s global M2M services business structure [Source: Analysys Mason, 2014] 11 T
    • Kodak, once a giant in imaging in the pre-digital world, is now but a shadow of its former self. As its analogue, physical market changed to virtual and digital one, the company continued to focus on film, its ‘cash cow’, rather than planning for future opportunities. The company went into bankruptcy and has since sold off most of its assets. Researchers and business planners at Kodak knew what was happening – and what would happen – to its market, and were planning a future of digital cameras, teleprocessing, online storage and archiving, and near-instant image production. However, the company chose not to participate in that future, every year making reasonable business-case-based decisions to cost-reduce its current business to maintain margins, rather than moving into some new, risky area. Telecoms operators need to learn from the example of Kodak, by recognising their business strengths and planning how to use them in new digital economy businesses. Analysys Mason’s Digital Economy Software Strategies programme is researching how the leaders in this digital revolution are moving into the digital economy of the future. This article examines the strengths that telecoms operators can use to move beyond current telecoms services, via a classic ‘core competency’ analysis. Operators’ core competencies are impressive Telecoms operators participate in one of the largest, most dynamic industries in the world. They also have almost inconceivable business and operational strengths (see Figure 1), which they can use to move into new areas. Established customer relationships Consumers are familiar with operators’ brands, and in most cases trust them. This relationship could help operators move into areas such as security software and services, and mobile money. Operators also know a significant amount about their users, such as what kind of offers they take or reject, where they live (in some cases), their family unit members, and the locations in which they use their services. Such knowledge could lend itself to the provision of location-based services or predictive marketing services. Established billing relationships Millions of people worldwide already give money to the operators, some monthly via postpaid bills, and some more often via prepaid top-ups. Operators know their credit history, and often have stored credit information about their users. They can make use of these established billing relationships to sell new services to their customers. Amazon.com, for example, started by just selling books, but its product range has expanded dramatically. Large amounts of behavioural data Even without advanced technologies like deep packet inspection (DPI), operators have a large volume of behavioural data on their users, including who they call, when they call, and when they access the Internet. DPI makes even more information accessible, such as who they visit and, perhaps, what they do (privacy laws may intervene here). In addition, operators know if users are accessible (‘presence’), and whether they are heavy users of BitTorrent or exhibit other network-intensive behaviours. MARK H. MORTENSEN STEPHEN SALE Practice Head, BSS Principal Analyst Service Fulfilment, Customer Care and Digital Economy Software Strategies research programmes Knowledge of these behavioural data points gives an operator the opportunity not only to market targeted or even personalised services and service packages to its users, but also to provide information to other businesses that can benefit (subject to privacy laws). Operational strengths Operators are experts at hiring, training, and moving to exactly the right place, technicians who can perform complex tasks to plan, add to, configure and maintain a complex network with a vast array of services – with very high quality. They have spent more than USD30 billion per year for the past 15–20 years on buying or building BSS and OSS to improve efficiency, increase service quality, and speed up the OPERATORS MUST PLAY ON CURRENT STRENGTHS AND DEVELOP NEW COMPETENCIES TO THRIVE IN THE DIGITAL ECONOMY 12
    • “Millions of people worldwide already give money to the operators, some monthly via postpaid bills, and some more often via prepaid top-ups. Operators know their credit history, and often have stored credit information about their users.” introduction of new services. Few other industries have invested as much. Operators know how to build, operate, and maintain data centres – keeping the computers powered, cooled and running efficiently, while ensuring software is up-to-date and resolving any operational issues. Any provider of cloud-based services such as IaaS, PaaS or SaaS would need this knowledge, putting telecoms operators in a strong position to provide such services. Telecoms operators know how to define, offer, implement and support complex services via self-service, stores, kiosks, web and customer service representatives, providing a good operational base for any ecommerce service. Operators must use their established strengths and add new competencies To move into new digital economy markets, operators must work out both how to use their existing strengths and what new competencies are required. Many of the new services make good use of the operators’ current core competencies, although many require new competencies to be added. Operators must make big decisions about how and where to move into new digital economy services Moving into new digital economy services will require operators to make many major decisions, including the following. • Which services should the operator provide? To fuel growth, operators will probably have to launch a number of new digital economy services, not just one. Questions include which services, and the length of time for which investment will be required. • How should the operator enter the digital economy market? Operators have three major options here. - Become a digital economy service provider in that service themselves, using thier own competencies. - Partner with another company, perhaps via a white-label arrangement. Several operator forays into mobile commerce are using this model. Established customer relationships • Brand recognition • Established, ongoing contact • Offers accepted and rejected • Residence, family unit, locations - Provide the B2B2C infrastructure for other companies to enter the digital economy space in their markets. This option is the most radical, but represents, in our opinion, the largest opportunity for CSPs. In this case, the operator would provide not only the communications channel part of the value chain, but also services such as billing, advertising, customer support and installation. Its B2B2C customers would not have to invest in their own infrastructure to try to compete (in their niche) with the leaders in the digital economy field – the ‘Magic five’ of the digital economy, Amazon, eBay, Facebook, Google and Twitter – and all the others entering the space. • Where should the operator try to become a digital economy services provider? Operators must decide between providing services worldwide or just in their home markets, and, for B2B2C, whether to provide services to businesses worldwide. Some operators have already launched digital subsidiaries, and we will track further investments As the science fiction writer William Gibson has remarked, “The future is already here, it’s just not evenly distributed.” Operators such as Deutsche