"Connected Cars & Future of the Mobile Ecosystem"
DigiWorld Economic Journal n°105
Interview with Thierry VIADIEU
Program Director for Connected Car & Autonomous Driving, RENAULT
Conducted by Yves GASSOT, CEO, IDATE DigiWorld Institute
DW Economic Journal: Could you describe the scope of your responsibilities at Renault?
Thierry VIADIEU: As far as connected cars are concerned, the field of endeavour for the Product Planning and Programs department covers on-board systems (multimedia systems), offboard systems (servers) and connected services. For autonomous vehicles, it covers autonomy and the components that enable that autonomy (sensors, radars, cameras, LIDAR, etc.).
Our task is to ensure that what we want to deliver to our customers (as set out by the Product Engineering and Sales and Marketing departments) is properly expressed, then taken into account by those in charge of development. We give them the budget they need, and we ensure that the plan they put into effect lines up with their mandate. These projects are then contracted with the Vehicles Program departments which will adopt these developments and we commit to results.
Over the course of its lifespan, we ensure that the project is on track and make the necessary decisions when it deviates. Top management receives progress reports on a regular basis.
We often associate the notion of the self-driving car with that of the connected car, as the latter is a stage in and a prerequisite for making a car autonomous. But users are not terribly clear on exactly what services a connected car provides. What does Renault offer its customers in this regard? And which applications do you believe are the most promising for the next five years? Can you share any figures on your connected car output?
Autonomy and connectivity cover two different technical fields, and exist independently of one another. But of course the autonomous car will be highly connected.
The connected car has been around for some time. For instance, the traffic information given by navigation systems requires connectivity. Today, through its RLink systems, Renault offers a range of connected services: traffic information, Coyote, access to e-mail, access to a variety of apps from the app store, data for fleet management or pay-as-you-drive insurance contracts, opening car doors using a smartphone for car-sharing services (RAccess), and so on.
In a not too distant future, the range of services on offer will be very broad and cover different value fields such as monitoring the state of the vehicle (preventive maintenance), remote actions (setting the vehicle's inside temperature, opening the boot for deliveries), easy driving (booking parking spots, travel recommendations), mobility services (opening doors with a smartphone, multimodal solutions), personalised virtual assistant with connections to one's digital devices (links to calendars, appointment bookings, restaurant reservations, etc.). Depending on their needs, each customer will choose the services they find most useful.
The job of the autonomous car is to gradually relieve drivers of certain driving tasks, aiming to take a complete control of the vehicle. This will give drivers more time to do other things during their drive time, so an advanced connectivity solution will be absolutely vital to the offer of autonomy. This offer could go as far as the ability to work in one's car, and videoconference from the vehicle.
The ubiquity of the smartphone and the apps designed for the two main platforms, iOS and Android, is pushing car-makers to offer drivers the ability to replicate the familiar digital environment on their vehicle's display. At the same time, car-makers also want to protect the independence of their relationship with customers for certain services, such as maintenance. What are the services that the car manufacturer must deliver directly or indirectly, but independently from mobile application platforms?
A fluid relationship between the customer's smartphone and the car's multimedia system (which we call smartphone integration) is key to ensuring the digital continuity our customers demand. That being said, we need to keep in mind that – while awaiting the autonomous vehicle – the driver is still in the driver's seat, and any activity that might distract her/him and threaten her/his safety must be avoided. This is why certain apps are "replicated" in the multimedia system, and in a very strict fashion. So drivers will have access to a very limited number of their smartphone's features.
As to the relationship with the two digital giants, Google and Apple, it is clear that all car-makers have certain concerns over the ultimate consequences of smartphone integration. Some have taken the path of defining integration standards that allow them not to rely on those developed by Google and Apple, while others have even announced they would not be offering those applications.
At Renault we have chosen to offer CarPlay (Apple) and Android Auto because we think that's what our customers want. On the other hand, we are very careful about creating a balanced relationship and about the data being relayed, by ensuring that it in no way jeopardises our customers, or our business models.
To illustrate the merits of having a good relationship between the car-maker and an application, let's use the simple example of looking for a petrol station. An application that indicates all of the petrol stations in the vicinity is clearly useful when we are driving and need to fill up. However, its value increases tremendously if it can also gauge how full the tank is and tell us the best time and place (cost, mileage remaining) to fill up the tank.
The car dealership obviously has a very important role in selling vehicles and promoting the latest innovations, and in maintenance and customer relations. In what way do you take this into account? What is their role today, and how will it change in future?
Renault dealers play a key role in our relationship with customers, and in informing them about our products. We believe this will continue to be the case with connected services. Naturally this relationship is evolving as customers are getting more and more information from the internet, and are able to discover products online from home, but it is undeniable that physical contact with a product and an informed representative will remain an important ingredient in quality of service. As proof, I offer up the direction being taken by certain major internet companies, such as Amazon, which plan on opening up brick and mortar shops in major cities. In this respect, the density and proximity of the Renault network is a major asset that we will be sure to leverage.
