Head of Consumer Electronics & Digital Entertainment Practice
After having first been dependent on computing and display power to dazzle gamers, the success of home consoles was next shaped by innovation in consumer electronics and IT. Earlier generation consoles had adopted this prerequisite, and their manufacturers had innovated by outfitting them with a DVD and later a Blu-Ray or HD DVD player, an accelerometer and an inclinometer, gesture recognition capabilities and even, for Nintendo in the mid-90s, with a hard drive.
For this new generation of consoles – which came on the market from late 2012, starting with Nintendo’s Wii U, up to late 2013 with Sony’s PS4 and Microsoft’s Xbox One – innovation lies less in the technology than the software. It lies in services for the whole family, from VoD to gaming, by way of web browsing. And it lies in the gaming experience, opening it up to an array of social dimensions.
The cloud as a springboard for innovation
After the first announcements from console makers, aware of how much innovation influences the success of home consoles, but without imagining that innovation could be in a realm other than technological, financial analysts gave a rather tepid welcome to the latest generation of machine. Of course, this meant overlooking the fact that innovations on the service and user side of the equation are now growth drivers in and of themselves, and vital to Sony, Microsoft and Nintendo’s success. Knowing this also helps understand where companies seeking to rival these three titans – e.g. Valve/Steam, nVidia, Ouya, GameStick, eSfere, Razer Edge, Bluestacks and its Gamepop console, Green Throttle, Mad Catz and its MOJO micro-console, etc. – are coming from.
Consoles getting social
Consoles have become social creatures. Console makers are working to satisfy gamer expectations, which have been clearly expressed by the success of social networking sites and of game publishers like Zynga, King, 6Waves, Pretty Simple, EA… Their machines are now equipped with sharing, communication and linking features, which should help consoles capitalise on the viral effect of a game’s sudden huge surge in popularity, just as Facebook and the iTunes and Android app stores already do.
The companion screen, home consoles’ ubiquitous helper
Consoles will help promote the companion screen and ubiquitous gaming. We have already seen companion screen app initiatives in the realm of TV, introduced by broadcasters and ISPs. The video game sector’s manufacturers could easily give birth to a second generation of applications that link the TV with a tablet, smartphone or PC. The companion screen goes hand in hand with the growing ubiquity of content. It is on every gamer’s wishlist and will no doubt be ushered formally into the equation with this new generation of consoles.
Is the hard copy dead?
Next gen consoles have taken one step closer to the web in their clear and decisive positioning on solutions that use the cloud for storage and computing. These include services like remote control, game downloads, interacting with other gamers, rankings, challenges, VoD, etc. But a host of questions remain over console-makers’ and their partners’ desire to do away with hard copies entirely over the next six or seven years. All have no doubt thought long and hard about it. If we are seeing the first signs of it today, it is no doubt with a view to having full command of all-digital gaming by the end of this console generation’s lifespan. In any event, the transition needs to be considered in light of new HD picture formats. An ultra high definition picture will “weigh” four times what an HD picture does, but should benefit from significant progress in compression techniques, beyond the capacities of H265, and so be transmitted with ease over the networks.
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Senior consultant, LTE
How much potential for LTE-only?
With LTE nationwide coverage a near-reality in some advanced markets such as South Korea, the USA and Japan, the question arises of the relevance of launching LTE-only devices. Indeed, LTE-only devices come with benefits for both operators and consumers, especially in terms of cost, energy consumption and space saved inside the device and available for additional components or larger capacity batteries.
• For the operators, LTE-only devices may even become strategic since it will help them to transition their users more easily to their latest network while releasing new resources to cope with the data traffic explosion. Today, voice is no longer of any importance, but data is. With carrier aggregation, each chunk of spectrum available is valuable. Fewer 2G/3G users means more capacity for mobile broadband networks.
• Few operators have already launched LTE-only devices. Verizon is one of the first to have done so with a digital camera and more recently a tablet. Other operators such as LG U+ in South Korea have also done so with ultrabooks and hybrid laptop/tablets devices.
