15Mar/170

Connected Cars & Future of the Mobile Ecosystem, interview with Thierry VIADIEU

thierry_viadieu_dwej

"Connected Cars & Future of the Mobile Ecosystem"
DigiWorld Economic Journal n°105

Interview with Thierry VIADIEU
Program Director for Connected Car & Autonomous Driving, RENAULT

Conducted by Yves GASSOT, CEO, IDATE DigiWorld Institute

DW Economic Journal: Could you describe the scope of your responsibilities at Renault?

 

Thierry VIADIEU: As far as connected cars are concerned, the field of endeavour for the Product Planning and Programs department covers on-board systems (multimedia systems), offboard systems (servers) and connected services. For autonomous vehicles, it covers autonomy and the components that enable that autonomy (sensors, radars, cameras, LIDAR, etc.).
Our task is to ensure that what we want to deliver to our customers (as set out by the Product Engineering and Sales and Marketing departments) is properly expressed, then taken into account by those in charge of development. We give them the budget they need, and we ensure that the plan they put into effect lines up with their mandate. These projects are then contracted with the Vehicles Program departments which will adopt these developments and we commit to results.
Over the course of its lifespan, we ensure that the project is on track and make the necessary decisions when it deviates. Top management receives progress reports on a regular basis.

We often associate the notion of the self-driving car with that of the connected car, as the latter is a stage in and a prerequisite for making a car autonomous. But users are not terribly clear on exactly what services a connected car provides. What does Renault offer its customers in this regard? And which applications do you believe are the most promising for the next five years? Can you share any figures on your connected car output?

Autonomy and connectivity cover two different technical fields, and exist independently of one another. But of course the autonomous car will be highly connected.
The connected car has been around for some time. For instance, the traffic information given by navigation systems requires connectivity. Today, through its RLink systems, Renault offers a range of connected services: traffic information, Coyote, access to e-mail, access to a variety of apps from the app store, data for fleet management or pay-as-you-drive insurance contracts, opening car doors using a smartphone for car-sharing services (RAccess), and so on.
In a not too distant future, the range of services on offer will be very broad and cover different value fields such as monitoring the state of the vehicle (preventive maintenance), remote actions (setting the vehicle's inside temperature, opening the boot for deliveries), easy driving (booking parking spots, travel recommendations), mobility services (opening doors with a smartphone, multimodal solutions), personalised virtual assistant with connections to one's digital devices (links to calendars, appointment bookings, restaurant reservations, etc.). Depending on their needs, each customer will choose the services they find most useful.
The job of the autonomous car is to gradually relieve drivers of certain driving tasks, aiming to take a complete control of the vehicle. This will give drivers more time to do other things during their drive time, so an advanced connectivity solution will be absolutely vital to the offer of autonomy. This offer could go as far as the ability to work in one's car, and videoconference from the vehicle.

The ubiquity of the smartphone and the apps designed for the two main platforms, iOS and Android, is pushing car-makers to offer drivers the ability to replicate the familiar digital environment on their vehicle's display. At the same time, car-makers also want to protect the independence of their relationship with customers for certain services, such as maintenance. What are the services that the car manufacturer must deliver directly or indirectly, but independently from mobile application platforms?

A fluid relationship between the customer's smartphone and the car's multimedia system (which we call smartphone integration) is key to ensuring the digital continuity our customers demand. That being said, we need to keep in mind that – while awaiting the autonomous vehicle – the driver is still in the driver's seat, and any activity that might distract her/him and threaten her/his safety must be avoided. This is why certain apps are "replicated" in the multimedia system, and in a very strict fashion. So drivers will have access to a very limited number of their smartphone's features.
As to the relationship with the two digital giants, Google and Apple, it is clear that all car-makers have certain concerns over the ultimate consequences of smartphone integration. Some have taken the path of defining integration standards that allow them not to rely on those developed by Google and Apple, while others have even announced they would not be offering those applications.
At Renault we have chosen to offer CarPlay (Apple) and Android Auto because we think that's what our customers want. On the other hand, we are very careful about creating a balanced relationship and about the data being relayed, by ensuring that it in no way jeopardises our customers, or our business models.
To illustrate the merits of having a good relationship between the car-maker and an application, let's use the simple example of looking for a petrol station. An application that indicates all of the petrol stations in the vicinity is clearly useful when we are driving and need to fill up. However, its value increases tremendously if it can also gauge how full the tank is and tell us the best time and place (cost, mileage remaining) to fill up the tank.

The car dealership obviously has a very important role in selling vehicles and promoting the latest innovations, and in maintenance and customer relations. In what way do you take this into account? What is their role today, and how will it change in future?