We can also cite the initiative taken by a number of Renault dealerships which offer what we could call "RLink genius bar sessions" to give customers an opportunity to familiarise themselves with the system.
When we move into the autonomous car stage, we have to stress the impact of regulatory imperatives, of consumers' reactions – be they enthusiastic or disoriented – and the influence and role of the internet big five (GAFAM) and of new entrants: could you comment on these central issues and challenges ahead?
Regulation is a very important, so as not to say crucial aspect. Laws and regulations will need to evolve to allow extensive use of the autonomous car, and Renault is naturally involved in the discussions that are underway on the matter. It is a difficult exercise because, as with most car-makers, we sell our models in a great many locations around the globe, and there is still no overall regulatory framework that applies to autonomous cars.
On the matter of users, I think they have a tremendous ability to adapt, and when the services on offer are useful and have been carefully designed, there will be no obstacles to adopting them. On the contrary!
For us, the internet giants are certainly potential partners. As with all of our partners and suppliers, we look closely at what they can offer us, while also be vigilant about the skills and responsibilities we want to maintain or acquire. Today, they appear to be positioned solely in the driverless autonomous car, and we don't know if one day they will be direct competitors.
What are the most strategic technological developments that self-driving car vendors will need to master? What R&D and partnership (with its peers, and with electronics and IT companies) policies is Renault putting into place? Do you think that the costs associated with the connected/autonomous car will drive a period of consolidation in the automotive industry?
When it comes to the development of autonomous cars, the different sensors that become the car's "eyes and ears" naturally play a major role. They will evolve, be able to "see" farther and under any conditions (snow, rain, etc.), will be increasingly reliable and especially increasingly affordable so that all product ranges can benefit from them.
But if there is one area in which all automotive manufacturers, and of course the Renault-Nissan alliance, are investing massively, it is the development of the software that will manage all of the vehicles' sensors and systems. We need to develop the right algorithms, incorporate elements of artificial intelligence, ensure the robustness of zero-fault execution (the bugs that are such a familiar part of our daily lives are "forbidden" in an autonomous car, whose software needs to be as robust and reliable as the software that drives the most sensitive installations) and have a self-learning capacity that allows it to improve on an ongoing basis.
I believe this is the key to the development of the mass-produced autonomous car.
As to the impact on a consolidation of the automotive industry, this sector has already undergone considerable consolidation in recent years, creating several "titans" that produce more than 8 million vehicles a year, and I expect to see more close partnerships over certain technologies rather than corporate mergers.
The autonomous car will generate thousands of Gigabytes, often with stringent quality and latency requirements that will mean connectivity costs cannot be overlooked in vendors' business models. What are your views on this? Do you believe, like some, that your business model will include monetising some of the data generated? How much are you banking on the advent of 5G which is currently mobilising the telecoms industry?
Today, the cost of relaying data over the GSM network is a significant element in connected services' business model. The use of a SIM card that allows users to switch from operator to operator, or plans that allow them to pool or spread out their consumption are important factors in limiting the impact of this cost. As is monetising generated data. That being said, data traffic still carries a high price tag in some countries which creates an impediment to deploying services to all of our customers around the world.
Regarding 5G, naturally we are keeping a close watch over its development, but current projections indicate that coverage will still be very slim in 2020, so we cannot concentrate our developments for the next five years around 5G.
We often stress the time lapse between automotive industry cycles (four to five years) and digital innovation cycles. But if we take the example of the transition from LTE to 5G we see that, even in the digital world, not everything progresses as quickly as the latest version of WhatsApp or the rollout of the latest smartphone model…
The vision for the connected car, as for the self-driving car, needs to be part of a more wide-reaching thought process devoted to the different components of the digital transformation that is affecting mobility: the servicisation of car use, the influence of the first car-sharing platforms and ride services, how cities are changing, smart roads, etc. What initiatives are you taking with respect to these various trends, and how would you describe a car-marker 10 years from now?
As with most other car-makers, Renault is not focusing all of its attention or investments on the development of the car solely, even if it is autonomous and connected. Either directly or by having a stake in other ventures, we are interested in all aspects of innovation in what we call the mobile digital ecosystem (car sharing, car pooling, multimodality, peer-to-peer rental, etc.). It is also an opportunity to engage in discussions and run trials in large cities such as Lyon and Bordeaux where Renault is partnered with Bolloré.
Here, it is likely that the development of the autonomous car will run parallel to investments in outfitting roadways (smart roads and motorways), paving the way for new forms of mobility. One of the challenges will be managing the co-existence of classic cars and autonomous (possibly driverless) cars within a complex environment.
To answer your last question, I tend to believe that ten years from now the car-makers that remain – and of course the Renault-Nissan Alliance will be among them! – will be similar to car-makers today in many respects. We will undoubtedly see a shift in the value chain, and an expansion of car-makers' business into mobility products and closer ties with the digital world. But at the centre of all this is an object – the car – which is more and more technologically complex and subject to increasingly stringent regulations (security, emissions, CO2). This is what constitutes an automotive manufacturer's core business, and what I believe explains why there are virtually no new entrants to the sector.
