MWC 2012: The connected world
Victor Font - Group Managing Director
Darren Tan - Research Director
- The mobile communications industry is a global success story. It is an established and truly connected world. There are more than 6.6 billion mobile connections worldwide, accounting for more than 3.6 billion individual subscribers globally. There are around 1 billion Mobile Broadband connections, and this is expected to grow by an astonishing 36% every year. By 2015, the industry will add 2.5 billion mobile connections to reach a total of 9.1 billion connections globally. Another 1 billion mobile subscribers will be added, with reach totaling 4.6 billion people. GSMA expects to add 2.3 billion Mobile Broadband connections to reach 3.2 billion connections - and 350 million of these will be LTE.
- Looking beyond the sheer number of connections, in 2011 the mobile industry generated US$1.5 trillion in revenues and invested US$189 billion in capex. And staggeringly, in the next four years, between 2012 and 2015, the mobile industry will invest US$793 billion in capital and will contribute US$2.7 trillion to public funding across the globe. According to the World Bank, mobile operators contribute approximately 1.5% of the world’s GDP while a 10% increase in Mobile Broadband penetration yields a 1.4% increase in GDP. But this is just the starting point.
- As the Mobile World Congress 2012 draws to a close, we provide our perspectives on 11 key take-aways relevant to the telecoms industry.
Key MWC take-aways
1. Operators will continue to be the main architect of the future connected world - OTT will innovate and shape the industry
CEOs of Vodafone, AT&T Wireless, China Mobile, and Telecom Italia outlined their visions of the mobile future and the challenges ahead. Their overriding message was that the mobile industry will continue to deliver value to customers, and will be the main architect of the future connected world. The doomsday scenario of a few years ago – when the big OTT players were expected to deliver a knockout blow to telcos – has gone. Instead, the operators have seen a more pragmatic telecoms industry that is aware of its limitations and confi dent in its strengths. Vodafone CEO Vittorio Colao captured this realism well. He stated that only telcos can provide the ubiquity, excellence, convenience, and trust that customers want for the future. OTT players will have to develop strengthened partnerships with operators to share the eco-system.
However, during the keynote session, the operators acknowledged the burden and challenges of OTT players. There is an overall sense that recouping investments become paramount and unless OTT players come to an agreement with them on data traffic costs generated, these infrastructure costs, including upgrades and spectrum will have to come from somewhere.
The Delta Perspective: Majority of operators are seen as laggards. Although acknowledging the challenges, operators have been slow to adapt to the fast-changing market environment, and have lagged behind in the race to unlock the ‘second trillion dollars of value in the mobile communications industry.’ Core strategies remain fi xated on traditional services with little priority in developing clear strategies on specific adjacent businesses in the expanded value-chain.
The growth opportunity beyond traditional core business is still blurry for many operators at large. With the OTT onslaught continuing, operators’ innovation in partnerships with software, applications and value-added service (VAS) providers becomes critical in its survival in the connected world. In order to compete, operators need to innovate more quickly to compete - but very little has been achieved.
The current disruptive environment may not see successful collaboration with the current OTT players in the short term. Adopting a similar innovative mindset and applying similar tactics to the OTT is the way forward. Operators may have to act alone (potentially through OTT acquisitions) in differentiating their positioning and approach within the connected world.
2. Autocratic regulatory regimes stifle telecom investments
Telecoms executives urge less regulation globally as the wireless sector comes to terms with tough economic conditions, uncertain growth prospects in traditional services, increased competition and potentially huge outlays for the construction of fourth-generation Long Term Evolution (LTE) networks. “Auto pilot” regulatory regime, particularly in Europe, pressures operators like Vimpelcom, Telekom Austria and Vodafone. In the quest to use telecoms to spur economic growth and society development, regulators have been fi xated on reaping the rewards presented by the industry. These have come in the form of spectrum licensing, adding new entrants to hyper-competitive markets, and continuous introduction of unending mobile termination rates (MTR) cut.
Others were even more blunt in their approach. Benoit Scheen, head of Orange's European operations, accused national regulators of treating telcos like cash cows; Deutsche Telekom CEO Rene Obermann claimed regulators are taking "a fantastic amount of money out of this industry"; and Telefonica’s Latin America chief Santiago Fernández Valbuena hit out at outdated methods of policing the industry.