Renault dealers play a key role in our relationship with customers, and in informing them about our products. We believe this will continue to be the case with connected services. Naturally this relationship is evolving as customers are getting more and more information from the internet, and are able to discover products online from home, but it is undeniable that physical contact with a product and an informed representative will remain an important ingredient in quality of service. As proof, I offer up the direction being taken by certain major internet companies, such as Amazon, which plan on opening up brick and mortar shops in major cities. In this respect, the density and proximity of the Renault network is a major asset that we will be sure to leverage.
We can also cite the initiative taken by a number of Renault dealerships which offer what we could call "RLink genius bar sessions" to give customers an opportunity to familiarise themselves with the system.

When we move into the autonomous car stage, we have to stress the impact of regulatory imperatives, of consumers' reactions – be they enthusiastic or disoriented – and the influence and role of the internet big five (GAFAM) and of new entrants: could you comment on these central issues and challenges ahead?

Regulation is a very important, so as not to say crucial aspect. Laws and regulations will need to evolve to allow extensive use of the autonomous car, and Renault is naturally involved in the discussions that are underway on the matter. It is a difficult exercise because, as with most car-makers, we sell our models in a great many locations around the globe, and there is still no overall regulatory framework that applies to autonomous cars.
On the matter of users, I think they have a tremendous ability to adapt, and when the services on offer are useful and have been carefully designed, there will be no obstacles to adopting them. On the contrary!
For us, the internet giants are certainly potential partners. As with all of our partners and suppliers, we look closely at what they can offer us, while also be vigilant about the skills and responsibilities we want to maintain or acquire. Today, they appear to be positioned solely in the driverless autonomous car, and we don't know if one day they will be direct competitors.

What are the most strategic technological developments that self-driving car vendors will need to master? What R&D and partnership (with its peers, and with electronics and IT companies) policies is Renault putting into place? Do you think that the costs associated with the connected/autonomous car will drive a period of consolidation in the automotive industry?

When it comes to the development of autonomous cars, the different sensors that become the car's "eyes and ears" naturally play a major role. They will evolve, be able to "see" farther and under any conditions (snow, rain, etc.), will be increasingly reliable and especially increasingly affordable so that all product ranges can benefit from them.
But if there is one area in which all automotive manufacturers, and of course the Renault-Nissan alliance, are investing massively, it is the development of the software that will manage all of the vehicles' sensors and systems. We need to develop the right algorithms, incorporate elements of artificial intelligence, ensure the robustness of zero-fault execution (the bugs that are such a familiar part of our daily lives are "forbidden" in an autonomous car, whose software needs to be as robust and reliable as the software that drives the most sensitive installations) and have a self-learning capacity that allows it to improve on an ongoing basis.
I believe this is the key to the development of the mass-produced autonomous car.
As to the impact on a consolidation of the automotive industry, this sector has already undergone considerable consolidation in recent years, creating several "titans" that produce more than 8 million vehicles a year, and I expect to see more close partnerships over certain technologies rather than corporate mergers.

The autonomous car will generate thousands of Gigabytes, often with stringent quality and latency requirements that will mean connectivity costs cannot be overlooked in vendors' business models. What are your views on this? Do you believe, like some, that your business model will include monetising some of the data generated? How much are you banking on the advent of 5G which is currently mobilising the telecoms industry?

Today, the cost of relaying data over the GSM network is a significant element in connected services' business model. The use of a SIM card that allows users to switch from operator to operator, or plans that allow them to pool or spread out their consumption are important factors in limiting the impact of this cost. As is monetising generated data. That being said, data traffic still carries a high price tag in some countries which creates an impediment to deploying services to all of our customers around the world.
Regarding 5G, naturally we are keeping a close watch over its development, but current projections indicate that coverage will still be very slim in 2020, so we cannot concentrate our developments for the next five years around 5G.
We often stress the time lapse between automotive industry cycles (four to five years) and digital innovation cycles. But if we take the example of the transition from LTE to 5G we see that, even in the digital world, not everything progresses as quickly as the latest version of WhatsApp or the rollout of the latest smartphone model…

The vision for the connected car, as for the self-driving car, needs to be part of a more wide-reaching thought process devoted to the different components of the digital transformation that is affecting mobility: the servicisation of car use, the influence of the first car-sharing platforms and ride services, how cities are changing, smart roads, etc. What initiatives are you taking with respect to these various trends, and how would you describe a car-marker 10 years from now?