Thierry VIADIEU. RENAULT Program Director for Connected Car (since 2012) and Autonomous Driving (since 2016). Graduated from the Ecole Nationale Supérieure des Ingénieurs Electrotechniciens de Grenoble in 1985 and received a PhD in Material Science from the University of Grenoble in 1988. Entered RENAULT in 1988 as research engineer. Then RENAULT Powertrain Division from 1992 until 1999 working on programs and strategy. Moved to NISSAN Headquarter in 1999 after the signature of the Alliance, starting in Manufacturing Strategy. Moved to NISSAN Corporate Planning in 2003 as General Manager and became NISSAN Corporate Vice President in 2005. In 2006, moved to NISSAN Thailand as ASEAN VP. In 2009 became RENAULT-NISSAN b.v. Director for Alliance Powertrain Planning.
CEO, IDATE DigiWorld
The GSM Association’s Mobile World Congress has taken hold as the mobile industry’s biggest annual event, as well as a significant event for a great many Internet and entertainment sector players.
What do we expect to hear about in Barcelona in 2017?
We will no doubt see three to four main themes emerge from the event. We are betting that they will relate in some way to the following five topics:
5G of course! We will no doubt see on display demonstrations based on much smaller devices and equipment, so miniaturised and closer to what will actually be deployed. Not everything has been standardised, but we will be able to measure the progress made in antenna technologies (MIMO and beamforming) which will bolster frequency use, in access to millimetre wave spectrum (effectively >6GHz) which will mean much wider channels, in virtualisation and slicing with Cloud-RAN architectures …
But the status of 5G on the stands, and the announcements and press releases on pilot rollouts are also expected to illustrate two rather different approaches to pioneer applications. On the other side of the pond, the two market leaders, AT&T and Verizon, are clearly playing the Video First card. Their announcements today are heavily focused on fixed 5G trials. Essentially, they have ascertained that video is the main purveyor of traffic and can help monetise 5G’s higher speeds as much as subscriber data (programmatic advertising), that TV and video are going the way of streaming, that they are not national wireline operators and that 5G could replace or complement access provided by cable companies (which are now entering the mobile market) and Fttx. Asia is also heavily video-centric, perhaps with the added dimension of gaming which demands low latency, and the prospects surrounding virtual reality. In Europe, debates and the work being done are focused more on identifying the needs of the different vertical markets, such as integrated/autonomous cars, so 5G is defined less in terms of its higher speeds than by security and latency metrics.
Enter the ties with IoT, and we expect to see new assessments of 3GPP (NB-IoT, LTE-M, 5G) standards in Barcelona, in terms of how thy complement and compete with LPWA standards, such as Sigfox or Lora, operating in unlicensed bands.
When it comes to infrastructure, it will be difficult to avoid debates over the investments required to deploy 5G. The South Koreans and Japanese are planning on being frontrunners, spurred by the upcoming Olympic Games. Verizon and AT&T will be quick off the mark. Once again, they will need to gain a competitive edge over T-Mobile and Sprint. Carriers in Europe are being spurred by the European Commission. They may lag behind their counterparts in the United States, Japan, South Korea and even China, much as they did when it came to 4G (LTE). As a result, growth forecasts for the network equipment market worldwide are not terribly sunny, especially for mobile networks as both the fixed services and equipment markets have become more dynamic. We will need to wait until 2019 and 2020 to see an impact of the new 5G cycle on CAPEX. Under these circumstances then, we will also be talking about the situation with network suppliers? What will happen if Huawei continues to grow as it has over the next three years, while the market’s value remains unchanged?
And what about smartphones? We know that the market has flattened out in terms of unit sales, and even more so in terms of value. Innovation is getting harder to come by. As it was in Las Vegas a few weeks back, the focus in Barcelona will probably be on voice interfaces, flexible displays, virtual reality…
Lastly, the latest headlines could well loom large over the MWC. Of course uppermost in everyone’s mind is the impact of the Trump administration, with rumours surrounding M&A deals that are currently under examination (AT&T – Time Warner) or back on the table (Sprint – T-Mobile ), talk of Verizon’s entry into cable or Comcast’s into the mobile market, news that affects Netflix (whose CEO will be one of the GSMA’s special guests in Barcelona), and the ongoing hubbub around net neutrality, unlimited plans and zero rating.
Our teams will be on hand in Barcelona, and will update you in March with our reports, and we look forward to seeing you at the DigiWorld Clubs in Brussels, London and Paris for a debriefing!
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World LTE markets – 5G initiatives & MBB spectrum In 2020: 4.7 billion LTE subscribers forecasted when 5G is launched.
Director of Studies, IDATE DigiWorld
We forecast, overall, a little less than 5 billion LTE SIMs worldwide or 54% of total SIMs at YE2020. According to our forecasts, the 3 billion mark will be reached in 2018.
LTE has gone mainstream since 2015
When 5G is expected to arrive in 2020, LTE will account for 40% of SIMs.
