MWC 2019 – Key Takeaways
Sam Evans - Partner
Sharoda Rapeti - Non-executive Partner
Joao Sousa - Partner
Why do more than 100,000 people travel to Barcelona and neglect the winter sun in favour for a week worn shoe leather and business card paper cuts at MWC?
As the years progress the event, formerly-known as Mobile World Congress, is less and less about mobile operators or device vendors and is morphing into the B2B equivalent of CES where networking technologies and services are presented with the verve of the latest wearable tech or smart gym equipment.
Although it lacks a sole focus or purpose, the show does encompass the GSMA’s mission of “connecting everyone and everything”. It is the definition of ‘connecting’, what is being connected and, depending on what you see, does this need to be connected? It seems broader than ever and so the answer to ‘why do you go to MWC?’ becomes increasingly difficult to answer.
Last year, we highlighted the shift from technological innovation to commercial model assessment, and this year’s MWC continued in the same vein. Hardware innovation focused on folding (or unfolding depending on your perspective) devices, emphasizing the point that the concept of a ‘smartphone’ and ‘tablet’ are becoming increasingly irrelevant as consumers just want an internet connected screen that fits their needs. Compared with previous years, the lack of ‘connected’ cars and VR headsets also reinforced that MWC 2019 was not a year for gadgets. But that’s not a criticism – it was very much a year for attendees to get business done.
From Delta Partners’ perspective, our main takeaways were from client meetings and our network in Barcelona rather than what was on stage or displayed. A benefit of convening the industry for one week in one location is to distil what is really at the front of consciousness and, therefore, shapes our priorities.
This year, four conversations had real traction:
Huawei, 5G and the politicization paradox
The build up to MWC was intriguing given the GSMA’s pre-event press release “calling on Europe to safeguard network security and competition in the supply of telecommunications infrastructure”. While this message did not identify Huawei by name, the prevailing view was that it was a GSMA vote of confidence for the Chinese vendor, which wants a role in Europe’s 5G deployment and is a critical part of MWC’s commercial performance. Huawei’s forced or voluntary withdrawal from either would have significant implications on both the GSMA and the industry it serves.
Such debate highlighted a broader issue about the timeline for 5G deployment. While telecom executives publicly profess a ban on Huawei could delay 5G deployment in Europe by two years – as operators would need to replace network elements – industry figures also suggest that 5G continues to be pushed by governments and vendors before the industry has the commercial models to support the investment. Analysts estimate that 5G CAPEX will surpass $200 billion within five years, but apart from operators that will deploy 5G as a urban capacity booster, the current 4k/8k video, AR/VR and IoT use-cases continue to be niche and depend on either a specialist enterprise sale or development of a complex multi-layered ecosystem of government, network operator, platform provider, solution provider and customer who is willing to pay a premium for their connectivity.
While there are several ‘launches’ of 5G underway, the market is still some way away from true commercialization and several telecoms operators confided that many of the use-cases on display at MWC are still “in the lab”. To become the transformational technology standard or industry life-boat that MWC’s earlier marketing pushes us to believe, operators must focus on R16 5G, which requires huge investment in edge computing and NFV. However, most industry players cannot justify this to their shareholders. If operators focus on the lower investment roadmap, 5G will be a simple evolution of 4G. This is an acceptance that 5G for the initial years will be an evolution, not revolution, and a technology that’s focused on smartphones and FWB. This path requires lower investment as most operators’ will need only to upgrade their current 4G core. This is a challenge for current vendors, including Huawei, until all R1G, edge computing and NFV technology matures.
While banning Huawei in the US means, in practical terms, protecting Apple from Huawei competition, in Europe it will necessitate massive investment for most operators as they’ll need replace a key vendor. This investment only makes sense in 3-4 years’ time when the true 5G becomes more mature.
Unlike Brexit, 5G does not have a March 29th deadline. While ensuring competition and therefore innovation from the vendor community is a critical component for the development of the 5G ecosystem, the last thing needed is further political pressure to accelerate 5G.
The next generation of telecommunication was ubiquitous at MWC. Source: Miquel Llop/NurPhoto via Getty
After the (over) hype of MWC 2018, there is now greater realism over the 5G timeline. Its success will depend on the ecosystem that is created and ability of operators to share investment and to ultimately build a true 5G network, not the date of launch or first-mover advantage. Collaboration between governments, network providers and service providers will be critical, and it will take time to foster these relationships through the innovation cycle to full commercial sustainability. As such, if there is political pressure for 5G it should focus on ecosystem development and not the timeline for launch.
Edge: the value in being just a really good network provider
Many vendors and network operators put huge focus on edge during MWC – cue a glut of puns about ‘edge taking center stage’ – but unlike 5G in previous years, the emergence of edge as a technology theme was based on actually meeting service demand as cloud providers have already developed relatively robust product stacks. Several carrier partnerships are already in progress, such as Telefonica and Amazon Greengrass, as well as those announced during the event, such as Intel with Hewitt Lake Soc.