• Our forecasts for LTE devices indicate that close to one billion will be shipped in 2017.
M2M modules, shipment trends (In millions)
• However, some applications are more suitable than others for those kinds of devices. The first LTE-only handsets, for instance, should arrive on the market in 2014-2015 but they will require VoLTE to be supported on the network to have any meaning. Still, as long as LTE is not widely available worldwide with LTE roaming in place (which may take time), using its device abroad may be tricky.
• In the data-centric segment of devices however, the potential is bigger but the question of the competition with other wireless technologies remains. Fixed LTE broadband in remote areas is an application of choice for LTE where fixed broadband technologies are not available. However, many objects or appliances will rather be connected with shorter range technologies than rely on cellular connectivity. Indeed, why connect your fridge to an LTE network with an associated plan when you already have a broadband connection in your household? Likewise, devices such as smartwatches or e-health devices with sensors embedded for measuring self-use will rather be connected to smartphones with some Bluetooth Smart (Bluetooth Low Energy) than directly to a cellular network.
• Even more specifically in the M2M segment, LTE is currently not adapted to traditional low energy / narrowband / cost-conscious applications such as security, metering, fleet management. For these applications, work is being carried out to bring some machine type communication (MTC) in the Release 12 of LTE but compliant devices are not expected in the immediate future. This work will lead to the emergence of some kind of narrowband / low energy LTE.
The market report entitled “The LTE only market” is published as part of IDATE’s LTE World market series
Head of "Video Distribution" Practice
The market report entitled, “Hybrid TV: challenges and opportunities for telcos and cablecos” published as part of IDATE’s video distribution series, explores the biggest changes that wireline operators are facing today, and the options available to them. It details the three main strategic options that operators will need to choose from: strengthen their video service provision business, charge for OTT traffic or focus on internet connectivity.
Project Manager Jacques Bajon says that, “how telcos’ and cablos’ video strategy evolves is becoming an increasingly important issue, as the growth of OTT video and its impact on internet traffic will change the balance of power for video distribution on wired networks”.
Verizon recently announced its upcoming takeover of Intel’s Media Assets, a division devoted to developing cloud OTT video products and services, as part of the carrier’s bid to step up the rollout of new generation video services for all devices.
While the impact of these changes will vary depending on the region, the state of competition, the influence of the market leaders and the strategies adopted by operators, broad policies and choices are nevertheless becoming clear. Operators will be able to choose their positioning from, increasingly hybrid, strategies.
Strengthening the role of video service provider
Many telcos have joined cable operators in a providing 'traditional TV' services. The underlying reasons are varied and often non-exclusive, and include improved ARPU, triple-play subscriptions and reduced churn. This strategy can be extended, allowing operators to:
• provide new OTT services,
• become a publisher of TV services,
• go beyond their technical network coverage by relying on broadcast partner networks or 'public Internet'.
Charging for OTT video traffi
With the net neutrality debate still hanging over this option, where discrimination is being tolerated only for operators’ OTT services targeting their customer base:
• The first grey area agreements have been made between some service providers generating large volumes of traffic and telcos
• Development of operator or telco CDNs can help with internet traffic optimisation and can also become a traffic quality solution for third-party service providers.
Relying on online connectivity
With this option, operators can rely primarily on internet subscription revenues by assuming the role of neutral distributor of IP services, including video. For telcos, this is a case of returning to their incumbent business, but is a change of role for cable operators.
• More information on Hybrid TV market insight : Challenges and opportunities for telcos and cable operators
Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013
Joint Interview between Gilles FONTAINE, IDATE and Eli NOAM, Columbia Business School
Summary of this issue: "Video cord-cutting" refers to the process of switching from traditional cable, IPTV, or a satellite video subscription to video services accessed through a broadband connection, so called over-the-top (OTT) video. The impact of cord cutting will probably differ among countries, depending on the level of roll-out of digital cable, fibre optic networks, and/or IPTV, on the tariffs of legacy video services, on the quality of broadband access and on national players’ strategies.
Regulation will play a key role in this new environment, as a strict enforcement of net neutrality could prevent network operators from leveraging their access to customer base to market their own video services.
