Senior Consultant, DigiWorld IDATE
SDN and NFV, Cloud computing, OSS/BSS are leading priorities for telcos
IDATE publishes a market report on the network technologies deployed by telcos to tackle the current technical and economic stakes. The report explores how the technologies answers telcos’ needs while analyzing their impact on the industry ecosystem.
Face to the high consumers’ expectations in terms of experience, the transformation of network architecture remains at the heart of telecom operators’ priority. Indeed, network infrastructures are being assailed by the new constraints of applications, and by users’ demands for higher bandwidth and better quality. In the very competitive market and in order to save costs, telcos are working to optimize their investments in infrastructure while generating new revenue streams. Thus, optimization technologies in the network architecture have been taken into account with the integration of traffic and policy management, video optimization and OSS/BSS in the current telecom network infrastructure with the main upcoming disruptive technologies: cloud computing, SDN (Software-Defined Networking) and NFV (Network Functions Virtualization).
Indeed, there is a clear priority for the implementation of cloud computing in telcos’ network making it cloudified, virtualized and software-based networks. Preparing the transition with SDN and NFV is considered as a key part of major telcos’ global strategy detailed in Telefónica’s UNICA and in AT&T’s Domain 2.0 programs.
• Cloud computing equipment market will hit 45 billion EUR by 2019
• SDN and NFV equipment market will experience an annual growth rate of 53% per year between 2015 and 2019 and is seen as the most dynamic market among the network optimization technologies studied in the report.
These disruptions generate substantial changes in the network industry, with an acceleration of the convergence between IT and telecoms as telcos increasingly implement technologies under the form of software and applications shaking up the ecosystem. Core businesses of traditional equipment makers are particularly affected due to the value shift currently happening in the telco sector. Equipment suppliers need to redefine their strategies and to position themselves around the cloud, software and services while new suppliers from IT have been introduced in the carrier infrastructure ecosystem.
In the report, IDATE provides a database with forecasts of network optimisation technologies up to 2019 covering 3 regions – North America, Europe and Asia Pacific – and global consolidated. Overall, for each of these regions, 7 segments are forecasted - traffic and policy management, Telco Wi-Fi, Mobile backhaul, Video infrastructure, SDN/NFV, cloud computing and OSS/BSS.
Also included in the package, status of the art of each network optimization technologies market as well as telecom equipment makers’ strategies for 5 players including Cisco, Ericsson, Alcatel-Lucent, Huawei, NSN and strategies of major telecom operators for 7 players including AT&T, DT, Orange, Telecom Italia, Telefonica; Verizon and Vodafone.
Find out more in our dedicated market report
To be published in Communications & Strategies n°99 – See previous issues here
Fabien CURTO MILLET
Director of Economics, Google
Interview conducted by Yves GASSOT,
CEO IDATE DigiWorld
C&S: Is the SMP regulatory framework fit for purpose given the competition among telecom providers and between telecom operators and online service providers?
Fabien CURTO MILLET: Actually, platforms are not an Internet phenomenon. A platform is simply an environment where two or more groups of economic agents come together to transact in some manner, so the concept is extremely generic: an example of a platform commonly used in the economics literature is that of singles bars! There are many economically important platforms outside tech. You can think of a free-to-air television channel as a platform, bringing together viewers and advertisers; the same goes for newspapers. And within tech, there are many platforms that historically had nothing to do with the web. An operating system can be analyzed as a platform, bringing together application developers and users. So the concept has wide applicability.
It is true, however, that the latest crop of web-era platforms has attracted a great deal of public attention. I attribute that in large part to the simplicity of use and degree of innovation of many of these businesses, which revolutionize everyday tasks and disrupt existing approaches. Obvious examples include apps like Uber, BlaBlaCar and Lyft in transportation, or AirBnB for accommodation.
Google operates several platforms, starting with its search engine and Google market . Are there any others you can think of?
Many of Google’s activities involve the creation and/or operation of various platforms. In the ads space, we have for many years run AdSense, an ad network bringing together users and advertisers on third party websites, while allowing publishers to monetize their content. Similarly, YouTube brings together content creators, viewers and advertisers.
Academic works on platform economics invariably come down either to works on multi-sided markets that emphasise the role of an intermediary between multiple parties that platforms play, or analyses of platforms as strategic necessities for capturing innovations created by others. Do you think that is a fair assessment?
Much of the literature is indeed concerned with analyzing the role of platforms as a matchmaking device between their various types of participants. This is not surprising, as the art of a platform operator is precisely to figure out how best to balance the interests of parties on various sides. In the context of web search for example, this often involves search being provided to users for free, but with advertisers on the other side being charged (usually when their ads are clicked on by users, under the so-called Cost Per Click pricing model). This is the case of search services like Google or Bing (which have clearly demarcated spaces for ads) for example; the point also applies to more specialized players like Booking.com or Tripadvisor.
