internet and telecoms evolution – key trends and challenges ......analysis and future views on key...

Internet and telecoms evolution

– key trends and challenges for 2012 and beyond

Datatec 25th Anniversary Investor WorkshopAlexandra Rehak, Analysys Mason

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Analysys Mason’s global presence enables us to deliver sustainable business benefits to clients around the world

Cambridge • Dubai • Dublin • Edinburgh • Johannesburg • London • Madrid • Manchester • Milan • New Delhi •

Paris • Singapore • Washington DC

Assignments completed• Analysys Mason is a trusted adviser on telecoms, technology and media. We work with our clients, including operators, regulators and end users, to:

– design winning strategies that deliver measurable results

– make informed decisions based on market intelligence and analytical rigour

– develop innovative propositions to gain competitive advantage

– implement operational solutions to improve business efficiency

• With over 230 staff in 12 offices, we are respected worldwide for our exceptional quality of work, independence and flexibility in responding to client needs. For 25 years, we have been helping clients in more than 100 countries to maximise their opportunities

We provide an authoritative perspective on the global telecoms market

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Our Research division offers insights, forecasts and advice on key telecoms services and technologies

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Analysys Mason’s comprehensive portfolio of research programmes offers market-leading qualitative and quantitative market intelligence, serving the world’s leading network operators, vendors, regulators and investors. Core outputs include: Annual five-year telecoms market forecasts for all regions worldwide and at country level for 30 countries in Europe and 26 in APAC and MEA

covering all aspects of fixed and mobile services, subscribers, traffic/usage and revenue Analysis and future views on key telecoms trends, technologies and services (multi-play, FTTx, wireless traffic/offload, OTT services, M2M, etc).

MEA Asia–Pacific

Research programmesResearch programmesResearch practices

Europe

Enterprise

Consumer Services

Telecoms Software

Network Technologies

Data and RegionalMarkets

Enterprise

Spectrum

Middle East and Africa

Fixed Broadband

Fixed Networks Wireless Networks

Core Forecasts

Telecoms Market Matrix

Country Reports

Mobile Broadband Mobile Content and Applications Voice

Asia–Pacific India Wireless

India Value-Added

Services

Telecoms Software Forecasts

Service Delivery Platform Strategies

ServiceAssurance

ServiceFulfilmentBilling

Infrastructure Solutions

Telecoms Software Market Shares

Telecoms Software Strategies

Customer Care

Service Provider Strategies

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Internet and telecoms ecosystem evolution – setting the scene

The device as driver: changing consumer usage patterns

The network as enabler

Emerging services: fragmenting customer relationships and control of the value chain

Wrap-up: implications and challenges ahead

Agenda

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The global telecoms market will grow by 6% per annum (2009-2014), driven primarily by rising mobile revenue

• Fixed services: PSTN revenues will decline significantly

– Both fixed voice and fixed broadband face competitive pressure from mobile

• Mobile services:

– Mobile voice and messaging are commoditised in mature markets; in emerging markets, subscriber growth will drive mobile voice revenue

– SMS usage will decline as other communication forms (social networking, iMessage, BBM) become more popular

• Mobile broadband take-up is driving revenue growth in mobile non-messaging data, although traffic will grow more quickly than revenue

• Business services: will resume growth as the global economy recovers in the later years

• Video: analogue-to-digital transition and increasing consumption of VAS drive growthSource: Worldwide telecoms market forecast 2010–2014,

Analysys Mason

Telecoms service revenue by service type, worldwide (2009–14)

0

500

1000

1500

2000

2500

2009 2010 2011 2012 2013 2014

Rev

enue

(US

D b

illio

n)

Other (CAGR -8%) PSTN (CAGR -7%)

Video (CAGR 10%) Business services (CAGR 5%)

Fixed BB (CAGR 7%) Mobile mesg data (CAGR 13%)

Mbl non-mesg data (CAGR 21%) Mobile voice (CAGR 6%)

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The network-centric communications services value chain of ten years ago was fairly static and uncomplicated …

