MWC 2017: Key Takeaways

MWC 2017: Key Takeaways

The Delta Perspective

Authors:
Eudald Pous - Associate Partner
Darren Tan - Senior IU Director
Anthony Dornan - Senior Consultant

Key Highlights

This year’s Mobile World Congress (2017) welcomed over 108,000 visitors – an event that proceeds to evolve and attract new players and industries, as the influence of the Technology, Media and Digital (TMD) sector continues to expand. 

At this year’s event, several new themes rose to prominence (notably AI), whilst the main themes of 2016 (IoT, 5G and VR/AR) became more tangible, with clear roadmaps and new use cases.

Innovation focused on the software layer, as exhibitors presented chatbots and digital assistants powered by AI and showcased improved AR/VR applications. However, there was notably less fanfare around hardware advancements. Most smartphone manufactures unveiled devices with minor improvements on previous models, with the biggest hardware headlines arising from the return of the Nokia 3310.

This perspectives paper explores 6 key themes that were front and centre during this year’s congress:

  • Video: A core part of the telco proposition
  • Virtual Reality and Augmented Reality: A move towards commercial/enterprise applications
  • 5G: Operator trials underway but full potential contingent on investment
  • Internet of Things: Defined by multiple-technology ecosystems
  • Artificial intelligence: An operator’s new best friend but still far from mass adoption
  • Network Virtualisation: Network slicing enabling new use cases

Video: A core part of the telco proposition

Video is forecast to be the main driver of growth in consumer data. Analysts estimate the average video traffic per user will rise to 2.7GB per month in 2020, representing c.70%[1] of a user’s total monthly data consumption. In addition to driving data traffic, video is also expected to represent a significant part of total revenues across the TMD value chain, with TV and video forecast to generate US$ 500-525bn in revenue in 2020.[2]

It is no surprise that telcos are exploring various video content strategies. John Stankey, CEO of AT&T Entertainment Group stressed the importance of video during his keynote session suggesting that, “if you are a mobile operator without a content or video strategy, you are an operator without a strategy at all.” He discussed AT&T’s strategy, highlighting how they no longer consider themselves an infrastructure company providing connectivity, but rather they are software-focused.

Whilst some operators (such as AT&T) are developing and managing their own content, others are seeking to partner. Indeed, operator partnerships with content providers was again a big theme at MWC. Vice Media announced several partnerships with operators worldwide, including Vodafone, Verizon and NTT DoCoMo. The nature of these partnerships varied, with some focusing on licensing Vice Media’s original content, others involving paying Vice Media to create original content for operators’ local markets and another centering around the set-up of a co-branded subscription video-on-demand (SVOD) service.

Discovery (owner of Eurosport) also announced that it is planning to partner with mobile operators globally. The partnerships will center around the Olympic Games, with the goal to help mobile operators provide more localised Olympic content, creating more tailored consumer experiences.

During a keynote session, Reed Hastings, CEO of Netflix discussed how video experiences are changing. He focused on how Netflix is working with operators to enable better-quality unlimited streaming, its ambition to eradicate buffering and how mobile devices are becoming increasingly important as a medium to view content. Netflix also recently announced several partnerships, including a partnership with Vodafone India, where Vodafone will provide carrier billing for both postpaid and prepaid customers.

A strong video proposition has the potential to enable an aggregated digital experiences offering, where consumers can play games, listen to music, watch TV and pay for goods all in the same place. Some providers globally have shown evidence of success aggregating consumer experiences. Notably Alibaba and WeChat each offer platforms that provide users access to a range of digital services, with 50% of WeChat’s users spending 90 minutes using WeChat’s services per day and Alibaba increasing its monthly active users by 25% in 2016.

The Delta Partners Perspective

To capture the additional value from video, operators need to shift the focus away from the traditional offer of voice, SMS and data. The offer needs to evolve from selling connectivity to selling digital experiences, providing users access to the content and services they value.

To create this ‘digitised’ offer, telcos will need to improve their analytical capabilities (to understand customer behaviour and determine services that are relevant) and collaborate with partners to provide a range of content and services. Vimpelcom’s announcement at MWC underscores this transformation; Vimpelcom announced it is rebranding to Veon (the name of its digital messaging app). Its goal is to transform from a communications provider to a global tech company, changing the customer engagement model and re-engineering legacy systems to provide personalised, contextual services.

Increasingly operators will seek to partner with several providers, fulfilling the range of services customers’ demand. Indeed Globe, Telkomsel and Veon are examples of operators that are exploring this approach.