But the literature is vast and touches on many interesting topics. An example is the technical question of how to carry out market definition in a platform context. One issue there is that the standard market definition test normally looks at whether customers switch away in response to a given percentage price rise. But in the context of platforms, the price charged to one side is often zero. In this case, how should the test be adjusted in practice?
These are only examples, and while the literature is already vast it is also evolving, so I think we can look forward to additional insights in this area.
How do you explain the fact that the GAFA quartet (i.e. Google, Apple, Facebook and Amazon) is much less powerful in certain markets – notably Russia, China and even Japan and South Korea?
These four companies have obviously achieved great success in many areas, and are engaged in formidable competition across multiple products and services. Spaces where some or all of these firms compete include search, cloud computing, social networking, operating systems, advertising, mobile phones and tablets. If you take cloud computing, for example, there is currently a great battle between Amazon, Google, Microsoft and other firms like SAP and Rackspace, with many massive rounds of price cuts and quality improvements having characterized the space in recent years. So it is very difficult to give you an overall answer covering such a broad scope of activities!
Since you mention specific countries, it is interesting to note that they have also developed a number of strong competitors in a range of tech areas. To take search, for example, we have Russia’s Yandex, South Korea’s Naver and China’s Baidu. But it would be unfair to label these as local players, since they are also engaged in aggressive plans to expand internationally -- Baidu is developing in Brazil, while Yandex is already present in several countries and has recently expanded by serving searches in Turkey. As for the success of the “quartet” in the countries you highlight, it really depends what you are looking at. Just take the most recent earnings release from Apple -- they reported revenue growth of 112% in “Greater China” (mainland China, Hong Kong, and Taiwan) and iPhone unit growth of 87% in that area.
Some see the eruption of new players in vertical industries – prime examples being Uber in transportation or Airbnb in the tourism business – as the emergence of new platforms and new sources of competition for the Internet’s leading horizontal platforms? Do you share that point of view?
The digital economy is rife with entry and innovation. The two examples you mention are a case in point. Another notable story is that of Snapchat, a mobile-only video and photo sharing service that came from nowhere, and into an already quite busy space. But it became wildly popular at breakneck speed. Snapchat users today share over 700 million photos worldwide per day, which is reportedly larger than the combined volume of Facebook and Instagram -- truly remarkable for a service that did not exist five years ago and that is only available on mobile! So I absolutely agree that these new entrants have further turned up the competitive heat on existing firms, including Google. If you’re looking for a rental property for your next holiday in Provence, you might perhaps go directly to the AirBnB website or app, instead of running a search on Google or Tripadvisor.
This broad phenomenon in itself is not particularly new for the digital economy -- for many years, companies with a more specialized focus have been competing with firms having broader business models, like Google. Google aims to answer any question that a user might have, whereas players like Tripadvisor focus more narrowly on particular content categories (especially the more commercial queries). Another case in point is Amazon, which is of course a very major competitor in shopping queries. Already in 2012, a Forrester study found that some 30% of online shoppers in the US started researching their latest purchase on Amazon, versus 13% on search engines.
Many fundamental factors drive these competitive developments. First, barriers to entry into many digital activities are generally low and dropping fast. One reason for this is the development of cloud computing: it used to be the case that firms needed to invest in their own server infrastructure in order to procure computing power, therefore incurring fixed costs. Cloud computing does away with that, by turning this fixed cost into a variable cost – and a low one at that, given the competition I mentioned earlier in this area. This is precisely one of the ingredients behind Snapchat’s success, as they run entirely on the Google cloud. Second, switching costs are pretty low – it is generally trivially easy and inexpensive for users to try out a new app or website. We often say at Google that “competition is just one click away” – although we should perhaps modify that line for the mobile era and say that it is “one tap away”: according to comScore, almost 90% of mobile Internet time in the US is spent on apps rather than in the browser – truly a revolution. Such ease of access to competing services means that we observe extremely high levels of “multi-homing”, i.e. the presence of a user on multiple competing platforms at the same time (e.g. Twitter and Facebook). I think these fundamental forces are here to stay, so we should have the opportunity to observe many more examples of disruptive entry in the future.
Net neutrality debates have resulted in regulations that limit the risks of ISPs discriminating against certain kinds of content. How do you respond to those who want to see these neutrality obligations extended to platforms? For instance in the choice of applications that app stores host, or the neutrality of algorithms?
Things like the choice of applications hosted or the operation of algorithms go to the very heart of what a platform does. “Neutrality” is a nice-sounding word, but it’s essentially in the eye of the beholder. The purpose of an algorithm is precisely to rank things from more to less relevant. Who is to say that one choice is better than another? And on what criteria? Is it neutral to rank restaurants by reference to distance to the user, or should we use review counts instead? Or maybe both? And how should one compare restaurant results and web page results? You very quickly get into rather abstract and arcane debates as to whether a particular approach is really treating like-with-like and so on.
