CEO, IDATE DigiWorld
How to keep up with the fast-paced changes in our industries without being buried by the avalanche of news which, every day, urges us to read about some new important disruption? On a more practical level, how to gain access to vital data, benchmarks and preliminary independent analysis to begin planning a project or considering a market?
Thanks to its teams of highly qualified consultants and analysts, IDATE DigiWorld is able to deliver a complete set of telecoms, Internet and media market watch services.
I hope you’ll allow me to use this month’s editorial to highlight how invaluable these services can be, taking as examples three reports on timely and crucial topics that were published by our teams this summer:
• How much importance should be given to pioneer user experiences and the first LTE plans for fixed services? This report that was just published by Carole Manero ("LTE for fixed access: the next big thing ?") takes a look at the factors that make for a more credible solution after the failures of LMDS and WiMAX… but also taking into account Google’s recent announcement that it could be scaling back spending on Google Fiber projects in the US, to focus instead on wireless solutions, and the news that AT&T and Verizon do not have the national carrier status when it comes to deploying LTE or even 5G fixed wireless products, based on early trials.
• Sport: live TV’s last bastion? Florence Le Borgne seeks to answer this question in her report entitled, ("Sport content: TV vs. OTT") – analysing the impact of skyrocketing TV rights resulting from competition between TV networks, competition from VoD and the Internet giants’ growing ambitions.
• Should we expect an end to telecom market consolidation in Europe? In his report ("Telecom consolidation in Europe: toward new challenges?"), Christoph Pennings takes a look back at in-market mergers and acquisitions of recent years, and explores the paradigm shift created by (notably fixed-mobile) convergence deals, but also policy changes coming out of Brussels.
I could just as easily have cited several reports that are currently in the final production stages, on IoT, Industry 4.0, the new generation of LEO satellites, blockchain, FTTH rollouts around the globe… For more information about these upcoming reports, and our complete catalogue, visit the IDATE DigiWorld website, or contact our head of sales (firstname.lastname@example.org) or the consultants listed earlier.
PS: -"Yves Stourdzé, explorateur et éclaireur des mondes à venir": Some of you may have noted that IDATE’s headquarters are located on "allée Yves Stourdzé". Yves, an academic who was appointed Director of CESTA (Centre for the Study of Advanced Systems and Technologies), was among those who believed in IDATE’s development and supported us in our early days. Following a symposium in Paris on his work, held at the Ministry of Research, I urge those of you who are French speakers to acquire the book entitled: "Yves Stourdzé, explorateur et éclaireur des mondes à venir" – providing insights into the man and analysis of his work, through contributions from 25 personalities. This same publisher (Sens & Tonka, www.sens-tonka.net) will also be soon releasing a new edition of the main works of Yves Stourdzé.
Director of Studies, IDATE DigiWorld Contact
Fixed LTE will be definitly part of the game: by the end of 2020 we forecast, overall, almost 5 billion LTE SIMs worldwide or 78% of total SIMs.
The fixed-mobile convergence has been trending for years. The opportunity to use LTE and its evolutions as a solution for providing high-speed Internet access at fixed locations has raised generated much interest in the last two to three years.
The use of LTE for fixed access makes sense. The elements to make adoption possible are there. Throughputs delivered over LTE are on par with fixed ones or are expected to be on par in the medium term. Population coverage is almost universal and will continue to increase to cover hard-to-reach areas. LTE fixed monetisation without any data caps is another valuable asset. All the lights will be on green when coverage reaches rural areas thanks to low spectrum use or to government push.
On the technological side, fixed LTE holds many virtues over WiMAX, satellite, mobile LTE or XGP/AXGP technologies even if there are no real specificities to fixed LTE when it comes to standard.
• Fixed LTE networks are basically just LTE networks addressing fixed users. Fixed LTE retains mobile LTE advantages in terms of throughputs/capacity and latency. Population coverage is likely to remain a weakness. It is not really a different technology from mobile LTE but it is to be implemented in very different ways when it is provided as a fixed-only technology or as a complement to a mobile network. Other fixed LTE advantages include:
• Higher power emission levels than for mobile LTE leading to improved signal quality.
• Mobile LTE is mostly operated on FDD mode and on TDD for fixed LTE. Fixed LTE could be mostly operated on TDD mode which is better suited for providing Internet access than FDD. Higher frequencies considered for fixed TDD LTE notably in 3.5 GHz, 2.3 GHz and 1.4 GHz bands or in very high frequencies necessitate heavy deployment of small cells for blind-spots coverage and the use of satellite to handle tightened backhaul issues.
• Hybrid solutions combining xDSL and LTE show similar strengths to fixed LTE with slightly higher latency. They are gaining traction with some commercial launches in Europe.
• Satellite and especially new LEO satellite constellations can likely offset the relative weakness of fixed LTE in terms of population coverage.
Favourable market dynamics have pushed a number of players to jump onto the bandwagon. They aim at either enlarging their customer base, giving a boost to revenues (MNOs, integrated players, satellite), or taking a chance to remain a market disruptor and eating into mobile revenues (OTT), or at repositioning themselves in case of an upturn (LMDS players, PHS or WiMAX providers and CDMA2000 450 MHz players). CDMA2000 players are migrating towards LTE in the 450 MHz band. Former PHS (Japan) or WiMAX providers also see real opportunities in shifting towards fixed LTE. Manufacturers offer fixed LTE solutions to meet market demand and help operators close the gap between investment and returns.