Joint interview with
Gilles FONTAINE, IDATE,
Eli NOAM, Columbia Business School
New York, USA
C&S: How would you define cord-cutting, from a US or European perspective?
Gilles FONTAINE: Cord-cutting, in Europe, is seen mainly as a USA phenomenon, where consumers would trade-off their pay-TV subscription for over-the-top Internet services. The last years, in Europe, have rather seen the rise of powerful cable and IMPTV operators competing in the pay-TV market with legacy satellite packager.
Eli NOAM: Cord-cutting is the dropping, by consumers, of expensive cable TV subscriptions in favor of online access to TV programs and on-demand films. Drawbacks for consumers are less certain quality (bandwidth), less availability of live programming such as sports, and absence of some channels. Advantages are cost-saving, no need to pay for undesired channels, better search, less advertising, greater choice, more control. In a broader sense, cord-cutting is a transition of TV from a broadcast/cable push model to an individualized pull model. So this is not just about switching to yet another delivery platform. That's the easy part. It is much more fundamental. Looking ahead, one change will be that by going online, TV will move from a slow-moving, highly standardized technology controlled by broadcasters and consumer electronic firms to a system where multiple technical approaches compete with each other and propel video delivery into an internet-rate of change and innovation. And that's just the technology. Equally important changes will take place on the content level, and in the structure of the media industry, in the advertising and business models, and in the policy.
Do you see any evidence that cord-cutting is really happening?
Gilles FONTAINE: Cord-cutting, in Europe, is not happening, or is not happening yet. Several reasons account for this: on the one hand competition is intense in Europe between networks, and is driving Internet access and television prices down, therefore limiting the incentive to "cut the cord". On the other hand, Internet services are far from having the same level of offer as US ones, even if catch-up television is increasingly available throughout Europe. Also, the video-on-demand market is very fragmented, with still limited catalogues and interfaces that could be improved and subscription video on demand is nascent, and mostly pushed by US-bases players, even if some European players have launched first services. Finally, the penetration of connected TVs and connected set-top-boxes is probably also lower in Europe than in the USA.
Eli NOAM: In the short run, there is less cord-cutting than media reports and hype suggest. For a variety of reasons, almost all participants in the media industry have an interest in dramatizing the issue. Broadcasters are making investments in ‘second screen' distribution, partly to be prepared for change, and need to justify them. ISPs are expanding bandwidth to position themselves as providers of mass entertainment options. Telecom companies, similarly, need to upgrade their networks. New providers of bypass service to broadcast and cable, such as Aereo in the US, create buzz to their market-disruptive activities. Media cloud providers such as Amazon or Netflix present new options. And even cable TV operators, who are the ones negatively affected, have an interest in presenting the problem as a crisis, at least to policy makers, in order to gain regulatory relief.
The reality is more modest, at least in the short term, but not insignificant. According to a credible analyst, Craig Moffett, The "pay TV sector" – cable, DBS, and IPTV – lost 316,000 subscribers in a 12 month period mid-2012- mid-2013. Since IPTV has gained subscribers, cable losses must have been larger. That is a loss of about 0.3%. Another estimate for 2012 has the number at 1.08 million. In a 4-year period 2008-2011, anywhere between 3.65 and 4.75 million subscribers were lost. But that was in the midst of the Great Recession, and thus not all can be attributed to cord-cutting.
Do OTT services really challenge telcos and cablecos managed TV and video offers?
Gilles FONTAINE: Many studies seem to show that OTT services propose a better customer experience than the equivalent launched by the telcos or the cablecos. OTT services are Internet natives, customer friendly companies, with a rhythm of innovation that is difficult to compete with. Telcos and cablecos still concentrate on the "linear television model", even if they have developed their own on-demand offers, whereas OTT services specialize in on-demand services. But telcos and cablecos still benefit from a privileged access to the TV set through their TV set-top-box, a competitive advantage which is about to be undermined by low cost solutions to connect the TV set, such as Chromecast from Google.