As operators develop their digital offers, they will need to differentiate their propositions, providing extra benefits beyond standalone app functionalities to enhance the customer experience. One key area of differentiation is around offering local content. The partnerships at MWC (Discovery; Vice Media) and the success of focused content providers such as iflix, highlight the growing importance of content localisation. To further differentiate the offer, operators must leverage their assets to enhance the customer experience. This could include providing easy billing for the customer, zero-rating data or providing enhanced quality of service.

Embracing this proposition shift will lead to increased collaboration and consolidation across the TMD value chain, as operators and content providers work more closely together to deliver improved content experiences.

Virtual Reality and Augmented Reality: A move towards commercial/enterprise applications

Virtual Reality (VR) and Augmented Reality (AR) or Mixed Reality (MR) rose to prominence at last year’s MWC, with lots of exhibitors showcasing applications using headsets/displays. Despite the hype, the industry has experienced limited commercial traction for VR and AR/MR outside of gaming, with PlayStation and Niantic (Pokémon Go) the biggest winners to date in VR and AR/MR respectively.

Lots of stands showcased VR and AR/MR content again this year. Whilst gaming remains the primary use case, more announcements and discussion focused on broader entertainment services as well as commercial VR and industrial AR/MR applications. In 2016, Facebook and YouTube both launched live 360-degree video, allowing users to explore real-world 360-degree content. At MWC, SK Telecom announced their 360 VR Live platform, an end-to-end broadcast system that allows users to produce and live stream 360-degree video using a 360-degree UHD camera.

BT and Nokia announced they are exploring how 5G will support fully-immersive live sport and entertainment. At the congress, visitors could use VR headsets to watch the UEFA cup match between Tottenham Hotspur and CSKA Moscow which was filmed using the Nokia OZO - a professional grade VR camera. BT sees “enormous” potential for these technologies, with Howard Watson, CEO of BT Technology, Service & Operations, suggesting that the, “high bandwidths and low latencies of 5G will allow us to go beyond the already compelling VR experiences that are possible over 4G, and cater for more interactive future VR content which will place people right at the heart of the action.”

Whilst lots of excitement revolved around VR consumer applications, Niantic’s CEO, John Hanke, suggested that AR/MR will provide more practical solutions as it is “an extension of how we use our phones today” whereas VR is a “session-based experience that lasts for a finite period of time.” The commercial and industrial applications of VR and AR/MR were also presented by several companies. Real-time connection between field agents and remote experts, remote education/training and remote industrial vehicular management were all demoed at the congress.

The Delta Partners Perspective

VR and AR/MR are still nascent technologies. The adoption of these technologies will increase as hardware costs fall, software improves (to remove glitches causing nausea) and more content is designed for these mediums. However, in the short-term, AR/MR and VR will remain relatively niche, with a continued focus on gaming. In the short to medium term VR and AR/MR will not represent a significant revenue opportunity for telcos.

However, the longer-term potential for AR/MR and VR is significant, with telcos well-positioned to play a key role. VR requires 5x-10x higher bandwidth than HDTV as well as low-latency networking to enable real-time rendering/broadcasting. Improved last-mile access and the deployment of 5G will allow operators to meet the low-latency, high-bandwidth requirements of VR. Ambitious operators can potentially leverage their position as enablers of these experiences to become the driver of VR/AR ecosystems, particularly for the mobile device.

5G: Operator trials underway but full potential contingent on investment

5G again drove the agenda at MWC, with operators highlighting progress towards 5G-readiness. At the Global 5G Test summit, it was announced that 25 mobile operators have confirmed 5G lab testing, with 12 progressing to field testing and 4 announcing major 5G trials[1]. Operators are testing across a range of different bandwidths, typically from sub-3GHz to 86GHz. The most commonly trialed wavelengths are 28GHz and 15GHz with 8 and 7 operators using these in trials respectively.

Standards development for 5G is also firmly underway, with the first official 3GPP specifications release (Release 15) expected in September 2018. The standards will feed into trial services, with leading operators such as SK Telecom seeking to launch in time for the 2018 Winter Olympics. Full commercial deployments of 5G are expected from 2020 onwards.

