MWC 2014 Takeaway: Creating What’s Next

MWC 2014 Takeaway: Creating What’s Next

White papers
Authors Darren Tan - Research Director - dta@deltapartnersgroup.com
Matthew Palmer - Principal - mpa@deltapartnersgroup.com
 
KEY HIGHLIGHTS
With over 85,000 attendees this year, Mobile World Congress (MWC) 2014again demonstrated how the industry ecosystem has expanded and flourished. This year’s event showcased new and exciting technology that will transform the lives of consumers and businesses and accelerate the digital revolution.
 
The mobile industry continues to evolve rapidly, driven by the pull from consumers’ demands and push from myriad innovative digital devices. Technological vendors are offering new enterprise solutions, promising service providers greater optimisation and efficiency at a lower cost.
 
The non-telecom audience has grown as well, constituting 26% of attendees for 2014. There are suggestions that ‘Mobile’ may in future be superseded by‘Internet’ or ‘Digital’ given the pace of industry developments.
 
This article highlights the important conclusions gathered from MWC this year.
 

Key MWC conclusions

1.Operator strategies: partnerships  and collaboration in the driving seat

Operators’ partnerships in the form of collaboration and mediation with digital partners were the trending topics among operators. In the past 12 months, over 150 operator/over-the-top (OTT) partnerships have been established as operators collaborate with digital players to expand their digital capabilities and deliver the digital experience expected by today’s consumers.
 
Globe Telecom, VimpelCom, Telenor, Deutsche Telekom and others used their respective keynotes to highlight their successful digital partnerships. As an example, VimpelCom showcased its portfolio of over 40 partnerships which it believes have helped to both differentiate the company and drive data uptake across emerging markets such as Pakistan.
 
Mark Zuckerberg proclaimed in his keynote that Facebook’s partnership with the Philippines’ Globe Telecom has brought connectivity to the otherwise unconnected, indirectly driving new revenue growth through the uptake of data plans.
 
The Delta Partners Perspective:
While some notable partnerships have been established, there are still sceptical operators that remain unconvinced about the notion of opening their networks to digital players. Mediation (whereby operators make their unique assets such as customer base, customer data and points of sale available to digital players as a service) is potentially the right business model for successful operator/OTT partnerships and collaboration.
 
What is indeed clear is that any such relationship is symbiotic in nature, and requires both components to flourish. For example, for operators, such collaborations reflect favourably on their service agility and ability to develop close partnerships within the digital ecosystem to cater to their customers’ varied interests.
 
Operators will for the foreseeable future be relied upon by OTTs to provide the access infrastructure required to deliver differentiated digital services. Unsurprisingly, some operators are therefore trying to monetise their infrastructure assets (e.g. AT&T’s Sponsored Data) to fund further investment. While this tested net neutrality rules, the recent FCC ruling has paved the way for further commercial agreements similar to that reached between Netflix and Comcast in February, under which Netflix will pay millions of dollars annually to ensure better speed and reliability for its video-streaming service.
 
The Facebook/WhatsApp deal could well be a harbinger of the gradual displacement of telcos from the content market. However, collaboration with digital players could well sustain operators’ top lines. That said, while the uptake of data subscribers at Globe can be attributed to the Facebook collaboration, it could potentially be value destructive to the overall industry.
 
2.SOCIAL MEDIA PLATFORMS ARE IMMINENT THREATS
 
Social media platforms are shaping into comprehensive mobile media platforms. The popularity of these platforms (e.g. WeChat, LINE, Viber, and KakaoTalk) has continued to threaten mobile operators as they exert unprecedented pressure on the industry. Indeed, during MWC, WhatsApp announced its next frontier – voice. Since then, it has established an MVNO tie-up with Germany’s E-Plus which has subsequently gone live in April.
 
The value proposition of these platforms are very much aligned with today’s digital generation, where all modes of communications can be handled from an independent communications platform that allows voice, messaging and the potential for mobile commerce.
 
According to Juniper Research, mobile operators are set to generate revenues of nearly US$20 billion by 2018 through OTT-based voice services. Revenue will come from new service propositions created by operators as well as partnerships with standalone OTT players.
Evidently, a growing number of operators have already established alliances with social media platforms (e.g. China Unicom with Tencent’s popular WeChat messaging app) or are in the midst of exploring partnership options. Nimbuzz is in talks with a leading European operator and expects to launch a co-branded partnership soon while Telefonica has established an exclusive partnership with LINE for their Firefox OS smartphones in Latin America.
 