Vimpelcom’s CEO Jo Lunder called for an easing of regulation, also warning that the industry has to contend with massive investments in infrastructure to cope with higher data traffic. “There is no reason for politicians to intervene as a market is in place and prices decrease, even if we may not have the perfect offers for the consumer” he said. However, European Commissioner Neelie Kroes, called the ’company’s bluff’ and does not welcome the operators’ threats.
The scenario in the developing markets is not much diff erent. Regulators adopt strong arm tactics to make it challenging for operators to operate efficiently. Expensive spectrum allocation, blatant issuance of licenses thus creating hyper-competitive markets and restricted innovative pricing have all contributed to the challenges in the emerging markets. Bharti’s Sunil Mittal illustrated the Indian example where 3G spectrum cost is far more expensive than in Europe, while the true market potential in terms of aff ordability is far smaller.
The Delta Perspective: Perhaps what is needed for the future - whether for governments, telcos, regulators, OTT players, vendors, or, most importantly, customers - is to equally share in the risks and challenges. This somewhat complex entanglement needs a proper framework relevant for the industry’s future. Setting new international ITU standards and a governance mechanism will see a flourishing future for all players within the value-chain.
However, it is all easy to theorize, but the reality is many of these challenges, i.e. political influences in awarding licenses, corruption among the regulators and unrealistic spectrum fees will not be eradicated in the short-term. Until governments realize the true potential of the industry’s multiplier effect on the country’s GDP growth, operators will need to navigate these challenges to prosper in emerging markets.
3. Mobile platform wars continue - the low-cost smartphones domination
Microsoft has seen great strides as a competitor to Android and Apple’s iOS but the negative perception still looms. Buoyed by its partnership with Nokia, Microsoft is reasserting its claim among smartphone platforms. In 2012, Windows Phone is expected to be shipped across sixty countries, including China. The applications store is growing rapidly with over 65,000 apps currently available. Microsoft believes the competition among ecosystems is played out between multiscreen platforms, where the ability to off er continuity across multiple devices diff erentiate the user experience. The real OS battle begins here – operating systems (OS) that do not fight at this level are not expected to survive.
Microsoft also opens up a different set of subscribers to the data world with the feature phones offering via Nokia. This would tap into new data subscribers to experience the diff erentiated experience.
Google executive chairman Eric Schmidt’s keynote presentation at MWC described his impassioned vision of the future connected world. Schmidt’s keynote painted a realistic picture of a world where the vast majority of the global population will be able to participate in and help develop the digital world. But of course, it also represents an opportunity for Google, which it fully intends to exploit.
Schmidt’s expectation that Android smartphones will be available for between $100 and $150 by 2013 already looks inevitable and will begin to redefi ne the handset market. The eventual goal of seeing the price of Android devices brought down into the $70 range also looks like becoming a reality as technology advances and huge economies of scale begin to drive the Android economy. Android’s astonishing growth so far may well look modest in coming years. The company’s activities have already made it diffi cult for other mobile ecosystem players to off er value-added services (VASs) to their subscriber bases, especially towards the higher end of the market.
The Delta Perspective: The availability of lower-cost smartphones and devices is seen as a prerequisite to spur the digital revolution in emerging markets. This industry shift looks promising as Google and other device makers see the rationale of accelerating the adoption of smarter devices among the global mass market - generating the profound impact expected from a connected world. We believe that both Microsoft and Android will bring more data possibilities to the feature phones - thus opening up the large mass market potential for operators to further monetize the data opportunity.
4. HTML5 (web-based apps) - the OS apps stores threat
Facebook believes the HTML5 solution will have a major disruptive effect in terms of app distribution in the future because HTML5 content can easily be discovered and distributed. Take-up of applications such as Facebook on mobiles has been largely restricted to the app stores on either Apple iPhones or Google’s Android handsets. In eff ect, App developers are increasingly unhappy about sharing their revenue with Apple or Google.
Facebook announced that it is “taking on mobile web standards” as part of a new cross-industry W3C group that aims to drive consistent HTML5 implementation for mobile devices. The group’s primary goal is to address the fragmentation that threatens to undermine the mobile user browsing experience by focusing on device-side implementations of HTML5 and associated technologies. Facebook’s interest in the W3C’s initiative is clear. The mobile web is far more important to Facebook than Andriod or iOS as it has no control over either of the device operating systems.
