Edito by Yves Gassot
Yves Gassot
CEO, IDATE
Spectrum Policy: property or commons?
Without having an overarching goal, we will attempt to give an idea of the diversity and complexity of the topics involving spectrum.
The high-speed internet’s switch to wireless only serves to underscore how scare spectrum really is. Although it is true that considerable progress has been made over the past several years in terms of network design (multiplication of increasingly small cells), use of higher and higher frequencies, in coding, modulation and using spectrum efficiently)… all this is apparently not enough to make it possible to meet growing demand.
The "second digital dividend"
We’ll start with what is often referred to as the “second digital dividend”. In Europe, the first one provided an opportunity to redistribute a portion of TV frequencies in the 800 MHz band to cellular telecommunications (2x30 MHz for the launch of LTE), while increasing the selection of channels.
Today, following decision made at the 2012 World Radiocommunication Conference (WRC-12) to start opening the 700 MHz band up to mobile services in 2015, we expect to see yet another wrestling match between the TV and telecom sectors. It seems highly unlikely that we can continue to have as many digital terrestrial channels as we do now while also switching them up to new formats (i.e. ultra HD and 3D).
Of course the issues are not the same in countries like the UK or France – where terrestrial TV will remain the only universal free to air network for some time to come, and where DTT has even enjoyed a certain revival – and Germany – where terrestrial is a very minor consideration in a great many Länder. Also worth mentioning are the FCC’s incentive auctions, giving broadcasters who relinquish spectrum usage rights the opportunity to share in the profits of subsequent reverse auctions.
First and second Digital Dividend worldwide
Source: IDATE
The irony is that video accounts for a huge portion of the wireless internet’s traffic. Of course most of these streams are not live TV programming, but rather time-shifted viewing. Still, this is making cellcos and their providers come up with asymmetrical systems that provide additional downstream capacity. Qualcomm recently demonstrated an option called SDL (Supplemental Downlink) that makes it possible to beef up the downlink by employing unpaired spectrum, i.e. unused frequencies from other bands. There is also the idea of reserving unused TDD frequencies for a video-centric LTE network, while the MBMS protocol will endow 4G with multicasting capabilities close to those of a broadcast network.
Lastly, in the rivalry between telcos and TV channels, some are saying that the most useful reform may be to assign the frequencies allocated to TV not to the stations but to broadcasting service operators (e.g. pay-TV providers), to make the terrestrial network “unspecial” and marry it with telecom networks.
In France, the President has got ahead of himself and promised €3 billion from telcos for spectrum allocations in the 700 MHz band between now and 2016. Given the relatively disappointing outcome for the public treasuries in the UK and Australia recently, the French government’s target sum is by no means a sure thing. For even if broadcasters do have something to worry about, telcos, paradoxically, will have their bid to meet capex and cash flow objectives further complicated by the outlay.
Reasons for refarming GSM and 3G frequencies
The performances enabled by 4G and market competition are pushing vendors and regulators to put spectrum refarming into place much sooner than expected – allowing GSM and 3G frequencies to be reallocated to LTE. As we saw in the UK and in France, this will not occur without causing some serious regulatory issues if refarming was not explicitly planned for in LTE spectrum auctions. The no doubt cogent process that consists of assigning frequencies and leaving it up to telcos to choose the most appropriate technology to use, brings a profound change to the spectrum market, to setting reference prices, roadmaps, etc. Do most people know that in some countries frequencies are awarded for an indefinite period of time (the UK), whereas others issue only 15 to 20-year licences?
Television and security willing to have access to hi-speed frequencies
But television is not the only industry that will need to protect its growing requirements from the high-speed wireless internet. Civilian and military security services do not want to remain confined to narrowband radio systems, and are asking to be assigned high-speed data transmission capabilities. Here, the European approach is further complicated by the different frequency bands used. If homeland security services do have legitimate arguments underpinning their demand to upgrade their systems to broadband, their financial resources are limited by the state of public finances, plus their needs are often intermittent, occurring largely during times of crisis.
Hence the idea – and a multifaceted subject of debate in the arena of spectrum policy – of having applications like homeland security share certain frequencies with commercial services that telcos market to consumers. These shared licences would become a credible solution thanks to the progress made in cognitive radio: devices become agile and can listen before transmitting, query databases on operating restrictions and select available frequencies…
White space: frequency plans designed for TV broadcasting all contain white spaces. Hence the FCC’s work over the past several years to find additional resources for licence-free spectrum. These are the resources that allowed Wi-Fi and Bluetooth to flourish, and there are many who believe that this is the way of the future, and these solutions must be give more spectrum.
European Spectrum Policy
All of these topics are being discussed by a great many bodies. Europeans chiefly employ CEPT (European Conference of Postal and Telecommunications Administrations) to have a single voice in the ITU. But the outcome is not always entirely satisfying. One need only look at the huge variety of terms and conditions surrounding 4G rollouts – in terms of roadmap, frequencies, specs, sums paid at auction – in the different EU markets. Viviane Reding tried unsuccessfully to have a portion of spectrum management handed over to the Commission. And the idea coming out of Brussels today is to achieve convergent roadmaps across the EU, as realistically as possible, by anticipating forthcoming issues.
Digiworld by IDATE Publications
Just published:
Digiworld Yearbook 2013 (May 2013)
Innovation searching for the digital gold minesThis latest DigiWorld Yearbook provides you, as always, with reference data and the analyses of IDATE experts of the most vital trends on the markets of telecoms, the Internet and digital media.
The 700 MHz frequency band (June 2013)
This insight focus on the adoption of the APAC plan for the 700 MHz plan. Will this frequency band become an harmonised one? Will Europe adopt this plan and benefit from the device ecosystem? Which timescale?
Soon published:
DigiWorld Economic Journal: C&S No.90, 2nd quarter 2013(June 2013)
The radio spectrum: A shift in paradigms?Edited by J. Scott MARCUS, Gérard POGOREL & Frédéric PUJOL two exclusive interviews : - Gilles BRÉGANT, CEO of ANFR (French national spectrum agency) - Paul E. JACOBS, Qualcomm's Chairman & CEO Read the interview
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Interview with Paul E. JACOBS, Qualcomm’s Chairman & CEO
Published in COMMUNICATIONS & STRATEGIES No. 90, 2nd Quarter 2013
The radio spectrum: A shift in paradigms?