From a commercial perspective, the door is open for fixed LTE as a mid-term solution whose business case however is rather limited in developed countries, mainly focused on connecting the un- or under-connected in rural areas. In developing countries where fixed broadband is really limited, the market for fixed LTE is more promising.
Interview with Jean-Hervé LORENZI
Chairman of the Pole of Competitiveness "Finance Innovation"
Conducted by Yves GASSOT CEO IDATE DigiWorld and Maximilien NAYARADOU, Director of R&D projects,
Pôle de Compétivité Mondial Finance Innovation
DW Economic Journal: Finance vs. FinTech, where are we seeing innovation today?
Jean-Hervé LORENZI: Without a doubt, it is new entrants in what is commonly referred to as FinTech that are driving innovation today. FinTech start-ups are the myriad micro, small and medium businesses that combine information technologies and finance, and are coming to disrupt a sector that has long been protected by regulation. FinTech innovations range from new payment systems that make it possible to decrease the cost of digital transactions, to new financing platforms: crowdfunding of course, but also seed capital, stocks, robo-advisors that digitise financial consulting, blockchains that lower the cost of certifying transactions by decentralising the process, and of course the plethora of digital services that FinTech companies are ushering in: account aggregation, generating coupons based on individual shopping habits, etc. Added to this are the myriad possibilities opened up by big data: extra-financial analysis that, at last, selects financially-relevant variables and helps expand the range of enterprises that have access to financing.
But it should also be said that, even if FinTechs have the momentum on their side, traditional finance industry players are also innovating, albeit at a slower pace: the pace of private bureaucracies and as a defensive measure, but innovating nonetheless. Regulatory pressure is stepping up, and it seems safe to predict that the rate of innovation inside banks and insurance companies will accelerate… naturally with the help of FinTechs.
The Finance Innovation competition cluster, of which I am the president, is at the very heart of these changes in the financial sector. Twice a year, we give our seal of approval to 50 innovative projects, most of which are FinTech projects, and so coming from micro, small and medium businesses, but we also give our seal to projects from the sector's larger enterprises that are seeking to promote new products that are innovative, strategic and reliable. Lastly, we extend our seal to collaborative projects driven by FinTechs, large corporations and academics, projects eligible for public subsidies aimed at encouraging players to work together to innovate. The Finance Innovation competition cluster is the only structure in France that centralises finance-related innovations of all kinds – technological or service-centric – and regardless of the entity behind the endeavour: FinTechs of course, but also large corporations and academics.
What are the different views on competition between FinTech companies and veteran market players? Is FinTech not synonymous with disintermediation?
Veteran players have their own set of assets, including their market power and immense size, especially in France, which enable economies of scale and create real barriers to entry. FinTechs are small and in some cases tiny companies. But veteran players' strengths are also their weaknesses: their large size also means a heavy bureaucracy that paralyses initiative and agility.
We should also point out that, when competing with incumbents, FinTechs have the prevailing wind of financial disintermediation in their sails. Of course, these are two separate phenomena, but they do feed and foster one another. The high-speed digitisation of the financial sector is helping to bring down market entry costs for newcomers, and the cost of disintermediation. Disintermediation allows assets managers and insurance companies to finance companies directly, without having to go through the banks, and allows crowd-funders to do the same. Disintermediation opens up the market for FinTechs, digitisation makes it possible to roll out a solvent product with very little capital, contrary to insurance companies and assets managers. FinTechs are also entering the realm of shadow banking, this non-banking form of finance that is developing and, when properly regulated, contributing to funding the economy: crowdfunding, seed capital platforms and online factoring are all part of the shadow banking phenomenon.
Does Europe lag behind in the area of FinTech and innovative financial solutions? What differences do you see between the situation in France and Europe from the one in the United States or in Asia?
It is not Europe that is lagging behind, but rather the Eurozone. The United Kingdom is absolutely not lagging behind: prior to the Brexit vote, London was Europe's FinTech capital. Compared to the US and even the UK, fundraising levels in France are still quite meagre, despite a significant increase in both frequency and volume since the end of 2014: €1.2 million on average, compared to €5 million in the UK and well over that in the US. Of course, this can be explained by the very limited development of investment capital in France, compared to English-speaking countries.
Next, government intervention in start-ups and innovative companies is very efficient: in the US and the UK, the public sector takes far more risks of losing money and in financing businesses with little or no funds of their own, so public subsidies have a far greater impact there than in France. Added to which Anglo-Saxon governments and regulatory authorities are very FinTech-friendly: the Bank of England has an office dedicated to FinTechs which helps remove the regulatory barriers to their entry into the market. A FinTech bureau was created in France as well, but several years after the one in Britain. Another very important example is that the UK equivalent of BPI France (France's public investment bank) has financed crowdfunding platforms so that they might distribute funding to SMBs, which gave the sector an enormous boost. Plus, in both the US and the UK, relations between SMBs, large corporations and the State are regulated, and a percentage of the federal government's (under the Small Business Act in the US) and big businesses' procurements must be from small businesses, which guarantees a minimum set of opportunities for start-ups. In the financial sector, the banks thus have a very practical incentive to work with start-ups. The positive and pragmatic ecosystem that we find in English-speaking countries made investments in FinTechs profitable much more quickly, so investors were quicker to invest heavily, which helped perpetuate a virtuous circle.