Device manufacturers

Suppliers

Enterprise Rational business

decisions driven by market pressures

Consumer Standard services define preferences

Little segmentation

Communications service providers

Telecoms operators

Cable operators

IT companiesNetwork equipment

manufacturers

End-user market

Slow change in services and end-user expectations

Fairly predictable requirements

Competitive zone

Rapidly increasing competition

but mainly because of changes in the regulatory environment

Suppliers

CSPs have a mature value chain of diverse infrastructure suppliers

Government Slowly

changing requirements

MVNOs

Systems integrators

Software vendors

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… but the current value network is much more complex and fast moving, driven by end-user devices and services

Device manufacturers

Internet services

Suppliers

Consumer Rapidly changing preferences

Highly segmented

Communications service providers

Telecoms operators

Cable operators

IT companiesNetwork equipment

manufacturers

End-user market Rapid change in services

used - for consumers, rapid innovation in Internet services changes expectations

Competitive zone CSPs are forced to make

rapid choices: Which players to compete

with and which to partner with

Suppliers CSPs have a mature value

chain of diverse infrastructure suppliers

Internet services tend to be vertically integrated, with most of the infrastructure developed in house.

Government Slowly

changing requirements

MVNOs

Systems integrators

Software vendors

Facebook

Twitter

Google

Apple

Enterprise Rational business

decisions driven by market pressures

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The need for customer-centricity is forcing a much greater focus on partnering, flexibility and speed

For the next three years, what large issues will be driving telecoms and Internet players to:

• make new investments • or change their approach to

market?

• New revenue

• Execution speed

• Efficiency/cost savings

• Customer experience

• Profitable customers

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Agenda9

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The time that consumers spend communicating, and the way in which they do so, is changing significantly• The modes consumers use to

communicate will evolve

• The amount of time they spend communicating will increase – by an average of 19% in five years, in developed markets

• Drivers of this increase:

– increasing take-up of smartphones

– late-adopters of social networking

– ‘network effect’ of increased immediacy of social networking and increased volume of users

Average daily time spent communicating (via voice and messaging services)

by device, 2011 and 2016

0

20

40

60

80

100

120

2011 2016

Min

utes

OtherTablet PCFixed phoneMobile handsetPC

Source: Analysys Mason, 2011

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Operators must contend with increasing engagement, but decreasing spend – understanding usage is key• Usage of services is moving away from

one-way broadcast services, such as broadcast TV and radio, to on-demand services – Netflix, Pandora, Spotify

– the amount of time consumers spend on the telecoms network will increase

• At the same time, we are forecasting spend on telecoms services will gradually decrease

• The increase in time spent on their networks will give telecoms operators a more-complete picture of what their customers are doing

– the question is whether they can use this data in a way that creates value

0%

20%

40%

60%

80%

100%

120%

140%

2011 2012 2013 2014 2015 2016

Per

cent

age

of 2

011

leve

ls

Telecoms spend Telecoms minutes

Consumer spend and usage of telecoms, relative to 2011 levels, 2011–2016


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What consumers do is not changing that dramatically – the bigger change is in the devices they use for these activities

Average daily telecoms and media time, by device and profile, 2011 and 2016

Average daily telecoms and media spend, by activity and profile, 2011 and 2016

0

10

20

30

40

50

60

70

80

90

100

2011

2016

2011

2016

2011

2016

Dan Elaine FredE

UR

per

mon

th

Reading

Messaging

Voice

Browsing

Gaming

Audio

Video

0%

25%

50%

75%

100%

2011 2016 2011 2016 2011 2016

Dan Elaine Fred

Per

cent

age

of ti

me

Mobile handset Tablet PCPC TV setPC using TV set RadioHandheld console ConsoleFixed phone Other


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Tablets already look like a game-changer, thanks to varied price points, and ability to tap into the apps ecosystem• Currently being used as a ‘pre-PC’ and ‘post-PC’ device in developed markets

• Drivers can vary (esp. in emerging markets)

• Complementary device – not replacing phone,but used alongside of TV when in the home

• Already taking up a significant portion of browsing time – but mainly via Wi-Fi, not 3G/4G

• Some early casualties – HP TouchPad

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The next big thing: manufacturers and developers are turning attention to bringing apps to featurephones• Smartphone penetration in most emerging markets is <5% and

will remain sub-10−15% for the next 5 years due to affordability

– featurephones will account for over half the installed base over the next 5 years - most will have a browser

– mobility is far more pervasive than Internet connectivity

• Developing market mobile ecosystems will look very different

– majority of users are prepaid (and unbanked)

– pricing/data plans/networks/devices won’t support streaming

– the real opportunity: connect up the unconnected rural – but with low-bandwidth apps, not streaming video and tablets

– open unbundled market – apps, access, device sold separately - challenging to provide seamless user experience.