Summary of this issue: Demand for the use of the radio spectrum is constantly and rapidly growing, not only as a means of carrying Internet traffic, but also for new or expanding use by the military, public protection and disaster relief, at the same time that more traditional applications such as aeronautical, maritime, and radio astronomy remain. Is spectrum policy entering a trackless wilderness, or can a new direction and a new set of paradigms be expected to emerge? The contributions to this special issue of Communications & Strategies cover a great deal of ground. They serve to provide valuable signposts for spectrum policy going forward.
Exclusive:
Interview with Paul E. JACOBS
Chairman & CEO, Qualcomm
Conducted by Fédéric PUJOL,
Head of the radio technologies & spectrum practice, IDATE
C&S: Qualcomm anticipates a 1000x mobile data traffic increase in the coming years; can you explain how Qualcomm, as a key player and leader in the mobile ecosystem, will contribute to solving this challenge?
Paul E. JACOBS: Mobile data traffic has doubled every year over the past few years. If this growth rate continues for ten years, we will see a 1000x increase. I believe that the growth of mobile data is going to continue and this sentiment is shared throughout the industry. It is crucial for all stakeholders in the wireless industry to engage in research and development and investment and continually expand capacity to keep pace with this mobile data growth.
Now, how can we achieve the 1000x capacity? Qualcomm's vision is built upon three pillars, which are related to one another and must be pursued simultaneously: more spectrum, more small cells and greater efficiency across the system. We are working hard in all of these areas, and innovation in both technology and regulation is required. I strongly believe that industry and regulators must work cooperatively to achieve this goal.
First thing we need is more licensed spectrum. Only licensed spectrum can deliver the quality of service consumers increasingly depend upon every day. This spectrum should be harmonized as much as possible and made available in a fast track manner. It is important to do so in order to achieve scale and affordable access to mobile data. Freeing up enough spectrum in a fast track manner is a tremendous challenge. We need to clear and auction spectrum, but that alone is not enough. We also need to do more with Authorized Shared Access (ASA). ASA was designed to free up more licensed spectrum. As of now, there has been very good progress on ASA in Europe and the United States and I believe more countries will embrace it. We also need more unlicensed spectrum in higher bands for high capacity, short range services – for example, additional bandwidth in the 5 GHz for Wi-Fi and 60 GHz for even shorter range applications, such as wireless docking.
The second thing we need to achieve our 1000x vision is a hyper densification of networks with small cells. We need to bring base stations closer to mobile devices and small cells do just that. The magnitude of the challenge of meeting demand for mobile data has led us to this new way of thinking. The idea is to provide much more capacity from low cost indoor small cells in complement to macro cells. Small cells will allow operators to re-use their licensed spectrum in existing bands as well as new higher bands, to capture the huge increase in indoor traffic, and dedicate macro capacity for outdoor users.
Finally, there is a need for more efficient networks, applications and devices – we need to make sure that all of these work intelligently with each other to offer the best performance and the greatest user experience. Continuing the 3G, 4G and Wi-Fi technology evolution, enabling devices to select the best wireless access available and optimizing interference management are some enhancements that make this possible.
Innovation in spectrum management: Qualcomm recently demonstrated SDL (Supplemental Downlink) capabilities in Toulouse (France) and supports ASA (Authorized Shared Access). Can you share your views on the potential of these new "tools"?
More licensed spectrum is an essential component in meeting the 1000x challenge. This spectrum should be in prime bands – meaning that the spectrum is harmonized regionally and, ideally, globally. In addition, the spectrum needs to be released quickly. We cannot afford to wait years for this spectrum to be assigned as delaying access to spectrum has a direct impact on the quality of service that can be provided to consumers. The spectrum crunch, if unsolved, will lead to higher prices, degraded quality and data caps, and missed opportunities. The genesis of SDL and ASA, two great innovations, lies here. We have been working with our industry partners and governments to bring these innovations to market as quickly as possible.
SDL is an innovative way to use unpaired spectrum, taking advantage of the newest spectrum aggregation techniques in 3G and 4G. Today, users are downloading considerably more data than they are uploading with video consumption, now the biggest contributor to traffic volumes. At the same time, operators' spectrum is most often paired with the same amount of MHz allocated for uplink and downlink. With SDL, an operator can aggregate an unpaired band with the downlink of the paired spectrum to create a bigger downlink pipe and increase its network capacity and achieve faster data rates. Consumers will then see the difference when they download data, particularly videos, on a network using SDL. Qualcomm has shown this in pre-operational conditions with Orange and Ericsson in Toulouse, France, and I can tell you that the results were impressive. The demonstration provided industry and government representatives with an opportunity to observe the significant benefits that will result from the recent decision taken by CEPT in Europe to harmonize the L-Band spectrum for SDL. I applaud this decision as it will drive the harmonization of this band globally. We are thrilled with this prospect, and we have started planning for the support of L-Band SDL on our chipsets. In the United States, SDL will be launched by AT&T using unpaired spectrum in the 700 MHz band.
When we started working on ASA a couple of years ago, we aimed to develop a new way to bring more licensed spectrum in harmonized bands to market quickly enough to cope with the explosive data growth. While I believe traditional licensing after spectrum clearance will remain the preferred approach, it is not always possible. We know that some spectrum users, such as government users, do not use their spectrum nationwide every hour of every day, but they are not in a position to vacate it because they still need it from time to time or in specific locations or situations.
In this scenario, ASA is an ideal approach to enable wireless broadband operators to access this spectrum in a mutually beneficial way with those incumbents. With ASA, a commercial operator can share the spectrum with the incumbent in time or location or both. This is done on an exclusive basis, which means that either the incumbent or the commercial user access the spectrum at a given location at a given time. This means that they never interfere with each other and they can still leverage the very best performance of their equipment. Everybody can win with ASA. The incumbent can monetize its underutilized spectrum, operators can access new spectrum for exclusive use and ensure reliability and quality of services, and regulators can pragmatically address the ever increasing demand for more spectrum for mobile broadband. ASA unlocks hundreds of MHz of high-quality spectrum for 3G/4G.