From a regional perspective, Asia-Pacific accounts for more than half of the total LTE SIMs at YE15. Its share is expected to grow steadily till 2017 when it will begin to decrease.
We assume Africa and emerging countries will take over at this time. We expect Africa and Middle East will account for 9% in 2020 compared to 3% at YE2016. According to our estimates, the European share would stabilise around 16%.
China Mobile will keep its lead. Second and third ranks are subject to strong competition
China Mobile (428 million) has more than four times as many LTE SIMs as China Telecom (90 million) which ranks 2nd as at end June 2016!
Verizon Wireless was passed by China Telecom in the first half 2016 and is now heavily challenged by the 3rd Chinese player, China Unicom.
The top 10 operators come from 3 countries only: Asian countries lead (China, Japan) and the USA. On the near term, Chinese players will undoubtedly dominate the market.
5G: 1.7 billion 5G subscribers anticipated in 2025
• Migration from 4G to 5G is expected to be fast.
• The 1 billion mark will be passed in 2025.
• Asia will account for more than half (58%, 950 million) of the subscriptions in 2025.
• With 274 million 5G subs, Europe is expected to account for 17% of total 5G subscriptions in 2025 (and EU-28 for 11%).
• On a longer term, there will be growth avenues in MEA.
Discover the perspectives, key trends, and scenarios about World LTE markets and 5G initiatives in our last report
Head of Innovation Business Unit, IDATE DigiWorld
Telcos are in a crucial need to reinvent themselves. Their pure connectivity revenues (voice, messaging, broadband, linear TV) are expected to be flat at best for the next 4 years, while CAPEX are continuing to increase (6% in 2015) with the development of digital services (OTT, IT and IoT), pressuring the networks with an ever increasing demand.
The overall economic climate, quite negative in advanced economies and even in many emerging countries, is also detrimental to the telecom industry, which - like many other industries - has become a cyclical economy in the last three years and is therefore subject to slowdown in case of recession. Competition is coming from large OTT players, but is in reality quite marginal compared to the intense internal competition from telcos themselves, favoured by tough regulatory regimes and by the introduction of disruptive technologies like IP.
In this overall quite dark picture, telcos have nonetheless some signs of hope on which they can prepare the future. Their EBITDA margins remain quite high, and the regulations are becoming more relaxed. Without a surprise, the biggest expectations should come from the digital disruptions, which can serve both as enablers of the telco’s operations (internal optimisation) and as new revenue generators through diversification, when combined with digital assets of telcos. Indeed, in all scenarios, telcos will benefit significantly from developments around cloud services, M2M and payments.
All the major telcos have embarked in such transformations through plans for 2020 (or sometimes less coordinated activities). But most telcos are betting here with an approach that corresponds to the Club scenario. In this scenario, telcos would follow the same approach than large OTT players, building a platform with proprietary technologies and investing in their own infrastructure and stores to offer an advanced customer experience, mostly paid by consumers themselves. They would likely succeed around payments, video services, M2M or smart home, but would likely significantly fail to expand around other services, dominated by large OTTs or vertical players for IoT. Whatever the criteria (revenue, EBITDA, FCF), this scenario is indeed not the most attractive for telcos, especially in terms of EBITDA.
The most favourable scenario for telcos in terms of revenues is in fact the Shield scenario, with a 3.8% CAGR for the 2016-2025 period (compared to only 2.4% for the Club scenario). Telcos would strive in a market dominated by cybersecurity issues and less intensive usage of personal data. They would leverage their network assets with additional investments and combine them with devices (generic and vertical) and cloud services. Their more local approach and their brands would make them appear as key players for M2M, security and payments. But this would require huge investments and additional OPEX, degrading both EBITDA margins and FCF margins compared to 2016 in order to ensure security. This would make it the least attractive scenario for telcos in terms of FCF, with even less than in 2016.
Regarding EBITDA margins, there is more to expect for telcos from the Tech scenario. The market (at 4,600 billion EUR, the biggest for all digital services of all scenarios) would skyrocket through the combination of advanced interoperable technologies sold as a service or as API at a low unit price and recombined into innovative solutions. A lot of the development would be funded with advertising and analytics around new connected objects. Telcos would benefit mostly indirectly from such developments, as wholesalers of premium capacity and (critical) connectivity in addition to other assets like billing. Telcos would enter an environment of commodity services but with a huge demand. With more indirect sales through APIs, their margins would improve in spite of still requiring spending more to meet the demand.
Finally, the best in terms of FCF margins for telcos is the Low cost scenario, performing a little better than the Tech scenario, which would develop in line with lower expectations from end-users in terms of technical innovation but more requirements in terms of privacy/data control and cost-efficiency. Telcos would focus on a limited portfolio of basic products, both traditional and digital, and take a leaner and more agile approach, with network outsourcing and sharing to pure utility cost-optimised companies and digital-based sales and customer-care through self-service. Advanced digital disruptive standardised technologies would be used intensively internally to optimise all processes, allowing telcos to operate with EBITDA margins of 41% (compared to 30% in 2016) and lower CAPEX. This would provide the best level of FCF, despite smaller markets for digital services overall and even declining markets for traditional telecom services.