As with most other car-makers, Renault is not focusing all of its attention or investments on the development of the car solely, even if it is autonomous and connected. Either directly or by having a stake in other ventures, we are interested in all aspects of innovation in what we call the mobile digital ecosystem (car sharing, car pooling, multimodality, peer-to-peer rental, etc.). It is also an opportunity to engage in discussions and run trials in large cities such as Lyon and Bordeaux where Renault is partnered with Bolloré.
Here, it is likely that the development of the autonomous car will run parallel to investments in outfitting roadways (smart roads and motorways), paving the way for new forms of mobility. One of the challenges will be managing the co-existence of classic cars and autonomous (possibly driverless) cars within a complex environment.
To answer your last question, I tend to believe that ten years from now the car-makers that remain – and of course the Renault-Nissan Alliance will be among them! – will be similar to car-makers today in many respects. We will undoubtedly see a shift in the value chain, and an expansion of car-makers' business into mobility products and closer ties with the digital world. But at the centre of all this is an object – the car – which is more and more technologically complex and subject to increasingly stringent regulations (security, emissions, CO2). This is what constitutes an automotive manufacturer's core business, and what I believe explains why there are virtually no new entrants to the sector.

 

Thierry VIADIEU. RENAULT Program Director for Connected Car (since 2012) and Autonomous Driving (since 2016). Graduated from the Ecole Nationale Supérieure des Ingénieurs Electrotechniciens de Grenoble in 1985 and received a PhD in Material Science from the University of Grenoble in 1988. Entered RENAULT in 1988 as research engineer. Then RENAULT Powertrain Division from 1992 until 1999 working on programs and strategy. Moved to NISSAN Headquarter in 1999 after the signature of the Alliance, starting in Manufacturing Strategy. Moved to NISSAN Corporate Planning in 2003 as General Manager and became NISSAN Corporate Vice President in 2005. In 2006, moved to NISSAN Thailand as ASEAN VP. In 2009 became RENAULT-NISSAN b.v. Director for Alliance Powertrain Planning.


30Apr/150

Platforms regulation

Yves Gassot

Yves Gassot
CEO, IDATE

 

Year after year, the economic and financial power of the GAFA  quartet of Internet platforms continues to increase. Which brings two questions back to the fore, again and again: what trends might emerge to counter this seemingly inexorable rise? And do we need regulations that apply specifically to platforms?

A quick reminder of what economists mean by platform economics (digital or not): multi-sided markets (i.e. involving interactions between two or more parties) with reciprocal “network effects”. So the more iPhones that Apple sells, for instance, the more attractive its app store becomes to developers (and so to users), and vice-versa. In digital sectors, this characteristic is typically combined with a reduction in fixed costs (software), generating increasing returns as the platform becomes more successful.

By 2025

Network effects usually go hand in hand with another property: asymmetrical prices. If Apple is starting to earn substantial income from the App Store, its business model and profits are rooted chiefly in the high price of its iPhones. With ad-funded models, one side of the market operates as a free service. As we have seen with Apple, digital platforms are a very efficient means of fostering open innovation, and capitalising on innovations from third parties. All of these aspects, which go some way to explaining why “winner takes all” when it comes to platforms, naturally need to rely on the ability to maintain the role of intermediary, and continue to become more proficient at it. Otherwise, the platform’s customers and suppliers will begin to adopt multiple homes, before eventually moving on to another, better platform. The efficiency of the leading platforms is the very reason for the current ambivalence over how much they are serving the greater good. On the one hand are concerns that a dominant OS will abuse its position while, on the other, this popularity can also mean an opportunity for developers, and can have positive repercussions for consumers.

The dichotomy needs to be resolved by taking account of the Internet’s dynamics as a whole. Windows has been through a number of anti-trust investigations but, today, this is the mobile Internet which has moved down the priority.

Worth reading on this topic is the recent IDATE report on "The future of the Internet: 2025". It takes a detailed look at the key technologies for the coming years, and especially at how development scenarios will be shaped by key variables, such as the openness of the Internet ecosystems, or the impact of restrictive privacy or security-related public policies. Here, we will add two other events that take us beyond a GAFA-centric environment. First, 2014 saw a number of Internet powerhouses emerge from the shadows of the GAFA quartet: in China (Alibaba, Weibo…) and in Asia’s leading markets in general (Rakuten, Line…).

We cannot entirely discount the possibility of these players gradually coming to compete head on with their Western peers. Second, we need to consider the position held by new players moving into vertical markets, many of which have carved out a place of sector-specific intermediary – Uber and Airbnb being two prime examples – and which have no intention of being taken over by Google or Apple or the like.

Nevertheless, faced with the realisation that GAFA continue to become increasingly powerful, the inefficiency of antitrust laws and the regulatory asymmetries compared to those imposed on other players along the chain, the idea of regulation that applies specifically to platforms is gradually coming to the fore. It may not be a good idea. Competition law, even ex post, is not necessarily ineffectual.