One major challenge with HTML5 - the language standard for the mobile web - is applied differently for each of the 2500 mobile devices in the market. There is rampant technology fragmentation across mobile browsers, so developers don’t know which parts of HTML5 they can use to deliver their app to customers. In order to make HTML5 a more attractive and economic proposition for app developers, Facebook will work with mobile and technology companies to agree on standards appropriate for mobile apps. It will also create a mobile web standards test suite called Ringmark, which is designed to help developers understand which mobile browsers support the functionality their apps need.
Facebook has also teamed up with large mobile operators to integrate operating billing into their apps. Among the operators are AT&T, Deutsche Telekom, Orange, Telefónica, T-Mobile USA, Verizon, Vodafone, KDDI and Softbank Mobile. Approximately 30 companies have already announced their support for the Core Mobile Web Platform Community Group, including Samsung, HTC, Sony, Nokia, AT&T, Verizon, Vodafone, Orange, and Telefonica.
The Delta Perspective: Regardless of the platform ‘winner’, OS vs Web-based Apps, an operator stands to benefit from this vertical’s expansion. Billing integration with Facebook is a fundamental step in collaborating with OTT but operator needs to see beyond the shared revenue and understand the context of behavior among their subscribers. Such collaboration increases an operator’s understanding of context, relevant in strengthening an operator’s differentiation in personalization services for the future.
5. Heterogeneous networks set for the 'gigabyte revolution'
In anticipation of the ‘Gigabyte Revolution’, a combination of networks will be critical to offload the anticipated data demand. With the onset of LTE deployments around the world, operators are putting emphasis on “small cells” and heterogeneous networks (hetnets), which can encapsulate everything from picocells and microcells using licensed spectrum to Wi-Fi hotspots for data offload. Informa reports that small cells will outnumber macrocells by year-end, growing from 3.2 million deployed in 2012 to 59 million deployed by 2016.
According to the Small Cell Forum, 53 operators have committed to deploying small cells in the first quarter of this year. In addition, 60 percent of operators have said that they believe small cells will be more important than macrocells in their LTE networks.
Small cells are intended to allow operators to optimize their spectrum effi ciency, particularly in dense urban areas. Ericsson believes that small cells are the right product for the right environment but noted that femtocells (part of small cell defi nition) often have interference issues. The solution around it is to deploy low-power cells that can be quickly deployed to handle coverage issues. AT∓T Mobility plans to conduct small cells trial in its network later this year.
Ericsson claims that its hetnet solution delivers the same services with half the spectrum and throughput gains of 2-10 times compared to using separate vendors for the macro and the small cell layer. It’s coordinated macro and small cells hetnet solution halves the total cost of ownership (TCO) for the small cell layer.
Mobile operator attitudes towards Wi-Fi have “changed completely” in recent times, as they look to closely integrate the technology into their networks to alleviate data congestion. Ruckus Wireless CEO added that operators now see Wi-Fi as “a key component of an integrated mobile data network,” combining smarter Wi-Fi, cellular and backhaul technology into a single unit – managed by a new class of edge platform called small cell gateways. This allows operators to off er Wi-Fi as a standard radio access technology into their existing mobile networks without any changes to the core. Wi-Fi offl oading strategies saw the growing importance in many discussions during MWC.
Alcatel-Lucent previewed its lightRadio Wi-Fi solution, which builds on AlcaLu’s next-gen lightRadio architecture and promises operators a way to enable customers to “switch automatically from a cellular service to residential or public Wi-Fi networks and hotspots without having to login, worry about payments schemes, or even be aware of the shift.”
Also last week, Nokia Siemens Networks unveiled Flexi Zone – based on its next-gen Liquid Radio architecture – in which multiple, inter-connected low-power small cells (which can be HSPA, LTE and Wi-Fi) use a common pool of resources managed fl exibly by a “zone controller”. As a result, the local offloading of Internet traffic based on coverage and capacity needs achieved saving up to 80% of transport and mobile packet core costs.
The Delta Perspective: Heterogeneous networks (hetnet), a plethora of complementing networks such as the traditional mobile access technologies (2G to 3G), Wi-Fi, and other next-generation wireless access technologies (such as LTE and LTE-Advanced) will be the solution to optimize data traffic during the ‘Gigabyte Revolution’. Although small cells have been the MWC focus, Wi-Fi will remain a critical element of current and future mobile networks.