Edge computing has the potential to address key issues with regards to existing telecoms infrastructure by reducing latency and single point of failure versus returning traffic to the cloud. It will underpin many of the overhyped IoT and 5G use-cases, as well as supporting improved delivery of mobile content, which in a world of 4K/8K devices and increasing popularity of massive-multiplayer online gaming will continue to account for the majority of traffic.
Exhibit 1: How edge can solve networking challenges
Edge computing arguably provides telecoms network providers the opportunity to reclaim a key role in the global cloud ecosystem. While global cloud providers like Amazon Web Services and Microsoft Azure have developed their product stacks across a global cloud, telco network providers have a structural networking advantage based on the ability to leverage their existing access network deployments. For example, while Amazon has around 120 edge data centers deployed globally, they are greatly outnumbered by telecom central offices.
Telecoms network providers’ long-term success in edge is likely to come from the access network and infrastructure (edge data centers and fiber) rather than services. If we had been developing on AWS or Azure in a normal cloud environment we would likely to do so with Edge, but we would want the same network reach as we currently get in the Cloud. The way that AWS and Azure can offer this is through leveraging telecoms network provider infrastructure. Over the past decade, network operators have strived to convince us that they are more than just networks – they are walled garden app stores (they weren’t), they are OTT communications providers (they aren’t, despite GSMA’s persistent support of RCS) and they are content platforms (maybe… the jury is still out). Edge computing is an example where value can be created in being a really good infrastructure and network provider. The services that customers expect – and that service providers increasingly develop on cloud platforms such as AWS and Azure – demands great networking, and there is no shame in expressly focusing on being the best network provider. Telecom network providers can be the enabler for applications and services of cloud providers by leading the development of a single standard for 5G edge covering hardware, platform and cyber security, and creating a unified premium Edge IaaS/PaaS for enabling cloud providers jointly using existing deployed infrastructure.
However, given the local and national fragmentation of networks, no single network operator can challenge global cloud providers alone. The industry will need to identify a mechanism where it can offer the technical and commercial framework to offer multi-national edge computing solutions. Given the need to engage fixed network providers, defining and delivering this goes beyond the GSMA’s mobile network remit given the implications on international and fixed networks but if this can be achieved it would fulfil the MWC 2019 theme of ‘intelligent connectivity’.
Edge computing is the operators’ opportunity to become relevant cloud providers. However, no single operator succeeds alone. Operators need to agree on standards, commercial and operating models. Past experience of cross industry operators’ partnerships shows that operators who struggle to partner usually struggle to increase their share of the pie. Will they be able to do it this time? Or will their inability to partner give time for cloud providers to become the relevant players in edge infrastructure?
Smart Cities: using technology to support the whole pyramid
MWC saw several ‘smart city’-themed announcements, ranging from the advanced, such as Intel’s ‘smart city in a box’ that integrates an AI accelerator, edge computing and 5G wireless network into a single solution, through to the launch of LPWA NB-IoT development kits by vendors like Ericsson. In an environment where next generation technology innovations lack the ‘killer app’ of yester-year, ‘smart city’ becomes a catch-all term of the type of services we can expect in the future.
When we consider ‘smart city’, the technologies and business models that are available, it is critical that we apply this to both greenfield and brownfield developments. It is not just for the most advanced cities nor a discussion that’s purely focused on the deployment of the most advanced 5G and AI enabled solutions. Successful smart city solutions will need to demonstrate economic inclusion through activation of digital citizens, businesses and government while delivering true value benefits in the form of cost savings or new revenue creation.
Smart city solutions in emerging markets will likely place greater demands on delivery capabilities. For example, aside from Asia, the highest rate of urbanization is in Africa where the creation of multiple megacities necessitates employment, housing, education, energy, healthcare, waste removal and transport for tens of millions of inhabitants in a safe environment.
Africa’s smart cities will need to solve highly complex problems linked to this rate of spiraling urbanization. Technology could solve most African smart cities needs effectively, but there is a distinct requirement for locally relevant solutions. Looking at Eko-Atlantic, Ibeju-Lekki smart city and other similar projects in Lagos and Abuja, there is an aspiration to match Dubai’s type of solution. However, the risk of implementation in Nigeria is very high and project milestones for many of these well-intended projects continue to lapse despite the growing influx of migrants.
Non-Executive Partner Sharoda Rapeti leads a MWC session on the transformation of public services
The need for inclusion across the economic spectrum is higher versus aiming for eco-friendly high-tech smart city projects that cater almost exclusively to select layers of society and businesses. Nigeria’s state governments must do much more than policy intervention by playing a more meaningful role in integrating various actors within the smart city ecosystem including start-ups. Timeframes for start-ups to become successful are aggressive compared to the long drawn out timeframes for Government to issue tenders that thwart the start-up economy. There is also an increased need for urban planners to work closer with telecommunications engineers not just for the purposes of planning connected networks and for conducting environmental impact studies, but to fundamentally understand how telecom connectivity impacts on the design approach to city reticulation and construction design of civil infrastructure.