Privacy

Plus it will be no simple matter to define the contours of the platform sector. And extending existing sector-specific laws, such as those that apply to electronic communications, to make OTT companies and telcos subject to the same principles, would take us down a path where, as businesses become more and more digitised, every economic sector would be more or less governed by electronic communications laws. Keeping in mind that the upcoming review of the EU regulatory framework for electronic communications is expected to focus on network access conditions and interconnection – and probably put more emphasis on symmetrical regulation. Should voice and SMS products not be removed from the scope of the telecom sector’s ex ante regulation, rather than adding in competing OTT products such as Skype, Viber, WhatsApp, etc.?

It nonetheless remains that in sensitive areas for digital industry players, such as those governing contract law, taxation, public safety and privacy, we can very easily identify laws that should apply across the board, such as what we find in consumer products and the retail industry. Without having to produce laws that are specific to platforms, the current juncture could provide an opportunity to merge national legal provisions with regional (EU) and global ones, and to ensure that they apply equally to all players along the value chain

For the publication of the last study about "the future Internet in 2025" and  the 15th edition of the DigiWorld Yearbook, IDATE is organizing a conference on the perspectives and key trends that will structure the digital economy for the next decade, DigiWorld Future

Register for the Conference in Paris the 16th of June     Discover the programme

More informations about IDATE's expertise and events :

www.idate.org      www.digiworldsummit.com      www.digiworldweek.com

23Mar/150

In 2015, the key words of the Mobile World Congress were 5G, IoT, virtualization and LTE-U : PART 1

MWC infog

As for each edition, IDATE has been Analyst partner of the Mobile World Congress. A fantastic opportunity for our analysts and experts to interview many professionals coming from their Mobile planet to Barcelona for this intense and tremendous week.

5G Concept

Even though the concept of 5G is still very much under discussion (videos from KT, Huawei presented during conferences), NGMN (next generation mobile networks) Alliance published its 5G white paper which can be seen as the mobile operators “wish list” for 5G. Nonetheless, 5G is scheduled for 2020. Early trials should arrive in 2018, with projects scheduled for the Winter Olympic games in South Korea (4G became real in 2010’s, 3G in 2000’s). Key advantages of 5G over 4G would be a much lower latency (1ms compared to 40 ms in 4G and 100 ms with 3G), the capacity to connect billions of devices, faster response that will boost services like augmented reality, self driving cars and online gaming. Huawei mentioned that 5G should reach 10 Gbps (7 minutes to download a movie with 4G, 6 s with 5G).

5G should better take into account specific requests of vertical markets (healthcare, automotive, energy, government, city management, manufacturing and public transportation) and better manage the Internet of Things.

Equipment suppliers showed first demos of 5G air interface using millimetric bands (70 GHz - Nokia) and 15 GHz (Ericsson). New air interface techniques were proposed by Huawei with the non-orthogonal access technology based on Sparse Code Multiple Access (SCMA), and Filtered-Orthogonal Frequency Division Multiplexing (F-OFDM).

With tvisuel principal idate MWC v2he 5GPPP (Public Private Partnership), Europe is trying to accelerate developments of 5G with fundings of €700 million for R&D. It is expected that the industry will invest five times this amount. According to the 5GPPP, 5G should be based upon a HetNet (heterogeneous network) supporting various radio access technologies and frequency bands ranging from sub-1 GHz bands to 100 GHz. Various traffic profiles will have to be supported:

 

•    Low speed-low energy for IoT sensors
•    High speeds for video services
•    Very low latency profile for mission critical services such as PPDR (Public Protection and Disaster Relief) and for transportation issues

Google will soon become a MVNO

Google confirmed during the MWC that the group is negotiating MVNO agreements with the US mobile operators. Light details on Google plans so far. Further information scheduled for months to come. Nova is not expected to compete directly against US MNOs. In addition, Google do not want to launch a network at scale.
The Google MVNO will only work with the Nexus6. “The focus of Google’s network could be on connecting devices other than phones, as watches, cars and other devices increasingly will include mobile connectivity features”.Mobile Identity

Different methods of identification and authentication, each suited to particular transaction types (from access to social network to official ID) ; biometric authentication as a new solution.
•    Digital identity card exists in Estonia (with digital authentication), biometric card exists in middle east and Africa (Algeria, South Africa)
•    Mobile authentication is a challenge for mobile operators, but the market is far from mass-market: demand is not ready for official ID authentication on mobile, standards are needed, as well as regulation.Mobile Id could be a leapfrog technology in emerging countries where people don’t even have identity papers, and have a mobile phone.
If mobile operators don’t manage to be positioned on this market, banks or social networks could.

Virtualization

PICTO VIRTUANetwork Function Virtualization (NFV) appeared last year during MWC and is now close to commercial implementation by mobile operators. Telefonica demonstrated a full network together with ALU and HP. It will integrate a vRAN, vCDN, vEPC and vIMS.
A first implementation of vRAN was presented by China Mobile which is collaborating with Alcatel-Lucent and Intel on Cloud-RAN, which is seen as a first step towards virtual RAN. NTT Docomo is working with NEC on virtualization of the core network (EPC).

