Quartely edition – March 2023

This year promises to be another exciting one for TMT companies, with the key watchwords for success being adaptation and innovation. We seized the opportunity to speak with our experts and get their views on what lies ahead in these fast-evolving industries.

The transformation of the sector shows no signs of slowing down. While some emerging technologies may currently seem to lack traction, it’s likely only a matter of time before cost reductions and changing habits propel them to success. As markets mature, traditional business models will need to adapt to stay competitive, and other legacy industries will need to embrace the changing tastes and preferences of the Gen-Z generation.

 

#1 Video: A shifting business model

Victor Font, Senior Managing Director & Team Lead – vf@deltapartnersgroup.com

As SVOD subscriber growth stalls in mature video markets, ‘streamers’ are turning to a hybrid business model to boost viewership and monetization. Overall SVOD subscribers in the US grew from 422.7 million in 2021 to 460.4 million in 2022.

To increase reach and open up new revenue streams, several platforms have turned to advertising as an area for growth. Netflix launched ‘Netflix Basic with Ads’ in November 2022, marking a stark shift in its brand proposition. Similarly, Disney+ Basics, an ad-supported subscription plan launched in December 2022.

The evolving model highlights an industry in flux, shifting from a sole focus on subscriber growth to one increasingly concerned with profitability.

With sustained content spending, we anticipate further exploration of new commercial propositions in 2023 as streamers chart the path to profitability.

Expect the streamers to also further expand efforts internationally as the US market continues to be a hard-fought battleground. Licensing and partnerships with local producers will be a key focus to create more local (and hopefully market-transferable) high-quality content to accelerate growth. Investors will be looking closely at both the customer response to new commercial propositions and growth internationally to determine the ‘content leash’ afforded to the streamers going forward.

Exhibit [1]: Evolution of SVOD subscriptions in the USA

 

#2 Legacy sports formats: Fast-forwarding from denial to acceptance

Carlos Vidal, Associate Partner – cv@deltapartnersgroup.com

It is commonly said that dealing with loss implies going through five stages of grief: denial, anger, bargaining, depression, and finally acceptance. Legacy sports leagues and major players have started going through the ‘loss’ of their total control by the introduction of novelty formats, mainly addressed to the new generations, that challenged the status quo and fixed some of the issues that Gen-Z was raising.

2022 has seen how several sports introduced new formats and leagues, and how different legacy organizations have been dealing with the introduction and rapid rise of those players. KSA-backed LIV Golf took the golf industry by storm, and we have seen how the PGA Tour and some of the key players are rapidly moving from anger to bargaining, as LIV keeps attracting more top-ranked players around the world. Spain recently introduced a new soccer league, the Kings League, which introduced a 7-a-side league owned by Youtubers and influencers that streams live on Twitch with a series of innovative concepts that increase dynamism and entertainment. In January, the Kings League reported 230m+ views on TikTok, more than any other traditional league.

In the US, ‘Fan Controlled Football’ keeps increasing its audience, as its league, which also streams on Twitch, lets users make the play calls live on the teams they support.

In 2023, as these new formats are expected to continue gaining popularity, we foresee traditional leagues and leading players start accepting and negotiate the existance of these new leagues and how their professional players roam from one league to another. LIV and the PGA started to make some inroads, and for example, the World Padel Tour and Premier Padel have also announced they will sit to find the best outcome for the sport. We’ll see how fast the largest sports in the world get affected by these new formats and their reaction. But the customer is always right, and with GenZ backing these innovations, novelty formats are here to stay.

Exhibit [2]: Tik Tok views of main football leagues

 

#3 Wholesale: In search of the global virtual ‘on-net’

Sam Evans, Senior Managing Director – se@deltapartnersgroup.com

When we step back from specific future network use cases we see that there are six fundamental expectations for digital infrastructure going forward – low latency, high capacity, security and trust, QoS, adaptability and leveraging global standards. Connectivity will need to deliver these customer requirements end-to-end, regardless of network endpoint, agnostic of infrastructure type. To meet the demands of carrier, cloud builder and international enterprise customers, no single network provider has the sufficient breadth of infrastructure to independently deliver requirements end-to-end. When other layers of the ICT stack have created ‘hyper-scale’, how can that be offered at the connectivity layer?

Telco groups should focus on leveraging their cross-OpCo scale to provide an expanded multi-national infra-agnostic ‘on-net’ – i.e., bringing together the digital infrastructures across their footprint to act both technically and commercially as one network. Creating a virtual ‘on-net’ can drive significant benefits for OpCos – beyond giving access to network scale it can reduce operational overlaps, ensure consistency in quality of service, and increase infrastructure utilization.

Exhibit [3]: Connectivity needs to meet customer requirements end-to-end agnostic of infrastructure type

 

#4 Analytics: Leveraging governance for value

Roman Izquierdo, Senior Managing Director – ri@deltapartnersgroup.com

The need for data governance has become increasingly prominent in recent years, particularly with the rise of new regulations and data breaches. Despite its importance, many organizations struggle to fully leverage their data governance programs. The traditional data governance approach is time-consuming to stand up, maintain, and acquire the right skill set. Organizations are also slow to deliver value from their data governance programs because of the steep learning curve required to implement, lack of experience, and difficulty within the business to drive adoption.