Telekom, SingTel, SK Telecom and Telefónica have created ‘digital subsidiaries’ to increase digital service revenue. Services such as digital advertising, local content, gaming, cloud computing services, online back-up, home and office security, e-health, electronic marketplace and mobile education are all being investigated, or are already implemented. These leading-edge CSPs are already each investing about USD1 billion dollars per year. Analysys Mason will follow these, and other, operators, as well as the vendors and partners that help them. We will report on the services and how the operators are achieving their results. For more information, please contact Mark H. Mortensen, Practice Head, at mark.mortensen@analysysmason.com Established billing relationships • Customers send money on a returning basis • Knowledge of credit history • Applies to prepaid as well as postpaid Large amounts of behavioural data • Who they call and when • When they access the intrnet and what they visit • When sleeping and awake • Naughty or nice Operational strengths Distributed, mobile workforce BSS/OSS systems Data centres Services Figure 1: Core business competencies of telecoms operators [Source: Analysys Mason, 2014] 13
    • The move to store increasingly large quantities of data is in part welcome, but there is no guarantee that the data will be used to provide additional value. There are few CSPs today that are not able to find more value in the data that they already have, and adding more data will not necessarily help. To gain deeper insights, CSPs need to adopt one of two approaches: • using innovative tools that employ machine learning techniques to derive unseen correlations and patterns in the data • employing highly skilled teams for a given use case. Machine learning will be essential to the analysis of large volumes of transient data The sheer volume of data generated by telecoms operators, because of their unique access to all aspects of our digital lives, can be overwhelming for users. This data comes from a diverse range of sources, including: • sentiment analysis on social media • clickstream from our online activities • sensor reading from machines • billing data • call patterns, detailing who we interact with, and where and when we interact with them. CSPs have a significant and growing need to determine which factors are significant and, therefore, which attributes they should collect, model and use. Matters are made worse when monitoring transient data because in particular because although data storage costs are falling, they are not free, so CSPs still have to decide which data should be stored even before it can be analysed. When CSPs have decided which data to store, they are faced with the challenge of analysing it. Traditional approaches required the use of skilled staff that understand the data sets and, through trial and error, are able to create algorithms and models to predict or segment the data. When faced with potentially hundreds of attributes, this can be better achieved through the use of machine learning. These automated techniques provide clear guidance on which attributes are most significant and enable CSPs to create models based directly on this knowledge. Furthermore, applying machine learning to streaming data enables decisions to be made on transient data that need not be subsequently stored. JUSTIN VAN DER LANDE STEPHEN SALE Principal Analyst Principal Analyst Analytics Software Strategies, Revenue Management and CSP IT Strategies research programmes At the core of machine learning technology is a library of algorithms that can be applied to data given to them. Specialised algorithms can be applied to different requirements, such as finding influencers within social networks or identifying potential candidates for churn. The technology gains selflearning experience by processing actual data sets, and – in general – the larger the data sets, the more accurate the results. Machine learning has several potential business uses in the telecoms sector, but can be most effective in cases where in-line analysis of streaming data and personalisation is required. Manual techniques for developing and refining models become uneconomic on a large scale, whereas the application of self-learnt modelling can scale to meet this challenge. This could enable CSPs to produce more-targeted offers, or provide tailored advertising to an individual, for example. The automation of the modelling also makes it possible to consider much more data – for example, metadata within photos or a fuller range of network data. BIG DATA WILL NOT AUTOMATICALLY LEAD TO DEEP INSIGHTS 14
    • “The ability to take and integrate an off-the-shelf application that provides deep insights into specific use cases can outweigh the flexibility found in more generic tools and systems.” Experts can provide further insight based on deep experience and industry knowledge Machine learning is not a panacea for CSPs that are trying to deploy analytics to improve their organisation. It needs a supply of data in order to self-learn, and data is not always available when launching new services, targeting new markets or assessing the potential impact of new technology. Skilled staff with deep experience can provide a more insightful approach to a given issue. The most common issues have often been addressed many times before, and products and knowledge have been applied to provide a robust, low-risk and quicker-to-deploy solution than building models from scratch. The ability to take and integrate an off-the-shelf application that provides deep insights into specific use cases can outweigh the flexibility found in more-generic tools and systems. For more information, please contact Justin van der Lande, Principal Analyst, at justin.van.der.lande@analysysmason.com 15
    • LTE continues to make an impact on the mobile networking landscape, and 2014 will mark the arrival of new features and capabilities that show just how capable the technology is in meeting mobile broadband requirements for a wide range of mobile operators. LTE will make the spectrum-rich richer, and the spectrum-poor just a little better off In 2014, more operators will deploy LTE-A carrier aggregation (CA), including operators doing initial LTE deployments. CA benefits operators with multiple spectrum positions, those with small pieces, and particularly operators that are combining acquired networks. The initial focus is on higherspeed services, but we expect more deployments of 5+5MHz carrier aggregation as emerging markets deploy LTE in 2014. Early testing of carrier aggregation is enabling operators to bind separate spectrum channels together to create larger channels and faster wireless services, and reduce opex and capex costs from running multiple networks. SK Telecom and LG Uplus in South Korea are offering commercial LTE-A carrier aggregation services supporting speeds of up to 150Mbps, and EE in the UK has demonstrated near-300Mbps LTE-A service in London. Larger network operators such as AT&T, Sprint, Telefónica, Verizon and Vodafone, as well as operators holding multiple spectrum positions such as EE, T-Mobile, Telstra, will be early implementers of carrier aggregation. Band fractionalisation will be less of an issue thanks to broad device support LTE band fractionalisation will come to an end in 2014. Despite early and well-publicised concerns regarding the number of different bands supporting LTE (25 for FD-LTE and 11 for TD-LTE), the market has – as we had expected – focused on five bands for FD-LTE (700MHz, 800MHz, AWS (1.7GHz and 2.1GHz), 1.8GHz and 2.6GHz) and four for TD-LTE (2.3GHz, 2.5GHz, 2.6GHz and 3.5/3.6GHz). Devices are able to support approximately six bands (the new iPhone 5S/5C support 17 via different models), thus providing room to support both ‘local’ bands as well as the more commonly used ‘global’ bands. 