Fortunately I believe these are questions which do not need resolving. Most economists would agree that regulatory intervention is only appropriate in circumstances where competition fails as a disciplining force. And there is frankly very little indication of problems across the digital economy. In addition to the rapid entry I discussed in my previous answer, I think any objective observer would agree that the speed of innovation in the digital economy is extremely high. This is for me a fundamental indicator of the competitive health of a sector – it ought to act a bit like a thermometer to determine whether a patient is sick and guide enforcement. After all, as the famous English economist and Nobel laureate John Hicks once observed: “The best of all monopoly profits is a quiet life”. There is preciously little that seems quiet about the digital economy today.
What differences do you see in the exchange of ideas taking place in Europe and the United States over platforms and the inherent risks of dominant positions?
I think that the exchange is a lot more nuanced in both places than it is often portrayed. From a Google perspective, we have faced antitrust scrutiny on both sides of the Atlantic -- the Federal Trade Commission in the US thoroughly investigated many parts of our business in great depth (notably touching on search, patents and ad campaign portability), leading to voluntary commitments in some areas in January 2013. In Europe, we are obviously currently working with the European Commission today in the context of its own ongoing antitrust investigation.
And while many commentators would like to cast current events in terms of various arm wrestling matches between European regulators and American tech companies, this unduly simplifies reality. For example, Germany’s Monopolkommission (Monopolies Commission) recently concluded a wide-ranging investigation into competition in digital markets. In the context of search platforms, this independent agency noted that “search engines’ low degree of user lock-in in comparison with other platform services (e.g. social networks), and the low degree of advertiser lock-in caused by network effects means that the search platform’s attractiveness from a user perspective is of key competitive importance, and this explains why even search engines with high market shares have an interest to further develop their offering with their users in mind, in order to secure their market position going forward”. Moreover, they expressed a clear view with regard to intervention: “The Monopolies Commission takes the view that a purely preventive regulation – irrespective of potential abuses – is not currently warranted. This holds true in particular for a regulation of search algorithms or regulatory unbundling instruments”.
Finally, I would take issue with the idea that there is an “inherent” risk to the emergence of dominant positions. I am sure that companies like MySpace or the now-defunct Friendster have views on the question, given how at one point they both towered over the social networking space. And I am always greatly amused by old press cuttings calling winners in one area or the other -- for example, Fortune declared in a 1998 article that “This much is clear: Yahoo! has won the search-engine wars and is poised for much bigger things”. 1998 was of course also the year when Google was founded... If there is anything certain in the digital economy, it’s that competition often comes from where you least expect it and failure to innovate faster than your competitors is the real “inherent risk.”
Fabien CURTO MILLET is Director of Economics at Google, where he has worked since 2011. He reports to and works closely with Chief Economist Hal Varian on the development of data-driven insights and on research to evaluate the economic value of Google and the Internet. He also leads economic analysis in all competition and regulatory processes involving Google at a global level. Fabien was previously a Senior Consultant in the European Competition Policy Practice of NERA Economic Consulting, where we worked from 2004. During that time, he advised in major European merger control processes such as ABF/GBI, Thomson/Reuters and Universal/BMG. His experience spans a wide variety of business sectors, including: airports, financial services, mining, music publishing, pay TV, print media, retailing, and satellite communications. Fabien was educated at Oxford University, where he obtained a BA in Economics and Management, an MPhil in Economics, and a Doctorate in Economics. For two years he was a Lecturer in Economics at Balliol College, Oxford. He further obtained a Postgraduate Diploma in EC Competition Law from King’s College, London.
The Communications & Strategies No. 99 "The Economics of Platform Markets - Competition or Regulation?" will be soon available!
More informations about IDATE's expertise and events :
CEO, IDATE DigiWorld
Our sectors took very little time off this summer, and generated a string of headlines. Below are some of the highlights.
Telecoms in Europe: ongoing consolidation and the first signs of a recovery
In Europe, following the announced merger of O2 (Telefonica) and Three (Hutchison) in the UK, and of Wind (Vimpelcom) and 3 Italia (Hutchison) in Italy, mobile markets in the EU continue their shift towards a three-player configuration, as illustrated on the map below (and explored in an analysis piece by our expert, Didier Pouillot).
But these mergers are being closely scrutinised by the European Commission which has no qualms about making their approval contingent on severe remedies, as we saw in Spain where the ultimate green light came after eight months of investigation, giving Orange the nod to acquire primarily fixed operator, Jazztel. Over in the UK, Ofcom have undertaken a wide-reaching strategic review, which will naturally included an examination of whether or not to alter the status of Open Reach, BT’s fixed access branch. And there is nothing to indicate that the assets swap, or the acquisition operation, between Vodafone and Liberty Global will be settled anytime soon.
As to the telecom sector’s performance in Europe, the results of the first two quarters of the year underscore that the recovery is still only nascent, with revenue down in virtually every market, even if we are seeing some improvement in margins.