To address these challenges and improve time to value, a new approach called Data Governance as a Service (DGaaS) has emerged. DGaaS consists of a network of subject matter experts that cover wide range of regulatory and operational knowledge, pre-packaged tool kits with policies and standards, and templates that can be leveraged to accelerate the time-to-develop data governance capabilities. DGaaS takes an agile approach that focuses on providing value quickly and iterating on building out data governance capabilities. With an agile approach resources can easily be scaled up or down based on business.

In summary, DGaaS provides organizations with the support of functional and technical experts to accelerate the development of their data governance capabilities, bridge gaps between regulations and organizational data governance, and solve talent constraints and knowledge gaps. We believe that organizations will increasingly adopt DGaaS to reduce time, cost, and resource requirements for implementing data governance programs and decreasing the time needed to maximize the value of their data.

Exhibit [4]: Data Governance as a Service (DGaas) approach

 

#5 Gaming: Goliaths battle it out and bets are made to build bedrock for next-gen gaming experiences

Janne Pajuniemi, Senior Principal – jp@deltapartnersgroup.com

The global gaming opportunity is likely to continue growing despite a subtle contraction in 2022 as people returned to pre-pandemic behaviors. Albeit the economic uncertainties paint a gray backdrop for 2023.

We expect mobile gaming to drive engagement in 2023. Apple and Google, as app store gatekeepers, will be major beneficiaries. However, Europe is showing pressure from regulators to open competition. The MS-ABK deal, awaiting regulatory approval, would help solidify Microsoft’s mobile gaming strategy.

In 2023, VR gaming is not yet becoming mainstream due to the hardware cost and limited gaming propositions. Recently, Sony’s halved the sales projection for its new VR headset. As affordability, interoperability, and use cases continue to improve a wide-scale adoption will follow.

Cloud gaming is expanding but is still a modest market, with US$ 4.4 billion in 2023 (+28% to 20221). However, the recent partnership between Microsoft and NVIDIA to bring Xbox games to GeForce NOW’s 25 million users marks considerable progress. We are closely monitoring the cloud gaming catalysts like cross-platform gaming and cloud-native games development.

Innovation in games development technology, particularly in low/no-code platforms, generative AI, and automation, is expected to intensify in 2023, along with growing investor attention and funding.

Gaming monetization models evolve and diversify. For example, large gaming giants have their eyes on ad revenues and advertisement-based models are poised to gain traction outside the mobile gaming space.

Exhibit [5]: Breakdown of global game content revenues per stream, 2018-23 (in USD billions)

 

#6 Emerging Tech: Rapid growth of AI alongside validation of AR/MR concepts

Vincent Stevens, Senior Managing Director – vs@deltapartnersgroup.com

AI has made significant advances in 2022. A startup called Metaphysic secured the 4th position in the 2022 America’s Got Talent show by producing impressive deepfakes of Simon Cowell and the other judges in real-time. OpenAI launched ChatGPT in 2022, a large language model chatbot that can be used for natural languages processing tasks such as text generation and language translation, leading to Microsoft’s rumored additional USD 10 bn investment in OpenAI beyond its 2019 USD 1 bn investment.

The barrier to AI is also shrinking fast with an increasing no-code AI landscape. AI has become mainstream, touching consumers’ lives directly. 2023 will see a continued non-linear expansion of AI in various touchpoints of consumers, including customer support (e.g. chatbots) and healthcare (e.g. cancer detection) aided by the democratization of the underlying enabling technology.

2023 will also be the year of truth for AR/MR – Apple has just announced the indefinite postponement of the launch of its lightweight AR glasses due to technical challenges, yet is still planning to launch a mixed-reality headset this year, rumored to cost a staggering USD 3,000. Microsoft and Meta announced a partnership to bring Mesh for Microsoft Teams and Microsoft 365 apps to Meta Quest devices. NVIDIA launched its Omniverse Cloud — a comprehensive suite of cloud services for artists, developers, and enterprise teams to design, publish, operate, and experience metaverse applications anywhere.

The ecosystem is collaborating, enabling, and developing. 2023 might be finally the year in which AR/VR/MR starts to deliver on its long-lasting (and overdue) promise.

 

 

#7 B2B: Achieving an unmatched level of sales enablement will be key in B2B ICT

Sam Evans, Senior Managing Director – se@deltapartnersgroup.com

Selling ICT products requires a distinct consultative approach due to its complexity, the involvement of multiple vendors and technologies, longer sales cycles, and the influence of multiple functional buyers.

In 2023, enterprise telcos should prioritize modernizing their B2B sales capabilities and enabling an industry-savvy sales force. A world-class sales enablement engine connects marketing and sales efforts through real-time insights, governance, people, and technological capabilities.
The overall value of analytics-led selling and digital knowledge management capabilities are closely linked. Leaders are able to generate rich analytical insights to guide all aspects of the deal pursuit decision-making thus improving not only deal hit rates but also deal margins, and productivity. The more digitized and analytics-led the sales process, the better the visibility provided to sales leadership, which helps manage sales efforts and teams based on facts.