The 5G use cases discussed at the congress focused on three areas:

  • Enhanced mobile broadband: Enabling faster speeds for high-bandwidth content, such as streaming UHD video or Virtual Reality
  • Massive machine-type communications (MTC): Providing connectivity to large numbers of devices/sensors transmitting relatively small amounts of data periodically, such as
  • smart city deployments
  • Ultra-reliable and low latency communications (URLLC): Providing connectivity and compute for mission-critical applications that require real-time response to high-volumes of transmitted data, such as autonomous vehicles

Despite industry-wide optimism about the potential impact of 5G, some concerns were raised around the level of investment required, with the CEO of Deutsche Telekom forecasting that it will cost €300-500bn to roll-out 5G across Europe.

To ensure that operators can attract investment and successfully monetise 5G, several European and Indian operators called for a more favourable regulatory environment, whilst the US FCC Chairman, re-confirmed his light-touch, pro-investment regulatory stance, paving the way for the US to take the lead in 5G. Others, notably Liberty Global’s CEO, voiced concern over the 5G commercial timelines, suggesting that they are too ‘aggressive’ as operators have not fully recouped the investment from 4G.

Despite these concerns the industry is pushing ahead, with both the hype and the practicalities of 5G growing in prominence.

The Delta Partners Perspective

Operators are already paving the technological path to 5G, with players such as AT&T ramping up the virtualisation of its network, Telus launching PureFibre and Softbank expanding its MIMO antennas deployment.

Whilst planning is underway, what 5G ultimately delivers is not yet defined. Many 5G use cases have been heralded, some of which are more ambitious and futuristic than others (e.g. tactile internet). However, it is likely that 5G standards will prioritise the nearer-term use cases (around enhanced mobile broadband) whilst remaining open and agile to potential future developments.

Delivering 5G will require significant capital investment as operators improve coverage and capacity through small cell deployments and increased backhaul. The investment required is likely to lead to both greater industry consolidation as well as closer collaboration between operators, governments and other industries that will benefit from 5G deployment. Operators will increasingly engage in both passive and active network sharing and will work together on small cells deployment to reduce overall network costs.

Whilst 5G has the potential to be transformative, many of the proposed 5G use cases can be met with variations of existing technology. Notably low-power wide area (LPWA) solutions can address many MTC use cases. As 5G will not be commercially ready until 2020, operators will need to consider investing in these technologies to remain competitive in IoT.

Internet of Things: Defined by multiple-technology ecosystems

The Internet of Things (IoT) has been a headline topic at MWC for the last five years. Despite the initial excitement surrounding IoT, operators have struggled to capitalise on the opportunity and indeed overall expectations around IoT have proved optimistic. However, IoT is steadily gaining traction, with MWC 2017 highlighting the progress the industry is making.

Whilst IoT will encompass many use cases, spanning across multiple verticals, they broadly fall into two categories, massive machine-type communications (MTC) and ultra-reliable and low latency communications (URLLC). Currently there is greater focus on supporting MTC use cases; URLLC use cases are more theoretical as the infrastructure (e.g. edge computing and 5G) is not yet in place.

MTC use cases have specific requirements, including devices with long battery lives, coverage over a wide area, periodic transmission of small data volumes and the connection of a massive number of devices. As traditional networks are not able to cost-effectively meet these requirements, several start-ups have emerged providing low-power wide-area (LPWA) solutions using unlicensed spectrum. These players have moved faster than the operator community with 75% of LPWA (active and planned) deployments in 2016 leveraging unlicensed spectrum solutions.

However, the industry has made great strides in the last year, with the 3GPP finalising standards for Narrowband IoT (NB-IoT), LTE for Machines (LTE-M) and Extended Coverage GSM IoT (EC-GSM-IoT). More than 30 licensed spectrum LPWA commercial pilots are already underway or completed, with commercial launches in 20 countries planned in 2017.

Last year, operators were highlighting the potential benefits of LPWA solutions but this year’s focus was on showcasing applications across multiple industries. Over a dozen demos were presented at the GMSA’s Innovation City, including Veolia’s NB-IoT waste management solution, The University of St Andrews’ NB-IoT initiative to tag and monitor harbour seals and Korea Telecom and Kolon’s NB-IoT connected safety clothing solution. Whilst several LPWA initiatives are focusing on NB-IoT, a number of telcos globally, including AT&T, Orange and Verizon have announced plans for LTE-M networks.

This year’s MWC saw a greater focus on industrial as opposed to consumer IoT applications, with Ericsson, Intel and China Mobile showcasing a smart factory solution, including an NB-IoT connected screwdriver. More broadly, the opening keynote outlined the overarching theme of the Industrial Internet, with ubiquitous connectivity, AI and cloud computing combining to increase automation in industry.