LTE-U

LTELOGO2LTE-U technology is important and was present on many vendors’ booths. It will give free access to additional spectrum in the 5 GHz band currently used by Wifi. This will provide SDL (supplementary downlink) capability, providing extra capacity for downlink traffic, especially video. LBT (Listen Before Talk), the specific function which will allow smooth compatibility between Wifi and LTE in the 5 GHz band will be included in 3GPP Release 13 expected to be adopted in Q3 2016.
LTE and Wifi carriers can also be combined in order to provide higher throughputs but in that case, the benefits of LTE higher spectrum efficiency are not present.

 

20Mar/150

Nouveau cycle de conférences de prospective numérique sur les enjeux de l’Internet, de la télévision et des télécoms à 2025

logo DWFuture generique 2015

A l’occasion de la sortie de la nouvelle édition de son DigiWorld Yearbook, l’IDATE présente son nouveau cycle de conférences de prospective numérique sur les enjeux de l’Internet, de la télévision et des télécoms à 2025 !

La première session DigiWorld Future  se déroulera le 16 juin au Palais Brongniart, à Paris,  dans le cadre du Festival Futur en Seine en partenariat avec la Ville de Paris et Cap Digital.

A partir des analyses des experts de l’IDATE, les débats seront animés par Marjorie Paillon, Journaliste, Tech 24, Philippe Escande, Rédacteur en Chef, Le Monde et Gilles Babinet, avec les contributions exceptionnelles de :

sebastienbazin lowaxellelemaire lowMaurice Levy lowfrederic mazzella lowrichardstephaneOROUSSAT low

 

 

 

 

 

 

 

 

 

 

 

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26Mar/140

Edito by Yves Gassot

GASSOT Yves
 
 
Yves Gassot

CEO, IDATE
 

Telecom: Heavyweight manoeuvring in France and in Europe

 

So Vivendi chose to enter into exclusive talks with cable company Numericable’s main shareholder for the sale of SFR, France’s second largest mobile operator and number three ISP. The deal which, straight away, would reduce Vivendi’s stake in the new operator to 32% and guarantee its future full withdrawal. This option was chosen over the one offered by Bouygues Telecom, France’s third largest mobile operator and fourth largest ISP, which would have resulted in the creation of the country’s largest mobile operator, with close to 50% of customers. Bouygues Telecom had even anticipated the French competition authority’s qualms about the merger by agreeing to sell off its network of 15,000 towers to France’s fourth MNO, Free, which serves 12% of the country’s mobile users.

It is possible that Vivendi was looking for the quickest exit from SFR. Both SFR and Bouygues Telecom have been members of the IDATE programme for a number of years, and we had no part in the negotiations. So we will keep ourselves from further comment.

But three general remarks are worth making:

• The “telecoms war” that has been going on in France for the past several weeks is not a game of Monopoly, or some form of industrial Meccano. At the very least, it is emblematic of a broader economic crisis in the sector. And, unfortunately, this situation – which includes a massive drop in revenue that is weighing heavily on margins, debt rates (debt to EBITDA ratio) and investing capacity – has hit all of Europe’s main markets.

According to IDATE, telecom services revenue in Europe’s five biggest markets has shrunk by 12% in five years. If France has been the focus of market analysts’ attention over the past few days, we have been waiting on the DG Competition decision over the sale of O2 to Hutchison Whampoa in Ireland, and especially over the deal that would allow Telefónica to take control of a merged O2 and E-Plus (KPN) in Germany, Europe’s largest market.

• Market consolidation, which appears inevitable, could take several forms. Given anti-trust authorities’ reluctance to see fewer players competing in the marketplace, it may take the form of infrastructure sharing schemes. These deals have existed for mobile systems in certain countries for years now, and their numbers could grow considerably. Among other things, they allow telcos to reduce their CapEx and OpEx, but do not eliminate any rivals. So in a price war situation, they make a decrease in ARPU more tolerable, rather than stabilising or helping increase margins.

In Europe, then, consolidation tends to focus on putting an end to market configurations of four network operators (in favour of three MNOs plus MVNOs) that have emerged from public authorities’ award of some 20 additional licences since 3G-UMTS launched in Europe – even if a great many of these operators have since closed up shop. The negotiations between Vivendi/SFR and Numericable nevertheless illustrate a different kind of consolidation: fixed-mobile. The impetus behind this consolidation lies both in the potential of quadruple play bundles and the growing overlap of wireline and wireless systems, with the advent of small cells and ultra high-speed mobile.