6. M2M: NFC capabilities no longer restricted to mobile devices
This level of ease and control is a reality: these one-touch technologies are all in the pilot stages or already available on the market. Within a few years, Near Field Communications (NFC) has evolved from a promising concept to a fully realized technology. NFC allows electronic devices to securely communicate across short distances. These communications can take the form of commands, data exchange, authentication protocols, and even fi nancial transactions. NFC technology has extended beyond payments to include navigation and location-based recommendations.
NFC capabilities are cropping up in everything from mobile devices to tiny Xperia Smart Tags that can be placed anywhere in the physical environment to trigger a customized series of wireless commands. In the retail industry, Google’s recent announcement that Google Checkout is being replaced by NFC-enabled Google Wallet has many retailers looking more closely at this technology. As well as off ering a fast, secure transaction process, NFC systems have the potential to offer retailers powerful marketing capabilities. Eventually, NFC technology could enable retailers to anticipate shoppers’ needs as they enter the store to offer them a more rewarding, customized experience, as well as allowing them to push after-purchase support and promotional opportunities to buyers.
And in addition to the impact of Google Wallet on the consumer population, AT&T, T-Mobile, and Verizon will be launching ISIS, an NFC-based virtual wallet and payment system within 2012. Interoperability becomes essential for Mobile Wallets in the future.
The Delta Perspective: NFC technology plays a major role in personalization and context for the mobile consumer. Operators are well positioned to reap the opportunities of more connected devices driven by this technology. Though in its infancy, emerging markets operators should harness the opportunity to learn and experience the powerful context marketing prowess. On the m-Wallet, we believe interoperability becomes essential for Mobile Wallets in the future.
7. Consumer cloud services innovation much to be desired
A cloud strategy is critical for the long-term business plans of operators, as they search for innovative approaches to mobile data services and new business opportunities. Besides enterprise cloud applications, the consumer cloud market is poised for explosive growth as social networking becomes increasingly a part of the digital lifestyle.
Companies like Amazon, Google, Apple and Funambol are rolling out services that manage and store user-generated and purchased content and then sync this content seamlessly across multiple devices. Communications service providers have so far focused primarily on deploying their fixed networks to enable cloud-based services for enterprise users. Those MNOs that have both fixed and mobile operations are then also more likely to tackle mobile cloud services for the enterprise and consumer markets. As things stand, however, MNOs appear to be making only tentative moves with consumer cloud services, and are leaving the service opportunity to the likes of Apple and Google. It is surprising that the big MNOs have not made a concerted eff ort to push cloud. A new study by Current Analysis highlights that in the enterprise segment, the “as-a-service” term is used as an umbrella concept for cloud to represent a whole range of multitenant hosted and managed services. In the consumer space, however, operators are using the term ‘cloud’ to signify one narrow application: data storage and retrieval, “cloud” in the same broad context as Apple iCloud: free storage value-add for personal data fi les to promote platform and service stickiness, with no clear incremental revenue opportunity.
The Delta Perspective: Operators have been slow in adapting to the fast-changing market environment, and have lagged behind in the race to unlock the potential value in this new paradigm of growth. The cloud opportunity is substantial. Only operators with clear and defi ned strategies will see beyond the clouds (no pun intended) and monetize the vast opportunity within the consumer segment of a connected world. Trusted relationships (security) and ease of use are vital success factors in unlocking this opportunity.
8. M2M: Diverse M-health services are thriving
MWC demonstrated the scale of innovation and diversity occurring in mobile health, with an estimated 500 on-going projects globally. Services range from the provision of pre-natal information provided via mobile phone for pregnant women in India to signifi cant potential reductions in costs for elderly care at home using mobile alarm and communications systems.
Wearable devices connecting via mobile phones are seen to shift mHealth services from reactive to proactive care. There is a discernable shift from sports performance tracking to overall wellness tracking as well. Sports performance services, often linked into social networks which enable users to track and share the progress of their training, provide lessons for mHealth. In future, sensors will likely be built into clothing and running shoes, with the mobile device serving as a hub for this network of sensors. Wearable devices that can track a user’s health 24/7 will open up a whole new category of service innovation.