Eli NOAM: Overall, the extent of video streaming has been quite large. In the evening hours, about two-thirds of internet traffic are video-bits. Netflix alone has added 630,000 streaming subscribers in the US in 3 months in 2013, to a total of 30 million. Thus, while the numbers of cord cutters is not huge yet, as mentioned, a steady loss of subscriptions is to be expected, and it is backed up by surveys in which cable subscribers grumble about staying with expensive subscriptions which they do not fully utilize. This is particularly true for the younger generation. 34% of the Millenials (cohorts born 1980-2000) say that they watch mainly online video and not broadcast TV. For Gen X and for Boomers the numbers drop to 20% and 10%.
With OTT available, the traditional business model of cable companies unravels. In the past, they were able to raise prices and to pass on the raises by channel providers. This becomes more difficult. Similarly, it becomes more difficult to offer only bundled channels ("prix fixe"). Similarly, the ability of channel providers to offer content to viewers directly reduces their bargaining strength considerably. If they want to keep up, they also need to develop expertise in online technology, social networking, and mobile communications.
UK cableco Virgin Media and Sweden cableco recently signed a distribution agreement with Netflix. Do you foresee any revision of the cablecos and telcos triple-play model?
Gilles FONTAINE: Building an IPTV service is not straightforward for a telco: network costs can be high to ensure a homogeneous quality of service. They also face high programming costs and the complexity of negotiating with the media world. On-demand services hardly prove to be profitable, because of the market power of Hollywood studios combined with the strong competition between telcos and cablecos, has for instance led to almost unrecoupable minimal fees to access programs. The situation can be similar for a cableco that would not have the resources to acquire exclusive, attractive content: the recent deal between Virgin Media or Com Hem and Netflix heralds a change of strategy for the smaller telcos and clablecos, which could favor to comfort their Internet access business by offering the best OTT services rather than pushing their own television packages.
Eli NOAM: Overcoming all of these challenges is possible but requires an acceleration of internal processes, major investments, and a willingness to give up some control. There are signs of change in that direction. Comcast, which has just paid $ 39 billion for NBC Universal, thus gaining vertical control from the camera lense to the eyeball, has now announced a trial of a cord-cutting offer to subscribers: if they take a Comcast broadband service (of a quality that is today an upgrade for most customers) they get at basically no additional charge HBO Go (HBO's archive of self-produced shows plus current other shows, available anywhere in the US from most devices), plus the free broadcast channels. The regular monthly price $ 70/ month, compared to a price of $ 135 for a full complement of 200 channels including HBO Go. So the viewer willing to skip regular cable channels saves a lot of money. The data cap for such a service is 300 Gigabytes. This is about 120 hours of HD viewing per month, which is adequate for single viewer but tight for a multi-device, multi-viewer household.
So this shows that cable companies are considering to embrace cord-cutting as an inevitablity. Another development in that direction is the US cable industry's considering to integrate Netflix into its operations. They are holding talks with Netflix to make Netflix an option on their set-top boxes. In such a scenario, Netflix would, in effect, become cable companies' major VOD provider and revenues would be shared. This, together with the cable MSO's own cord-cutting option, would in effect accelerate cord-cutting. However, cable companies would not be entirely bypassed. They would mitigate cord-cutting into channel cutting. Ultimately, cable companies' main asset is their transmission network. Its exploitation will undergo transformation.
TV channels also face another form of cord-cutting, as viewers may directly choose their on-demand programs. How do you see their future role, if any?
Gilles FONTAINE: TV channels, as aggregators, may lose their specific role if on-demand consumption develops significantly. However, they will evolve proposing more and more live events to continue gathering strong audiences at the same time. Moreover, there is still a need of arranging the on-demand catalogues, pushing the right content to the right viewer at the right time and on the right device. TV channels should be able to leverage their linear programming to play their aggregator role in an on-demand market. But they will need to heavily invest in IT and review their trade-off between linear and on-demand distribution.