Not long ago, we saw Europe’s top mobile operator, Vodafone, acquire Cable & Wireless and spend more than 7 billion EUR for Kabel Deutschland. This deal, along with Liberty’s recent takeover of Virgin Media and Ziggo, helped drive up the price of cable assets, which Altice and Numericable were able to capitalise on – as will no doubt Ono in Spain not far down the road. If there appears to be no lack of support from the banks for these mergers, the money may not be so free flowing for a third type of consolidation, namely cross-border deals inside the European Union. Synergies there are less overt, and national consolidation appears to be a mandatory prelude to financial markets supporting offensive strategies that result in the creation of truly pan-European operators. The danger is that, by delaying national consolidations, European consolidation could fall into the hands of outside players.

• And, finally, do we need to choose between operators’ financial health and consumer interests? It seems a bit of a caricature. There no doubt needs to be some assurance that rebuilding margins does not result in unreasonable price hikes and collusion. But this seems unlikely. First, because regulatory authorities in Europe are both well entrenched and experienced. Second, because technical progress in this industry is such that margins which enable cost-effective investments, and a steady rate of equipment renewal are the basic conditions of lower unit prices and improved quality.

22Jan/140

Cutting the Cord: Common Trends Across the Atlantic

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.

Eli NOAM
Columbia Business School, 
New York, USA
 Exclusive:

 Joint interview with

 Gilles FONTAINE, IDATE,
 Montpellier, France
 
 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).

g.fontaine@idate.org

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

Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org

17Dec/131

Interview with Craig MOFFETT MoffettNathanson LLC, New York

Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013


Video cord-cutting

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.

Craig MOFFETT
MoffettNathanson LLC, New York
Exclusive:
Interview with Craig MOFFETT
MoffettNathanson LLC, New York

Conducted by Raul KATZ,
CITI (Columbia Institute for Tele Information),
New York

 

C&S: Is cord-cutting affecting equally cable TV and telcos in the US?

Craig MOFFETT:

There's a fundamental difference between the cord-cutting experienced by the cable operators, which is all about video, and that experienced by telcos, which is all about voice. Video is a high bandwidth service and voice is a low bandwidth one.

Low bandwidth services are the easier target, so up to now we've seen much more aggressive cord-cutting in voice than in video. The fact that the cable operators have a more robust physical plant than the phone companies has left the telcos losing share in broadband as well as in voice, making the losses all the more painful for the telcos.

Video is such a high bandwidth service that video cord-cutting is only just beginning. By our estimates, there are now as many as 2 million households that have cut the Pay TV cord in the U.S. That's only about 2% of the market, but it is a growing segment. In these early numbers you can see the beginnings of a bigger problem.

What are the different retention strategies deployed by each type of player to prevent an acceleration of cord-cutting trends?

The telcos seem to have concluded that they are fighting a losing battle to retain wireline voice customers. The residential voice market as a standalone business is vanishing before our very eyes. Unlike in Europe, bundling wireline and wireless therefore isn't really an option. In the U.S., the telcos have regional wireline footprints but also have national wireless ones. Naturally, they are reluctant to make a compelling integrated offering for fear that it will simply reduce the competitiveness of their wireless businesses outside their footprints.

Cable operators have an advantage in that they've got the best physical plant (at least where there is no fiber-to-the-home alternative). So they've been able to bundle video and broadband, and even voice, as a retention strategy. That has proven very sticky. And by tilting the pricing of their services – higher for broadband and lower for video, at least on the margin – they can make it less and less attractive to leave.

And the cable operators have another advantage. It is easier to defend high bandwidth services than it is to defend narrowband ones. The key is whether the cable operators will be able to begin charging for broadband usage. If they can, defending against high bandwidth video streaming becomes relatively easy. Or rather, it becomes a moot point, since a carrier charging the right price for usage is economically indifferent whether video is delivered via traditional Pay TV or via internet-based OTT (over-the-top) alternatives. The question here is entirely regulatory. Whether they will meet regulatory resistance to their early trials is unclear.

Would any changes in the content arena (e.g. sports content) accelerate the cord-cutting trend?

In many ways, sports programming holds the key to how the ecosystem will evolve in the U.S. Today, sports are exclusively available via the traditional model. Cutting the cord is therefore appealing to a relatively smaller segment of the population. If the most popular sports events were to be made available over the Internet you would suddenly begin to see a much more rapid migration to video over the Internet.

Conversely, if traditional cable and satellite operators are ever able to force the unbundling of sports networks by putting them on a separate tier, they would relieve what is otherwise a tremendous pressure point on the system. In theory, that would slow down cord-cutting. Today, cord-cutting is primarily about cost, not technology. And the biggest driver of cost inflation is sports programming. Taking it out of the basic programming tier would lower the cost to non-sports enthusiasts, reducing their incentive to cut the cord.

Would you see that cord-cutting would trigger additional changes in the content value chain (e.g. backward/forward integration, M&A)?