Looking at the Internet and the GAFA quartet, Google’s responses (which created the Alphabet holding company) to the arguments raised in the European Commission enquiry make us think it will be a long, drawn-out procedure. There was also a great deal of talk about Uber and Airbnb this summer. Ultimately, however, it is European industry veterans Audi, BMW and Mercedes that will be taking control of Nokia’s Here. On a broader scale, debates over Internet platforms’ dominant positions in certain markets are grappling with sizeable issues. These issues will be one of the central themes for the 2015 DigiWorld Summit that will run from 17 to 19 November. I also invite you to get your hands on the latest issue of our Communications & Strategies journal for real insight into platform economics.
USA: the Gigabit race
In the United States, there have been a wide range of views on what drove AT&T to take control of the country’s second largest pay-TV provider, DirecTV (cf. our own analysis of the situation). At the same time, the Gigabit race – i.e. announced rollouts of networks delivering connection speeds of over 1 Gigabit/s – continues, with certification testing begun on Docsis 3.1. cable modems (worth mentioning here is Technicolor’s acquisition of Cisco’s CPE business, inherited from Scientific Atlanta).
These questions over the relevance of this new Gigabit access milestone will be also discussed in Montpellier, in a dedicated forum at the DigiWorld Summit on 18 November. Over in the mobile market, the summer brought the unsurprising news that T-Mobile US has pulled ahead of Sprint in terms of customer numbers. On the whole, although margins are stronger in the US than they are in Europe, American operators’ revenue appears now to be also oriented on a negative trend.
China: between acceleration and the first signs of saturation
The takeaway from China this summer was both the mobile market’s spectacular ability to make a swift transition to 4G – starting with China Mobile which managed to attract 100 million LTE customers in only six months – and the first ever quarterly decrease in smartphone sales, keeping in mind that China accounts for 30% of the global market. The upcoming DigiWorld Summit comes to mind here again since China will be our Guest Country this year.
Microsoft: driving the digital transformation… and undergoing its own
The last bit of headline news worth mentioning is the launch of Windows 10, which is a big deal for Microsoft in more than one respect as it is the successor to Windows 8, the previous and disappointing version of its OS, in addition to being the centrepiece of the company’s hopes for regaining credibility in the mobile business (thanks to its ability to attract both users and developers to its single operating environment for computers, tablets and smartphones) and of its new, clearly software and cloud-oriented strategy. At a time when everyone is talking about businesses’ and industries’ digital transformation, it will be very interesting to watch Microsoft and its new chief’s attempt to make the company the once and future king of digital innovation.
Senior Consultant, IDATE
Internet is becoming not-so-free
Internet Giants are increasingly finding themselves under scrutiny for unfair competition and tax issues – what was once regarded as a free OTT ecosystem is now facing regulatory challenges. Internationally operating players working in various domains and geographical locations are complicating this regulatory challenge, with different cultures and market conditions requiring different approaches.
While this past decade has seen a completely new economy evolve based on the Internet and OTT players (remember, Google’s IPO was only just over 10 years ago), new challenges have also been created by this phenomenon, one of which is regulation. Until recently, new Internet services and business models were being actively encouraged, with the aim of helping to galvanize the economy; however, there is now simply too much revenue involved and more regulatory intervention is becoming inevitable.
Major OTTs diversifying into various service domains
Source : IDATE, The Future Internet in 2025, July 2015
The domains in which regulation on OTTs is currently gathering the most urgent attention are the fields of taxation and fair competition, the regulatory needs being brought about by the sharp rise of leading sharing economy players such as Airbnb (accommodation rental platform) and Uber (car sharing application), where users can offer a spare room (Airbnb) or a car ride (Uber) between end users as opposed to using standard (more expensive) channels such as hotels and taxis. Such players are not required to work under the same rules as those of their traditional counterparts; licenses are not needed, insurances are not taken care of and rigorous safety concerns are not necessarily required. Further, tax issues are often overlooked, with many sharing economy participants not even aware that there is tax involved; they simply do not have the mindset that they are participating in a revenue-generating business, but are simply “earning a few bucks” in a relatively hassle-free manner. This then leads to an unfair playing field, giving the OTTs an unfair advantage over their traditional counterparts.
The regulatory response to these players currently varies from one country to another, or even from state to state in the larger countries.
• Citing the unfair competition landscape, Uber has been banned outright in Spain, whereas in Italy the application is allowed and the noise coming from the Italian government appears to be supportive of Uber, considering modifications to their regulation to make it easier for them. These are exceptions to the rule, however, with most governments placing an intermediate ruling whereby Uber is allowed but only for licensed drivers.
• Tax collection remains a hot topic, especially for Airbnb where local transient occupancy taxes (“hotel taxes”) are compulsory for all listings yet collection remains difficult. While initially Airbnb stressed that they were not responsible for the collection of the taxes, their stance has softened recently and since the latter part of 2014 they have started to automatically collect and remit the hotel tax in some areas, such as San Francisco and Amsterdam. It is understood that they are continuing negotiations with various other cities also.