We should nevertheless point out that, inside the Eurozone, France in general (thanks French Tech) and the Paris exchange in particular, are in an especially strong position with respect to FinTech, compared to Germany or Italy. For instance, France has had crowdfunding legislation in place since 2014, which provides the sector with a secure framework and is allowing it to develop in a healthy, controlled fashion, which is not the case in the other major Eurozone nations. Moreover, France and the Paris exchange in particular have a sizeable advance in terms of R&D; France is a global leader in the areas of Big Data (France was the birthplace of data mining, Big Data's predecessor, back in the 1970s) and of artificial intelligence. Not only do France and the Paris exchange have considerable R&D assets, but France in general and the Paris region have a concentration of FinTech entrepreneurs, and a tremendous intensity of entrepreneurial creativity. Lastly, listings on the Paris exchange include the largest banks, assets managers and insurance companies in Europe. If they are quick to embrace the digital transition and learn to work with FinTechs, the Paris exchange will have all the assets needed to catch up to London.
Is banking and financial regulation an impediment to FinTech's development in France? And, looking at it from another angle, could FinTech weaken a financial system that public authorities and market players have been working to strengthen since 2008?
Regulation in France, which is very strict when it comes to protecting investors and consumers, increases the cost of entering the market and, as a result, favours incumbents. It took several years for France's financial market regulators, ACPR and AMF to decide to open up a dedicated FinTech office. Added to which, once open, the FinTech bureau did not follow the more FinTech-friendly sandbox approach taken by regulators in English-speaking countries. The sandbox approach consists of relaxing regulation temporarily to be able to test the relevance of a given innovation and, at the same time, of existing regulation. France's FinTech regulator refused the sandbox approach, which means that FinTechs are not exempt from existing regulations, even when testing new products.
FinTechs are still too small to upset the balance of the financial system, but we can also point out that it is the Base III, Solvency II, MIFID et. al regulations introduced since 2008 that enable FinTechs to emerge as alternatives for the financial sector's clientele. The capital constraints that have been mandatory since 2008, and which limit the banks' leverage, have paved the way for solutions such as peer-to-peer lending and crowdfunding to develop.
What scenario does the prospect of no more cheques and especially no more cash evoke for you?
This, in fact, means the end of paper money, since blockchain technology allows us to imagine the existence of digital cash, in other words a digital currency but one that is anonymous and traceable like cash. Bitcoin is to some extent a form of digital cash, but it carries the baggage of a bad reputation due to its use on the Dark Net (i.e. non public corner of the Web). There will always be a demand for a portion of transactions to remain anonymous, without implying criminal activity. When central banks start to use blockchain, digital sovereign currencies will emerge, which will be a sort of pegged exchange rate Bitcoin, like all sovereign currencies, but which would be tied to a central bank.
Can you tell us a bit about the Finance Innovation competition cluster? And what the cluster believes are the key issues facing financial market innovation today?
The Finance Innovation cluster has over 350 members: FinTechs, major banks, insurance companies and assets management companies, as well as academics, working together to disseminate a culture of innovation within the financial sector, and to accelerate the development of innovative projects in the sector that take on economic, societal and environmental issues, in the service of growth and job creation.
Finance Innovation holds two seal of approval ceremonies a year, recognising innovative FinTech start-up projects – although not confined to start-ups as the seal can also be awarded to innovative projects from large corporations in the sector, as well as collaborative projects between corporations and academia. A total of around 100 projects are awarded the seal of approval each year, through these two ceremonies. The goal is to obtain private (private fundraising) or public financing (BPI France, regional financing, innovation clusters for the trades (PIA), Single inter-ministry fund (FUI)….) and to promote innovative solutions through the cluster's YouTube channel, publishing articles on Hello Finance, use of social media, etc.
The Finance Innovation cluster is also synonymous with experimenting, testing, disseminating and promoting innovative financing solutions for micro, small and medium businesses, within the sector itself across the whole of France, and in other sectors through 70 other competition clusters.
Lastly, the Finance Innovation cluster means roadmaps for finance industry innovation. To establish these roadmaps, which are published in the form of White Papers, we work in concert with large corporations, FinTech start-ups and academics to determine which areas of innovation are priorities, and to identify future catalysts of growth. These White Papers allow us to structure innovation in our domains of expertise, and to provide the State with tools for selecting the innovative projects to subsidise. In 2016, we are publishing a White Paper on innovation in retail banking, which will be followed by two more in 2017: one on innovation in the accounting and consulting professions, and one on innovation in e-health and prevention.
Innovation in the finance industry today is coming from FinTech, in other words from technologies that are enabling the creation of new innovative and high value-added services. And let us not forget that FinTech also encompasses InsurTech, which adds connected objects, on-board systems and security issues to the mix. It is this entirely new framework that is revamping the insurance sector, as new data are available and challenging actuaries' classic risk models. The public at large tends to focus more on FinTech and the banking sector even though, thanks to InsurTech, the insurance sector is in the throes of an equally dramatic upheaval.
What do economists believe are the real stakes of the financial sector's digital transformation, in terms of economies' competitiveness, growth and job creation?
English-speaking countries have fully embraced FinTech: a shift that will allow the sector to enjoy gains in productivity, and create economies that are more competitive in terms of financing. FinTechs expand the range of what can be financed, which is something that States and the sector's regulators need to understand. On the other hand, we should not have any illusions: the prospects for job creation are strong, but so are the prospects for job destruction. Thanks to the use of digital technology, FinTechs will enjoy enormous productivity gains: over the long term, thousands of back-office jobs in banks, teller jobs and financial consultant jobs will be destroyed. The banking sector is tomorrow's steel industry. We find the classic dilemma of Schumpeterian creative destruction: a great many jobs will be lost and a great many created, but which will outnumber the other? The jobs that will be lost will be low skilled ones, while the ones that will be created will be jobs for the highly skilled: engineers, doctors, data scientists… This could further exacerbate inequalities: unskilled workers will have trouble finding a new job in the digital economy. So, to meet the challenges in terms of training, upgrading skills and making the transition to the digital economy, substantially more public monies will need to be invested in these areas to limit the negative impact of increased inequality, and the difficulties of vocational reconversion for the least skilled workers.