The Delta Partners Perspective

Fragmentation and a lack of interoperability across multiple standards and platforms has stymied the growth of IoT. Whilst the finalisation of standards (for licensed LPWA solutions) will help spur growth, LPWA and IoT generally will, in the short-medium term, remain multi-technology ecosystems. Operators will not necessarily back one technology, with some partnering to enable unlicensed spectrum solutions (such as LoRa and Sigfox) as well as backing one or all of the licensed spectrum solutions.

As IoT use cases become more tangible, security becomes an increasingly important topic. A single weak point in the IoT system leaves the user open to attack, with the growth and success of IoT depending on the ability to secure the ecosystem. Security will become even more important for mission-critical use cases, such as autonomous vehicles. These use cases will not become a reality until they ensure they are over 98% secure.

Operators will remain cautious when deploying additional infrastructure to support IoT applications as the monetisation strategy is not yet clear. Before they invest, operators must determine the role they wish to play in the IoT ecosystem. Focusing only on connectivity will bring small incremental revenues but may still require significant investment. Those that seek to move up the value chain will need to develop new capabilities in order to compete but potentially stand to capture more value. Regardless of the role operators select to play, they will need to rely on partners across the value chain. Whether this is at the application, platform or security layer depends on the ambition of the telco.

Artificial intelligence: An operator’s new best friend but still far from mass adoption

Artificial intelligence (AI) and machine learning, once the realm of science fiction, have become a reality. The leading internet players have showcased AI’s potential, with Google’s DeepMind beating the 18-time world Go champion, Amazon’s Alexa establishing an AI presence in the home and IBM’s Watson assisting doctors in patient diagnosis.

This year at MWC the focus was firmly on AI, with operators unveiling their AI developments. Again, the opening keynote set the scene, with Masayoshi Son, Chairman and CEO of Softbank, discussing the concept of the singularity, when AI will surpass human intelligence. He posited that the singularity could happen as early as 2018 and that this ‘super intelligence’ will help unlock the huge potential of IoT.

Whilst discussion focused on a broad range of AI use cases, including robotics, health, entertainment, smart cities and networks, the show centered around chatbots and digital assistants. Telefonica announced Aura, a cognitive platform allowing customers to manage their relationships with operators. Deutsche Telekom showcased Tinka, exhibiting a 3D avatar of its virtual customer assistant and SK Telecom presented NUGU, a digital assistant for the home.

The internet players also announced progress with their chatbots and digital assistants. Line, the Korean messaging platform, unveiled Clova its AI assistant, Wave, a smart-speaker and Face a smart display.  Google announced that Google Assistant will be available in English and German on all phones with Android operating systems 6.0 or 7.0. Post-MWC, Samsung have unveiled Bixby, its digital assistant, which will feature on the new Galaxy S8.

The appeal of chatbots and digital assistants is clear; they represent the potential new entry-point for engagement in the digital world. Owning this platform will allow companies to guide the customer through their digital journeys, learning and improving the platform over time and extracting value from the data generated.

Outside of chatbots and digital assistants, companies presented AI applications in other domains. In robotics, the Small Robot Company discussed its 3 robots designed to significantly reduce the cost of farming and increase production and Roborace unveiled its driverless racecar, Robocar. During an expert panel session, the CEO of Orange Healthcare, Elie Lobel, discussed the importance of AI in the healthcare sector, suggesting that AI-applications will be able to help disease prevention and early detection, as well as assisting in patient diagnosis.

Networks also stand to receive an AI-boost. Ericsson CEO, Börje Ekholm suggested that AI will allow networks to move from reactive output to true intelligence, “where machines actually can see cause-and-effect and proactively solve issues before the subscriber even knows of them.” Telefonica UK’s CTO, Brendan O’Reilly discussed how AI opens up the possibility of directly measuring quality of experience and optimising the network to react to changes in customer behaviour.

The Delta Partners Perspective

With the volume of data increasing exponentially (90% of the world’s data was generated in the last two years) the potential of AI is huge. It could shape every possible decision, providing additional insights to augment human understanding. Many companies are awakening to this potential, with early pioneers such as IBM and more recent innovators such as Google, Amazon and Facebook carving out a lead.