It should be noted that while it is these startups that are causing the OTT regulation debate of tomorrow, the large Internet giants and in particular Google are also under scrutiny for unfair competition and tax issues. However these issues have been under investigation for a number of years and are evolving, albeit slowly, with occasional developments from time to time. The same can be said for regulatory debates on the likes of net neutrality, data protection and intellectual property (copyright) issues.
Europe is still debating over which approach to adopt
Such developments in the debates often come from the same countries, with the likes of the US, France, Germany, Spain and the Netherlands often ahead of the rest when proposing and/or enforcing OTT regulation. In addition to what has been mentioned above, net neutrality has continued to make headlines. While Europe is still debating over which approach to adopt, the United States has recently made a bold move by reclassifying broadband as a telecommunications service, thereby paving the way for strict net neutrality regulation. In Europe there are moves by the European Union as a whole, such as the proposed reform of the data protection directive, but some countries stand out more than others. The Netherlands, for example, were the pioneers of net neutrality deployment and the first country to introduce an “Airbnb law”, legalizing the business in exchange for tax payments. Germany has been strict on Uber, at one point banning the service as in Spain, although this motion has been overturned (for now), while both Germany and Spain have ruled that Google are required to pay for information published on Google News. France has strong legal frameworks on many OTT related domains, and is also at the forefront of debates concerning sharing economy players.
Find out more on Net Neutrality and key stakes for tax optimization, privacy, copyrights and other topical issues surrounding OTT regulation in our dedicated market report
Head of Consumer Electronics & Digital Entertainment Practice
"In 2015, more than 70% of video software revenues were generated by digital sales and distribution, compared with 22% in 2008."
Dematerialisation, a driver for disintermediation and growth in the video games sector
The global video game software market rose in value from 35.3 billion EUR in 2008 to 47.7 billion EUR in 2014, driven by dematerialisation, the emergence of new segments and the continued success of relatively new segments. Dematerialisation has meant an increasing number of consumers can be reached, on any platform equipped with a screen, fixed or mobile, and with increasingly varied content. In 2014, 69% of video game software revenues were generated by digital sales and distribution, compared with 22% in 2008. Revenues from dematerialisation have experienced an average annual growth of 26.8% over the period, compared with 9.7% for revenues from physical sales.
The video games sector, which is digital by nature, has a long history of dematerialising distribution and in-game content. Use of dematerialisation now seems to be accelerating and expanding into all segments of the sector. The success of browser games, massively multiplayer games, online gaming on consoles and personal computers, and smartphone gaming (since the end of the 2000s), has meant that 2012 was a defining year when the majority of revenues were generated from the digital side of this economy, switching over from the physical.
Breakdown of the video game software market by type of revenue, 2008 and 2014
Source: IDATE, Video Games in the Cloud, June 2015
Role redistribution along the value chain
Dematerialisation affects all segments of the video game industry. It has led to disintermediation in the value chain and raises questions over the role of certain stakeholders downstream. It has afforded new power to developers, who now have the opportunity to speak directly to their gaming customers. 'Online' has ultimately eroded a silo-based industry structure and allowed practices and cross-platform services to emerge that both benefit gamers and boost creativity within the sector.
Industry repositioning and revaluation up the chain
On an industry-wide scale, dematerialisation of video game market segments has moved value along the value chain. Value creation is now closer to players with a direct link to their customers. Disintermediation of the sector is moving in this direction.
In the PC gaming segment, value creation seems to centre around digital retailers (Steam, GOG), aggregators (Big Fish Games) and publishers (EA Origin, NCSoft). In the mobile gaming segment, value creation seems to have moved towards app store owners (Apple, Android, Amazon), and to the console manufacturers themselves in the case of console games.
On Smart TVs, anything is still possible between TV channels, the Internet giants and the proponents of a cross-platform ecosystem (e.g. Apple, Samsung, LG, Sony). Gaming platform operators, the major beneficiaries of these developments, have also had to rethink their revenue sharing models to the benefit of game development studios.
Dematerialisation has also allowed the sector to continue generating additional revenue, converting new customers to new types of game, especially ubiquitous games, which are playable simultaneously on multiple platforms, both fixed and mobile.
In this context where dematerialisation is continuing to gain ground on the physical market, the sector will continue its dynamic growth in the coming years. However, not all links in the chain will fully benefit from this growth, such as distributors, who are seeing their share captured by others.
Revenues earned by the various links in the video game market value chain (million EUR)
Source: IDATE, Video Games in the Cloud, June 2015
The impact of dematerialisation
The impact of dematerialisation varies depending on the market segment, but disintermediation is a common theme.
The PC gaming segment, which is easily accessible for independent (indie) developers, has diversified and opened up to casual and social games while retaining a special place for massively multiplayer (World of Worldcraft) or multiplayer (League of Legends) games.
The mobile gaming segment (on smartphones and tablets) has built itself around app stores, and the viral and rapid nature of these stores. With these devices now almost permanently connected, games are also being viewed as a potentially continuous entertainment experience. This implies a new approach is needed, based more on encouraging users to buy, rather than selling a product.