2.6GHz and 1.8GHz are early candidates for LTE roaming, but neither band is in use in North America. The rapidly expanding international base of support for the APT700 plan is making North America an ‘LTE island’, but device support for one of the ‘international bands’ alleviates this problem. One area that remains potentially problematic for operators is support for LTE-A, which we expect will largely be a local phenomenon and not available for roaming services. VoLTE will emerge as a (limited) market service CHRIS NICOLL STEPHEN SALE Practice Head, Networks Principal Analyst M2M and Network Technologies research streams VoLTE is unlikely to make a significant impact in 2014 because few countries will have the breadth of network needed for useful service (Japan and the USA are the notable exceptions). However, we expect that both countries will launch VoLTE services, with circuit-switched fallback (CSFB), as a precursor to more-advanced services including RCS and other voice-over-data-enabled services. Other countries with concentrated users such as EE in the UK, Telstra in Australia may also launch VoLTE with HD Voice as a competitive differentiator. Voice support for most operators has to include a ‘fallback’ solution for non-native VoLTE calls, or calls in areas where LTE coverage is lacking or limited. We also expect carriers will move more slowly towards Single Radio Voice Call Continuity (SRVCC) because the complexity of that solution demands a simplification by the equipment vendors for widespread implementation. South Korea is the world leader in VoLTE penetration, largely because of the ability to offer 100% LTE network coverage – all three national carriers have embarked on aggressive (and highly competitive) network build-outs. SK Telecom announced that it had more than 4.5 million VoLTE users as of June LTE PREDICTIONS FOR 2014: OPERATORS WILL REAP THE BENEFITS OF CARRIER AGGREGATION BUT VoLTE WILL HAVE LIMITED IMPACT 16
    • “In 2014, more operators will deploy LTE-A carrier aggregation (CA), including operators doing initial LTE deployments. CA benefits operators with multiple spectrum positions, those with small pieces, and particularly operators that are combining acquired networks.” 2013 and it leads the South Korean market in terms of VoLTE subscribers. For operators to rely on LTE for their voice coverage, complete network build-outs are required. Verizon Wireless’s network, the USA’s largest LTE network, had about 303 million people covered in September 2013, out of a total population of 317 million. South Korea is proving to be the LTE technology ‘test-bed’, with both LTE-A with carrier aggregation and VoLTE in commercial use. Devices supported include the Samsung Galaxy S3 and S4. However, VoLTE still appears to be a future application in all markets except South Korea, as early LTE MNOs use both dual radio (supporting voice on a separate call) and CSFB for early voice support. Mobily announced in May 2013 that it had worked with partner Huawei and completed tests of VoLTE and enhanced Single Radio Voice Call Continuity (eSRVCC). These are probably the first such tests in the Middle East and North Africa. For more information, please contact Chris Nicoll, Practice Head, at chris.nicoll@analysysmason.com Country Operator Maximum downlink speeds (Mbps) Australia Telstra A300 (expected) Austria A1 Telekom Austria 580 (trial) China China Mobile 233 (TD-LTE) Japan NTT DOCOMO 300 (expected) Philippines Smart Communications 210 Portugal Optimus 300 Russia Yota 300 South Africa Telkom Mobile (8ta) 210 (TD-LTE) South Korea SK Telecom 150 LG Uplus 150 Turkcell 900 (laboratory), 150 Turkey Figure 1: LTE-A test results by operator, September 2013 [Source: Analysys Mason, 2014] Date Event February 2011 Verizon Wireless (USA) completed first VoLTE call August 2012 SK Telecom (South Korea) deployed first HD VoLTE service and LG Uplus launched VoLTE service August 2012 MetroPCS (USA) launched limited VoLTE service October 2012 KT (South Korea) launched VoLTE April 2013 EE (UK) announced network upgrades to provide support for new services including VoLTE May 2013 Mobily (Saudi Arabia) completed VoLTE trials July 2013 Bharti Airtel (India) requested permission to trial VoLTE 1Q 2014 Telefónica Germany (O2) will demonstrate VoLTE 4Q 2014 China Mobile will launch VoLTE Figure 2: Activities relating to VoLTE, selected operators, 2011–2014 [Source: Analysys Mason, 2014] 17
    • The Internet of Things promises to usher in a new wave of technological evolution. In a few years’ time, billions of things – cars, utility meters, TVs and even furniture – will be linked via the Internet and sending information about their status and condition. Operators need to determine what role they will play in this ecosystem. commoditised and connectivity margins threaten to stagnate or shrink. The threat of decreasing connectivity revenue, which mobile network operators (MNOs) have been confronting on the consumer retail side of their businesses in the past few years, is beginning to emerge in the M2M sector as it matures and competition intensifies. Operators are moving up the M2M value chain and delivering end-to-end solutions, rather than just simple connectivity, in an effort to combat this trend. Non-connectivity services are expected to account for an increasing share of M2M revenue in 3 years’ time Connectivity margins could stagnate or shrink in the increasingly competitive M2M market Many verticals and industries are undergoing a digital transformation, adopting M2M technology to connect many different devices and machines. As a result, M2M has gained significant traction as a new business area for MNOs. Operators are well placed to provide the near-ubiquitous connectivity needed to maintain links between modules and sensors and to help drive business transformation for their clients. The M2M connectivity sector is maturing. Enterprises have had only a few choices when procuring an M2M solution, but more and more MNOs are launching services for this market. Competition for connectivity is also coming from dedicated M2M MVNOs, satellite connectivity providers and other connectivity service providers using dedicated, non-cellular spectrum. The margins associated with connectivity will be squeezed as competition increases. The proliferation of new M2M applications that utilise 3G and 4G networks and generate high data usage, such as video surveillance or connected car services, could offset declines in connectivity revenue. Nevertheless, MNOs will face the challenge of remaining competitive while M2M connectivity is becoming MNOs need to develop their M2M business models to expand their role beyond that of a connectivity provider. Most operators have recognised this, and are moving up the value chain by offering M2M solutions that combine connectivity with partners’ hardware or software, according to the results of a recent Analysys Mason survey. MORGAN MULLOOLY STEPHEN SALE Analyst Principal Analyst IoT and M2M Solutions research programme Ten leading global operators indicated that they expect non-connectivity services to account for more than half of the average revenue per connection (ARPC) from M2M services by 2016 (see Figure 1). Connectivity is expected to remain the largest single component of M2M revenue because it is the cornerstone of MNOs’ M2M businesses, but its share will decline from an average of 79% in 3Q 2013 to just 47% in 3Q 2016. Operators’ transition from pure connectivity providers to end-to-end (E2E) M2M solution providers is one of the primary drivers behind this evolution in the M2M service revenue. This is already underway: operators are increasingly partnering with M2M service providers in various verticals to provide E2E M2M solutions, so that they can exploit all possible value opportunities. Many operators have assembled E2E product portfolios that will enable them to generate more value-added-services revenue. They will continue to develop new collaborations and launch new strategic partnerships models – including those with application developers and systems integrators, which are often essential partners for delivering E2E services. M2M SERVICES OTHER THAN CONNECTIVITY WILL ACCOUNT FOR 53% OF M2M REVENUE IN 2016 18