Jean-Hervé LORENZI, Major at the Agrégation des facultés de droit et sciences economies (Faculties of Law and Economics) in 1975, is Chairman of the Cercle des économistes (the famous circle of French economists), holder of the Chair "Demographic Transition, Economic Transition within the Fondation du Risque (Foundation of the Risk)" and Chairman of the Pôle de Compétitivité (Pole of Competitiveness) "Finance Innovation". He is a member of the Board of Directors of the Edmond de Rothschild France Group, of the supervisory board of Euler Hermes and the Boards of directors (board meetings) of the Médéric Alzheimer Foundation, the IDATE and the BNP Paribas Cardif. He was Professor at the university Paris-Dauphine and the member of council of economic analysis. He has notably published: Un monde de violences. L'économie mondiale 2015-2030, Paris, Eyrolles, 2014; Rajeunissement et vieillissement de la France (with J. Pelletan and A. Villemeur), Paris, Descartes & Cie, 2012; Droite contre gauche, (with O. Pastré), Paris, Fayard, 2012; Le fabuleux destin d'une puissance intermédiaire, Paris, Grasset, 2011; Le choc des populations: guerre ou paix, (in collaboration with P. Dockès), Paris, Fayard, 2010.
Director of Studies, IDATE DigiWorld Contact
European telecom services market (nearly +€300m YoY 2016/2015) seems bound for a modest recovery after revenues had fallen every year since 2008. All the same, operators in both fixed and mobile arenas will continue to be motivated to seek further market consolidation.
Given the fragmented market, economies of scale are very low and competition, notably on prices, is extremely intense. Low margins are undermining operators’ capacity to invest in upgrading their infrastructure.
In addition, the lines between fixed and mobile markets are blurring. Much of the traffic generated by mobile devices is channeled through fixed networks, while mobile networks need ever more fibre in the backhaul to handle growing traffic flows. Convergence has also become a commercial reality.
After the European Commission had given its go-ahead to the proposed mobile mergers in Austria, Germany and Ireland, the way seemed clear for further in-market consolidation.
That outlook has changed quite significantly with Margrethe Vestager becoming head of DG Competition: the bar for obtaining approval for in-market transactions seems noticeably higher since. Today, it seems certain the EC will insist on structural measures leading to the entry of a fourth MNO in order to approve a 4-to-3 merger.
Even if the road towards more consolidation in the mobile sector was blocked and the potential for fixed-mobile convergence exhausted, it does not follow that the industry structure will stay unchanged. There could be more transactions of limited size, as in the move of the Italian energy group Enel to acquire Metroweb and invest 4 billion EUR in FTTH infrastructure. Cross-border consolidation could be another option. Instead of integrating horizontally, telcos could also focus more on vertical M&A in, for instance, the media sector.
Florence Le Borgne
Head of the TV & Digital Content Practice, IDATE DigiWorld Contact
As the number of TV channels has exploded over the past several years, acquiring premium content has been one of the key strategies used by TV networks to distinguish themselves.
At the heart of this coveted selection of content, sport has enjoyed a spectacular increase in the amount that broadcasters are willing to pay to carry it. If this is especially true of major league sports and events, secondary ones are also capitalising on the boon, thanks to new generalist and sport channels providing new outlets.
In recent months we have also seen top Internet players display a growing interest in acquiring the rights to live streaming sporting events both nationally and internationally, either by acquiring the rights directly or by forging partnerships with rights owners. Whether to increase their user base or to a secure the loyalty of existing users, YouTube, Yahoo!, Twitter, Facebook and Amazon all plan on establishing themselves as key partners in distributing and monetising sport.
This newfound competition only exacerbates the one that already exists between heavyweight telcos, some of whose content policies focus purely on sport (Cf. Proximus) and some which include sport amongst a wider array of content (Cf. Altice/SFR). The amounts spent by these companies have often enabled them to increase their IPTV customer numbers and/or their ARPU, but have also contributed to an unprecedented spike in the price of sports rights, which makes it harder and harder to break even, especially in a universe populated by a growing number of rivals.
As the price of sport content drives up programming costs, traditional TV channels are being forced to adapt:
• Veteran general-interest channels are choosing to cut back on their acquisitions and concentrate on a few flagship events, and to use these major events to showcase their technological savvy and their ability to innovate.
• New TV channels are not looking to compete head on, but opting instead for the rights to events that are exploited very little or not at all elsewhere, which enables them to build a reputation at a price that is in line with their budget.
• The equation is becoming increasingly challenging for the major specialist channels, which are forced to up their bids for the major sporting events that are essential to their brand image, but are also the victims of growing competition and of cord-cutting. Their subscriber numbers are shrinking while programme acquisition costs are rising exponentially. If online distribution (Cf. Sky) and the search for partners to distribute a complete sport package (Cf. Canal+/beIN Sports) are some possible solutions in the current climate, one of the main challenges is to negotiate lower rights acquisition prices.