The console gaming segment has evolved and now allows all users to download indie and casual games, but also AAA titles. In addition, many features that use the cloud have emerged. These features may relate to the game, other content, consumption, user account management or access to broadcasting services. In this context, console manufacturers remain the cornerstone of this segment's economy with their e-stores.
Finally, on Smart or connected TVs, video games take the form of streamed content, known as cloud gaming or Games on Demand. This young segment, which first emerged around 2010, is strengthening and seems to be garnering interest within the industry.
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
Senior Consultant, DigiWorld IDATE
"The Cellular device (Tablets & laptops) installed base wil top 370 million devices worldwide in 2020, up from 54 million in 2013."
Connected cellular device is a device equipped with Internet access through cellular networks (2.5G, 3G and 4G). Connectivity is provided through an embedded module in the device (the SIM card could be removable or not). The main consumer devices addressed here are tablets and laptops. Some opportunities could be seen at the enterprise level especially to meet executive mobility requirements.
Unlike Wifi-only, the cellular module provides connectivity ‘on the go’. 3G and 4G connectivity provides an always-on feature which allows application notification reception. With Wifi-only devices, the device turns automatically into a sleeping mode. 4G could appear as a game changer as, unlike 3G performance, 4G offers more bandwidth and better latency which even excels Wifi performance. Nevertheless, unlike Wifi, the cellular connectivity is not free of charge. The end user needs to contract a specific data plan. The other drawback is that, even without a subscription, cellular products are more expensive than Wifi-only products because the bill of material is more expensive. Moreover, Wifi connectivity is increasingly widespread, with a Wifi module embedded in each new connected consumer electronic product worldwide, and is offered for free in hotels, restaurants and even bars. In some airports, the user can have free access for a short period and can buy units of time of Wifi connectivity.
The connected device value chain is mainly composed by two groups of players: the connected device manufacturers (Samsung, Apple, Nexus, HP, Lenovo and Dell) and the mobile carriers providing innovative models (subsidy-based and even on-demand connectivity models). Module makers are also very involved in this segment. They provide specific modules and chiefly promote the embedded SIM-based module.
33% of the tabelts are cellular, in advanced markets
In terms of market adoption, cellular products are clearly gaining traction and several market estimates show that around 33% of the tablets are cellular, in advanced markets. The adoption varies a good deal from country to country. Cellular laptops are mainly driven by the professional market as it is more affordable to use rather than using dedicated dongles. Nevertheless, according to industry sources, their adoption is very limited, especially on the consumer side. The main issue here is that the laptop market (cellular or not) has been in decline since the launch of the first iPad. Hence, cellular laptop offerings are still restricted to the business market and almost non-existent for consumer market. Nevertheless, the last year has seen the withdrawal of key laptop offerings, showing thus the real barriers for this market take-off.
How to simulate market adoption?
To stimulate market adoption, numerous business models are being offered to the end user, depending on the distribution/sale channel. Both OEM and connectivity players provide connectivity offerings. Indeed, even OEM players are offering connectivity services through pure paid services or even provide fixed month traffic amount for a specific time after device purchase, with a top-up option obviously available. In the domain of MNOs, beyond this wholesale model, they currently provide traditional retail connectivity and the popular subsidised model. Some carriers also integrate these devices in their mobile share plan. Innovative data plans should also become popular in a near future, such as the on-demand connectivity based on embedded SIM technology, ideal for short-time journeys, weekending or vacationing abroad, for instance.
The cellular device installed base will top 370 million devices worldwide in 2020
The cellular device installed base will top 370 million devices worldwide in 2020, up from 54 million in 2013.
• In 2020, tablets will be the most popular cellular device around the world, with 90% of the total market. In 2020, this market will be led by the USA, followed by China. Germany is expected to lead the EU5 market.
• In 2020, the personal devices segment should reach 270 million units, representing 72% of the market (a stable breakdown compared to 2015) but they will take 55% of the total world connectivity market, as professional devices generate more traffic and related ARPU is therefore much higher.
Find out more on Cellular Devices in our dedicated market report
Senior Consultant, IDATE DigiWorld
They have minimal impact on traditional telecom markets
In 2014, the OTT communication services market (the total of OTT revenues generated from VoIP, IP messaging and a share of social networking) will have surpassed 10 billion EUR. Growth is expected to continue and the global market value will reach 23.7 billion EUR by 2018, representing a CAGR of 21.6% from 2014 to 2018. Still, OTT counts for only a very small proportion of market value compared to that of the telcos.
What are the impacts of OTT communication providers on the telcos from a market value perspective? The figure below provides IDATE figures for both telco communication revenues and OTT communication revenues for the period 2012 to 2018. Telco communication revenues are composed of fixed telephony revenues, mobile voice revenues and mobile messaging revenues. OTT communication revenues are composed of VoIP, IP messaging and a part of social networking revenues (as already explained in detail in section 3).