To delve deeper into Next Gen Telcos, check out our last report
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Head of Practice
Nearly all players, even if less involved in FTTH/B than in other architectures, see FTTH as the end game
The first nine months of 2016 confirmed the previous year’s trend: fibre rollouts have continued apace and prove that Europe has entered the “Fibre age”! There were close to 44.3 million FTTH/B subscribers and more than 148 million FTTH/B homes passed in the 39 main European countries as of September 2016. These figures represent respective growth rates of 23% and 17% in 9 months.
Apart from Russia which represents the largest share of FTTH/B subscribers (39%), Europe’s other major markets are Spain, France and Romania, followed by Sweden, Ukraine and Turkey. Of course, the demographics of these countries and the maturity of the national FTTH/B market will have an impact on rankings in the coming years.
Thanks to the tremendous increase in coverage in 2014, Spain was once again the most dynamic market during the first 9 months of 2016, reporting 72% growth in subscriber numbers. France too was among the top markets in terms of new subscribers last year, with a growth reaching 23% – compared to an average growth rate in Europe of 19%.
The country rankings in terms of coverage are not the same, however. The average coverage rate in the EU-28 stands at 23%. Countries with the highest coverage rates are those located in Scandinavia (Sweden and Norway with 80%), Eastern Europe (Russia 96%; Bulgaria 91%) and Southern Europe (Spain and Portugal with 98%).
In terms of players involved in FTTH/B rollout projects, alternative carriers and MSOs still lead the way, representing 53% of all homes passed in the 39 main European countries as of September 2016. Their share of the total has, however, decreased since December 2011 when they represented 71% of all homes passed in the region.
The number of local authorities launching FTTH/B rollout projects in their area also decreased during the period, even if more and more are getting involved. This confirms that although their involvement is vital to ensuring exhaustive coverage, their rollouts will be confined to only the areas for which they are responsible. Their approach and strategy are of course different from private players’…
Naturally incumbent carriers are important actors in all European countries. They represent 43% of homes passed in the 39 main European countries as of September 2016, compared to 21% at the end of 2011! In previous years, we noted the growing involvement of incumbents, and today they are involved in at least small FTTH/B projects in every country in Europe. Even if some are still focused on other FTTx architectures, all consider FTTH to be the end game.
Aménagement numérique en Guinée Conakry : présentation des conclusions du SDAN par IDATE DigiWorld au Ministre des Télécoms
Directeur du Pôle Territoires Numériques
La Guinée Conakry occupe une position particulière sur la côte Atlantique de l'Afrique de l'Ouest avec six pays limitrophes (Guinée-Bissau, Sénégal, Mali, Sierra Leone, Libéria, Côte d'Ivoire), un fort potentiel hydro-électrique grâce à la présence de nombreux fleuves (Sénégal, Niger, Gambie, ...) et des ressources minières importantes comme la bauxite par exemple.
En matière de réseaux de communications électroniques, la Guinée a adopté le 13 août 2015 une loi qui doit permettre notamment une concurrence effective et un développement des investissements privés sur l’ensemble du territoire, avec l'objectif de supprimer toute barrière à l'entrée des opérateurs et de limiter au maximum les coûts de déploiement grâce à la mutualisation et au partage des infrastructures.
La Guinée bénéficie d'une situation relativement favorable en matière d'accès à la bande passante internationale via le câble ACE (entre la France et l'Afrique du Sud avec le raccordement de nombreux pays de la côté ouest de l'Afrique). Et l'Etat s'est engagé dans une politique volontariste d'aménagement numérique de son territoire, avec la mise en œuvre d'un backbone national fibres optiques de près de 4000 km, qui sera achevé fin 2017 et qui maille le territoire national avec la desserte de 76 villes. Ce backbone sera exploité et commercialisé par la SOGEB une société anonyme contrôlée à l'heure actuelle à 100% par l'Etat Guinéen mais dont le capital a vocation à être ouvert partiellement à des opérateurs privés, dans un modèle d'opérateur d'opérateurs avec un réseau neutre, activé, ouvert à tous les opérateurs de détail dans des conditions transparentes et non discriminatoires.
Le Pôle Territoires Numériques de l'IDATE réalise actuellement, avec ses partenaires LM Ingénierie et le cabinet d'avocats CMS Francis Lefebvre, le schéma directeur d'aménagement numérique (SDAN) de la Guinée et a présenté les conclusions du SDAN le 14 décembre 2016 au Ministre des Postes, des Télécommunications et de l'Economie Numérique, Monsieur Moustapha Mamy Diaby.
Le SDAN fait l'objet de préconisations déclinées en 5 axes et 23 mesures opérationnelles concrètes portant sur les évolutions réglementaires, la poursuite des investissements en complément du backbone national, le montage juridique et financier pour l'exploitation et la commercialisation du réseau d'opérateur d'opérateurs, le soutien à la demande en matière de TIC, et la mise en œuvre de formations initiales et qualifiantes dans le domaine des TIC.