For distributors, the key question is whether the economic value of the video transport function can be preserved in an over the top model. If it can, the distributors will fare relatively well. Even satellite operators would benefit, since the economic benefit of cord-cutting would be mostly eliminated, which would naturally slow down the migration. Again, the real questions here are regulatory, not technological or economic.

For programmers, the key question is whether cord-cutting will necessitate unbundling. Most consumers think that content bundling is driven by the distributors. It is not. It is driven by the programmers. The programmers sell bundles of cable networks to the cable operators, and their contracts require that those bundles be kept intact.

Cord-cutting is typically assumed to entail a move to unbundling, or a la carte, programming, but that doesn't necessarily have to be the case. One can imagine a model where video is delivered over the Internet in the same unwieldy bundles that are today delivered by cable and satellite operators. If things evolve that way, the implications for the programmers will be relatively modest. On the other hand, if programming is ultimately unbundled as it moves to the Internet then the value chain as we know it will be upended. Value in that model would move further and further upstream, ultimately to the actors and artists, accelerating a migration we've been witnessing in slow motion for years. The value of the media conglomerates would radically decline as their revenues declined and as their costs of content acquisition and production rose. At this point, it is too early to say whether this will happen in video. It already has in music, and the results haven't been pretty.

Biography

Craig MOFFETT is the founder of MoffettNathanson LLC, an independent institutional research firm specializing in the telecommunications, and cable and satellite sectors. Mr. Moffett spent more than ten years at Sanford Bernstein & Co., LLC as a senior research analyst. He was previously the President and founder of the e-commerce business at Sotheby's Holdings. Mr. Moffett spent more than eleven years at The Boston Consulting Group, where he was a Partner and Vice President specializing in telecommunications. He was the leader of BCG's global Telecommunications practice from 1996 to 1999. While at BCG, he led client initiatives in the U.S. local, long distance, and wireless sectors, in both consumer and commercial services, and advised companies outside the U.S. in Europe, Latin America, and Asia. He was the author of more than 20 articles about the telecommunications industry during the 1990s. He published analyses and forecasts

Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013

Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org

18Jul/13Off

Interview with Gilles BRÉGANT, CEO of ANFR

Published in COMMUNICATIONS & STRATEGIES No. 90, 2nd Quarter 2013

The radio spectrum: A shift in paradigms?

Summary of this issue: Demand for the use of the radio spectrum is constantly and rapidly growing, not only as a means of carrying Internet traffic, but also for new or expanding use by the military, public protection and disaster relief, at the same time that more traditional applications such as aeronautical, maritime, and radio astronomy remain. Is spectrum policy entering a trackless wilderness, or can a new direction and a new set of paradigms be expected to emerge? The contributions to this special issue of Communications & Strategies cover a great deal of ground. They serve to provide valuable signposts for spectrum policy going forward.

Gilles BRÉGANT CEO of ANFR

Exclusive:
Interview with Gilles BRÉGANT
CEO of ANFR.
(French national spectrum agency)

Conducted by Frédéric PUJOL,

Head of the radio technologies & spectrum practice, IDATE

 

C&S: What are ANFR's main priorities in the coming two years as far as Spectrum management is concerned?

Gilles BRÉGANT:

The Agence nationale des Fréquences (ANFR) is the French public Agency in charge of radio spectrum management. It is placed under the jurisdiction of the Minister responsible for Electronic Communications (Mr. Arnaud Montebourg and Ms. Fleur Pellerin since May 2012) but all the Ministries using spectrum are represented at ANFR's board. Besides, ANFR's decisions regarding spectrum allocation are actually taken by the Prime Minister since spectrum, in France, is a state affair.
Spectrum management priorities will be closely linked to the governmental decisions and digital economy needs for the following years and to the international and European agenda.

A. Create the conditions of mobile broadband (4G) success in France
4G allows very high data flow rates and significantly increased user comfort: lightning-fast downloads, and a more fluid navigation become possible on smartphones or tablets. This opens up opportunities for new services in mobility, such as access to audiovisual content. A factor of innovation, growth and job creation, 4G is one of the priorities of the Government. ANFR has been deeply involved for the development of European harmonized conditions for the usage of 4G and is currently mobilized to make a success for the introduction of this new technology.

Since December 2012, the Agency has published a 4G roll out observatory. This tool will be key to monitor 4G infrastructures deployment, carrier by carrier.
However, the 4G challenge will be a tricky one when it comes to spectrum management since the 800 MHz 4G can interfere with DTT. ANFR uses its resources devoted to the protection of TV reception so that the 4G 800 MHz and TNT coexist harmoniously.