Source: IDATE in OTT Communication Services, December 2014
The reality here is that compared to telco communication revenues, OTT communication revenues remain very marginal. As has already been seen, the OTT communication market value is set for growth with CAGR of 21.6% from 2014 to 2018. Still, looking at the big picture, even in 2018 OTT communication will only account for 3% of the total market.
Further, IDATE forecasts that the telco communication market will not decline over this period of time, although it will not particularly grow either, with a CAGR of 0.2%. As a result, the total communication services market (telco and OTT combined) is expected to see a CAGR of 0.6% from 2014 to 2018.
Judging from these figures, IDATE believes that the communication market is not a simple case of “OTTs taking away revenues from telcos”, which is the often-painted picture of the market. Rather, it is a case of the telcos maintaining their current market values, while OTTs are growing their market value by themselves.
Find out more about VoIP, IP Messaging, Social Networks and the main market players’ strategies in our dedicated market report
Head of Media & Digital Content Business Unit, IDATE DigiWorld
Who will come out on top?
The development of smart TV is inextricably bound up with the widespread availability of high-speed Internet access, a shift to more and more individual viewing and the proliferation of smart devices in the home. Together, these three elements are steadily revolutionising how viewers access their TV programmes, and providing them with an array of new functions and features.
Televisions can be connected to the Internet in several ways. Using:
• a smart or connected TV (direct connection, via Ethernet or Wi-Fi)
• a connected set-top box/DVR,
• a connected set-top box/DVR
• a streaming box or stick
• or a connected game console. or a connected game console.
Today, close to half of the televisions being shipped are smart TVs, even if their owners may not systematically take advantage of the Internet connection. At the same time, the market for streaming devices – whose main purpose is to play online videos – is progressing rapidly.
Within this market that is still populated by a great many solutions and services, several trends are taking shape:
• smart TV has shifted from "Internet-centric" to "video centric";
• managing connectivity with users’ personal devices has become a key issue, with app systems playing an increasingly central role;
• OTT services are moving to the TV and making real strides;
• viral platforms, which are “systematically” included on smart devices, are steadily consolidating their position in the video distribution chain.
Technological progress is also helping to vitalise the market, whether by increasing users’ connection speeds, through progress in compression thanks to the use of HEVC, or functionalities that improve the user experience, such as casting – i.e. the ability to send content from a personal device to the TV set.
The main stakeholders in the connected TV ecosystem can be broken down into three categories, based on their original sector of activity: consumer electronics (CE) companies, TV market players and the Internet’s leaders.
• CE industry players are working to improve their software interfaces, either through dedicated developments such as Samsung has done with Tizen, or by acquiring another company, as LG has done with WebOS. The aim is to capture the added-value in the marketplace, whether in the arena of services and/or by selling high-end devices.
• Players from the TV universe are developing their OTT products, and working to bolster their position on the software side of the equation with more open and hybrid platforms. The smart TV could enable them to renew ties with consumers, and better monetise their plans. Veteran TV market players nevertheless remains threatened by the shift to more individual viewing, the risk of being cut out of the equation and a dramatic loss of revenue. Smart TVs can actually accelerate the growth of on-demand services, which naturally threatens the business of TV channels, and especially specialty channels, as well as the business of those who assemble pay-TV packages.
• Lastly, companies such as Google, Amazon and Microsoft that dominate the Internet, are very knowledgeable about software, and changing consumer habits. So they are in the best position to deliver a top-notch user experience, whether in terms of smooth and intuitive interfaces, or providing recommendations based on user data. Their increasingly vertical positioning – covering everything from the content to the device – is also bolstering their potential to capture a growing portion of the video entertainment market.
Impact of the three scenarios on the smart TV market in 2025: size of the OTT market and smart devices used (billion EUR, %)
Source : IDATE, Connected TV, June 2015
The purpose of the three scenarios for “smart TV in 2025" is to determine which industries are likely to increase their control over the smart TV environment:
• TV market players: "Smart TV ";
• CE market players: "Consumer Electronics+";
• or Internet specialists: "Internet video".
The size of the OTT video market will vary considerably under the three scenarios, depending on how the environment evolves and so which industries prevail. We estimate that the market could climb to:
• 41 billion EUR under the most conservative scenario, “Smart TV”;
• 57 billion EUR if consumer electronic gain the upper hand, with earnings based on revenue sharing;
• 105 billion EUR if Internet companies prove the most successful, with an ecosystem tailor made for OTT video services.
The popularity of the different devices will also evolve along the same lines:
• the television will be used less to access services as the more disruptive scenarios come into being;
• eventually, the PC will be marginalised, replaced to a large extent by personal devices.
Regardless of the scenario, smartphones and tablets will be used more and more to watch videos, especially as viewing becomes an increasingly individual pastime.
Find out more on Connected TV in our dedicated market report
Senior Consultant, IDATE DigiWorld
Which pathways to broadband PPDR networks?
