This summary focuses on an Informa analyst presentation suggesting what carriers must do to innovate (or die). Consider that wireless carriers are more than ever in danger of being reduced to purveyors of “dumb pipes,” with little or no financial participation in the mobile network value chain. We also provide a link to innovation priorities from selected carriers, i.e. what they are looking for from suppliers and vendors (especially start-ups).
Informa Telecoms & Media on Telco’s Growth and Innovation Strategies:
Andy Castongua, Informa Principal Analyst covered four areas in his presentation:
- State of telecom operators’ (i.e., telcos) business
- Telecom Operators Next Big Bets
- Relationship with Over the Top (OTT) vendors & content providers
- Getting the most out of a relationship with telecom operators
It’s no surprise that operators must innovate to prevent them from a future as a dumb pipe provider. To prevent that outcome, operators have pursued several strategies:
- Venture Capital divisions as part of an overall strategy of partnering and offering new services.
- Partnering with Silicon Valley firms- even overseas telcos have set up subsidiaries in SV to do that.
- Setting up “digital initiatives” across several divisions or in dedicated units, e.g. AT&T’s Emerging Devices Unit
A key point is that telco innovation initiatives are being distributed across the entire network operator reporting structure.
With few exceptions, operators face a challenging mobile market. One caused by stagnation of mobile revenues (especially in Europe) coupled with the phenomenal growth of mobile data traffic which has placed capacity constraints (often bottlenecks) on their 3G/4G mobile networks. Mobile operators are testing a broad range of approaches and strategies to better engage consumers. They are looking at “non-telecom” benefits to differentiate their core network services. Examples include free tickets to concerts and sporting events from O2, Orange and Vodafone.
Fixed and mobile broadband access revenues are growing at 20+ % per year, with mobile data as a percent of overall wireless service revenues growing even faster, e.g. VZW LTE revenues grew by over 100% (albeit from a very small base) in 2012 year -to- date. Mobile operators are maintaining revenue growth and reducingchurn by adding many low to mid range applications for mobile devices they are selling. Examples include LTE Video Store and Shared Whiteboard (the actual operators offering those apps was not specified).
Machine to Machine (M2M) communications is seen as a huge new growth area for telcos. In the M2M evolution, operators plan to move from dumb connectivity to smart services. The challenge is how to connect the 50B M2M devices (that are predicted in coming years by Ericsson and others) and convert that into a profit producing revenue stream for operators. Informa believes operators are in the very early stage of driving M2M demand and helping consumers understand the significance of the “Internet of Things.”
2015 was said to be the time frame for telco smart services, which might include: business analytics, reports and alerts, business intelligence, communications service management, security & performance management, demand-response (smart grid energy model), and professional services (consulting, systems integration, and software development).
Informa says M2M and Cloud have huge potential but have been way over-hyped. The firm predicts telco cloud revenues will be $5.7B in 2012, while M2M revenues will reach $4.6B.
The market research firm says that operators are moving away from the consumer market to focus on B2B and B2B2C markets. They are slowing starting to look at industry verticals across their enterprise divisions. Carrier billing is gaining momentum according to Informa. But while a lot of innovation is occurring on top of the mobile network, carriers aren’t controlling it or making money from it.
Informa says that video is a major headache for mobile operators, mainly due to all the OTT players who are making money from exploiting the carrier’s network. Although some money may be made from new VoD and digital locker services, most streaming video will continue to be consumed for free. Piracy will also siphon away potential revenues, especially in emerging market countries. The firm sees carrier video offerings becoming irrelevant as OTT players offer more video streaming apps for smart phones and tablets. A key question is how can operators generate revenue and make money from OTT players and 3rd parties? They really haven’t been very successful selling mobile video services to date. They also haven’t offered network prioritization or guaranteed QoS (which is available in 3GPP LTE standards, but is not yet in general use in deployed LTE networks).
Informa says that network operators are desperate to become more innovative and suggests three ways companies can partner with them to make it happen.
- Create new revenue streams for services and applications. Share revenues with the telco, e.g. Amazon Kindle 3G downloads.
- Enhance core services by slowing price erosion, improving customer loyalty and attracting new customers.
- Improve processes, network efficiency and retail distribution models.
Examples of companies that have successfully partnered with telcos include Ruckus Wireless, Blue Jeans Network, and Spotify.
As noted in earlier TC3 summaries, network operators have established a huge presence in the greater Silicon Valley area (including San Francisco) to work with companies located there.
Image Courtesy of Informa
The top five areas of telco VC focus are:
- Social networking, media and entertainment
- Cloud Services
- Mobile Apps
- M2M Communications
These are based on over 184 telco VC investments over the last 6 to 12 months. M2M was cited as being a particularly promising area, as it delivers excellent user experience without heavily taxing the network (M2M communications aren’t characterized by huge amounts of mobile data traffic).
Telcos were encouraged to partner or buy start-ups to get to market quicker with new services/applications, rather than design those by themselves. Network infrastructure, which takes a much longer time to test and deploy, was not encouraged (as we’ve repeatedly reported in many articles for Viodi View and elsewhere).
Informa thinks that Telco Digital Divisions or Departments, like Telefonica’s in London, are a very effective way to partner with start-up companies (or buy them) to offer innovative new services and applications. In the TC3 part 2 summary, we said, “Telefonica has a venture office in Mt View that’s pursuing global partnerships with startups. The telco has reorganized the entire company to emphasize innovation.”
Some of the new services offered by carriers are OTT, like JaJah’s  long distance VoIP service running on Telefonica’s mobile data network, which also provides cellular voice services. This was cited as an example of “pre-emptive inclusion” by TC3 chairman Derek Kerton.
 JaJah was acquired by Telefonica in December 2009
Source: http://viodi.com/2012/10/07/analysts-on-what-carriers-enterprises-must-do-to-accelerate-innovation-summary-of-telecom-council-tc3-part-3/ October 7, 2012 By Alan Weissberger (Disclaimer: We were originally going to highlight the WiFi Hotspot 2.0 Panel Session in this part 3 summary, but no comments or suggestions were received. An assessment of this initiative to integrate WiFi hotspots with 3G/4G mobile networks, along with the associated standards from Wi-Fi Alliance (Hotspot 2.0 ) and the Wireless Broadband Alliance (Next Generation Hotspot) can be provided under a consulting contract. The consulting fee is negotiable.)