What won’t look different: the driving force of ‘social’ – Facebook for Every Phone, Facebook-Mediatek chipset tie-up to enable

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Agenda

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The average volume of traffic per mobile connection in developed markets will grow by 5x between 2011 and 2016

• Mobile data traffic growth for each connection (SIM) will grow dramatically through 2016, at a 37% CAGR

• The average volume of traffic per connection in developed markets is 2x that in emerging markets in 2011

– the gap will widen by 2016, when developed markets will have 3x as much traffic per connection

– drivers: a higher proportion of advanced handsets; and earlier deployment of HSPA+ and LTE

• High traffic growth and slow revenue growth is pressuring MNO margins

– Operator reactions: tiered services: data caps, bandwidth limits, QoSguarantees, content+QoS bundles

Average traffic per mobile connection, worldwide, 2011–2016

0

100

200

300

400

500

600

700

800

900

2011 2012 2013 2014 2015 2016

Traf

fic (M

B p

er m

onth

)

World Developed markets Emerging markets


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Consumer interest is converging on devices and services between fixed and mobile

Fibre to the home (FTTH) LTE

Fixed or home Portable or nomadic Mobile or wide area

Tablet PCs

Smartphones

Mobile to Wi-Fi offload

Migration to smaller screens

Investment Demand Traffic

End

-use

r acc

ess

spee

dFixed–mobile substitution

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Wi-Fi is of increasing importance - by 2014, offload traffic in Europe will exceed all mobile data traffic

Fixed, offload and mobile data traffic in Western Europe, 2010–2016

Fixed-compatible share of devices associated with unique SIMs, developed economies, 2009–2016

0%

20%

40%

60%

80%

0.00.20.40.60.81.01.21.41.61.82.0

2009

2010

2011

2012

2013

2014

2015

2016

Act

ive

SIM

s (b

illion

)

Mobile-enabled mid-screen devicesWi-Fi compatible smartphonesUSB modemsVoice phonesFixed-line compatible (%)

0%

10%

20%

30%

40%

50%

60%

70%

0

20

40

60

80

100

120

140

2010

2011

2012

2013

2014

2015

2016

EB

Rest of fixed Internet dataSmall- and mid-screen wireless offloadMobile dataOffload traffic as share of all wireless traffic

Source: Analysys Mason Fixed Internet traffic worldwide: forecasts and analysis 2011–2016

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With the advent of LTE, the threat of mobile substitution for fixed broadband services may be getting more realistic• In August 2011, Vodafone Deutschland’s

CEO said Vodafone is looking to migrate up to 4m DSL customers onto LTE

– cites local loop unbundling costs as too high, and LTE as capable of substituting

• Several Nordic MNOs have LTE mobile broadband products that look to be equivalents of ADSL

• LTE provides achievable access speeds to match ADSL2+ and looks superficially like a threat to core DSL businesses

– but consumers perceive mobile broadband as worse than fixed broadband in terms of quality and price – even where LTE has launched

Danger of substitution?

ADSL2+

ADSL

HSDPA

Basic VDSL2

LTE Advanced

?

FTTH

LTE

Accelerated VDSL2

small-cell

1

10

100

Typi

cal d

owns

tream

Mbi

t/s (l

ogar

ithm

ic)

Mobile Fixedtime

Timeline for fixed and mobile broadband technologies


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Consumers already think they have 4G; selling 4G as ‘new’ may be difficult – raising questions about how to monetise

Self-reported consumer response re network generation, by handset model owned

Question: “What is the

network generation of your phone?” respondents who have a mobile voice

servicen = 6777

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

All mobile handsets iPhone 4

Per

cent

age

of re

spon

dent

s

Unsure4G3G2G


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The next big thing: new revenue streams (M2M, cloud) and vertical offerings are key to network operator strategy• Machine-to-machine (M2M) - What is it?