If OTT will probably take hold over time as a credible solution for broadcasting sporting events live, there continues to be a plethora of technical issues surrounding the distribution of video streams with higher than average quality. For now, OTT distribution can only compete economically with broadcasting (in MPEG-4) when streaming to several thousand users. So it is still an interesting option for supplying bonus content, but not as a replacement solution, especially when it comes to major sporting events.
What is being built today is essentially a bridge between broadcasting and OTT in terms of:
• countries covered;
• available content;
• the ability to show a wider variety of sports;
• enhancing the viewing experience.
A lot of (digital) ink has been spilled since Verizon announced that it would be taking control of Yahoo! (except for its patents and shares in Alibaba and Yahoo Japan), including stories tracing the company’s history, and history of missed opportunities.
The most interesting question in all of these commentaries is the following: Will being part of Verizon equal revival for Yahoo!, even though major overhauls in strategy and management over the past decade did not manage to narrow the ever widening gap that separated it from Google and Facebook in the online advertising market?
Some of the explanations being put forth for the deal include the technologies and content resulting from the acquisition of AOL last year, along with several other deals, agreements signed with studios and sports federations, as well as the launch of the Go90 mobile video service. The additional technical expertise and content will probably allow the newly expanded conglomerate to increase its market share by a few points, but not much higher than 4% to 5% for the online advertising market, which still puts it very far behind the combined 50% share enjoyed by Google and Facebook (and around 70% when looking at the mobile Internet alone). But the future Verizon does have other assets, not least the telcos’ roughly 115 million mobile customers and 20 million wireline subscribers.
Can telcos turn the tide on decreasing revenue with new business models?
Taking a look at another challenge that does not pertain so much to the future of Yahoo! but rather the future of telcos in general. Here is the question: can telcos turn the tide on the growing trend of shrinking revenue with new, more content and advertising-centric business models? Even if Verizon is one of the world’s most successful telecommunications businesses, with remarkably healthy margins, its revenue appears to be on a downwards trajectory due to competition (T-Mobile), a sudden slump in the replacement rate and dwindling subsidies for smartphones, along with cable’s supremacy in the consumer fixed market in the US.
The oft-cited competition from OTT services and players is a questionable argument when we see that the mobile sector in the United States continued to grow up to 2015, well beyond the time when the GAFA quartet took control. While it is true that Netflix, Amazon and Hulu may have a negative impact (cord cutting) on fixed service revenue, the impact is limited given the TV revenue earned by a telco such as Verizon. On the other hand, the creativity and popularity of OTT services, and especially video services, is translating into heavier use of fixed and mobile broadband services, demand for faster connections and a massive increase in traffic. Fundamentally, these are opportunities for telcos to generate additional revenue, even if it does require continual spending on their networks.
When contemplating the delicate equation of how to monetise 4G and fibre access, telcos can seek out complementary solutions in content or by monetising their relationship with customers through advertising and data markets in general. We can substantiate this hypothesis by pointing to the Verizon acquisitions listed earlier, but also the much larger deal orchestrated by AT&T last year when it took control of the country’ second biggest pay-TV provider, DirecTV. But if we stick to only these two operators, it could be said (and rightly so) that few other M&A deals are available to them, since antitrust authorities are against any further consolidation in the mobile market.
What assets can telcos leverage to become key content market players?
The first thing that usually comes to mind is telcos’ role as pipes, in other words the suppliers of the technical infrastructure that carries programmes to consumers’ homes. This argument needs to be put in perspective, however, at a time when there is real competition over access and net neutrality rules are being put into place. Still, telcos do have credible assets in two areas.
• First, if they are massive enterprises with tens of millions of customers, they can hold their own against veteran TV networks when bidding for TV rights and exclusivity deals, thanks to their ability to amortise their spending both through their subscribers but also through marketing if they enjoy an image boost and increased market share for their core business. Here it is nonetheless worth mentioning that, in terms of economies of scale, the most powerful pure OTT players have an almost global footprint, which gives them a clear edge over telcos.
• The second argument in favour of telcos is their relationship with their subscribers, their sales network (and especially their shops), the quality of the ecosystem they provide through user interfaces and network boxes, and of course the information they have that provides them with detailed knowledge of their customers. By way of illustration, we could say that even if Netflix does not need to be listed in telcos’ interface to exist in a national market, it can certainly help. On this second point, telcos have a clear advantage over broadcasters or pay-TV providers that have no return path that would enable them to target customers. It is less of an advantage compared to OTT companies that have managed to develop a model that generates relevant consumer data. Telcos still need to prove their ability to be serious rivals for Google and Facebook in the online advertising market. But it also remains to be proven that telcos’ ability to monetise their data requires investments in content.
To sum up, even if telcos want to complete the tiering and differentiation strategies used to monetise their access products with substantial revenue from content and advertising, they need to be very big (which could also be seen as an argument in favour of cross-market consolidation deals) to stand up to the growing globalisation of the rights market, and find ways to monetise their customer data without losing their customers’ trust.
Laurent Michaud Head of Consumer Electronics & Digital Entertainment Practice
This dynamic is explained primarily by the regular growth of mobile gaming and online gaming segments and a new category, virtual reality (VR).
Distribution of the global video game market per segment, 2016 and 2020
Traditional gaming segments outpaced by competition in games online and on mobile platforms
The traditional video game segments are losing influence quickly...
Games on household consoles accounted for 41% of the total market in 2016 and only 25% in 2020, a sharp drop from 2008, during the launch phase of the previous generation (78%).
Games on handheld consoles will represent 10% of the global market in 2020, compared with 6% in 2016 and Offline gaming on personal computers continues its decline.