    • “The threat of decreasing connectivity revenue, which mobile network operators (MNOs) have been confronting on the consumer retail side of their businesses in the past few years, is beginning to emerge in the M2M sector as it matures and competition intensifies.” 1 Question: “Approximately what percentage of M2M average revenue per connection (ARPC) is generated by the provision of connectivity services, application services and other services in 3Q 2013, and what will the proportions be in 3Q 2016?”; n = 10. For more primary research on the M2M market, see Analysys Mason’s M2M carrier scorecard 2013 (available at www.analysysmason.com/M2M_scorecard_2013), which ranks communications service providers’ performance and position in the M2M market. For more information, please contact Morgan Mullooly, Analyst, at morgan.mullooly@analysysmason.com 11 8 Percentage of ARPC 100% udi Arabia 47% 75% 79% Connectivity services Application services 50% 32% 90% Legacy IN Other services IMS architecture Telecoms application servers (TAS and NG-IN) Policy control 25% 13% nity? Increasing software 21% 8% 0% 3Q 2013 3Q 2016 Figure 1: M2M average revenue per connection by service type, 3Q 2013 and 3Q 2016 [Source: Analysys Mason, 2014]1 9 Profit Sell more products and services Keep customers longer Net new subscribers 2017 2018 Loss Customer acquisition Time Customer lifecycle 19 co (Ia a
    • Technology advances and service innovation will drive changes in how consumers use telecoms products and services. The monetisation of these services requires communications service providers (CSPs) to provide more flexible offers and manage each interaction in the customer lifecycle to optimise the customer experience. CSPs in developed and emerging markets must focus on extending the customer lifecycle and creating a positive experience in order to differentiate themselves from other CSPs that are focused on price, device offerings and network coverage. The importance of extending the customer lifecycle Figure 1 represents the customer lifecycle and illustrates why CSPs need to pay more attention to their processes and measure the interactions at each stage of the customer lifecycle to keep customers longer and sell more products and services with the overall goal of improving profitability. Our research shows that in the first year after acquiring a customer, a CSP spends between 12% and 20% of revenue in acquisition costs, which include marketing, selling, on-boarding and equipment subsidies. With such high costs in the first year, how do CSPs measure and manage their operational activities against the perceptions of how well they are doing according to their customers? CSPs can improve customer retention and drive revenue growth if they focus on three critical areas of their business. • Simplifying the pricing, packaging and purchasing process. Understand the usage and consumer behaviour patterns to promote relevant offers that customers value. • Streamlining the on-boarding process in order to avoid customer frustration and high support costs. • Understanding what drives customer requests. This reduces contact care cost and raises Net Promoter Scores (NPS) for customers who prefer self-care. Value-based service differentiation in the customer experience After getting the basics right, CSPs should aim to ensure a consistent customer experience across all customer touch points. Figure 2 looks at each phase in the customer lifecycle and contact points between the customer and CSP employees. This contact could be either online or a live interaction. We have identified some areas based on our consulting and research work with CSPs to highlight where most of the value-based service differentiation can be achieved to raise NPS and customer satisfaction. PATRICK KELLY STEPHEN SALE Research Director Principal Analyst Software - Network Practice Figure 2 illustrates some data collected from a CSP that we consulted with on a project to improve customer loyalty and operational processes. It segments the customer base according to historical spending and internal measurements collected by the CSP on interactions with the customer. The data reveals that 50% of this CSPs’ customer interactions occur in the billing phase. The analysis concluded that a large number of enquiries resulted from customers failing to understand how services were billed. This drives up support cost and creates frustration with the customer. The obvious conclusion is to redesign the bill and use other tools such as customised video billing, which we have covered in our research into customer experience management. For further details, see our report Customer experience management framework: how to retain subscribers and improve customer loyalty, available at www.analysysmason.com/CEM-Apr2013. Requests for technical support also generate high levels of customer contact activity. Figure 2 reveals that almost one third of customer contact occurs in this area. It is in this phase that the CSP may want to focus on only the top 6% of its customer base to provide exceptional support. This model is used in CUSTOMER EXPERIENCE MANAGEMENT – VALUE-BASED DELIVERY AND SERVICE SUPPORT 20
    • 100% 47% Percentage of ARPC 75% Increasing software control in the n 79% Connectivity services Application services 50% Legacy IN IMS architecture “With such high costs in the first year, how do CSPs measure and manage their operational activities Other services 32% against the perceptions of how well they are doing according to their customers?” Telecoms application servers (TAS and NG-IN) Policy control Cloud computing (IaaS, PaaS and SaaS) 25% 13% 21% 8% 0% For more information, please contact Patrick Kelly, other industries such as airlines, but outside the 3Q 2013 3Q 2016 Research Director, at patrick.kelly@analysysmason.com business market segment, most CSPs have not actively developed any meaningful strategies to date. In many developed markets, high-value postpaid subscribers do not receive any special perks until they contemplate leaving at the end of their contract. 