Whilst the potential applications of AI are far reaching, today’s capabilities are limited. In many cases chatbots still require human intervention and support, with customer care chatbots regularly handing conversations over to a human agent. Digital assistants are typically limited to a handful of functions (weather, music, to-do-lists) and do not yet command consumers’ trust as an intelligent, human-like companion. Concerns over data privacy as well as wider philosophical issues regarding the nature of AI will also prove obstacles to AI advancement and adoption.

Despite these challenges the operator community will increasingly invest in AI. The announcements at MWC (Aura, Tinka, NUGU) and other initiatives (e.g. Globe Telecom’s Cognitive Digital Agent) clearly highlight operators’ AI ambition. Whilst these initiatives are mainly focused on improving and optimising customer experience, AI will help operators across the entire value chain, with machine learning improving network planning and management as well as other business processes, such as fraud mitigation and revenue assurance.

To successfully leverage the power of AI, telcos will need to transform their organisations. Telcos cannot rely solely on vendors’ expertise and cannot operate in the same legacy, siloed way. Telcos must digitise their assets (including the network and IT systems), to enable greater amounts of data to be captured and to facilitate increased levels of automation.

Network Virtualisation: Network slicing enabling new use cases

Network Functions Virtualisation (NFV) and Software Defined Networking (SDN) were key themes at MWC 2016, as operators explored ways to increase agility whilst managing rising network costs due to the explosion in mobile data traffic. This year, NFV/SDN was again a major topic, with discussions focusing more on practical implementation, roadmaps and timelines.

Operators are making headway. Earlier this year, AT&T announced it has virtualised 34% of its network functions, surpassing the goal of virtualising 30% in 2016. Similarly, SFR announced it has virtualised 50% of its network. At MWC, several partnerships and initiatives were highlighted: Telstra and Ericsson announced that Telstra’s virtualised infrastructure can now enable live mobile video calls; Chunghwa Telecom (through a partnership with Nokia) announced they are the first Taiwanese operate to run a VNF; and Huawei, China Mobile and the GSMA announced they are collaborating to build a framework to assess NFV reliability.

The cost-saving potential for operators is becoming clear. NFV/SDN has the potential to reduce opex and capex as virtualised network functions (VNFs) are no-longer tied to the physical infrastructure but can run on cheaper, standardised hardware. At MWC, Ericsson and Netronome announced that their solutions, leveraging Ericsson’s SDN platform, can deliver up to 5x lower TCO for SDN and NFV applications.

NFV/SDN will not only provide cost savings but is part of the evolutionary path to 5G, enabling new services through network slicing. Network slicing refers to the division of an operator’s network into multiple virtual or logical networks that support different service requirements, relating to latency, bandwidth or reliability. The concept of slicing gained traction at MWC with several leading operators, including Deutsche Telekom, SK Telecom and NTT Docomo holding demos at their stands.

The Delta Partners Perspective

Whilst lots of operators are exploring network virtualisation, those that aren’t should embark on this journey. Unlike most telco initiatives, where it is often sensible to adopt a ‘fast follower’ approach, the sooner operators embrace virtualisation the faster they will realise the potential benefits.

NFV/SDN will reduce the cost of network management, with capex decreasing due to the use of standardised hardware and opex decreasing as more manual operations are automated.

In addition to the cost savings, NFV/SDN will lead to greater service agility. It will accelerate time-to-market as physical infrastructure does not have to be deployed at customer premises and will reduce the risks of new service launches as services can be trialed and evolved over time. Network slicing will also enable a host of new use cases. AR/VR or autonomous vehicles, with high-bandwidth, low-latency and ultra-reliability requirements can be supported by dedicated network slices.

Embracing NFV/SDN will also have a cultural impact on the organisation. New skills and ways of working (e.g. DevOps) will be required to manage a virtualised network. Adopting these new methodologies will allow operators to move faster and innovate more, increasing overall organisational agility.

Conclusion

More than previous years, MWC 2017 highlighted the progress operators are making towards digital transformation. Whilst digital transformation has been a goal for the operator community for several years, the industry has struggled to make this jump, with the gap increasing between telcos and the internet players.

However, this year there were clear signs that operators are making progress. Operators are developing new internal capabilities, increasingly leveraging partners’ expertise and are overcoming long-standing cultural barriers.

The potential arising from this transformation is significant. The increased agility will allow operators to compete with the internet players and capture greater value from new digital opportunities. Operators cannot afford to slow-down and must accelerate their transformation efforts as the pace of innovation continues to increase.  

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Delta Partners - TMT Advisory and Investment