ASA applies to harmonized bands so that commercial devices will be readily available and operators can benefit from economies of scale. ASA will not require any new technology for devices – the devices will simply have to work on the selected spectrum. This aspect of ASA is important to note because it will enable operators to quickly start using the ASA spectrum in conjunction with their other existing spectrum assets. In addition, ASA is particularly suited for higher bands as interference propagates less.
So, if you think about ASA and small cells, you can see that there is a perfect match here. The lower transmit power of small cells allows them to be deployed much closer to an incumbent's operations without causing any interference. Small cells also offer a perfect capacity complement to an operators' existing deployment and, of course, ASA also allows deployment of macro cells. I am pleased with the progress made in Europe and the United States. In Europe, CEPT has set up a project team to make the 2.3 GHz band available using ASA. In the United States, the FCC is considering ASA in the 3.5 GHz for sharing with coastal radars.
You announced during the Mobile World Congress that you will ship RF chipsets with support of the 30 LTE frequency bands later this year. Is this the definitive solution to LTE global roaming?
We have been striving to harmonize bands for mobile broadband and contributing to this work across the world at national, regional and ITU levels. The reality is that once a band gets harmonized at the ITU level, it is released on a country-by-country basis at different times. This is mainly due to national legacy regulations and the fact that the spectrum is used by someone. In some countries, it can take years to vacate a band. This situation has led to the explosion of the number of commercial bands and today, there are already over 30 LTE frequency bands around the world – 40 cellular bands in total for 2G, 3G and 4G. Having so many different frequency bands creates difficulties for the development and design of LTE devices. In particular, the front end of the phone – the components that manufacturers place in between the antenna and the digital modem – requires discrete band-specific components for each and every operational frequency in a phone. In today's sleek smartphone designs, an OEM simply runs out of printed circuit board area before it can fit in all the front end components and may need up to 10 or more versions of each LTE handset design in order to sell a particular phone model around the world.
Qualcomm has announced a new front end solution called the Qualcomm RF360, which we believe is an important industry advancement to address this challenge. It features many RF innovations that utilize only half the board area of other front end solutions. For the first time, it enables a single phone model that supports at least one LTE frequency band in every country in the world where LTE has been deployed.
Having said that, the number of active bands which are simultaneously supported in a device is not unlimited, and that's why it is crucial to continue striving to harmonize bands and make them available in as many countries as possible.
How do you see the relationship between eMBMS supported by LTE networks and broadcast networks? Is convergence between broadcast and mobile networks possible in the coming years?
Most people look at this issue from a technology point of view and try to defend one technology against another. For me, it is really a question of service demand and business models. People want to watch video content when they want it on any device. They also want both linear and on-demand content on their flat screen, tablets and smartphones. And they want to interact on social media while watching this content. The demand is pretty clear, but it can create trouble both for broadcasters and mobile operators.
The terrestrial broadcast networks will not reach the tablets and smartphones for two reasons: they are designed for fixed reception, for delivery of linear content and tablets, and smartphones do not support reception of DVB-T signals. At the same time, mobile networks will have a hard time coping with the explosion in video demand due to the capacity constraints faced by mobile networks. LTE broadcast with eMBMS can help. eMBMS allows mobile operators to optimize the use of their network capacity by efficiently delivering content in broadcast mode. However, eMBMS design as of today, doesn't allow it to be the sole terrestrial platform for broadcasting, including for roof top reception.
It is fair to say that a dedicated broadcast platform is not likely to be the platform for the future as the ratio between linear and interactive services is not fixed and varies in time as well as in geography. So any solution would have to implement a kind of dynamic unicast broadcast in order to allocate the resources to the service requiring them. We've shown this feature over eMBMS at the last Mobile World Congress.
The only real solution to these challenges is convergence, so it is not a question of 'if'; it is just a question of 'when'. The timing will depend on a number of factors. Progress would require political decisions and different countries face different situations. But decisions cannot be made on a purely national basis because mobile devices won't be available without scale. Convergence will also require the emergence of new business and regulatory models. Today, the worlds of broadcasting and telecommunication are often opposed, especially when it comes to spectrum rights in the UHF band. So there is a lot of work to be done.
What is important is to understand that the first steps towards convergence are happening right now. Verizon has announced their intention to deploy eMBMS – their focus on an event such as the Super Bowl is a strong indication that there is solid business logic behind this convergence movement and that we are only at the beginning of this trend.
All around the world, focus is generally on sub-1 GHz frequency bands during auctions but higher frequency bands are also likely to play a major role in congested areas. How do you envisage the use of the 2.6 GHz band and other high frequency bands by mobile operators in the next 2-3 years?
Lower frequency bands will continue to play a pivotal role in providing ubiquitous and cost efficient coverage for wide area networks. We have seen this recently with LTE commercial deployments using spectrum in 700 MHz and 800 MHz. However, an operator also needs higher bands for wider contiguous bandwidths and higher data rates. I do not believe that a mobile operator can fully succeed today without an adequate strategy for the higher bands. And the relevance of those bands will surely increase in the future.
I do believe that small cells will change the current deployment paradigm. I think we will see small cells systems deployed very broadly – in homes, office buildings, enterprises, and shopping malls. The future that we envision entails the hyper densification of networks and the key is to manage interference in order to dramatically increase the overall capacity of the network. Qualcomm has solutions and we are developing further enhancements that take the performance to the next level, the 1000x level. One example of such a solution is opportunistic small cells that dynamically switch on and off based on the demand for data. This solution aids in reducing interference. Another example is extending carrier aggregation to combine traffic among small cells and across small and macro cells.
Introducing new deployment models such as neighborhood small cells also provide very interesting prospects – a network of low-cost, plug-and-play, open, indoor small cells. They provide extremely high indoor capacity as well as good outdoor coverage and capacity within a neighborhood. This can be extremely cost effective for operators because consumers could also deploy the small cells and provide the backhaul – saving them time and money while still relying on the operators' outdoor coverage from macro cells.