11 9 0% Profit Sell more products and services 47% 5% 79% Increasing software control in the netwo Connectivity services Net new subscribers 0% Application services Keep customers longer Legacy IN IMS architecture Other services 32% Telecoms application servers (TAS and NG-IN) Policy control Cloud computing (IaaS, PaaS and SaaS) 5% 13% 0% 2018 21% 8% 3Q 2013 Time Customer acquisition Loss Customer lifecycle 3Q 2016 Figure 1: The customer lifecycle and its impact on profitability [Source: Analysys Mason, 2014] Awareness Customer value segments nd marketing Most valuable Pre-sales and sales Use Request for support NA 2500 NA 20 300 Proactive Equipment customer repair or management installation Receipt or payment of bill Collections 35 300 11 500 ~6% ~30% ~56% Least valuable ~8% Service-related customer interactions (thousands) Deliver premium service Launch retention or revenue growth programmes Retain and drive growth in the highest LTV customers (for example, the top 2%) through special, flawless service Launch focused retention or revenue growth programmes to increase tenure and usage of established customers 600 Manage unprofitable customers up or out Actively manage low- and negative-value customers by rationalising rate plans, stimulating usage and decreasing concessions, credits and cost to serve 950 Reinvent bill Reinvent bill to be a value-added service that is: − customisable − informative (for example, by including contract information) Redesign bill to increase clarity Figure 2: Value-based service differentiation in the customer experience [Source: Analysys Mason, 2014] 21 SON NFV SDN
    • Licence expirations offer national regulatory authorities the opportunity to realise multiple primary policy objectives relating to spectrum management while addressing secondary issues such as spectrum refarming. In many countries, 15- to 20-year GSM licences issued in the late 1990s are coming up for renewal. In addition, the first UMTS licences have already started to expire. Licence expirations offer national regulatory authorities (NRAs) the opportunity to realise multiple primary policy objectives relating to spectrum management while addressing secondary issues such as spectrum refarming or ensuring contiguity of spectrum holdings. • Auction-based approaches, whereby either the current licence-holder or another operator can obtain the licence. As well as full auctions of all expiring spectrum licences (with or without the prior harmonisation of the expiry dates of licences), hybrid approaches whereby part of the available spectrum has licences renewed with part of it auctioned, or where a licence-holder retains a first right of purchase can be used. However, licence renewals are a time of high tension between NRAs, incumbents and potential market entrants, all of which are likely to have divergent opinions on the most appropriate approach to re-licensing the spectrum. Regulators risk harming competition, interrupting services, discouraging investment, being seen as biased or enabling (the continuation of) an inefficient spectrum distribution. Operators, on the other hand, risk paying excessive licence fees, receiving too little high-value spectrum relative to competitors and being unable to provide a consistent service. This article examines the various approaches to spectrum re-licensing and the criteria NRAs should consider when evaluating different approaches. Policy objectives Regulatory options • market competitiveness and efficiency Benchmarking the action taken upon expiry of mobile spectrum licences across 43 countries since 2006, we have found that regulators use three main categories of approach, with similar frequency (see Figure 1). • investment-friendliness and service continuity • Automatic renewal, whereby the current licence- holder retains the spectrum licence. This can come about through the issuance of indefinite licences, or where there is an implicit high expectation of renewal. Each of the re-licensing approaches identified has a different effect on the policy objectives that are likely to be of interest to regulators. • Administrative re-assignment to another operator. MARK COLVILLE Senior Manager Given the high stakes of licence re-assignment, it is imperative that regulators decide on a re-assignment approach only after carefully evaluating their policy objectives, assessing the extent to which these objectives are currently being met and considering how different potential approaches will affect these objectives in the future. To this end we have identified the following four criteria that NRAs might want to consider when evaluating licence renewal approaches, noting that some regulators may also be concerned with the amount of revenue to be raised and the complexity of the process: • spectrum manageability • the transparency and fairness of award. • Automatic renewal regimes are investment- friendly, but result in low levels of manageability. In addition, as with administrative re-assignment, complicated issues such as how much to charge THE FOUR CRITICAL POLICY CRITERIA FOR MOBILE SPECTRUM RENEWAL 22
    • “In 2014, more operators will deploy LTE-A carrier aggregation (CA), including operators doing initial LTE deployments. CA benefits operators with multiple spectrum positions, those with small pieces, and particularly operators that are combining acquired networks.” for the spectrum may arise, as Ofcom is currently consulting on with regard to 900MHz and 1800MHz licences in the UK. • Administrative re-assignment procedures allow for maximum manageability and can be pro- competitive, but are prone to regulatory failure. In particular, this manageability may be achieved at the cost of decreased investment incentives and minimal transparency. • Auction-based approaches ensure high levels of competition and are generally transparent and fair. However, the uncertainty they introduce for operators may dampen investment incentives, while manageability and potentially service continuity are also reduced. 8 Conclusions: NRAs should choose an approach to expiring licences based on their market situation and policy objectives 100% Percentage of ARPC In our view there is no single ‘right answer’ for an NRA and the approach to be followed should be very carefully considered in light of the individual 47% 75% market situation and the particular policy objectives being followed. 79% Administrative re-assignment approaches may be 50% advisable at times when the NRA needs to maintain close control of national spectrum distribution 32% because of technological changes or changing market 25% dynamics. On the other hand, automatic renewal lacks the flexibility to react to significant 13% 21% market changes but may be more appropriate if the 8% initial distribution of spectrum was competitive, 0% transparent and fair (for example, via auction). 3Q 2016 3Q 2013 Auctions are best if the NRA wishes to re-assign licences from a ‘clean slate’, with a long timeframe and does not expect any major changes in the future 11 value of the auctioned spectrum that would require regulatory intervention. Hybrid auction-based approaches with harmonisation of expiry, first right of refusal to incumbents or incorporating only part of the spectrum may offer increased levels of manageability, serviceservices Connectivity continuity and investment incentives while continuing to aid competition and IMS Legacy IN Application services offering varying degrees of transparency. These architecture Other become approaches mayservices increasingly attractive for regulators, in our opinion. Increasing software control in the n Telecoms application servers (TAS and NG-IN) Policy control Cloud computing (IaaS, PaaS and SaaS) For more information see Mark Colville’s report Regulator and operator strategies for expiring spectrum licences: renew, re-assign or re-auction? Available at www.analysysmason.com/ ExpiringSpectrumLicences2013. For more information, please contact Mark Colville, Senior Manager, at mark.colville@analysysmason.com 9 18 16 Instances of use 14 12 10 8 6 4 2 0 2018 Auction-based approaches Automatic renewal Administrative re-assignment No decision yet Figure 1: Instances of approaches used for spectrum licence renewal, 43 countries, 2006–2013 [Source: Analysys Mason, 2014] 23