Among other interesting m-Health services that were showcased included Orange’s Pacemaker services, SK Telecom’s mPrescription app, and Etisalat’s Mobile Baby programme, meant to benefit the whole value chain involved with pregnancy delivery. M-Health also took centre stage with operators and device makers showcasing the potential future with managing chronic diseases such as diabetes and blood pressure.
Operators have a role to play in the marketing of mHealth but warn that end-users could become confused if the same services are marketed by operators, healthcare providers, and the services themselves. Marketing strategies need to be carefully thought out so as not to misinform users. Ease-of-use and cost-saving will drive the uptake of mobile health services.
In all cases, simplicity, safety (privacy), ease of use and cost-eff ectiveness, remain as huge concerns.
The Delta Perspective: While mHealth innovation is strong, mechanisms for widespread adoption are not. Operators should place priority on such initiative but the reality is we have seen very limited interest among operators. We concur with Telenor’s Group CEO Jon Fredrik Baksaas, where he warned that “many projects are struggling with achieving scale. Both regulatory actions and ecosystem collaboration is required to create the necessary scale”.
Unless operators seriously lobby for Government subsidies to kick-start such initiatives as part of a corporate social responsibility (CSR) effort, it is unlikely to see huge adoption among the needy. Operators need to act and push forward in this aspect to reap the results.
9. RCS (re)launch - renewed response against the OTT threat?
Rich Communications Services (RCS) is a major play by the operator community to compete more effectively with the over-the-top (OTT) players. It enables services such as enhanced messaging and voice, video calling and the ability to share documents and photos simultaneously during calls, regardless of the network or device used.
The creation of a consumer-facing brand, joyn, will enable operators to give a global ‘face’ to RCS services. joyn will act as a mark of assurance to customers that they will have simple and direct access to enriched voice and messaging services regardless of the network or device used.
The Spanish arms of Orange, Telefónica and Vodafone have started rolling out RCS and are due to launch services this summer with other commitments from operators in France, Germany, Italy and South Korea for commercial launches in 2012. The initiative is also supported by a range of device and equipment vendors, including HTC, Huawei, LG, Nokia, RIM, Samsung, Sony and ZTE.
The latest RCS specs – version 5.0, provides support for “both existing and all-IP LTE networks” in areas such as IP-based voice and video calling, geo-location services and cloud storage. “These services will be delivered to consumers in a seamless way and with the level of innovation, quality of service and attention to privacy that they have come to expect from their mobile operator. Joyn apps for Android are now available and are expected to roll out through Europe in 2012.
The Delta Perspective: The problem has been that despite support for the concept from within the GSMA and some operators, there has been little market commitment until now. Operators planning to offer their own IP-based voice and messaging services could certainly consider joyn as a viable proposition to stem the SMS revenue erosion. According to Ovum, global SMS revenue stream has eroded by 9% of total messaging revenues or $13.9bn in 2011.
10. Mobile advertising - context drives mobile engagement
Advertisers are already getting a grip on PC-based social media: eMarketer predicts social network advertising revenues to reach US$10 billion in 2013, almost double the $5.5 billion forecast for 2011. But the personal gets more personal and the contextual more contextual with mobile, so marketers still have a lot to contend with before marketing via mobile social networks really lives up to its potential.
Mobile is the manifestation of a much broader shift to new systems of engagement. These systems of engagement help firms empower their customers, partners, and employees with context-aware apps and smart products.
The key to systems of engagement is assembling context across a broad array of sources: the device, the smart products connected to them, social connections, legacy systems with transaction and order histories, and cloud-based services. For example, retailers will use analytics apps to create a mosaic of context that surfaces special shopping off ers in the moment.
Mobile advertising is all about engagement. Brands should focus on developing meaningful relationships rather than on eyeballs and reach. Facebook is acutely aware of this and uses context to drive personalization and consumer engagement.
The Delta Perspective: Mobile Advertising has to be relevant or it will be ignored or perceived as spam. Context plays a major role in the mobile engagement. Operators are well positioned to make the best of this opportunity as traditional media agents are not well-versed with the web/mobile advertising space. There is a tendency to allocate advertising dollars to more traditional media (such as TV), due to their lack of knowledge. We see major opportunity for operator disruption in this space, just as how major operators like Telefonica, Korea Telecom and Singtel have embarked on reorganizing their strategies toward the mobile advertising opportunity.