In the coming years, small cells will take advantage of licensed spectrum in higher bands and each operator will have to decide how to use its 2.6 GHz spectrum. This decision will depend on various parameters including an operator, other spectrum holdings, network structure and the competitive market situation. It is my belief that small cells will be an important part of the future of mobile communications.
Biography
Paul E. JACOBS is chairman of Qualcomm's board of directors and the Company's chief executive officer. A leader in the field of mobile communications for over two decades and a key architect of Qualcomm's strategic vision, Dr. Jacobs' responsibilities include leadership and oversight of all the Company's initiatives and operations. Following the completion of his Ph.D. in 1989 and a year as a post-doctoral researcher at a French government lab in Toulouse, Dr. Jacobs joined the Company full time in 1990 as a development engineer leading the mobile phone digital signal processor software team. Five years later, Dr. Jacobs became vice president and general manager of the combined handset and integrated circuit division, which was subsequently divided into Qualcomm Consumer Products (QCP) and Qualcomm CDMA Technologies, respectively. In 1996, Dr. Jacobs was named senior vice president of the Company and in 1997, president of QCP. In 2000, Dr. Jacobs was named executive vice president of Qualcomm and in 2001, group president of Qualcomm Wireless & Internet (QWI). Dr. Jacobs became CEO in July 2005 and was appointed Chairman in 2009. As an innovative leader of a broad range of technical teams within Qualcomm, Dr. Jacobs has been granted more than 40 patents for his inventions in the areas of wireless technology and devices. Dr. Jacobs serves on the Board of Directors for A123Systems, is chairman of the Advisory Board of the University of California, Berkeley College of Engineering; is a trustee of the Museum of Contemporary Art San Diego; and is a member of the US-India CEO Forum and the Young President's Organization. Dr. Jacobs received his bachelor's (1984) and master's (1986) degrees as well as his doctorate (1989) in electrical engineering from the University of California, Berkeley, and subsequently endowed the Paul and Stacy Jacobs Distinguished Professor of Engineering chair at the school. He is a member of the Phi Beta Kappa, Eta Kappa Nu and Tau Beta Pi honor societies. Dr. Jacobs is a recipient of a number of industry, academic and corporate leadership awards.
Published in COMMUNICATIONS & STRATEGIES No. 90, 2nd Quarter 2013
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Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org
The state of the digital world in figures
Interview with Didier Pouillot, Digiworld Yearbook project manager
Interview published in weekly letter from ARCEP - 7 June 2013
Find the intervew Didier Pouillot by ARCEP on the occasion of the publication of the 13th of the DigiWorld Yearbook: our annual publication on the state of the digital world. (Interview available in french only)
Interview published in weekly letter from ARCEP - 7 June 2013
Find the intervew Didier Pouillot by ARCEP on the occasion of the publication of the 13th of the DigiWorld Yearbook: our annual publication on the state of the digital world. (Interview available in french only)
Source: ARCEP's website
Didier Pouillot reviews the status and trends of DigiWorld markets: telecommunications, computer and television, an economy that accounts for 6% of global GDP, but whose performance is currently short of those of the general economy, particularly in Europe, on which Didier Pouillot explains the situation. This is also an opportunity to recall the issues in each market of the digital economy with many business models are changing mainly because of internet giants: Facebook, Amazon, Google, Microsoft and Apple, and more broadly OTT services.
Discover the slides from the London Yearbook presentation with Ronan Dune, CEO Telefónica :
About the Digiworld Yearbook
197 pages that deliver the finest market insights from IDATE experts who track the changes at work in the globe’s telecom, Internet and media industries throughout the year.
the DigiWorld Yearbook is published in English and French and available in print and PDF format. An iPad edition, developed by Forecomm, is also available.
The 2012 edition can be downloaded for free
The 2013 edition is available for purchase. Print: €99.99, incl. VAT; PDF and iPad: €54.99, incl. VAT
- You can have a look at the digiworld yearbook 2013, purchase it or even download the 2012 version for free at : www.digiworld.org/yearbook/
Les impasses des Assises de l’Audiovisuel
Gilles FONTAINE
Directeur Général Adjoint, IDATE
Les impasses des Assises de l'Audiovisuel
Les Assises de l'Audiovisuel du 5 juin 2013 ont voulu aborder quelques dossiers clés du secteur. Loin d'une vision prospective, les débats ont porté sur l'ajustement des curseurs d'une réglementation minutieuse. Mais plusieurs questions clés ont été passées sous silence.
1. Un absent, le Conseil de la Concurrence
Il y a un régulateur économique de l'audiovisuel: le Conseil de la Concurrence. Le raisonnement fondé sur la prise en compte exclusive du marché nationale et la priorité liée à la circulation des programmes au sein du marché national va t-elle être révisée ?
2. La création ex-nihilo d'un marché de la SVOD
Faut-il réellement une fenêtre pour la SVOD ? La SVOD se développe de fait en France via les services de télévision de rattrapage des chaînes payantes. Pourquoi créer artificiellement un marché alors que pay-TV et SVOD ne constitueront qu'un seul marché à terme ?
3. Le débat confus producteur-diffuseur
L'enjeu de la redéfinition des rapports producteurs-diffuseurs n'est en réalité pas une nouvelle clé de répartition des recettes, qui sont marginales, ou la diminution des quotas de production indépendante. Il faut en réalité une nouvelle répartition des rôles: des producteurs créateurs et fabricants, des chaînes financeurs et distributeurs. Car d'une part les producteurs n'ont pas la taille critique pour distribuer et d'autre part la production intégrée par les chaînes échouera si la création est internalisée au sein de filiales.
4. Le triple pari de la fibre
La récupération des fréquences de la TNT, et, plus généralement, l'absence de nécessité à terme des réseaux spécifiquement broadcast, repose sur le principe que les chaînes de télévision seront universellement accessible via la fibre optique. L'analyse repose sur un triple pari: que la fibre soit déployée sur le territoire (ce qu'il faut analyser au regard de la situation des opérateurs); que les consommateurs s'abonnent effectivement (avec les réticences liée à l'installation et l'éventuel différentiel de prix entre ESDL et Fibre); que l'abonnement à la fibre inclue un service gratuit de télévision (alors que le triple play est loin d'être un modèle universel).