– connected things (61 million devices now, growing to 2.1 billion by 2020)

– mobile and fixed network

– applications across many industries

• Why does M2M matter?

− removes human latency

− spurs new service innovations

• Finding the right business model is challenging - traffic and revenues will remain very small in most cases

• Focus is increasingly on B2B2C

– e.g., e-readers (Amazon+Sprint)

– forward looking – electric car ecosystem

Telematics

Smart meters

Smart vending

mHealth

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Agenda

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Competition from across the telecoms and Internet value chain is driving service innovation

• Control of the telecoms value chain is shifting as device vendors and Internet players increasingly build independent relationships with customers

• Communication will account for only half of mobile handset usage by 2016

– players in the value chain need to understand which additional services they should or must “own”, and which they should just enable

– partner ecosystems are key, to support service innovations

– innovative companies from adjacent industries will be better positioned in many cases - with different strategic assets and liabilities (e.g., Apple, Facebook, Google, Skype, Amazon – and small players too).

Competitive drivers of service innovation

Media and entertainment

Internet innovators

Established services

migrating to the Internet

Rich entertainment and communications experience ... productivity services

... and much more

Mobile operators

Fixed operators

Cable operators

Dev

ices


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Telecoms operators will still lag TV broadcasters in 2016, and video time will increasingly be filled by OTT offerings• The average amount of time that people

spend viewing video content does not change very quickly.

• What is changing – how video is delivered – and the device on which it is viewed

• This shift in overall usage is relatively small, but will be more prevalent among some consumer segments than others.

• Telecoms operators still take a smaller share of video viewing time than broadcasters in 2016, though the proportion of traffic they carry will rise

• Over-the-top (OTT) players (e.g., Netflix, BBC iPlayer) are competing strongly on multi-mode delivery of video

• The majority of video consumption is now time-shifted, which works in favour of OTT

Average daily video viewing time, by device, 2011 and 2016

120

135

150

165

180

195

210

225

2011 2016

Min

utes

Tablet PCOtherMobile handsetConsolePC using TV setPCTV set


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Digital formats, disruptors, and consumer behaviour have completely changed the value chain in the music industry• Music consumption is moving from

dedicated music players to handsets, PCs

– Shift from broadcast to on-demand audio will become more widespread.

– Purchasing music from iTunes, Amazon has become the norm

– Streaming via ‘freemium’ services such as Spotify – premium version is ad-free

• What do network operators get out of it?

– Spotify has been an acquisition driver for partner TeliaSonera

− 44.6% of ‘Spotify price plan’ subscribers claimed Spotify influenced their choice of phone or subscription

− 52.6% said they are less likely to churn

Average daily audio listening time, by device, 2011 and 2016

0%10%20%30%40%50%60%70%80%90%

100%

2011 2016

Min

utes

Tablet PC

TV set

Mobile handset

PC

Other (Hi-fi, iPod, etc)

Radio


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Consumers are also becoming increasingly comfortable going to third-parties for basic communications services

Fixed VoIP service used, by provider

Question: “Do you use any software- or computer-based telephony services (such as Google Talk and Skype)?” all countries; respondents who said yes; n = 1933.

Skype78%

Google11%

Others11%

• The failure of operator app stores shows that consumer loyalty to an operator brand does not extend beyond the provision of connectivity, if better options are available elsewhere

• OTT has now moved beyond content and media services, to “basic” communications services, driven initially by price competition

• Skype has the market for fixed VoIP almost to itself, could this be replicated in mobile?