• Spectrum is at the heart of PPDR issues. Future usage for public protection and disaster relief (PPDR) worldwide is expected to concentrate on a limited number of frequencies. Allocation of broadband PPDR spectrum will be discussed at the WRC-15 in November 2015.
• 400 MHz frequencies are used for narrowband systems (TETRA, TETRAPOL, and P25) and considered for broadband.
• 800 MHz frequencies are used by narrowband networks in some countries or even regions and considered for broadband PPDR networks in some Asian countries.
• The 700 MHz band is the best candidate worldwide. In the USA, broadband PPDR spectrum was allocated in 2008 in the 700 MHz band. In Asia, the APT700 plan is likely to be adopted region wide; in terms of spectrum adoption in Europe and MEA, the question will be discussed at the WRC-15. The 698-703/753-758 MHz is a sub-band which could be made available for broadband PPDR at national level alongside SDL.
• TETRA-like narrowband technologies have served PPDR issues through dedicated PPDR networks using PPDR spectrum extremely well over the past decade. As these networks are by nature narrowband, they only support low data rates.
• There is now a clear global consensus that LTE will be the baseline technology for next-generation broadband PPDR networks. LTE still needs to be adapted: as from Release 12 of 3GPP LTE standards, LTE will be enhanced to meet public safety applications requirements. LTE extended capabilities are expected to be PPDR-friendly in future releases. Release 12 includes basic PPDR features. Its freeze, however, has been slightly postponed and some PPDR features formerly scheduled in Release 12 will be dealt with in Releases 13 and 14.
• A number of countries are actively working to provide a PPDR-friendly network to users. Several distinct initiatives are emerging around the world, ranging from commercial LTE networks using commercial spectrum on one side to dedicated PPDR networks using PPDR spectrum on the opposite side. Possibilities in between also exist, such as hardened LTE networks.
• Initiatives towards broadband PPDR systems are intensifying around the world. In Europe, a number of examples are flourishing, among them the Blue Light MVNO approach and the planned hardened LTE network pushed by the UK Home Office. On the other side of the Atlantic, the FCC had the opposite view and refused to use commercial networks. The First Responder Network Authority (FirstNet) is mandated to build a US-nationwide PPDR network with PPDR spectrum. Nevertheless, these latter two huge and complex initiatives are facing many hurdles.
Business models overview
Find out more about business models for PPDR, its status of allocations and PPDR over LTE-A
in our dedicated market report
Director of Telecom Economics Business Unit,
The announcement of the merger between Wind and Tre in Italy and the resulting shift from 4 down to 3 mobile operators for the country, confirms the telecom consolidation trend in Europe.
It takes two forms:
On one hand, with the multiplication of fixed-mobile consolidation operations, like the recent acquisition of mobile operator Base in Belgium by the cable operator Telenet. Other examples include the Orange-Jazztel operations in Spain, BT-EE in the UK, Numericable-SFR in France, and Vodafone-Ono, also in Spain.
On the other hand, we are seeing a concentration in the mobile sector, from 4 down to 3 operators, including the top 5 countries of the European Union (see map). Germany has already switched, with the merger between E-Plus and O2, the respective subsidiaries of KPN and Telefónica in 2014 after a long investigation by the European antitrust authorities. In the UK, the planned merger between Three, the local subsidiary of the Hong Kong group Hutchison Whampoa (also parent company of Tre in Italy) and O2, will likewise reduce the number of operators in the mobile industry from 4 to 3. In Spain, the sale of yoigo, proposed two years ago by TeliaSonera, was abandoned due to the lack of a buyer under terms that the Swedish group deemed reasonable but the Spanish market is de facto concentrated within three operators, the fourth and last arrival having just over 6% of the market (in number of customers), and having further declined since late 2014. But let’s recall that in France, conversely, Free Mobile has managed to win about 15% of customers (but some 8% of revenues) of the French market in three years. In this concerted process, the French market seems to be the only one continuing to swim against the current!
Beyond the five major European markets, a significant number of other member states of the European Union also have around 3 mobile operators, and only two in the case of Cyprus.
In total, of the 23 other countries, just half (12 in total) still have 4 or more operators. But for some (Denmark, Finland, Luxembourg, Sweden), the fourth operator has remained embryonic. Note also that while four countries still benefited from the launch of 4G to open the market for a new entrant (Bulgaria, the Netherlands, Romania and Slovakia), uncertainties remain on the sustainability of new licenses. Romania is also the only member state to host six operators. And finally, in Belgium, the allocation of a fourth 3G license to the Telenet-Voo consortium in 2011 was not finally acted upon: both protagonists relinquished their licenses in 2014! Finally, we should complete this inventory by highlighting the diversity of situations relating to MVNOs, in number and market share.
Nevertheless, with more than 100 licenses issued, the European market remains highly fragmented at Community level!
Number of mobile network operators (MNO) in the Member States of the European Union
More informations about IDATE's expertise and events :