Gilles FONTAINE
Directeur Général Adjoint, IDATE
g.fontaine@idate.org
- Lire notre dernier billet sur le sujet "Pay-TV vs SVOD"
Telcos vs OTT Services
Vincent BONNEAU
Head of Internet Business Unit at IDATE
Telco vs Over the top services :
A three sided Business Model
Is it war or the beginning of a new era of OTT-isation with enough growth for all players involved?
IDATE monitors permanently telecom and internet markets and Vincent Bonneau, Director of the Internet Business Unit, designed a new concept dealing with 3-sided business models for digital gold mines.
What revenues for traditional Telecom Services and OTT services – 2007-2015?
If we compare revenues in telecom services and OTT services from 2007-2015, we can observe flat revenues for traditional telecom businesses being around 6bn EUR – in opposite OTT service revenues are skyrocketing to reach 1.7bnEUR in 2015.
Telecom Operators tend to open Digital Divisions in their corporations and it seems obvious that they tend to get a part of the pie in OTT businesses. But is war between pure OTT players and telcos inavoidable?
Beyond two-sided models: three-sided models!
It is easy to assume that by talking of ‘Telco vs OTT’, it is a simple question of these two sets of players battling it out to provide the same kind of services to the same set of users, and thus competing for the revenues which come attached to their service use (be it in the form of direct payment, advertising or any other model). However, the real picture is much more complex, often involving other sets of players, and there can even be models where partnerships between the telcos and OTTs exist.
When people hear the words ‘Telco vs OTT’, they picture this type of environment:
Source: IDATE
In fact, though, it is a three-sided business model; there are many parts to the ‘Telco vs OTT’ equation, as shown here.
Source: IDATE
The five parts of the Telco vs OTT equation
The five parts of the Telco vs OTT equation are outlined in the figure below:
Third part: Transformation of telcos into OTTs
The third part of the equation is what could be classed as the of telcos. Here, the telcos provide services which traditionally belong to the OTTs. For example, in the case of communications, as indicated in the figure above, Telefónica has launched TU Go and TU Me which are OTT communication apps; a similar approach holds for Orange with their Libon app. On a broader scale, the GSMA is pushing for joyn, using Rich Communication Suite enhanced (RCSe), which aims to provide for multimedia communication across operators with the same level of ease of use as traditional voice and SMS. But it is not only in communication services where telcos are providing OTT-style services. In the online video-hosting space, Orange has acquired Dailymotion; in the payment space, Telefónica is investing in Boku; and NTT DOCOMO is investing in Evernote in the cloud storage space.
Telco OTT initiatives in communications
Source: IDATE
Also notable is the way that some telcos have set up a ‘digital division’, with the specific target of discovering and innovating in new growth areas made possible by the digital age. Such new growth areas are often the segments in which OTTs primarily work, such as cloud, applications, video and media and advertising. Telefónica Digital is one such example.
Vincent Bonneau
Project Manager & Head of the Internet Business Unit at IDATE
To learn more on the other parts of the Telco vs OTT equation visit our website
Cloud Markets
Net Neutrality & 3-sided business models
Scorecard for the digital economy in 2012
Digiworld Yearbook 2013 : scorecard for the digital economy in 2012
DigiWorld markets took a hit in 2012, with growth dropping to 2.7% after two years on the road to recovery.
DigiWorld markets took a hit in 2012, with growth dropping to 2.7% after two years on the road to recovery. Meanwhile new online, or over-the-top (OTT), services continue to grow by around 20% on average—although, in terms of revenue, they are still outweighed by veteran solutions by more than 20 to 1.
Hardware markets have been the hardest hit, with growth dropping by 2.4 points overall in telecom, IT and consumer electronics (CE) markets combined. The first two are still in the black, thanks in large part to rising smartphone sales on the telecom front, and strong tablet sales on the IT front. CE hardware (audio and video equipment) is in bad shape, however. Television sales, which are naturally one of the market’s mainstays, are struggling to find a boost comparable to the one delivered by the introduction of fl at screens in the 2000s.
Services, meanwhile, have fared somewhat better, with growth rates of between 2.7% for telecommunications and 4% for television, by way of 3.8% for IT and software services. These markets outperformed hardware segments in 2012 and were far more homogenous. Yet there are still huge gaps in regional performance levels across the board (see next chapter).
Hardware markets gasping for air
At the end of 2010, we saw signs of concern in certain hardware segments—despite what had appeared to be a year of recovery by and large. PC sales were down, and the industry was already wondering what new products would help keep TV sales on the up (3DTV? Connected TV?). Results for 2011 were relatively reassuring, with sales continuing to rise in both the telecom and IT markets. Only consumer electronics was suffering, although not too badly. Still, 2012 proved a blow, with sales dropping virtually across the board, and pressure on prices largely eradicating any positive infl ux from users upgrading to new devices. TV sales were the hardest hit, and propelled the 7% drop in sales for the CE sector. Increased competition in the smartphone and tablet markets have also shaken things up in the other two sectors.
Services markets still holding on
When the recession was at its height in 2009, the boast was made that ICT services in general and telecom services in particular could weather any storm: there was much talk of resilience, no doubt thinking that, as with counterpart hardware, these services were not only able to take the blows but also to rebound, and find their way back to their initial trajectory. That was then. Although there is no denying a certain relative resistance, it now seems very unlikely that we will return at any point to the growth rates of the mid-2000s, and even less to the double-digit growth of the late 1990s. Or rather, that only a slim portion of services will—thanks to the explosion of new online services. Core veteran services, on the other hand, are up against a new set of pressures from these fledgling rivals: decreased value of telecom services, of customer relations for IT services, and of programming for TV networks.
About the Digiworld Yearbook
197 pages that deliver the finest market insights from IDATE experts who track the changes at work in the globe’s telecom, Internet and media industries throughout the year.
the DigiWorld Yearbook is published in English and French and available in print and PDF format. An iPad edition, developed by Forecomm, is also available.