    • The benefits of cloud computing (virtualisation of standard IT computing and storage) are well understood, and it is implemented in data centres worldwide. Major communications service providers (CSPs) are now convinced that virtualisation has matured sufficiently to virtualise network functions. CSPs and vendors agree that the primary target benefits of network function virtualisation (NFV) and softwaredefined networking (SDN) are cost reduction and operational flexibility. However, the role of softwarebased solutions to control, manage and operate CSPs’ networks has steadily been increasing from legacy intelligent network (IN) architecture in circuit-switched networks, to cloud computing, self-organising networks (SON), NFV and SDN. The success of cloud computing and SDN in data centres is attributed to the simple all-IP core networks, compared with the multi-technology and complexities of CSPs’ costly transport and access networks. This article examines the opportunities for virtualisation in CSPs’ core networks and use cases being explored by a number of CSPs. Virtualisation opportunities are readily available in CSPs’ core networks CSPs worldwide spent about 77% of their capex (USD267 billion) in 2012 on their networks – hardware, software, roll-out, professional services and associated network infrastructure. CSPs have expansive and regulated responsibilities for their costly access networks, which virtualisation does not yet address. Field force operations and workflow constraints on transport and access infrastructure limit the extent to which CSPs can automate without human intervention, which limits virtualisation use cases outside the core network layer. This makes the business case for virtualisation less compelling beyond the core network for CSPs. The lines between cloud computing, NFV and SDN are blurred, and not just between IT and telecoms. These lines will continue to be blurred as virtualisation overcomes traditional hardware barriers over time. Cloud computing and NFV have some similarities, but are essentially different. • Cloud computing is the virtualisation of commodity IT hardware (namely x86 servers) and applications/ software, which can run at least 99% availability level. • NFV is the virtualisation of telecoms-specific network functions into applications that will run at least 99.999% availability on suitable carrier-grade hardware and software. GLEN RAGOONANAN STEPHEN SALE Principal Analyst Principal Analyst Infrastructure Solutions, Service Delivery Platforms and Software-Controlled Networks research programmes Cloud computing is acceptable for non-real-time telecoms software (OSS, BSS) on x86 servers, while NFV is being developed to address real-time telecoms network functions. SDN will bring about changes in network architecture that will support the flexible use of network resources. It is a critical technical element of fully realising the benefits of cloud computing and NFV. Figure 1 illustrates the overlap between CSPs’ IT and telecoms assets and functions, and the expansive scope of NFV to encompass the core network. CSPs have largely virtualised their enterprise IT and data centres to attain the cost savings from hardware consolidation and standardisation. Non-real-time telecoms software systems such as customer care, caching, OSS and postpaid billing systems can easily reside in a private cloud computing architecture. Vendors are developing NFV solutions for online charging systems, service delivery platforms (SDPs) and, more importantly, the control layer. Virtualisation of the control layer/plane lends itself to implementing virtualisation in the core network and the intelligent management of traffic flows between core network function using SDN. NETWORK VIRTUALISATION OPPORTUNITIES FOR CSPs BEGIN IN THE CORE OF NEXT-GENERATION NETWORKS 24
    • “The success of cloud computing and SDN in data centres is attributed to the simple all-IP core networks, compared with the multi-technology and complexities of CSPs’ costly transport and access networks.” evolved packet core (EPC) components (MME, HSS, PGW, SON, ANDSF). • Services chaining of OSS, BSS and SDP components for service delivery: Policy-enabled services consumed by smartphones have led to increased Diameter signalling traffic between CSPs’ mobile core, PCRF and OCS, which is confined to the core and could be better managed by SDN. • ‘Big data’ virtualisation to optimise the computing and storage footprint for online and offline analytics of CSPs’ numerous data sources including data warehouses, network elements, OSS, BSS, SDP and third-party sources. 11 The success of cloud computing and SDN/OpenFlow in data centres is attributed to the simple all-IP core networks compared with the multi-technology and complexities of CSPs’ costly transport and access networks needed for CSP SDN solutions. CSP SDN is still largely in R&D and remains an open opportunity for both telecoms and non-telecoms vendors. BT, Deutsche Telekom, NTT Communications, Portugal Telecom, Telefónica, Vodafone and Verizon are exploring NFV to rationalise core network functions and the control plane, and SDN to optimise traffic flows in the core network and ultimately in the 100% transport and access layer. The following are examples of network virtualisation use cases that CSPs are exploring in their core47% networks. 75% 50% 25% 0% Analysys Mason’s Software-Controlled Networking (SCN) research programme (www.analysysmason. com/softwarecontrollednet) looks at the evolution of the SCN landscape, the role that cloud computing, NFV and SDN will play in CSPs’ future networks and • Virtualisation and service chaining the complex Gi the OSS requirements to realise the benefits of 79% Connectivityvirtualised next-generation networks (vNGNs). The real services network to reduce the cost of network components Application services and to optimise traffic flows at mobile CSPs’ Gi challenge is how to manage these vNGNs of the future. interface – the point in mobile networks where services Other 32% mobile Internet traffic aggregates and continues to For further details, see our report SDN and NFV at a crossroads: vendors innovating and positioning for grow exponentially. the future of CSPs’ network virtualisation (www. • Traffic engineering (TE) to improve performance, 13% analysysmason.com/SDN-NFV-2013), which explores Increasing software control in network 21% traffic management and quality of service, firstly at the SCN landscape and provide CSPs and vendors 8% major congestion points such as the CSP’s Gi with technical insight into the key components in an Telecoms 3Q 2013 3Q 2016 interface, ISP aggregation networks, mobile core Cloud SON application architectural view for building virtualised networks IMS Policy computing and content delivery head-end networks. SDN can Legacy IN NFV servers architecture (IaaS, PaaS solutions, which need to co-exist with CSPs’ control SDN (TAS and support TE between core fixed and mobile network and SaaS) NG-IN) established networks. functions such as policy control (PCRF, PCEF/DPI), caching, load balancing, DNS/DHCP, traffic For more information, please contact management, BRAS, AAA, IMS components (CSCF, Glen Ragoonanan, Principal Analyst, at MGCF, MRFC, MGW, TAS, NG-IN) and mobile glen.ragoonanan@analysysmason.com Cloud computing NFV Revenue management Charging, fraud, interconnect Customer care Service layer Service delivery platforms Network layer Enterprise IT Virtualised applications (SaaS) Cloud management (virtual domain, IT hardware and network) Control layer IMS, Diameter, SIP OSS IT hardware Core/aggregation Multi-service IP-based network Distribution Transport Enterprise IP network Access layer Multi-technology fixed and mobile access networks SDN/OpenFlow CSP SDN Percentage of ARPC CSPs are trialling a variety of network virtualisation use cases in their core networks SDN Next-generation telecoms Enterprise Figure 1: ICT convergence in CSPs’ networks from cloud computing, NFV and SDN technologies [Source: Analysys Mason, 2014] 25