... Due to the major success of the online computer games and mobile gaming segments
An average annual growth of 15.5% between 2016 and 2020 for tablet games and 10.2% for mobile games, compared with 9.6% for the whole of the video game market. The share of online computer games is in slight decline, representing about 18% of the total video game market in 2020. The rapid growth in tablets is explained by the enhanced gaming experience due to touch screens larger than those of smartphones.
Otherwise, the share for virtual reality (VR) will grow quickly to reach 18% of the videogame market in 2020.
Competition in terms of "Time Budget"
Although the gaming experiences in the various market segments differ, the players have a limited time budget. They therefore need to choose one platform over another depending on their interests or situation.
Over 70% of the revenue from the video game market in 2016 is from dematerialized distribution and online payment practices
In 2016, 71% of video game market revenues came from dematerialized sales (on smartphones, connected home and handheld consoles) and online pay practices (item selling, subscriptions, and commissions on foreign exchange transactions). In 2020, this share should rise to nearly 89%.
The software market for dematerialized games will display an average annual growth of 12.8% between 2016 and 2020, although the value of the physical game software market should be slightly lower.
All segments are affected: home and handheld consoles are also engaged in an unstoppable race down the road to dematerialization.
Find out more about dematerialisation in video game industry, new strategies and organisation as well as forecasts and shifts in the value chain in our dedicated market report
"Mobile dynamics: the path to 5G"
DigiWorld Economic Journal n°102
Interview with Martin FRANSMAN
Professor of economics, Founder-director of the Institute for Japanese-European Technology Studies, University of Edinburgh, United Kingdo
Conducted by Anders HENTEN Aalborg University, Balllerup, Denmark
DW Economic Journal: What do you mean by an "Innovation Ecosystem"?
Martin FRANSMAN: By an "Innovation Ecosystem" I mean a group of players who through their symbiotic interactions (both cooperative and competitive) make innovation happen and, by so doing, coevolve over time.
How may the idea of an Innovation Ecosystem be applied?
The key point to bear in mind is that an "Innovation Ecosystem" is not an observable object. Rather it is a conceptual construct which serves a particular purpose. This important point requires some elaboration.
As Edith PENROSE has pointed out, "a "firm is by no means an unambiguous clear-cut entity; it is not an observable object physically separable from other objects, and it is difficult to define except with reference to what it does or what is done within it". She goes on to observe that "Herein lies a potential source of confusion" . The same is true of an "Innovation Ecosystem".
This becomes clear in reflecting on my definition of an Innovation Ecosystem as a group of players who make innovation happen. This raises the question of which players should be included in the ecosystem and which excluded. This is the question of the appropriate boundary of the Innovation Ecosystem being conceived. How far "back" is it necessary to go in conceiving of an Innovation Ecosystem?
If we are using the concept of Innovation Ecosystems to understand how innovation happens in the Mobile Telecommunications sector, for example, where should this boundary be drawn? It may be readily agreed that players such as final consumers, telecoms operators, telecoms equipment suppliers, and regulators should be included in the ecosystem. And for some purposes this definition may suffice. However, if the purpose is to understand the main determinants of the innovation process in this sector the net should obviously be considerably widened to include, for instance, universities and government research institutes who not only do relevant research but also provide important training. Other players may also merit inclusion in order to achieve the purpose.
This example makes it clear that an appropriate conceptualisation of an Innovation Ecosystem depends on the purposes and questions asked in the investigation. But complications may go even further than this. For example, even if different analysts can agree on the purposes and questions they may differ regarding which players should necessarily be included.
In view of problems such as these it is necessary to exercise more caution than is usually done in defining an innovation ecosystem. At the very least it is important to make explicitly clear the purposes and questions that are being pursued as well as the reasons for particular boundary decisions.
What in your view is the difference between an "Innovation System" and an "Innovation Ecosystem" and why did you choose to use the latter concept in your work?
The literature on innovation in this area tends to fall into two groups. The Innovation System Group, which is more homogeneous, is made up primarily of heterodox economists such as Chris FREEMAN, Dick NELSON and Stan METCALFE. They all acknowledge intellectual inspiration from the work of Joseph SCHUMPETER. Having originally trained as economists they all came to believe that the various approaches to economic growth adopted by mainstream economics do not provide a sufficiently robust explanation of how economic growth happens and why different countries often exhibit different growth patterns. They also share a common belief that innovation is the most important driver of economic growth and that mainstream economics does not have an adequate understanding of how innovation happens and who makes it happen. The concept of an "Innovation System", originally proposed by Chris FREEMAN in his book on Japan , is put forward as an alternative way of explaining growth. Central to this concept, and explicit in their definitions of "innovation system", is the role played by institutions understood not only in the Douglass NORTH sense of rules of the game but also as non-firm determinants that help (and perhaps hinder) innovation and therefore economic growth.
The Innovation Ecosystem literature, in contrast, is far more heterogeneous. It tends to come from scholars with a background in business studies. A notable example is the iconic book by IANSITI & LEVIEN from Harvard Business School, The Keystone Advantage: what the new dynamics of business ecosystems mean for strategy, innovation, and sustainability. A central concern in this literature is the cooperative networks created by complementary businesses which both individually and jointly create value for customers. The common belief (whether tacit or explicit) is that the truth lies in the constellation of businesses, rather than in individual businesses taken alone. This has important implications for dealing with topics such as business strategy and sustainability.