The 2012 edition can be downloaded for free
The 2013 edition is available for purchase. Print: €99.99, incl. VAT; PDF and iPad: €54.99, incl. VAT
- You can have a look at the digiworld yearbook 2013, purchase it or even download the 2012 version for free at : www.digiworld.org/yearbook/
Next Gen Access in Europe
Christoph PENNINGS
Head of Regulation Practice, DigiWorld by IDATE
Next Gen Access: A primer to the European playing field
“Broadband has already been shown to boost productivity and economic growth with legacy xDSL and cable technologies”
IDATE has just released its latest report on “Next Gen Access: Regulation & Prospective”, providing a tour of the key issues regarding the deployment of very high speed Internet access in Europe: public policy, regulatory changes, technological developments.
“Broadband has already been shown to boost productivity and economic growth with legacy xDSL and cable technologies”, says Christoph Pennings, Project leader of this report. Today, ultra-fast broadband is increasingly seen as indispensable for businesses and residential users alike to fully exploit the potential of available services and applications.
Major change in the competitive landscape of Next Gen Access is expected
The competitive landscape will change significantly over the years to come. The technical and economic obstacles for potential unbundlers to overcome are very high. Physical LLU, today at the heart of broadband competition, will therefore lose ground to active 'virtual' unbundling and other Ethernet bitstream access products.
At the same time, competition from cable and 4G wireless networks could take a larger share of the broadband market than today. Cable players across the continent have upgraded their networks or are currently doing so. Cable-cos enjoy a cost-advantage over their telco rivals for making their networks fit for 100 Mbps and do not face sector-specific regulatory constraints.
With the deployment of LTE and notably LTE-Advanced, wireless networks are finally turning into serious contenders in the high-speed broadband market. Especially outside metropolitan areas, where the availability of FTTH/B and Docsis 3.x networks will be limited, wireless networks can take a leading role in the broadband market, provided that sufficient spectrum is available (which might require a the second digital dividend).
IDATE has developed four scenarios for reaching the Digital Agenda for Europe (DAE) targets for Next Gen Access
• The EU aims to close this gap and remains committed to attaining the objectives of its DAE. The DAE states that, by 2020, all European households shall have access to at least 30 Mbps and 50% of all homes will have actually subscribed to a100 Mbps offer.
• Upgrading access networks so that they can meet the DAE objectives will be a very costly exercise. IDATE has developed four scenarios for reaching the DAE targets, resulting in minimum costs which range between 51 and 229 billion EUR for the EU27.
Reducing upfront investments in Next Gen Access
Given the current economic context, telcos will find it extremely difficult to invest this kind of money in the next couple of years. Several ways of reducing upfront investments have, therefore, been envisaged:
• Shared infrastructure build-out is a key lever in this context, given that passive infrastructure accounts for up to 80% of total NGA investment.
• Open access networks with separate netcos providing non-discriminatory access to retail service providers are an option, which has already been implemented in Europe and elsewhere.
• Mutualisation of bottlenecks will have the effect of lowering cost (and risk), but offers the benefit of preserving a higher degree of infrastructure competition.
Other levers exist to bring down Next Gen Access deployment cost
Other levers exist to bring down NGA deployment cost and the EC has recently presented a draft regulation building on Member States' best practices, notably retaining four measures:
• new and renovated buildings shall be NGA-ready;
• other utilities shall meet reasonable demand for access to their infrastructures for the deployment of NGA;
• more transparency on planned civil works; and, finally, the burden of obtaining permits shall be reduced through there being a single point of contact for all related matters.
Regulation impacts
Regulation has a major impact on operators' incentives to invest as well as on the prospect of thriving competition in ultra-fast broadband markets. Over the years, the EC has published some key documents setting the framework for NGA regulation, such as the 2010 NGA recommendation. Another major milestone was the draft regulation presented in December 2012. The EC said it is aiming at keeping copper LLU fees stable and emphasising non-discrimination in the context of NGA. If Equivalence of Inputs is assured NRAs shall lift cost-orientation for NGA wholesale products.
Christoph PENNINGS
Head of Regulation Practice, DigiWorld by IDATE
c.pennings@idate.org
• Read more on IDATE Next Gen Access Regulations latest Market Insight
Africa and Middle East LTE forecasts
Frédéric PUJOL
Head of the radio technologies & spectrum practice, IDATE
70 million LTE subscribers for Africa and Middle East in 2016
As an official partner of LTE MENA 2013, IDATE delivers its latest insights about the LTE Market in Africa and Middle East.
LTE is gaining momentum: by 2016, there will be a total of 916 million LTE subscriptions worldwide. Our forecasts regarding Africa and Middle East are for 68 million LTE subscriptions at the end of 2016.
World LTE market : LTE deployments stepping up
• We expect that, by the end of 2013, a significant portion of LTE devices will support both FDD and TDD duplex modes. TD-LTE deployments in India, China and many other countries in the Asia-Pacific, Latin American, and Middle East regions and, to a lesser extent, Europe will fuel this growth.
• We anticipate that more than 80% of LTE devices will also support 3G and, in most cases, 2G in 2014.
• A limited number of LTE devices will support Mobile WiMAX in order to facilitate smooth transition for operators switching to TD-LTE.
Middle East & Africa : 70 million LTE suscribers by 2016
• The first LTE commercial services were launched in South Africa, Tanzania and Namibia in 2H 2012.
• Saudi Arabia: the three MNOs – Etisalat-Mobily, Zain Saudi Arabia and Saudi Telecom Company (STC) – launched LTE services in 2011. They were slowed down by the lack of compatible smartphones.
• Our forecasts are for 68 million LTE subscriptions at the end of 2016 in the countries of the Middle East and Africa for a revenue of 20 billion Euro.
Africa Middle East LTE Subscribers forecasts (thousand)
Source: IDATE
Frédéric PUJOL
Head of Mobile & Spectrum Practice at IDATE
f.pujol@idate.org
World Telecom Services
Carole MANERO
Project Leader, Digiworld by IDATE
Global telecom services market to reach over €1,200 billion in 2015
“We have observed that, overall, telecom services are recovering more slowly than the economy as a whole,” reports Carole Manero, head of IDATE’s Telecom Players & Markets report.