    • LTE is out of the experimental stage and is being deployed worldwide. Operators in all markets are in the process of implementing LTE, but the emergence of the APAC and LATAM regions is set to challenge European and North American operators’ early lead. These trends are analysed in Analysys Mason’s report on the outlook for LTE worldwide, available at www.analysysmason.com/LTE-WWF-2013. LTE network planning, trials and deployments are progressing in emerging and developed regions The first LTE deployments occurred in Finland and Sweden, and the world’s largest LTE network is in the USA, but emerging APAC and LATAM have the highest number of planned LTE networks, according to Analysys Mason’s Wireless networks tracker (available at www.analysysmason.com/WNT) – see Figure 1. Adoption of the Asia–Pacific Telecommunity Band Plan (APT700) in Brazil, Chile, Columbia and Mexico provides operators and users in the LATAM region with access to the worldwide LTE700 ecosystem, which offers a broad choice of equipment and terminals. The large number of frequencies that LTE supports has generated concern among industry players, but in practice operators often need to support fewer than seven in order to provide a wide range of services for their users. Emerging market countries are also taking advantage of LTE technology. India, Malaysia and Vietnam are the leaders in the emerging APAC region for the number of LTE networks planned. Operators in India, Malaysia and Nepal are also planning to launch TD-LTE networks. We expect several operators in EMAP to deploy FD-/TD-LTE networks in order to take advantage of their paired and unpaired spectrum. Ten dual-technology LTE networks are already in commercial operation. Trials show a growing base of LTE in Europe as well as emerging APAC Our research indicates that 59 LTE network trials were in progress as of 31 July 2013. This figure includes cases where an operator has multiple trials underway, but might not eventually deploy operational networks. However, we can reasonably expect (with more than 80% probability) that most of these trials will result in commercial deployment within the next 2 years. The largest number of LTE network trials is in Central and Eastern Europe (at 26), emerging APAC (24) and Western Europe (20). Trials in the first two regions are being driven by adoption of the technology among regional operators, such as Bharti Airtel and Reliance Infotel. Infrastructure vendors such as Ericsson, Huawei, Nokia Solutions and Networks (NSN), Samsung and ZTE are demonstrating the required network upgrade and transition options, including LTE overlay and single-RAN solutions. For more detail on a return on investment comparison between LTE overlay and single RAN, please contact us and we can provide a tailored analysis for your network. CHRIS NICOLL STEPHEN SALE Practice Head, Networks Principal Analyst M2M and Network Technologies research streams Strong support for LTE in APAC and LATAM will start to offset the early influence that European and North American operators (some of which have a 2- or 3-year head start on deploying the technology) have had on the device and network vendors. We expect a more-balanced global LTE market to emerge by 2018, in which markets such as Brazil, India and Russia will each account for 5% of LTE connections worldwide. LTE TO BE DEPLOYED WORLDWIDE BY 2018: ASIA–PACIFIC AND LATIN AMERICA DOMINATE NETWORK LAUNCH PLANS 26
    • “Emerging market countries are also taking advantage of LTE technology. India, Malaysia and Vietnam are the leaders in the emerging APAC region for the number of LTE networks planned. Operators in India, Malaysia and Nepal are also planning to launch TD-LTE networks.” For more information, please contact Chris Nicoll, Practice Head, at chris.nicoll@analysysmason.com 70 20 40 35 30 20 24 32 Planned 20 41 10 18 28 14 24 21 Developed Asia–Pacific Central and Eastern Europe Latin America North America Emerging Asia–Pacific 14 8 0 Western Europe Operational 12 7 14 Middle East and North Africa 50 Sub-Saharan Africa Number of networks 60 Figure 1: Operational and planned LTE networks by region, July 2013 [Source: Analysys Mason, 2014] 27
    • LTE is the latest telecoms industry buzzword – mobile network operators (MNOs) have launched more than 200 live LTE networks in 100 countries. The experience of MNOs in countries such as South Korea show that LTE can add value to a business and have a positive impact on ARPU and share prices – when more than 28% of an MNO’s subscriber base has an LTE connection, operator share prices consistently outperform the index. This article examines how MNOs are experimenting with services, segments and pricing in order to monetise LTE offerings, and draws on our experience of working with operators worldwide. MNOs must differentiate LTE services from those of 3G LTE operators can begin to monetise LTE services by offering four categories of service to established and new segments of subscribers (see Figure 1). Enhanced data for consumers is a key selling point for LTE Operators can use the rich data experience of LTE to sell more data and develop new revenue streams. Video streaming providers such as Netflix alter the quality of video according to available bandwidth – so a 6-minute clip on LTE would consume 80MB compared with 27MB on 3G, thus driving usage. Operators are also bundling content with LTE or top-tier plans, enabling new revenue streams – for example, EE in the UK uses its film service (EE Film) to monetise data and receives sales commissions from video-on-demand provider FilmFlex. VoLTE (+ RCS) allows operators to offer integrated voice, video and instant messaging (IM) services with the added benefit of mobility VoLTE (+ RCS) will probably develop as a hybrid service for operators. They will be able to sell more IM and video data, a market that over-the-top (OTT) players currently dominate. Additionally, 4G networks can address the mobile opportunity for HD voice and integrated services, and even drive usage away from Wi-Fi, thus generating new revenue.1 South Korea Telecom’s VoLTE service is taken by about 50% of the operator’s LTE subscribers. Enterprise solutions can benefit from enhanced data services Enhanced enterprise LTE solutions such as videoconferencing on-the-go and remote access to business applications can drive data consumption. Verizon Wireless is one of many LTE operators that offers 4G mobility applications and solutions for SMEs and enterprise customers. A survey shows that 67% of US businesses using LTE believe that it has resulted in increased productivity.2 ROHAN DHAMIJA Head, India and South Asia LTE can also provide connectivity as a substitute to fixed networks It is possible to use LTE with a 4G router to offer connectivity to the home and SME broadband segment, which could be a new revenue stream for operators. For example, UK Broadband’s ‘now broadband’ service is offering connectivity using LTE + 4G routers. This use of TD-LTE as a substitute for fixed networks could be an interesting solution in emerging markets. Wholesale solutions may emerge as an attractive opportunity for operators Because LTE network latency is lower than 3G, operators can develop new revenue streams by selling bandwidth for wholesale services (such as utility and M2M services). Verizon is at the forefront of this with projects in sectors such as education. MONETISING LTE SERVICES: DEVELOPING NEW REVENUE STREAMS THROUGH DIFFERENTIATION AND INNOVATIVE PRICING 28