The Delta Partners Perspective:
Although the degree of threat to operators is still unknown, operators continue to be displaced in their own industry. However, while social media platforms have impressive customer bases, they generally struggle to monetise them.
 
Operators therefore need to understand how they can become part of the evolution by focussing innovation on enabling platforms, networks and other infrastructure requirements that could optimise deployment costs. Mediation could again be the key to successful partnership and collaboration with operators providing access to their established billing relationships and network quality of service (QoS).
 
With WhatsApp’s entry into voice, concerns around the impact of VoIP on operator revenues are resurfacing. The ability of these platforms to shape the mobile landscape is undisputable; operators must therefore either partner with them to create more valuable, monetisable products for their customers or be quick to defend their turf by launching innovative, bundled service offerings for OTTs that leverage their strengths such as billing, customer information and the customer relationship.
 
Within the broader context, the threats from social media platforms are not limited to operators, but also target large internet players such as Google. Already, Facebook and other social media platforms block Google from indexing their platforms given the rich personalised data generated on closed platforms.
 
With their detailed knowledge of users, these social media platforms are increasingly better positioned than large internet players to provide well-targeted advertising campaigns. Given their similarly-detailed customer data, operators could well complement social media platforms with additional data and analytics – especially in markets where the social media platforms lack depth.
 
3.Big Data – delivering the trust on data privacy concerns
 
Big Data is still a key theme amidst heightened data privacy concerns. However, operators were confident about balancing its use for new revenue opportunities or to improve customer experience with concerns about privacy. Orange is focusing only on how to use Big Data to improve services for customers, while Deutsche Telekom called for greater clarity – especially in Europe – on the modalities for using or sharing customer data.
 
The Big Data theme is interwoven with the development of the Internet of Things (IoT), from which vast amounts of customer data will be generated which could help service providers tailor more personalised service offerings. IBM believes mobile services and enterprises will be revolutionised by the use of Big Data, describing data as “the world’s new natural resource” which could well be a source of competitive advantage for the industry.
 
However, many keynotes focussed on the need to establish trust among consumers for the Big Data promise to bear fruit. Orange called on companies to be more transparent about data usage and sharing, (while also proposing tools to allow consumers to control their data) and service providers to be consumer champions. Similarly, SingTel advised operators to leverage on their position of trust.
 
The Delta Partners Perspective:
Big Trust is becoming as much a part of the internet economy as Big Data and will need to be embedded into the next generation of solutions. Service providers need jointly-established industry standards to reassure consumers and address the concerns of privacy and security around personal data.
 
While business analytics has been essential for delivering tangible business benefits (e.g. new services for consumers and strengthened internal business processes), it has been difficult to quantify the true ROI on Big Data investments. However, as more devices are digitally connected in the future, these investments will certainly pay off.
 
4.Network functions virtualisation (NFV) heavily advocated
 
Network Functions Virtualisation (NFV) – where software and virtualisation supersede network hardware – was the major theme for networks. Rather than new technology, NFV focusses more on intelligent network architecture yet, although considered conceptually sound, the industry believes that software vendors are probably five years ahead of a true implementation.
 
NFV appears highly complementary to software-defined networking (SDN) given that NFV can be virtualised and deployed without SDN and vice-versa. According to ETSI, early NFV deployments are underway and are expected to accelerate during 2014-15.
 
NFV and SDN appear to be components of a broader industry evolution from proprietary equipment networks to IT-based, data-centre networks that employ such technologies in combination with cloud-computing and Big Data analytics to provide a variety of converged services to consumers.
Telefonica announced its group-wide NFV initiative (branded UNICA) which aims to evolve its mobile and fixed networks from networks based on proprietary infrastructure to platforms based on open standards.
 
5G standards were also discussed with the European vendors and government seeking to take a more-active role in defining the 5G standards and reshaping the industry. European Commission vice president Neelie Kroes spoke about the need for governments and private companies to work together to bring 5G networks to Europe and the world.
 
The Next Generation Mobile Networks Alliance (NGMN) is already defining the 5G architectures and standards but expects 4G to dominate until 2020. NGMN comprises 21 operators who will cooperate with standardisation bodies, research institutes, regulators and vendors, as well as fellow operators – and potentially internet and OTT players.
 