En Guinée, la mise en œuvre d'un réseau d'initiative publique d'opérateur d'opérateurs, ayant vocation à accueillir des partenaires privés, neutre, activé, ouvert à tous les opérateurs dans les mêmes conditions apparaît comme la solution efficace pour l'aménagement numérique du territoire ... avec une singulière résonnance avec le "modèle français" mis en œuvre chez nous.
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CEO, IDATE DigiWorld
The question has been raised, and rightly so. The digital transformation that is expressing itself through the swift and constant stream of innovation and growing achievement (the cloud, ultrafast access, IoT, big data, AI, VR, etc.) is enthralling for many of us, but a source of deep concern for many others.
A sizeable percentage of the population on both sides of the Atlantic do not even think about it, while having become heavy consumers of all things digital, or see it simply as the inexorable eradication of jobs as robot technology takes hold. Leading economists are pondering the decrease in productivity gains, the polarisation of the labour force, the creation of a deflationist and stagnant economy. They wonder whether the “digital revolution” can still be considered a driving force behind a new economic revival and the source of wealth creation, in the same way that the steam engine and electricity once were.
We ourselves believe firmly that any desire to step back from digital progress is a dead end. On the contrary, we need to galvanise our country by investing more, as much in training, as in scientific culture, research and innovation, and of course interweaving digital technology and the transition to other sources of energy. But the argument, the push for inclusion – a byword at Davos this year – and solidarity mechanisms also need to be more widely developed and rethought.
Support from the World Bank and the OECD for reviving investments, especially in infrastructure, will no doubt raise a new series of questions in the coming months. For IDATE DigiWorld, the questions on our minds that pertain to our main areas of focus include:
. How much of a priority should be given to financing new generation ultrafast fixed (FTTH) and mobile (5G) networks?
. What is the logic behind telcos’ investments in content? And, more generally, why should telcos invest in diversifying their business?
. Which innovations (wearables, VR, digital assistants, connected cars…) could take over from the smartphone as key growth drivers?
. At what point can we expect to see a return on investment for the cloud, IoT, big data, etc. rollouts of the past several years in all of the major sectors? Could this “4th industrial revolution” be Europe’s chance to return to centre stage in the digital world?
Here then, in this first newsletter of the year, are some of the topics we have begun to contemplate with our Members, and which will undoubtedly be explored in detail as part of our various initiatives, our monthly DigiWorld Clubs in Brussels, London and Paris, the DigiWorld Future symposiums in the spring (18 May in Brussels, 23 May in London and 6 June in Paris), and of course the DigiWorld Summit, which will run from 14 to 16 November this year.
So 2017 is shaping up to be a year of lively and crucial debate!
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OTT global communication market will exceed 14.6 billion EUR by the end of 2016, and grow to 24.1 billion EUR by 2020
Director of "Digital Telco" Stream, IDATE DigiWorld contact
Representing a CAGR of 13.3%. The market is composed of three segments: VoIP (such as Skype), IP messaging (such as WhatsApp), and also a share of social networking advertising revenues.
In contrast to the telco communications market, however, the OTT communications market remains very small: since the telco communications market is estimated at 695 billion EUR for 2016, OTT accounts for only 2.1% of total value. Even by 2020, OTT will only account for 3.4%. During this time, the telco communications market is expected to see a CAGR of -0.6%.
Thus, IDATE believes that OTT communication services have not significantly adversely impacted the telcos; rather, it is a case of the telcos maintaining their market values, while OTTs are growing their market value by themselves. In fact, more influential factors, such as the economic climate, internal competition and regulations are affecting telco market values significantly more than OTTs.
For example, France was seeing intense internal competition before 2009, when Whatsapp appeared, making voice and SMS no longer a cash cow. In other countries such as Spain, SMS and mobile voice were already on the decline through the economic recession, and cheaper OTT alternatives simply accelerated the already declining telco revenues. Furthermore, Both VoIP and IP messaging are more of a paid model, and do not generate much market value, since close to 60% of OTT communication revenues come from social network advertising, which can be seen as additional value in communication.
The business OTT communication market, represented by Unified Communications (UC) and Cloud Communications - mainly Communications Platform as a Service (CPaaS) markets, is experencing a rapid growth. The CPaaS market, in particular, is estimated to take off at a CAGR of 166% for the 2015-2018 period, reaching 5.7 billion EUR in 2018. The UC market will grow steadily from 38 billion EUR in 2016 to 60 billion EUR in 2020, reperesenting a CAGR of 11.5%, driven mainly by the UCaaS model.
Still, there is a lot of interest in the VoIP and IP messaging markets, as the acquisitions and investments in this market continue in both consumer and business OTT markets. High-profile acquisitions include the acquisition of WhatsApp by Facebook, Skype by Microsoft, and Viber by Rakuten. This all forms a part of the platform strategy, whereby the aim is not to generate revenues directly from these services, but to see them as useful tools to increase user base and reach, which in turn can be used for monetisation through different means (e.g., advertising, paid games and commerce).