    • “MNOs can also experiment with bundling. Data sharing across devices is being offered, with the aim of monetising devices (such as tablets) otherwise lost to Wi-Fi.” Pricing is determined by LTE positioning relative to 3G If positioned as a value-added service with clear benefits (such as guaranteed speeds or premium content), then a pricing premium can be introduced. However, if positioned as a mass-market service (also used to decongest 3G networks) a premium is not advisable. Pricing premiums can also be applied in low-competition scenarios – although they will have to be removed eventually (for example, in the UK). MNOs can also experiment with bundling. Data sharing across devices is being offered, with the aim Revenue of monetising devices (such as tablets) otherwise sources lost to Wi-Fi. Tethering strategies are evolving, as operators try to monetise tethering by allowing it at Retail top-tier user as part of premium orand other plans. Fixed–mobile segment activities converged offerings are available and aimed at increasing revenue and reducing churn. MVNOs Resellers Fixed and broadband Internet perators o Wholesale 1 A purchase4G users in the UK found that since using 4G, survey of Smaller or partner MNOs 43% of users use fewer or no public Wi-Fi hotspots. 2 M2M aggregators A survey of 256 US businesses that use LTE, Arthur D. Little. Industry suppliers External Internal wholesale Overall, LTE strategies are continuing to evolve and it wholesale is too early to identify winners. Successful Network deployment to focus on offering monetisation strategies will need and operations differentiated services with flexible and usagefriendly pricing models. Spectrum licences and Analysys Mason is working with operators on 3G and overall corporate direction LTE network and commercial launch strategies in developed and emerging markets. 1 3 Such as video streaming or download, TV, online gaming, music and entertainment Data Corporate divisions of other companies 2 4 Enhanced data at home Enhanced mobility applications Such as VoD, online gaming, music and entertainment Such as videoconferencing, telepresence, large file transfers, real-time remote access to business apps, rich media collaboration Enhanced data on the go Voice For more information, please contact Rohan Dhamija, Head, India and South Asia, at rohan.dhamija@analysysmason.com. VoLTE and add-on features Add-on features for consumer segments include RCS messaging Add-on features for SMEs include video conferencing Urban: Wireless Urban: Fixed (Home) Urban: SME 700MHz 1800MHz b M2M and wholesale connectivity Such as remote fleet tracking, m-health, smart home Opportunity to provide connectivity for home broadband (urban and non urban) and SMEs Urban: Enterprise Utility solutions Such as healthcare, education, agriculture c Pure wholesale Such as service provision to VoIP providers Rural: Government Corporate and government segment Consumer segment Key: a 2300/2600MHz Suitability of the frequency band for the service: Poor Very good New services and segments that can be addressed with LTE Figure 1: LTE services by user and product segments [Source: Analysys Mason, 2014] 29
    • THINKING AND DOING THINKING INVESTMENT THINKING REGULATION THINKING MARKETS WHAT WE OFFER 30 THINKING TECHNOLOGY Auckland +12.00 Vanuatu +11.00 Sydney +10.00 Tokyo +9.00 Singapore +8.00 Bangkok +7.00 Dhaka +6.00 New Delhi +5.30 Dubai +4.00 Moscow +3.00 Cape Town +2.00 Paris +1.00 London 0.00 Azores -1.00 South Georgia -2.00 Buenos Aires -3.00 Caracas -4.00 Washington DC -5.00 Mexico City -6.00 Denver -7.00 San Francisco -8.00 Anchorage -9.00 Tahiti -10.00 Samoa -11.00 Knowing what’s going on is one thing. Understanding how to take advantage of events is quite another. Our ability to understand the complex workings of telecoms, media and technology (TMT) industries and draw practical conclusions, based on the specialist knowledge of our people, is what sets Analysys Mason apart. We deliver our key services via two channels: consulting and research.
    • CONSULTING RESEARCH For more than 25 years, our consultants have been bringing the benefits of applied intelligence to enable clients to make the most of their opportunities. Analysys Mason’s research service covers consumer and enterprise services, as well as the software, infrastructure and technology underlying those services. Our clients in the TMT sector operate in dynamic markets where change is constant. We help shape their understanding of the future so they can thrive in these demanding conditions. To do that, we have developed rigorous methodologies that deliver real results for clients around the world. The division consists of a specialised team of analysts, who provide dedicated coverage of TMT issues and trends. Our experts understand not only the complexities of the TMT sectors, but the unique challenges of companies, regulators and other stakeholders operating in such a dynamic industry. Our focus is exclusively on TMT. We support multi-billion dollar investments, advise clients on regulatory matters, provide spectrum valuation and auction support, and advise on operational performance, business planning and strategy. Such projects result in a depth of knowledge and a range of expertise that sets us apart. Our research programmes cover the following six key areas: We look beyond the obvious to understand a situation from a client’s perspective. Most importantly, we never forget that the point of consultancy is to provide appropriate and practical solutions. We help clients solve their most pressing problems, enabling them to go farther, faster and achieve their commercial objectives. • telecoms software markets • consumer services • enterprise and M2M • network technologies • telecoms software strategies • regional markets. Our programmes offer a mixture of qualitative and quantitative market intelligence. The result is an essential resource for strategic planning, investment, marketing and benchmarking. CUSTOM RESEARCH We also deliver tailored research that addresses specific business needs for a wide range of organisations. We deliver tailored research that addresses specific business needs for a wide range of operators, vendors, industry bodies and regulators within the TMT sector. Our comprehensive knowledge of the TMT industries draws on a large base of market data that we have collected over 25 years, refreshed through continuous research and custom consulting project assignments. FOR MORE INFORMATION: analysysmason.com consulting@analysysmason.com research@analysysmason.com custom.research@analysysmason.com 31
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