In contrast, my own use of the terms "ecosystem" and "innovation ecosystem" is inspired not so much by business behaviour as by the example of biological ecosystems with their populations of interacting organisms and species. As Alfred MARSHALL, the nineteenth century economist said, "The Mecca of the economist lies in economic biology rather than in economic dynamics" . This analogy, however, should not be pushed too far and I insist that the basic unit that makes up the "players" in my ecosystem are purposive and conscious individuals whose decisions and actions imply necessary complications such as beliefs, mistakes, and expectations which are not pre-determined in any meaningful sense of this word. Whilst there is significant overlap between my "ecosystem" and the concepts of Innovation System and Innovation Ecosystem perhaps the main difference is the emphasis I give to the dilemmas involved in interacting individuals, albeit in populations, understanding and acting in the uncertain world that is ours.
Can the concept of Innovation Ecosystem contribute to our understanding of leadership in an area such as mobile telecommunications?
The first problem in answering this question is to agree on what should be understood in this context by "leadership". Both countries and companies may lead, the former, for example, in performance of infrastructure and services, and the latter, for instance, in terms of indicators such as revenue growth, market capitalisation, and market share.
Having agreed on who leads the next problem is to explain why this leader has been able to lead. It is here that the concept of an Innovation Ecosystem as defined earlier potentially becomes useful. Let us take several examples to illustrate.
The first example is the lead by "Europe" in 2G mobile. Not only were the main European telecoms operators able to introduce world-leading 2G mobile infrastructure and services, the key European mobile equipment providers, notably Ericsson and Nokia, were able to become globally dominant players. Why did this happen?
Whilst the answer to this question clearly necessitates that we understand the strengths (and also weaknesses) of these two groups of company players there were other important determinants without which their global leadership would have been, if not impossible, then far less likely. These include, notably, the prior establishment of an agreed Nordic mobile set of standards and systems initially meant to facilitate inter-country mobile communications within the Nordic region as well as the establishment and functioning of a set of European institutions that enabled the emergence of GSM standards. These events required the interventions of other players, including policy-makers, regulators, and researchers. By following this kind of reasoning we will be able to identify both the relevant players and the ecosystem of symbiotic interactions that facilitated the eventual global success of GSM.
The second example is the remarkable rise of Huawei as a leading player not only in telecoms equipment but also, more recently, in smartphones. Once again, a key part of the explanation must involve an account of the emerging capability inside this company to successfully innovate. This success was dramatically illustrated by the successful entry of this company as a supplier to some of Europe's major telecoms operators in the face of very strong and long-standing competition from the key European telecoms equipment providers. Crucially, this entry depended not only on a Chinese comparative advantage-based cost benefit but also on the ability of Huawei to address some of the important problems expressed by the operators.
But reflection soon reveals that there is more to this success story than only what happened within Huawei. Also significant was Huawei's membership of the Chinese Innovation Ecosystem. Although at first a Chinese outsider that depended as much on other emerging countries as it did on the poorer Chinese regions for sale of its equipment, Huawei, with adept leadership, soon developed sufficiently strong capabilities to become a domestic supplier of growing importance able to both contribute to and benefit from the rapid growth of China and its telecoms infrastructure. Fleshing this story out requires an account of the key players (including, for instance, Chinese universities and other organisations) in the Chinese Innovation Ecosystem whose interactions made important contributions.
The third example is the central role of the US in smartphone developments. Here too a discussion is needed of the key telecoms operators and equipment providers as well as other important players such as policy-makers, regulators, university and other research organisations. But also of crucial importance is the direction taken by the evolution of the mobile telecoms sector itself. More specifically it is also important to understand the convergence of the mobile telephone and the computing subsectors that, until the advent of the smartphone with its own operating system, were largely distinct. This convergence gave a huge opportunity to the US that had always dominated the field of computing from its origins. Once the phone became in effect a computer that added many other functionalities US players, incumbents and new entrants, were able to leverage the superior computing capabilities that they and their ecosystem possessed in this area. This was also a significant contributor to US dominance.
As these three examples illustrate, the idea of Innovation Ecosystems can make a significant contribution to our ability to understand and explain these cases of leadership. However, the conceptual caveats mentioned in the answer to the first question must be kept in mind in deploying this idea.
Does the idea of Innovation Ecosystems have any positive implications for a European attempt to regain global leadership in the field of mobile telecommunications?
We must be careful not to slip into the voluntaristic error, i.e. "create the correct Innovation Ecosystem and all will be well!". The reason is that there are always some given constraints that remain binding. Examples are the historically inherited stock of capabilities, whether one's own or those of competitors; the given institutional framework; etc. One apposite example is the demise of Nokia as one of the global mobile industry's foremost pioneers and leaders.
From my personal discussions with some of Nokia's most important leaders I have no doubt that in its last years the company and its key decision-makers had an excellent understanding of what here is called the idea of an Innovation Ecosystem. Indeed, many of the company's key documents, both private and public, were formulated using the terminology of Innovation Ecosystems. There is every reason to suppose that this made both thinking and strategy formulation in Nokia better than it would have been without these conceptualisations.
However, the fact of the matter, sadly and regretfully, was that Nokia was significantly constrained by its historical path-dependence. More specifically, the company was substantially impeded by the Symbian operating system that it had inherited from the pre-computerised smartphone past. Not only did this operating system have defects from the point of view of application development, a key requirement for competitiveness, relative to the operating systems of the main competitors it suffered important shortcomings. No amount of perceptive Ecosystems thinking could, in the time required by competition, suffice to stay the company's threat of execution at the hands of unforgiving market forces. The same goes for the company's new leaders brought in to try and stay this execution.