Eli NOAM: TV channels gain and lose. They gain in bargaining power over cable and other distributors. They can deal directly with users, though more likely they will go through new types of intermediaries such as Apple and Amazon.com. In a profusion of content offerings, strong brands are a valuable way for users to search for content. And if they can identify users or user characteristics they can fine-tune and individualize advertising. The danger for channel providers is that the loss of cable MSOs hold over viewers means that they cannot share in the MSOs pricing power. Furthermore, content providers can disintermediate them by going directly to viewers. Sports leagues, for example, could deliver their events directly and cut out the networks. Most of the channels do not have major operational IT expertise, and this provides an opening for an entire industry of new service providers and video clouds.
Gilles FONTAINE's Biography
Gilles FONTAINE is IDATE's Deputy CEO and is also in charge of IDATE Business Unit dedicated to media and digital content. During its 20 years experience in the Media sector, Gilles Fontaine has become an expert of the media economics and of the impact of Internet on content. He directed numerous studies for both public and private clients, including the EC, governments and local authorities, telcos and TV channels. Recent assignments have included a participation in the future MEDIA programme ex-ante assessment, the analysis of new video internet services economics, a long term forecast project on the future of television. He has also monitored the impact of digitization and online distribution on other media, radio, press and music. Mr. Fontaine holds a degree from the highly reputed French business school, HEC (Ecole des Hautes Etudes Commerciales, 1983) and from the Institut MultiMédias (1984).
Eli NOAM's Biography
Eli NOAM has been Professor of Economics and Finance at the Columbia Business School since 1976. In 1990, after having served for three years as Commissioner with the New York State Public Service Commission, he returned to Columbia. Noam is the Director of CITI. He also served on the White House's President's IT Advisory Council. Besides the over 400 articles in economics, legal, communications, and other journals that Professor Noam has written on subjects such as communications, information, public choice, public finance, and general regulation, he has also authored, edited, and co-edited 28 books. Noam has served on the editorial boards of Columbia University Press as well as of a dozen academic journals, and on corporate and non-profit boards. He was a regular columnist on the new economy for the Financial Times online. He is a member of the Council for Foreign Relations. He received AB, AM, Ph.D. (Economics) and JD degrees, all from Harvard. He was awarded honorary doctorates from the University of Munich (2006) and the University of Marseilles (2008).
Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013
- For more information about our activities: www.comstrat.org
COMMUNICATIONS & STRATEGIES
Lead Analyst, IDATE
M2M is enjoying swift growth of roughly 30% in volume and over 10% in revenue, with the market to reach €40 billion in 2017
The 6th edition of IDATE’s M2M Market report, covering 2013-2017, reveals that a healthy growth rate has finally taken hold in this promising but, up until recently, underperforming market. This performance is being spurred by increased use within the main areas of application (automotive, consumer electronics and utilities) and is expected to accelerate even further over the next five years as M2M spreads to other sectors of activity.
The M2M market (Reported devoted to M2M applications, excluding satellite M2M) represented 175 million modules worldwide in 2013, generating €24.2 billion in revenue, which translates in to an annual growth rate of 31% in volume and 11% in revenue. The bulk of revenue was generated by software and IT developments which together accounted for two-thirds of total market value.
IDATE forecasts that global M2M market volume will grow by an average of close to 30% annually between now and 2017, which corresponds to 470 million modules, while market revenue will climb by 13% a year on average, to reach €40 billion.
Europe will be the biggest market in terms of revenue, ahead of North America, even if Asia-Pacific will continue to dominate in terms of volume. At the end of 2013, China rose to the number one spot in number of cellular M2M modules installed, overtaking the United States.
World M2M cellular market, 2013-2017
Million of modules Revenues (billion EUR)
Source: IDATE, December 2013
Over the next few years, the M2M market’s growth will be shaped by three key verticals: automotive, consumer electronics and utilities
While they will theoretically drive the market, certain barriers could nevertheless obstruct their growth. Several long-awaited applications in these key markets have been repeatedly delayed, such as Europe’s eCall regulation and large-scale rollouts by utilities. Added to which certain technical choices can have a tremendous impact on the market, a good example being smart meters connected to the cellular network through a concentrator that would allow large utility companies to further increase their already massive negotiating clout to drive down per-unit prices. But utilities will dominate the M2M market in 2017 in terms of module numbers, all technologies combined. The rise of M2M in consumer electronics will have a major impact on the market as a whole, especially on the number of active modules. Because it is a de facto mass market, consumer electronics will represent the largest number of modules, all technologies combined.