The Delta Partners Perspective:
The clear advantage that network virtualisation technologies bring to mobile operators is the ability to quickly adapt to changing business models. Through virtualised networks, operators can rapidly deploy new applications and services to generate new revenue streams and increase the value of the network.
 
While possible, the complexity of migrating legacy infrastructure – particularly a multi-vendor environment – to a virtualised environment has to be taken into account. Legacy network infrastructure decommissioning requires upfront investments, and service providers may not be receptive to the transformation with benefits being realised only over the long-term.
 
Telefonica’s NFV initiative is commendable. The company seeks to design a virtualised network
architecture that allows vendor interoperability in order to, “enable a multi-vendor environment from day one.”
 
On the 5G front, industry regulators and players collaborating on 5G industry standards and specifications will need to deliver against the requirements for the evolution from one generation to the next: more bandwidth for faster data speeds (e.g. to facilitate real-time multimedia services), lower latency, greater network efficiency (i.e. better power and spectral efficiency, improved reliability and lower operating costs), and; more secure networks.
5.The Internet of things (IoT) – the next revolution in computing
 
IoT is the next revolution in computing, building on the low prices of key communication, computing and sensing components. The Open Mobile Alliance (OMA) is developing standards and specifications to define how mobile phones and apps should share data with other connected devices independent of wireless networks and platforms to support the rapidly-growing IoT landscape. However, given that IoT is interwoven with business analytics and Big Data, these connected devices will also require analytics capabilities to process and generate meaningful information from the vast amounts of data collected.
 
The Delta Partners Perspective:
IoT is actually a play amongst hardware, software and the user where there is indeed an opportunity for operators given that the standards are still under development by the Open Mobile Alliance (OMA). This standardisation will be a determining factor in the rate at which the industry will develop although it is likely to be several years before it truly takes off.
 
Operators need though to reassess their position to capture the vast opportunity. Specific industry verticals - such as connected vehicles, retail, utilities and insurance – will be more interesting than others. However, while the potential is large, many of these verticals will consume very little bandwidth. Hence, it is again critical that access providers develop mediation propositions to support the services.
 
6.Wearables – evolving from  conceptual but not yet mainstream
 
The wearables landscape has evolved rapidly over the past 12 months with over 150 devices currently available on the market. Moreover, the wearables market is expected to double each year over the coming five years with Strategy Analytics forecasting units shipped to hit 154m by 2018.
 
The major developments included:
  • Wearable tech devices that connect to  smartphones becoming more sophisticated (e.g. Nymi, Sony’s SmartBand, Pebble’s Steel and Samsung’s Gear)
  • Huawei’s wearable ring and Sony’s  Smartband offering broader functionality, including detailed life-logging capabilities and health-based, life-tracking
  • Intel shifting focus and forging ahead with  wearable tech through the acquisition of Basis, a health health-tracking smartwatch
  • Google Glass remaining much anticipated,   with in-built augmented reality promising more developments to come
 
First-mover wearable players are now experiencing increasing competition, with many smartphone producers’ products hitting the market this year, including the much-anticipated Apple iWatch. The competitive landscape will certainly change as competitors seek to differentiate their value proposition with better functionality and compatibility across platforms.
 
Along these lines, Telefonica, LG, Samsung and Sony announced a wearable alliance to integrate services on devices. Telefonica wants to lead the development, integration and support of services that wearables provide and is open to agreements with other market players, including manufacturers and content providers, with the aim of ensuring that devices are commercially successful.
 
The Delta Partners Perspective:
Higher mainstream adoption of wearables is required for mass-market acceptance. However, stickiness is an issue given that those currently available in the market are limited by their functionality. These devices are very homogeneous, targeting a niche market competing for too few customers. Only two traditional wearables have stood the test of time: glasses and watches.
 
Heaping further pressure, recent surveys claim that smart wearables are abandoned or discarded after three-to-six months, attributed to their limited lifestyle functionalities. Users no longer feel incentivised to continue tracking their lifestyle once a routine has been established.
 