The Nokia example has important implications for policy-making that uses the concept of Innovation Ecosystems. The main lesson, to repeat, is to avoid voluntaristic errors by coming to better understand what can, and what cannot, be changed by purposeful action.
How useful is the idea of Company Innovation Ecosystems?
Paradoxically, very little scholarly work has been done on how innovation happens, and who makes it happen, within purposefully created Company Innovation Ecosystems. Even the book by IANSITI & LEVIEN referred to earlier, despite the word "innovation" in its subtitle, does not delve into these questions, preferring to devote only a little attention to the incentive to create organisational innovation that benefits the business network/ecosystem as a whole. Accordingly, these questions unfortunately remain unaddressed.
The "open innovation" literature does not do justice to these questions either. Although the issue of innovation players outside the focal firm is explicitly addressed the questions of how all the players in the company's Innovation Ecosystem make innovation happen and who can and should make it happen are not discussed. Yet these questions are crucial for any company or other organisation wanting to improve performance through innovation.
What kind of guidance can be given to the leaders of companies who would like to make use of the idea of Company Innovation Ecosystems in order to improve their performance? This question is currently occupying a good deal of my attention.
CEO, IDATE DigiWorld
A recent report from IDATE DigiWorld underscores the extent to which European markets as a whole lag behind the superfast access targets set by the Digital Agenda, including: 50% of Internet households subscribing to a connection of more than 100 Mbps in 2020.
At the 10th annual Assises du Très Haut Debit (Superfast broadband symposium) hosted by Aromates and IDATE DigiWorld in Paris on 6 July, we delivered a sneak peak of our coverage figures for Europe at the end of 2015, drawing on our own FTTx databases, the latest data collected from regulators and operators, along with our freshly released market report, “The Digital Agenda for Europe: a snapshot”.
Clearly, the situation varies dramatically from country to country, and the objectives set by Europe will be hard for some countries to achieve without a major policy push. The most advanced countries benefit from a strong cable footprint and an incumbent carrier that has made less ambitious technical choices than extensive FTTH rollouts. Belgium, for instance, combines vast a and dense cable system that has been upgraded to the latest Docsis technologies (>100Mps) and the top carrier’s choice to upgrade its legacy copper network to VDSL (>30Mps).
On the whole, the largest countries in Europe are less likely to achieve all of the Digital Agenda objectives. In France, for instance, the combination of giving top priority to achieving extensive FTTH rollouts, the relatively limited cable coverage (40% of households) and the very gradual deployments in the country’s more rural areas based on public-private partnerships – which will eventually coverage 40% of access lines – have put the country among the lowest ranked in terms of availability of superfast access lines and average connection speeds. The situation is better in the UK and Germany where BT and DT were quick to deploy VDSL (>30 Mbps) access products, in response to aggressive competition from cablecos. Meanwhile Spain, which has combined investments in FTTH and cable, also tops France in the rankings. Only Italy, whose incumbent dragged its heels on significant spending on FTTH and was unable to capitalise on a cable system, is faring less well than France.
The IDATE DigiWorld report reveals that, once ultrafast access networks are in place, customers are eager to sign up. We have therefore noted a much higher NGA take-up rate in those areas where ultrafast access (100 Mbps and faster) is available. This means that we can count on a virtuous cycle of differentiation that encourages market players to invest in faster networks, not with a view to continually increasing the price of access plans, but rather to enable solutions that meet a growing array of needs.
When considering these future scenarios we must not, however, underestimate the complexity of the regulator’s task which, up until now, has been defined by European copper LLU rules. The fact of replacing ADSL with VDSL (with Vectoring/Bonding and G.fast) and FTTH would seem to give the incumbent a natural advantage, setting up a duopoly with cable. But this is too simplified a view since we also need to take into account (particularly when looking at the regulatory situation in France) the potential for duplicating superfast infrastructures in very high-density areas, how it is in operators’ interest to pool their investments in medium-density areas, and the role of public-private partnerships in sparsely populated areas, not to mention the promise of superfast mobile.
Hope you all have a great summer!
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Hao Yi Emerging technologies expert, IDATE DigiWorld
The development of the mobile payment market was still heterogeneous in 2015.
The m-commerce payment market grew steadily, whereas the in-store mobile payment market remained nascent given the transaction volume, although the release of Apple Pay one year earlier had seemingly put an end to the doubts about near field communication (NFC) being the right technology for in-store proximity payment.
IDATE DigiWorld estimates that the worldwide m-commerce market revenue will likely grow from 2015 to 2019 at a CAGR of 26.5%, growing its share 26% of the overall value of the e-commerce market to 44.2%. As regards the arrival of in-store mobile payments with NFC technology, QR code, mobile wallets, mobile point-of-sale (mPOS) solutions and other mobile payment methods, IDATE DigiWorld values their transaction volume to grow at a CAGR of 74% between 2015 and 2019. The volume of in-store mobile payments is tiny compared to the trillions of USD of all point-of-sale (POS) transactions.
On the in-store payment market, no one has really ‘wined out’ as yet, although Internet giants (Apple, Google and Samsung) as well as card networks (Visa and MasterCard) are very active, and numerous new entrants are flooding in.
In addition, NFC payment working with mobile wallets did not see the expected explosion in volume. Even though the technology and NFC-enabled POS terminals have been progressively in place for many years, the perceived value of such services is low for consumers.
From the perspective of merchants, mobile payment alone is not enough to bring about mass adoption.
Find out more about this market in our dedicated report