– WhatsApp offers users free OTT messaging – with dramatic impact on SMS revenues in some cases


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Web 1.0 was about search; Web 2.0 is about social –consumer-led, unpredictable growth and evolution

• Facebook has more touchpoints with more consumers worldwide than any network operator

– and holds more detailed (or different) customer information

• The open Facebook Developer platform has allowed it to evolve in a variety of new directions at low cost

– games, apps, payments/e-money

• Speed, scale and geographic reach of Facebook’s growth are linked to its independence from networks, but partnering is now a key element of its strategy to reach consumers

– 475 mobile operator partnerships; moving into handsets, chipsets

800 million users; 350 million mobile users Top 3 countries: USA, Indonesia, India Launched in Feb. 2004 – by Dec. of that

year it had 1 million users On average, people on Facebook install

apps more than 20 million times every day Every month, more than 500 million people

use an app on Facebook or experience Facebook Platform on other websites

More than 7 million apps and websites are integrated with Facebook

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The next big thing: Cloud is moving into the consumer space – creating a new layer of services which require connectivity• Netflix, Spotify, Facebook, Youtube

are effectively cloud services

• The next wave of consumer cloud offers full storage and sharing services for all types of digital content (some specific to music, video etc)

• Key driver: satisfying the perceived demand for access to any content, anywhere, on any device

• Implications:

– cloud services may counter fragmented usage of multiple devices and apps by providing a unified user experience -strengthening the customer relationship (but pulling it well away from network and device)

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Agenda29

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Key messages: a shift to a more end-user driven, service-centric world has significant implications for industry players

• Finding the right business model is not obvious

• Few companies are geared up to react quickly to changing

behaviours and disruptive players…or to actually use the vast

amounts of customer information they are collecting

Monetising new services and content continues to

prove challenging for all but a few players

• As customer relationships with network and service providers

fragment, revenue flows to different players in the value chain…

• …but someone needs to build the networks – and pay for them

• Are we moving back to a ‘utility’ model for network ownership

Revenue flows are not necessarily following

investment requirements

• Consumers, businesses and governments increasingly rely on

‘the cloud’

• Reliability/availability of networks, security of information are key

• Investments in this area are still often driven by breaches, but it’s

a growing requirement and still not drawing enough attention

Security is going to become an increasingly important

issue

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The ‘consumerisation of the enterprise’ – the elephant in the room for CIOs?• Trends, new applications, and usage habits

are bleeding over from the consumer world:

– Expectations about service usage and levels of control by the individual

– Devices and apps – iPhone overtaking Blackberry, tablets, Android

– Social networking – enterprise, Twitter

– Cloud apps – Amazon Web Services, Google Apps, Dropbox, Project Octopus

– OTT services – Skype is a huge SME tool

• CIOs need to be ready for consumers to go around proposed corporate solutions

– this can drive productivity and save costs

– but also creates rapid, unpredictable shifts in demand, usage, and security needs

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Contact details

CambridgeTel: +44 (0)845 600 5244Fax: +44 (0)1223 [email protected]

DubaiTel: +971 (0)4 446 7473Fax: +971 (0)4 446 [email protected]

DublinTel: +353 (0)1 602 4755Fax: +353 (0)1 602 [email protected]

EdinburghTel: +44 (0)845 600 5244Fax: +44 (0)131 443 [email protected]

LondonTel: +44 (0)845 600 5244Fax: +44 (0)20 7395 [email protected]

MadridTel: +34 91 399 5016Fax: +34 91 451 [email protected]

MilanTel: +39 02 76 31 88 34Fax: +39 02 36 50 45 [email protected]

New DelhiTel: +91 11 4700 3100Fax: +91 11 4700 [email protected]

ParisTel: +33 (0)1 72 71 96 96Fax: +33 (0)1 72 71 96 [email protected]

SingaporeTel: +65 6493 6038Fax: +65 6720 [email protected]

Washington DCTel: +1 202 331 3080Fax: +1 202 331 [email protected]

ManchesterTel: +44 (0)845 600 5244Fax: +44 (0)161 877 [email protected]

Alexandra RehakHead, Telecoms ResearchAnalysys Mason

[email protected]

M: +44 7770 785 798

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Confidentiality notice and disclaimer

This document and the information contained herein are strictly private and confidential, and are solely for the use of Datatec.

Copyright © 2011. The information contained herein is the property of Analysys Mason Limited and is provided on condition that it will not be reproduced, copied, lent or disclosed, directly or indirectly, nor used for any purpose other than that for which it was specifically furnished

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