However, wearables 2.0 are expected to pack more functionalities that could potentially appeal to the mainstream. Operators interested in pursuing this space should either join or emulate the wearables alliance formed by Telefonica with the device manufacturers to build a head start.
7.Device – mid-end smartphones likely to emerge as winners
 
Vendors continue to show off homogeneous new devices, even though market economics are demanding greater differentiation, not less. Overall, the new devices launched presented marginally-improved features such as health-related tracking, waterproofing, 4K-capable displays and better processing capabilities.
 
The promises of Jolla have yet to live up to the expectations generated last year. However, Firefox OS phones show some potential of hitting the US$25 sweet spot of a low-end smartphone through its partnership with Chinese chipmaker, Spreadtrum.
 
The Nokia X series launch took centre stage as the company tries again to re-establish itself in the hugely-competitive device market. Built on an Android platform yet disguised with a Windows-like interface, the range is targeted at emerging markets to avoid cannibalising better-established Windows Phone markets.
 
The Chinese vendors including Huawei and ZTE raised their game with more sophisticated branding and products. Yet more may follow given the launch of Huawei’s MediaPad X1 and ZTE’s Gran Memo II. Elsewhere, Xiaomi’s internationalisation plan is underway but will be challenging in a crowded market.
 
Other interesting devices showcased include:
Blackphone, a super-secure device that • promises protection from all unauthorised surveillance, commercial use of personal data and any kind of privacy or security breaches
YotaPhone, the only device (half • smartphone, half e-reader) with touchscreens on the front and back. Given the advancements in e-ink, this second screen can be used to display, for example, a boarding pass or e-book while conserving battery power
MediaTek, an octa-core processor for • a US$200 LTE Smartphone to push for affordable LTE devices into the consumer hands
 
The Delta Partners Perspective:
Mid-end smartphones promise to migrate the millions of cost-conscious consumers currently using feature phones. This bolsters a recurrent theme at the congress to connect millions of cost-conscious consumers to affordable mobile internet services. This presents an opportunity for operators to devise a relevant device portfolio with well-conceived data plans to rapidly increase the uptake of data services – especially in the prepaid segment.
 
8.Connected Cars – rapid industry  evolution and real monetisation opportunities
 
The global connected car market will be worth €39 billion in 2018 up from €13 billion in 2012, according to new forecasts from research firm SBD and the GSMA. By 2018, factory-fitted mobile connectivity will be the norm in new cars to meet demands from both regulators for increased safety and security and consumers for infotainment and navigation.
 
Already, the industry is shifting from connected cars to intelligent cars, with features such as self-driving, self-parking and even driverless vehicles becoming a reality (e.g. Google and Tesla’s ventures).
 
Ecosystem collaboration is rapidly taking shape as well. Operators in developed markets including AT&T and Deutsche Telekom have established joint-initiatives such as AT&T Studios to guide the nascent industry to its full potential. In the US for instance, AT&T, Intel and Verizon have formed the Intelligent Car Coalition (ICC) to engage in policy discussions relating to data privacy, reliability and security.
 
Ultimately, the shift in focus from what’s under the hood to what’s behind the dashboard has brought a largely covert war to the industry over the operating systems that will assume control. Similar to the smartphone business, the battle lines are drawn between proprietary versus open-source software. The outcome will determine how these systems look, how they operate and how distinctive they are as automakers embrace either walled gardens or open ecosystems.
 
The Delta Partners Perspective:
Despite the fact that industry standards are still in their formative period, we see great potential for connected cars.
 
From an operator perspective, connected cars will heighten demand for access connectivity given the large bandwidth requirements (e.g. a Tesla creates 1.2GB of data from normal sensor activities alone on a monthly basis).
 
However, operators ensure that they are actively involved in defining industry standards in collaboration with the automotive ecosystems (e.g. AT&T’s Drive Studio) to shape and benefit from the connected car industry – if not, they risk ending up as telematics access (bandwidth) providers.
 

Conclusion

MWC 2014 lived up to its billing as the most important industry event of the year.
 
For sure, the mobile industry is evolving very rapidly and service providers cannot afford to lose track of the digital players that dictate industry evolution through rapid and agile innovation. However, while service providers’ challenges are overwhelming, they are not insurmountable.
 
In this new paradigm, the path to success may well be as yet untrodden. However, the operator that navigates this treacherous digital terrain with agility through innovation or collaboration and persistence over the longer-term will ultimately reap rewards.

 

 
 
 
 
 
 
 
 

Video

Delta Partners - TMD Advisory and Investment