Montpellier, 7 May 2013 - IDATE reveals the findings of its world telecom services watch. After a setback in 2009 and very slight growth in 2010, the global market has been inching back to a more solid recovery since 2011, growing by a modest 2.7% in 2012. This translates into telecom services revenue of €1,115 billion for the year.
Now in a recovery phase, telecom markets in advanced countries are proving somewhat resilient, whereas in fast developing markets the increase in volume is so steady that the ripple effect far outweighs any structural obstacles. This phenomenon is telling of a mature industry now driven more by demographics than economics. In Africa/the Middle East, for instance, the drop in regional GDP in 2009 (-6%) and its rebound in 2010 (+16%) had very little impact on telecom services growth rates which remained very high both years: 8% and 9%, respectively.
World telecom services market - 2012
Source : Digiworld by IDATE
Majority mobile access
According to IDATE, the number of mobile customers worldwide should top the 8 billion mark in 2017 (+28.0% in 5 years).
• The number of Internet subscribers will grow more strongly (+37.3 % between 2012 and 2017, +6.5% per year on average), reaching 1 billion by the end of 2017.
• Traditional landlines continue to loose ground in the face of VoIP and mobile.
The spread of broadband
According to IDATE, the number of fixed broadband subscribers is expected to reach 957 million worldwide by 2017, for a penetration rate of 14% of the population. The number of 4G mobile subscribers should experience strong growth.
Two major factors will play in favour of the spread of broadband:
• The success of bundled offers (fixed telephony, VoIP, TV, mobile telephony) and the appetite for video applications.
• The investment of telecom operators in the migration of their infrastructures to mobile or fixed broadband.
Revenues from telecom services
According to IDATE, the global revenues from telecom services will grow from 1,115 billion in 2012 to 1,286 billion in 2017, representing an average annual growth of 2.9% in 5 years.
• Revenues from mobile services will grow by 18.7% between 2012 and 2017 (+3.5 % per year on average), reaching 779 billion EUR in 2017.
• Revenues associated with data transmission and Internet will grow more strongly (+32.8% between 2012 and 2017, i.e. +5.8% per year on average), to reach 329 billion EUR in 2017
• The turnover of fixed telephony will continue to decline significantly (-15.9% between 2012 and 2017, i.e. a decline of 3.4% per year on average), to be at 177 billion EUR in 2017.
Scalability of operators in emerging countries, even if the global top three remains unchanged since 2007
• A single change in the ranking of European operators: Telefonica overtook Deutsche Telekom in 2011: now the leading European operator, the Spanish group ranks fourth in the world.
• Chinese operators regularly win places in the world rankings
• Vimpelcom gained fifteen places in 2011 : Owing to the acquisition of a large part of the shares of Orascom Telecom and Wind, VimpelCom moved from 34th place in 2010 to 19th in the world in 2011
• Several operators from industrial countries "drop out": The Dutch KPN and Canadian ECB fell back by five places in two and a half years and drop out of the top 20
Classement des principaux opérateurs télécoms
Selon leur chiffre d'affaires au 1er semestre 2012 (milliards EUR)
Source : Digiworld by IDATE
Five operators in the top twenty worldwide for over 50% of their turnover outside their domestic market:
• Among them, three European operators...
- Vodafone: global operator widely present in Europe, Asia and Africa
- Telefónica: with a widespread presence in Latin America and in some European countries (UK, Germany, Czech Republic, Slovakia)
- Deutsche Telekom: present in Central and Eastern Europe and in several Asian countries
•...and two operators from developing countries:
- America Móvil: present mainly in Latin America (plus participation in Europe acquired in 2012)
- Vimpelcom: already present in Central Asia, with a new presence in Africa and Europe (Italy) thanks to the deal with the Naguib Sawiris group
Carole MANERO
Chef de projet, IDATE
c.manero@idate.org
More information about World Telecom Services
Interview with FRANK PILLER Aachen University, Germany / MIT Media Lab, USA
Published in COMMUNICATIONS & STRATEGIES No. 89, 1st Quarter 2013
Open Innovation 2.0
Co-creating with users
This issue of C&S analyses the thematic of open innovation with a focus on co-creation with end-users
Summary of this issue: Innovation has always been a central element of competition dynamics. During the last decades, globalization, deregulation, internet, new technologies, the digital revolution, and consumers' behavior have radically modified the innovation process and the competition structure. In many areas, the offer is rich and diversified: innovation is a unique opportunity to create competitive advantages necessary for growth. Among the general topic of open innovation, this special issue focuses on users' involvement in the innovation process. It offers a collection of papers providing interesting opinions, experiences, advances and evidence.
Exclusive:
Interview with FRANK PILLER
Aachen University, Germany / MIT Media Lab, USA
Conducted by Anna Maria KOECK
ZBW – German National Library of Economics, Hamburg, Germany
C&S: Why are you interested in open innovation?
Frank PILLER: We today know that the time of the sole Schumpeterian entrepreneur is over. While there still are examples of individuals making great innovations on their own, today successful innovation is a team game.
This is not new per se. But with the internet, a number of new tools and interaction possibilities have been made possible supplement traditional forms of external partnerships in the innovation process. When I refer to open innovation, I am not talking about contract research, supplier innovation, research alliances, or market research. Open innovation in my understanding builds on new, crowdsourcing-based methods that connect an innovating firm with "unobvious" other, people that are not in its regular list of partners or in its own industry.
The core idea of open innovation is to work with an organization or with someone you didn’t know previously. When you have a problem to solve, you make it known, circulate it - whether on a large scale or by going through specialized channels like Innocentive or NineSigma.
And thanks to large network effects, going through this type of channel is not expensive any longer, we are talking about project fees of 20,000$ or less.
Is open innovation more relevant than ever?
Definetly, I’d say yes. Technologies have evolved so much that companies need help if they want to keep up. You know, whether you are a very large or a small company, customers now ask for solutions, not just products. But when you sell solutions, you need more expertise and knowledge. The outsourcing mentality is well established in the manufacturing sector. In Germany, for example, open innovation is becoming popular the moment, as we have a lot of trouble recruiting engineers.
What type of company can open innovation apply to?