Lastly, for Nigeria and other smart city initiatives in Sub Sahara Africa, a recent strategic thrust is to incorporate 4IR into the design process with firm intent to attract FDI and create local manufacturing capabilities of technology solutions. This approach brings the advantages of diversifying commodity-based economies over time but needs wide scale change across multiple sectors including education. The stakes for success will escalate and could widen the gap between the short to medium term demands for smart cities in Africa.
From a technological perspective, the key success factors in developing smart city infrastructure requires alignment across fixed and wireless infrastructure, use-case dedicated solutions, sensors, IoT subsystems and IoT platforms. Such a ‘stack’ requires strong coordination from the municipal body and effective development of a multi-player ecosystem. This chimes with the 5G message that the ecosystem is critical rather than purely rushing the technology. Aside from self-driving autonomous mobility solutions, many relevant ‘smart city’ applications do not require 5G. Ensuring comprehensive fiber and wireless (cellular, urban wi-fi) is sufficient.
Exhibit 2: The smart city technology stack
NEOM is one of the most recent ‘smart city’ related initiatives to launch and has placed the principal of ‘livability’ at its core. The coastal Saudi smart city project places the focus on offering an enhanced quality of life to all residents, irrespective of any specific technology. The concept of ‘livability’ is essential for all ‘smart cities’ regardless of status or location. Focusing on how technology can drive ‘livability’, and measuring its impact, should be a key priority for network providers and vendors. As the telecom industry looks to position itself with governments and regulators across a broad selection of topics, linking smart city connectivity infrastructure and digital service deployments with the social and economic benefit that they can deliver for residents, businesses and municipal authorities will be critical. At previous MWCs, we have seen network operators and vendors seek to identify themselves as ‘smart solutions providers’ – maybe 2020 is the time for the next “re-branding” – this time to ‘urban value creator’.
Network operators are critical enablers of smart cities as they need to fill the gap between the ‘visions of the future’ and the reality of civil engineering. Close collaboration between network providers and municipality will be key to bringing together the required ecosystem and laying the technological foundations to drive development of new services. Beyond telecoms infrastructure, utilizing telecom data to contribute to the smart city ‘data lake’ – as well as the definition and measurement of ‘livability’ – could open up new opportunities for telecom operators and cities alike.
OTT: enabling the globalization of sports content distribution?
Sports organisations are becoming an increasingly common sight at MWC, and their presence is not purely a cynical search for the next headline ‘sticker’ sponsor. Mobile and IP enables distribution to a global audience and the ability to reach, engage and monetise any fan directly. Furthermore, through convergence, telecoms organisations are increasingly seeking premium content as a means to increase consumer revenues. Sports are one of the very few content categories that can drive customer switching or retention behaviour. Learning how to utilize mobile distribution is therefore a key success factor to sports organisations’ future commercial models. Last year, sports content rights were estimated to be worth $20 billion globally and forecast to increase above inflation for years to come, fueled in part by international (i.e. ex-domestic) growth. This is big business.
One key question is who is going to capture the value from distribution – will it be the traditional broadcast platforms expanding their distribution to IP and mobile, emerging pureplay sports OTT platforms such as DAZN (which took the opportunity to announce their Spanish launch during MWC), the global internet platforms, or sports organisations going ‘direct-to-fan’?
WWE took to the MWC stage to highlight their scale with over 1 billion social media followers, the second most followed YouTube channel and their own OTT platform demonstrated the global opportunity of a well-executed direct-to-fan proposition. WWE casually shared that has 60 data scientists driving audience analytics and decision making – is this a sign of the sports organisations of the future?
However, with such reach and engagement, there continues to be the challenge of monetizing the fan base. Delta Partners presented research during the conference that highlighting that leading sports teams generate, despite all the passion and fanaticism they create, less than $0.60 per month of average revenue per fan. That’s lower than advertising-based platforms like Facebook.
Exhibit 3: Sports rights growth
While the answer of reach is hidden somewhere in MWC, so could the answer to the monetisation challenge. Through partnerships with telecom operators, sports organisations can leverage local distribution and payment networks to distribute and monetise content.
While telecom operators’ partnerships with sports organisations provide an ability to engage their customer base and differentiate the consumer proposition.
So, OTT does enable the globalization of sports content distribution, however content owners, be they the sports organisations or international distributors, like DAZN, cannot run alone. Partnerships are critical and given their local scale and assets, telecoms operators can be the logical partner.
We expect the next three years to herald a transformation in sports content distribution. We will likely see the evolution of internet platform strategies as premium rights reach their next auction cycles and the streaming approach – that’s been popularized by DAZN – has the potential to scale and mature. At the same time, we expect more sports organisations to launch their own direct-to-fan propositions initially as a complement to traditional distribution. At present, it is the content creators – the sports organisations – that hold all the cards. The decisions they take in the next year or two will determine their long-term financial growth and cementing, or not, at the top table of global sports properties.
© 2019 Delta Partners.