Leading telcos design the entire lead-to-quote process to support high-stakes strategic customer and deal pursuits, bringing sufficient industry and solution expertise where needed and integrating decision-making across multiple stakeholders. Digitization and automation provide a seamless collaborative backbone for the deal workflow.

The next evolution in the enterprise sales enablement landscape will be driven by generative AI-based capabilities that help supercharge the bid process with deeper personalization of sales engagement and automated collateral creation. This will significantly increase the amount of time a sales team can spend on what matters most – understanding the customer’s needs and the solutions they need to offer.

Exhibit [6]: Global ICT market size in selected segments (in USD billions)

 

#8 Corporate strategy: Navigating Market Transformation through Infrastructure Leadership, Growth, and Simplification

Joao Sousa, Senior Managing Director – js@deltapartnersgroup.com

Over the past decade, the TMT industry has undergone multiple reinventions, transforming network operators from country-specific oligopolies focused solely on voice services to multifaceted companies competing with globally scaled OTT players. This disruption is set to accelerate across technology, cloud, and infrastructure layers. Considering these challenges, operators need to reset their equity story by positioning themselves to capture growth from market transformation while driving scale and efficiencies.

A clear strategy built on three pillars is necessary: 1) infrastructure leadership (Unbundle network to address different segments and market consolidation); 2) growth (new business models), and 3) simplification/optimization (new ways of working, capabilities, attracting talent, and offloading non-core assets).

Globally, three non-exclusive archetypes emerge across telco strategies – with one being predominant -: the efficient digital operator, the network-as-a-service provider, and the adjacent-growth explorer.

• The efficient digital operator focuses on a digital customer experience while ruthlessly driving digitization and cost efficiency.
• The network-as-a-service provider generates growth by monetizing advanced network capabilities for new services.
• The adjacent-growth explorer creates new “adjacent” businesses to directly participate in niches where they have a strong right to win.

By adopting a clear strategy, operators can reset their equity story and capitalize on market transformation while driving scale and efficiencies. The changing market brings uncertainty but also presents opportunities for telcos that can play an important role in enabling technology-led transformation.

Exhibit [7]: The strategies have distinct equity stories and specific risks and challenges

 

#9 Digital Infra – Europe: Continued investment across FTTH and data centres in Tier 2 cities

Audi Pous, Senior Managing Director – ep@deltapartnersgroup.com

The European Commission’s 2030 Digital Decade targets will continue driving the investment momentum in Digital Infrastructure across Europe, with key infrastructure goals including having all households be covered by gigabit-capable network, full coverage of populated areas with 5G and the deployment of 10,000 climate neutral, highly secure edge nodes across the EU.
On the FTTH front, the current inflationary context with high interest rates may slow down deployments in some countries where overbuilding is expected to be considerable (e.g. UK), or where the economics do not reach minimum yields.

On the Data Centre front, while the opportunities in the FLAP-D market are still large, it will become increasingly difficult to fulfill given power, space constraints, and regulations restricting DC growth in those markets. Tier 2 cities present an attractive opportunity that is driven mostly by lower
cost/availability of power, government incentives and space/availability of locations.

Finally, we expect that in 2023, European telcos will continue reassessing their portfolios through selling physical assets, considering carve-outs and/or looking for new partnerships with infrastructure funds to minimize capital intensity. With that, we expect InfraCos to gain a higher market share in the European infrastructure businesses in comparison to other regions.

Exhibit [8]: 2030 Ambition for Digital Infrastructure across Europe

 

#10 Digital Infra – Asia Pacific: Connectivity in the region – challenges and opportunities

Vinod Nair, Senior Managing Director – vn@deltapartnersgroup.com

Demand for inclusive & affordable digital connectivity continues to be a dominant theme in the digital infrastructure sector in the Asia Pacific region. This is being driven both by consumer demand as well as the needs of hyper scalers, enterprise, and governments.

However, there are still significant differences differences between countries in the region today in terms of the quality, availability and affordability of digital infrastructure. This has resulted in different levels of digital inclusivity and adoption as well as significant differences in the digital experiences of users across the Asia Pacific. These gaps need to be bridged largely through investments in digital infrastructure, which most countries in the Asia Pacific region are witnessing a lot of.

Two critical challenges to bridging these gaps are to attract more capital for such investments and to ensure that the infrastructure is deployed and used efficiently to maximize returns. To that end, we see the following trends continuing in 2023.

• Continued interest from global and local infrastructure investors in key assets e.g. data centers, fiber networks, and passive and active mobile infrastructure.
• Increasing focus on specific niches e.g. edge data centers.
• Continued commercial pressures on connectivity providers to adopt shared models of infrastructure.
• Increasing support and pressure from regulators to ensure that digital infrastructure is deployed in an environmentally friendly, sustainable, and efficient manner.

2023 will be yet another milestone in Asia Pacific in the volume and value of digital infrastructure investments made, as well as the pace of rollout of new infrastructure!

 

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