The likes of WeChat and LINE are successful in terms of revenue generation, followed by Facebook Messenger embracing the same platform strategy. Similarly, the acquistion of Tropo by Cisco and of Nexmo by Vonage highlights the platform ambitions of traditional UC players'. With the increasing importance of the CPaaS sector, the likes of Cisco are offering toolkits (APIs, SDKs) to clients, allowing them to develop their own communication functionalities. Meanwhile, leveraging the relationship with telcos, players such as Cisco and Microsoft can offer consolidated OTT and PSTN communication within one single brand.
IDATE DigiWorld sees five main telco strategies in response to the rise of OTT communication services: blocking, bundling, partnerships, telco-OTT and RCS. Blocking is now rare, as it can lead to churn and also arouses debates about net neutrality. Bundling unlimited and/or abundant voice and SMS is a highly useful strategy, lessening the price advantage of OTTs. Partnerships with OTTs can be a useful differentiation strategy, to be used as a driver for data plan subscriptions. Telco-OTT sees the telcos (e.g., Telefónica and Orange) offering their own OTT communication service, combining their own unique telco strengths, rather than being simple OTT copycats. More WebRTC capabilities are also increasingly being offered by telcos. Finally, RCS is a GSMA-led initiative designed to bring OTT-like capabilities to mobile devices. However, in the light of the struggle of the first RCS attempt with the "Joyn" brand, in 2016 telcos began to cooperate with Google to address interoperability and fragmentation issues of RCS across networks and Android devices. Many telcos have thus completely shifted to VoLTE deployment after years of staggering with their RCS initiatives: the "big four" (Deutsche Telekom, Telefónica, Vodafone, Orange), initially in support of "Joyn", are all moving to VoLTE deployment, and US telcos (T-Mobile, AT&T, Sprint and Verizon) have successively tested and launched VoLTE servicessince 2014.
To delve deeper into OTT communication services, check out our latest market report
Florence Le Borgne,
Head of the TV & Digital Content Practice, IDATE DigiWorld
The creation of a pan-European alliance in mid-January between three major commercial TV companies – ProSiebenSat.1, TF1 and Mediaset – around OTT video specialist, Studio71, is a strong indication of veteran players’ new strategies, built on international partnerships and digital diversification.
Traditional TV networks are having to contend with a whole new landscape: one where the competition, the screens and even the consumers have changed, and where longstanding business models are now being threatened. They have no choice but to evolve as well, to hold their own amidst this groundswell.
Every major media company has therefore developed – either voluntarily or in reaction to competition – an OTT strategy that typically includes distribution online, on mobile devices and on televisions via connected devices.
Approaches nevertheless vary from player to player.
• All now offer catch-up TV services, which may include the ability to simulcast linear programming.
• Few offer transactional VOD services, regardless of whether they offer just their own content or broader libraries.
• There are a good number of monthly subscription VOD plans available, but this encompasses a wide range of products:
o generalist SVOD services;
o thematic SVOD services ;
o OTT versions of premium channels;
o Or paid access to simulcasts of linear over-the-air networks (with catch-up offered for free).
• Lastly, a few players are developing an OTT strategy that is built not on their usual content, but rather on creating original content that will be distributed solely online.
It is into this last category that the deal announced on 12 January falls, whereby France’s TF1 and Italy’s Mediaset have acquired, respectively, a 6.1% and 5.5% stake in Studio 71 – a subsidiary of German media company, ProSiebenSat.1, created in 2013 – worth a total of around 53 million EUR. According to the Mediaset press release, this alliance is being formed “with the aim of creating Europe's most important operator in digital talent in close synergy with generalist television”.
Distributed on the leading video sharing platforms, the content supplied by Studio71 generates more than 6 billion views a month on YouTube alone, through more than 1,200 channels, and reports 405 million registered users worldwide. For TF1, this new deal is geared to allowing the French media company to become “a benchmark online video player in France across all platforms by developing content targeted at millennials”. This generation of viewers has become a prime target for the French conglomerate which already acquired a majority share of Minute Buzz in December 2016, and is heavily focused on building up its social media presence to reach younger viewers.
Faced with the threat that Netflix and Amazon represent on the international online video scene, this European partnership will enable the three commercial TV broadcasters to go after revenue outside their traditional field of operation, by combining the strength of local brands and Studio 71’s global audience. This deal should thus enable TF1 Publicité (advertising) to shore up its ability to reach new audiences, and to consolidate its position as “France’s No. 1 content marketplace”. Similarly, Mediaset – for which this deal is the first major move from its new digital division – views this alliance and an opportunity “to maximize the distribution of Mediaset TV contents on internet and to boost synergies between TV and web.”