M2M players seeking business opportunity beyond their core expertise
The market offers M2M application providers with very attractive opportunities, despite the already relatively low and declining average revenue per user (ARPU). The projects have a long lifespan, very low churn rates and average contracts representing several thousand SIM cards. Connectivity alone is expected to represent €10 billion worldwide in 2017, and more than 3% of European telcos’ mobile data revenue. MVNOs are being pushed out of the market and so repositioning themselves as platform providers, while module providers will have to adapt to a market where unit prices are in free fall. Meanwhile, the top telcos are exploring new cloud and big data services that would allow them to find solid and sustainable new business opportunities.
This comprehensive M2M report will be followed up over the coming months with other reports with a specific end use or vertical focus. For example, just after Mobile World Congress, there will be a very topical report on connected cars.
Lead Analyst, IDATE
Opportunities for Telcos around VoD, SVOD and Telco CDN
IDATE delivers its analyses and conclusions on OTT Video in its recently published market report. Our experts spotlighted the different opportunities for telcos and examined the drivers and hurdles for video delivery over-the-top.
Synthesis of selected player strategies
Source: IDATE, market report "OTT Video", December 2013
Consumer OTT video already represented an impressive worldwide market of almost 7.4 billion EUR in 2012, with revenues well-balanced between advertising and paid videos (pay-per-view or subscriptions). Nevertheless, VoD still generates more revenue on managed services, captured mostly by telcos and cablecos, at around 60% of total VoD sales in 2012. On-demand paid services over managed services represents for VoD and SVoD together around 45% of these service sales on both managed and OTT services. Video is therefore also a key market for telcos, and not just a traffic issue with significant impacts on telcos networks.
Video is indeed clearly gaining traction. It now represents a large part of Internet traffic and requires even more investment with no direct revenues, at least for those telcos offering unlimited flat rate plans -- the extra consumption of bandwidth is obviously charged in metered plans. This video traffic is nonetheless indirectly paid by broadband access. With the explosion of traffic, however, it is becoming harder for telcos to cover costs. Thanks to the abundance of free content, online video is indeed a mainstream service on the Web, as is search or social networking. It is typically still focused on short YouTube-like formats but with a growing consumption of free premium programming, specifically TV series from both legal services (catch-up TV), and low-cost paid solutions, as with SVoD from Netflix. The general strategy of content providers for both ad-funded and paid services is to differentiate their offering from others. To achieve this goal, they are adopting both quantitative (larger catalogue) and qualitative approaches by acquiring exclusive content through, for example, sports and partnerships with studios.
The delivery strategy of the content providers really depends on the video traffic delivered and therefore on the size of their own architecture for the largest content providers (Google/YouTube and Netflix overall) and more and more third-party CDN solutions for intermediate players. Some players, premium and ad-based platforms and especially those trying to better monetise their content, are looking at multi-CDN approaches to increase QoS as well as to benefit from price competition. Others are waiting for the deployment of telco CDN for better QoS.
The major operators are also involved in the TV/video delivery on their own account but, increasingly, also for third parties. Video has been part of triple-play solutions from most telcos for about 10 years, first with linear TV (delivered through multicast) and then video-on-demand solutions. It is even the prime business for cablecos – they have also generally been considered as telcos since their triple-play developments. Non-linear service strategies depend on the ISP, ranging from total control of distribution with rights acquisition, billing, and packaging to pure pipe solution with costs savings and total externalisation. All the major operators, essentially the incumbent operators, have implemented telco CDN solutions.