11. Devices form-factor becoming homogeneous - features key differentiator
Smartphones are now hard to differentiate from the form factor. They all look distinctly alike and features are key differentiator. Overall, in terms of design, slim and understated reigns supreme. Many smartphones this year are slightly wider but thinner, featuring larger screens for better mobile experience. Cameras remain a highlight of top-tier phones for both photos and video. Almost standard for the main camera was a rating of 8 megapixels, although the cameras range from 5 MP to 41 MP.
MWC 2011 saw the introduction of first dual-core devices but quad-core was the theme for 2012. Three devices steal the limelight: the Huawei Ascend D quad, the HTC One X, and the LG Optimus 4X HD.
The Huawei Ascend D quad has a bit smaller display than the rest, measuring 4.5” on the diagonal, and comes with Huawei’s home-grown K3V2 quad-core processor and Huawei has already shown us some impressive benchmarks where it beats the A5 chip on the iPhone 4S and the TI OMAP 4460 on the Galaxy Nexus. The other two devices The HTC One X and the LG Optimus 4X HD both feature 4.7” displays and sport a quad-core Tegra 3 chip, but the HTC fl aunts its own Sense 4.0 overlay on top of ICS OS.
The revitalized Nokia took the limelight with its major partner, Microsoft. Its strategy is to target the feature phones segment where its Asha 202 and 203 take the form of low-cost smartphones equipped with distinctive features such as social media integration and a 1 Ghz processor. These phones are priced below €100 and are faster than many low-end Androids.
In the smartphone segment, Nokia has also outdone the industry by introducing Nokia 808, TrueView, a high-end phone embedded with a 41-megapixel (MP) camera. No other smartphone has ventured beyond the 16-MP threshold.
A very interesting play on device convergence is the Padphone by Asus. It is a smartphone that docks into a tablet shell and instantly becomes a tablet. The tablet with the phone inside can then be docked into a keyboard, turning the device into a laptop. The user interface seems to transition from phone to tablet seamlessly and in a snap.
The Delta Perspective: As smartphones evolve with more functionality, manufacturers are offering bigger screens to enhance the gaming or video viewing experience. The boundaries between smartphones, notebooks and tablets are blurring. The seamless consumer experience across multiple devices will determine the fate of device makers in the future.
We see renewed hope in a resurgent Nokia together with an aggressive mid-range Windows Phone portfolio equipped with Nokia’s developed applications. However, should the off ering fail to entice the consumers, both companies’ hopes for renewed relevance in the smartphone market will be seriously dented.
The pace of change in the mobile industry will accelerate as it moves from ubiquitous mobile broadband to a new economic model encompassing the ‘Internet of Things’; NFC, mobile financial services, connected devices and location services over the next five years. Nokia Siemens Networks CEO Rajeev Suri sums it all up, “The “era of sensors” would follow with the rise of artificial intelligence, M2M and intelligent applications. These society-defining trends are fuelling the gigabyte revolution where one gigabyte per user per day by 2020 is not impossible, downloaded at speeds more than ten times those we have now”.
The writing is on the wall. Operators are losing their position as the centre of gravity in mobile. The MWC used to be the stage for mega deals among the world’s largest operators - it is unfortunately not the case in this light of day. Today, the ‘Internet of Things’ takes center stage. Hence, an operator’s approach in facilitating partnership and collaboration has to be completely transformed; it is about bringing together increasingly complex ecosystems seamlessly to the consumer. While the Connected Consumer value proposition illustrates how connected devices have the potential to be the central dashboard of people’s lives, operators have a lackadaisical attitude to make this a reality. Unless embraced openly, operators are still stuck in the argument of ‘who pays’ for all these things to happen.
Operators will need to become more flexible and more willing to compromise with partners in the future, as well as develop a clear understanding of the value partners can bring. Operators must go deeper, overcome risk aversion, and act quickly in responding to changing roles within the partnerships.
The survival quest has just begun as the Future of Telecoms promises abundance of innovative opportunities. Operators should look for ways to turn technology into a key value differentiator. There is no silver bullet or killer application for success - a combination of ‘Internet of Things’ will make up for an operator’s current revenue erosion.
It is time to act.