Another noteworthy move comes from Scandinavia’s Modern Times Group which, on 25 January, announced that it was selling its share in Czech free-to-air broadcaster, Prima, in order to finance its investments in the group’s digital transformation, starting with increasing its stake in German online game developer, InnoGames, from 21% to 51%. According to MTG President and CEO, Jørgen Madsen Lindemann, “The investment is in line with MTG’s digital strategy to invest in relevant, complementary and scalable digital content and communities. It creates a third digital entertainment vertical for MTGx alongside its eSports and MPN businesses”.
If these areas of diversification are still far from rivalling these European heavyweights’ traditional businesses, the growing number of strategic actions targeting OTT video is a clear sign that veteran TV networks are looking beyond broadcasting. Their future is inextricably bound up with the shift to OTT and building a global footprint: to continue to exist locally, they need to think globally.
To delve deeper into leading media companies’ OTT strategies, check out our latest market report
CEO, IDATE DigiWorld
2016 turned out to be a relatively mediocre year for the telecom services market in Western countries: an overall trend of stabilisation in Europe’s biggest markets, after suffering a steady decline in revenue since 2008, and an overall decrease in mobile revenue in the United States, breaking with the steady growth that AT&T and Verizon had managed to maintain up until 2015. As a result, operators in Europe are naturally sensitive to any strategic moves from the two American heavyweights, especially with respect to the content industry: what are AT&T and Verizon’s hoping for when investing in content?
• Avoid being bypassed by streaming video by moving higher up the value chain, right up to production. Because video has become the prime source of traffic on both fixed and mobile networks, operators can no longer content themselves with merely distributing other companies’ channels and programmes, especially if those companies decide to take the self-distribution route and comply with net neutrality rules. This strategy is akin to classic vertical integration.
• Behind this ultimately defensive strategy, there may also be a more aggressive aim at work: play the OTT card for all it’s worth by freeing themselves from their footprint (and the Capex required to continually expand the number of homes passed) and going after customers on every fixed/mobile Internet access network, i.e. not only customers that rely on their own pipes. Therein lies real diversification since physical connectivity becomes secondary.
• Beyond this, we have to keep AT&T and Verizon’s current situation in mind. Both are having to contend with a brutal decrease in growth which had been sustained almost singlehandedly by their mobile business for the past 10 years, while also playing second fiddle to cable in the residential fixed access market. With very few attractive prospects abroad – and up until now (under the Obama administration), antitrust bodies blocking M&A deals that would have allowed them to grow their share of the mobile market at home – while still very powerful, both operators have very good reasons for setting their sights on content as a way to maintain revenue and shareholder dividends. But here is where their paths diverge.
• Being deliberately simplistic, one Verizon executive recently explained that AT&T wanted to gain a share of today’s TV market, whereas Verizon was going after the future video market that will be fuelled by millennials… in other words, rather than acquiring very expensive assets that are likely to be rendered obsolete by new video habits, Verizon is opting to slowly build up its expertise in the data economy that will underpin video (notably growing programmatic advertising revenue). What is certain is that the amount that AT&T will spend to acquire DirecTV and (provided they get the nod from the Trump administration) Time Warner is infinitely larger than what Verizon laid out for AOL, the Huffington Post, OnCue, several other start-ups (including Vessel) and probably Yahoo! But it is still too early to say which path is the riskiest.
How does this tie in with net neutrality debates?
• The future Trump administration has done nothing to hide its radical opposition to net neutrality, up to and including reclassifying ISPs as common carriers under Title II of the Telecommunications Act. In theory, this is great new for telcos who remain hostile to the regulation put into place by the Obama administration: at the very least they can take it as given that, under the new administration, they will be able to maintain their zero rating policies on content, especially content delivered over wireless networks, such as those included in T-Mobile’s Binge On plan, Verizon’s Go90 and AT&T’s DirecTV Now products.
On these last two points, what could a repeal or relaxation of current net neutrality rules mean?
• We can posit that, if net neutrality is done away with altogether, operators are back in the driver’s seat when it comes to being bypassed by streaming services sold by channels and SVOD providers. Will this go so far as to quash any desire to invest in content themselves? Not necessarily, as exclusivity can still be a real drawing card, and useful for standing out from the competition. But the biggest operators that are able to amortise massive spending on rights acquisitions thanks to their tens of millions of subscribers, can also enter the content fray with the prospect of being less heavily challenged by broadcasters and OTT heavyweights.
• At the same time, however, doing away with net neutrality may also make playing the OTT card on third party operators’ networks more challenging…
• Finally, let us not forget the other possible effects of the new administration in Washington:
- If corporate tax rates are lowered (from 35% to 20%, or even 15%), AT&T and Verizon’s cash flow will be bolstered from 5 to more than 8 billion USD…
- Meanwhile the rigour of antitrust authorities that blocked the AT&T/Sprint and later Sprint/T-Mobile mergers is likely to become far more accommodating, and so open the way for new M&A deals;
- As a result, consolidation could turn the tide on AT&T and Verizon’s shrinking mobile businesses, and make the process of staking out a claim in the content industry a less pressing concern.
So, here at the dawn of 2017, it really does seem like almost anything could happen…