Telcos still have real opportunities around paid content in leveraging managed services, i.e. a combination including the customer base, the network with QoS, the billing service and set-top boxes, which remains necessary for now for mass market access to the TV set. The retail option (i.e. reseller or packager) has clearly more potential, as the world market for on-demand video will be close to 6.2 billion EUR in 2017 on managed networks (mainly telcos/cablecos) or 44% of the total video market. The big challenge remains the capacity of telcos to develop further the SVoD market (which may grab some market shares from the VoD market) for which they are only capturing 25% of revenues. For telcos not ready to invest into managed services (network and CPE costs), telco CDN still represents an option, especially as it can be developed in combination with transparent caching, allowing a similar efficient result without deals with content providers but also without the revenues. The short-term opportunity is rather small, even though telco CDN can also be used for managed services. In the long-term, i.e. by 2020, with heavy traffic from mobile, the opportunities will be even greater (telco CDN could benefit from mobile to reach about 15% of the market by 2020, at more than
2 billion EUR).
Read more: Discover OTT Video Market insight contents
Consultant at IDATE
How big data can get new revenue
and reduce costs?
and reduce costs?
Telcos are now in a position to use their data assets to generate value. Through big data techniques, ‘data services’ can generate new revenue or can help telcos to enhance their internal processes and core businesses, as stated previously. Not all data services are efficient for telco businesses, each service having varying efficiency.
Potential benefits of big data applications for telcos in terms of new revenues and potential savings, based on telco revenues and costs in 2012
Source: IDATE, market report "Big Data for Telcos", publication date Dec. 2013
N.B.: APIs are not included in this table as they are not a real big data application but an enabler for customers.
Internal purpose services
Internal purpose services aim at improving internal operations as well as enhancing customer relationships and products. Most of them use internal data (customer anonymised data or network data) with processing done internally: personal data protection is therefore as important as it is for external purposes and there are no questions of business model or competition. These services are thus easier to roll out and implement than external purpose services (with operations outside the company).
Optimisation of network and real-time DPI
The main benefit of the optimisation of network platforms and real-time DPI is material and financial. Such a service can lead to rationalisation and optimisation of current network infrastructures in the short term, and a more efficient use of the equipment in the long term.
On the financial side, a small reduction in capex by just a few percentage points can be generated immediately thanks to optimisation. It will especially lead to a shift of capex in the long term as investments will be made later. However, a few percent of capex is actually significant for a telco as it can represent several million euros each year. The ROI for optimisation systems can be, however, be significant.
Improvement of products
Big data techniques to improve products are aimed at increasing customer satisfaction (indirectly reducing churn) and attracting new customers. The main consequence of such benefits can be increased turnover due to new customers or a reduced churn rate.
A small increase of ARPU can also be expected in the short term as new products can attract existing customers and generate additional sales. These new products can also provide a competitive advantage to the telco in the short term.
CRM and Sales
The main goal of data services related to CRM and sales improvement is to generate new sales, and especially up-selling and cross-selling. It can increase revenues moderately, in the long term.
In addition, these services can bring a better knowledge of customers and can therefore increase customer satisfaction to a decent degree, reducing churn indirectly and maintaining revenues in the long term. The subscriber acquisition costs (SAC) can also be reduced in the long term as these techniques improve the customer acquisition process.
In addition to previous data services helping to reduce churn, specific churn prevention techniques using data exist. Churn is, in any case, an important for telcos in a very competitive environment. Churn reduction leads to revenue stability and can avoid massive migration of customers in the case of new attractive plans from competitors.
These new tools can thus lead to a reduction of subscriber retention costs (SRC) in the long term, but with an increase in the short term to implement the churn prevention platform.
Fraud detection is an important stake for telcos as fraud represents an important cost. Systems to detect fraud are therefore crucial for telcos and are a profitable investment in the long term. Fraud detection can thus lead to sensible reduction of fraud cost and losses.
External purpose services
Services provided by telcos to third parties can generate new revenue from data sold to these parties, or through services based on internal data analysis.
Contrary to internal purpose services, external services have to be analysed in their competitive environment and in their specific market. Each service has multiple ‘external’ constraints, more or less important, depending on the market and the environment.