Most of the present users are manufacturing companies, particularly multinationals. Companies like Unilever and Procter&Gamble, which constantly have to bring out new products and have been pioneers in open innovation. Similar in the pharmaceutical industry where research is very expensive and highly complex. Car manufacturers have been reluctant for a long time, but I think this is slowly changing. The sector which, in my opinion, would benefit from using open innovation is small and medium enterprises. SMEs have far fewer resources for innovation and often lack the time to tackle it. And I strongly recognize a growing interest from this sector today.
Is open innovation a business imperative yet? What would happen if companies continue to remain closed and locked into the traditional way of generating ideas and products without external collaboration at the society level?
Well, I would say truly closed innovation is not possible anyway. All innovation built on existing knowledge and some form of networking. But the term open innovation suggests that a company build dedicated practices to make the connection with the best external knowledge for a given innovation task better and more efficient. So for me, open innovation is not a business imperative, but a set of practices and organizational capabilities to connect with a firm's periphery for innovation.
Having said this, however, our research finds that companies need a dedicated balance between openness and closeness (Look for more at http://ssrn.com/abstract=2164766). Being too open also comes at a cost, and firms need to build dedicated internal organizational practices to become more open.
Customers are often considered the most important source of external input for innovation. But is this really true? As proven in many idea contests, great ideas come from the "common man" or outsiders. How can a company engage with these users?
Here we have to make an important distinction. Research, originating by the path-breaking work by Eric von Hippel at the MIT, has shown that many commercially important products or processes are initially thought of by innovative users rather than by manufactures. Especially when markets are fast-paced or turbulent, so called lead users face specific needs ahead of the general market participants. Lead users are characterized as users who (1) face needs that will become general in a marketplace much earlier before the bulk of that marketplace encounters them; and (2) are positioned to benefit significantly by obtaining a solution for those needs.
But lead users are NO average customers or users. There are only very few lead users. Average customers are in general neither innovative nor do they want to engage in innovation. Hence, it is the task of a company to identify these lead users by specific search and screening methods. There is not enough space here to describe these methods, but they are very well documented (look at Eric von Hippel's MIT homepage for some examples).
And ideation contests indeed are a great way to engage with "unobvious" users and idea providers. A company broadcasts a task or challenge, calling for ideas, and users self-select to participate. In this way, it are not representative customers like in market research or focus groups who provide input, but people that really have a problem or already a solution.
In a way co-creation can be defined as outsourcing idea generation to the society. What is your exact definition of this concept? And what is the main benefit for companies?
Customer co-creation has been defined by us as an active, creative and social process, based on collaboration between producers (retailers) and customers (users). Customers are actively involved and take part in the design of new products or services. Their co-creation activities are performed in an act of company-to-customer interaction which is facilitated by the company. The objective is to utilize the information and capabilities of customers and users for the innovation process.
The main benefit is to enlarge the base of information about needs, applications, and solution technologies that resides in the domain of the customers and users of a product or service. Examples for methods to achieve this objective include user idea contests, consumer opinion platforms, toolkits for user innovation, mass customization toolkits, and communities for customer co-creation.
The main benefit for companies is to enhance the "fit to market", but also to engage in a more interactive, engaged relationship with their customers and users – with great effects for relationship marketing!
Being open about problems are not yet a norm in the market place, where companies are conversing predominantly about what they know, more than what they do not know. What are your comments?
Good question! This indeed is one of the largest challenges we see in the field today. Many companies know about the tools or methods to co-create that I named previously. But they are not ready to internally exploit the knowledge generated with their customers and users. Here I believe we still need plenty of change management to change this mind-set you mention!
This is a field where I believe we also need more research. Firms need more information and better guidance on how to assess whether their organization and branch is suited for customer co-creation. This information is crucial in order to build specific competences that aid firms in identifying opportunities and ultimately in using the right method. Managers need a clear picture of their own organizational settings and capabilities before being able to answer important questions during the implementation of one’s own customer integration initiative. This could include answers to questions like how innovation projects have to be reorganized, which kinds of projects are suited for customer integration and how the internal development processes have to be adjusted in order to allow optimal customer integration.
The internal readiness of companies – such as having a co-creation team/department, methodology, etc – is often lacking in companies that spend huge sums on co-creation projects, which are mostly managed by corporate communication departments or marketing departments. Do you advocate the formation of a multi-disciplined co-creation team that can do the job of creating, running co-creation projects? Is it not an exclusive, specialized professional/managerial skill – like branding, marketing, finance – by itself?
Yes, you already provided the answer by yourself. The problem, however, is that there are still very few companies that have such a co-creation team in place, many even don't have one functional manager taking care of the initiative. But this will change, and I think that the first organizations are building exactly these interdisciplinary teams you are talking about.
What is the link between the success of a co-creation project and the performance of the base product or initiative?
To answer this interesting question, we only have anecdotal evidence that co-creation provides value. But large scale quantitative research is lacking. However, I know that several researchers are just in the progress of conducting this research, and so I hope that in a few years or so, we will get a better answer on the performance effects of co-creation. A very first study recently has been published by Martin Schreier from WU Vienna, and he found together with a team from Japan, using data from a large Japanese retailer, that indeed user-generated products are much more profitable than internally created products (more at http://tinyurl.com/ae2bu6a). And I personally have seen many companies profiting from co-creation, if it is executed correctly and the results are used internally in the right way.
Biography
Frank PILLER is a professor of management and the director of the Technology & Innovation Management Group at RWTH Aachen University, Germany. He also is a co-director of the MIT Smart Customization Group at the MIT Media Lab, USA. His research focuses on innovation interfaces: How can organizations increase innovation success by designing and managing better interfaces within their organization and with external actors. This stream of research includes topics like value co-creation between businesses and customers/users, strategies to increase the productivity of technical problem solving by open innovation, and models to cope with contingencies of the innovation process. Frank Piller's research is supported by grants from the European Commission, the DFG, BMBF, and other institutions. He has consulted and delivered executive workshops for many Dax30 and Fortune500 companies. As an investor, member of the Board of Directors or as a scientific adviser of several technology companies, he transfers his research into practice.
Published in COMMUNICATIONS & STRATEGIES No. 89, 1st Quarter 2013
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