The market for ‘insight’ services is relatively new, having started at the end of 2012. It is thus small and telcos can have a strong position as they own geolocation data from their mobile subscribers. If only a few telcos currently provide such services, others could join the market in the years ahead. Large OTT players would also be able to provide insights with their own data, but their data seems to be less accurate.
Improvements from new techniques such as real-time analysis (currently available) can bring value to insights but a lot of technical and privacy issues remain. Partnerships with other telcos seem to be not essential as a telco can, for instance, define the number of individuals on an area extrapolating the number of subscribers in this area. However, a partnership with other such players as pure players from the survey market could bring value to such services.
However, the growth potential of this market remains limited as potential customers seem to be limited as well. Such services are not well known at this time, and telcos should communicate more about their benefits, to attract more customers.
The audience measurement market is not a new one, as some players have been active in the TV audience measurement segment for a long time, followed by Internet website audiences and, to a lesser extent, in mobile application audiences. Telcos have introduced this market to measure mobile audience (for both applications and Websites), as they have a closer presence of mobile devices.
On the mobile segment, OTT players cannot really compete with telcos. The major OTT players on this market are Nielsen and comScore. Thus, to invest in other market segments, and especially those related to the Web, telcos should make partnerships with such players as they both have value to add in a common service.
In the end, the potential growth of this market is significant as the mobile measurement market segment should grow over time, with growing mobile uses.
Raw data sales
This market is still small as few initiatives exist at present. It is mainly composed of partnerships between telcos and other players interested in telco data and especially on very location-specific data.
Such a service is therefore based a discussion between the customer and the telco to define the kind of raw data to provide, and how to exchange it. The process is not automated. An automated system would consist in providing APIs sending the same data for all customers, or insight services with the same result of analysis for all customers.
In terms of competition, telcos are not the only players to provide such data as OTTs can provide it too. However, both face privacy issues as consumers are increasingly afraid of sharing their personal data with third parties.
The advertising market is very large and generates important revenue. Its growth is also very important as advertising is the core of many business models. Competition is very high.
In this environment, telcos can push specific strengths allowing them to get a competitive advantage, namely the data they can use to provide efficient targeted advertising.
However, the share of telcos on the mobile advertising market remains low – IDATE estimates this share at about 8% of the mobile ad market. Partnerships with other telcos or other players would be interesting in order to obtain a larger share of the cake and to reach another target.
The recommendations market is still small and mainly held by such OTT players as Facebook and Google. Their advantage is in providing service through their environment: a social network or even an operating system gathering data on customer habits.
Telcos also have strengths in providing recommendations: location data as well as other declarative data can be used here. This may, though, not be enough to compete with OTT players with their multiple diffusion channels for their recommendations. Recommendations would be thus of limited value for telcos.
The API market is quite specific as it does not generate substantial revenue and is heavily segmented. In addition, APIs cannot be really considered as big data applications. They are mentioned here as an important tool for telcos to share internal data.
The only API currently generating revenue is carrier billing as telcos get a share of the transaction amount. This market is thus very small in value, yet significant in the volume of data exchanged.
In terms of competition, APIs provide specific data that depend on each provider. Carrier-billing APIs are proper to telcos. User profiles are usually provided by social networks, but can be also be provided by telcos, as with Orange. In this specific market segment, telcos compete directly with some large OTT players, but only in terms of the kind of data and not in terms of potential revenue.
Alliances of telcos can bring practical benefits in order to reach a larger share of population worldwide, and in order for developers to develop API connections with only a few players (and not with each telco).
Conclusions on big data services for telcos
Of these big data services, some help to reduce costs whereas others can generate new revenues directly or indirectly. They do not, though, provide the same ‘potential’ benefits in that the final benefits may differ between implementations. The figure below provides an overview of the potential benefits of each service or application in terms of new revenues and savings. These figures are estimations of the potential impact for the global retail telecom market, for a full year. It gives an overview of the benefits of each kind of application.
More information on Big data for Telcos
IDATE delivers its analyses and conclusions on Big Data in its recently published market report "Big Data for Telcos". Our experts spotlighted the different opportunities for telcos and examined the drivers and hurdles of a massive use of Big Data.