The ANFR intervenes at every stage of the deployment:
- it actively participates in the communication towards local elected officials, professionals and the general public on these operations;
- during the phases of deployment, it collects and instructs the claims of viewers through its call center;
- it oversees the resolution of the problem by operators if the interference comes from the 4G 800 MHz. A professional intervenes, most often to insert a filter in the reception of the TNT facility.
The TV reception is therefore guaranteed for each viewer. The full cost of interventions is supported by mobile operators.

B. Prepare the next World Radiocommunication Conference (WRC)
In 2012, we have drawn the immediate consequences of the WRC-12. In 2014, the delegations will develop first arbitrations of WRC-15. In 2013, national positions must be taken.

One of the challenges of this Conference will be the question of the future of the 700 MHz band. In France, it is now assigned to audiovisual. Since the debates on the first digital dividend, five years ago, the terms of the problem have been well known: the use of mobile Internet is expected to grow regularly in the coming years to meet the expectations of very mobile broadband. But this demand for broadband is common to all sectors: the audiovisual sector wants to keep these frequencies to offer new services: generalization of high definition, introduction of ultra high definition or 4K for example. And Government services, such as those of the Ministry of the Interior, also want to access services such as video for safety services.

In this debate, three ideas seem inevitable:
- there is not enough spectrum available under 1 GHz to satisfy fully each need;
- France is not an island, and it will have to act in harmony with its Western European neighbors;
- Europe will have to play an important role.

ANFR, as it manages the entire spectrum and guaranties technical neutrality, is coordinating the preparatory work at the national and international levels. ANFR, which is already contributing to the preparation of the next WRC, is involved in various entities in CEPT and UIT involved in this process and is bringing its technical expertise to the Government so that a decision can be taken in the best conditions.
ANFR is also an active member of the RSPG ad hoc group, which will provide recommendation to European Commission on WRC issues and on the identification of 1200 MHz for wireless broadband.

C. Facilitate the deployment of the 6 new DTT channels
Since December 12, 2012, 25% of the French population can access 6 new HD channels with their DTT HD TV sets. Free to air TV is no longer limited to generalist channels. Every French citizen, and not only the ones with cable, satellite or IPTV subscriptions, will be able to watch specialized channels on areas such as sports, travels, diversity and so on by 2015.

The years to come will see more of the French population covered by the new HD DTT channels.
The Agency, together with the CSA, has the mission to assist viewers in solving their TV reception problems through its call center and its dedicated website, "www.recevoirlatnt.fr", in collaboration with local aerial installers. If necessary, it will grant funding provided by the State to viewers who have lost DTT reception.

What are the expected evolutions as far as new ways of sharing spectrum are concerned? What are their consequences on spectrum management?

First, it is important to recall that spectrum sharing is already a reality with short range devices operating under a general authorization on a non interference and non protection basis. This is the case for Wifi in the 2.45 GHz and 5 GHz bands. This is also the case of all applications using ultra wide band devices which are sharing spectrum thanks to a very low power density. UWB technology was also used in sectors such as automobile and aeronautics.

What about Licensed Shared Access (LSA)?

The objective of an LSA approach is to facilitate the introduction of additional users operating with individual spectrum rights of use in specific bands and on a shared basis with an incumbent user, thus allowing predictable quality of service for all rights holders. These arrangements will need sufficient flexibility in order to account for national particularities, in relation to the administration of spectrum.

LSA could be introduced as a regulatory approach to release spectrum. In addition to conventional planning methods, cognitive radio technologies and their capabilities (geolocation databases, sensing, etc.) could be taken into account as enablers for sharing under the LSA approach.

ANFR engineers are actively participating in European works, at the ECC level for instance, on this issue, which is still in its early stages.

700 MHz band: what are the stakes and constraints?

World Radiocommunication Conference (WRC) 2012 decided that for the Region 1 the 694-790 MHz band will be allocated to mobile service co primary with broadcast services, this allocation becoming effective after WRC-15.

The issues at stake in the preparatory works for the WRC-15 are each tied to technical and negotiated matters. The possible refinement of the lower band edge (694 MHz) is one issue up for debate during the preparatory works. The second stake is the identification of a harmonized channelling arrangement, that is to say, the uplink and downlink bands. Finally, technical matters such as sharing studies between mobile and DTT at 694 MHz and the consequence of this on the necessary guard band are also to be clarified through the preparatory works for the WRC-15.

Regarding the choice, and its consequences, between IMT and broadcast, WRC was the starting point. The next steps are European decisions and national arbitrages.

2013 will be the year of public exposure to electromagnetic fields in France (ANSES report, Abeille Bill…): what is the role of ANFR as far as exposition control is concerned?

First, the Agency has no sanitary or health prerogatives, its expertise and missions only rely on technical matters.
The Agency monitors the respect by radiocommunication network operators of the public exposure to electromagnetic fields limits. The legal limits are the ones of a 1999 European Recommendation. Besides, by Law, the Agency has to make an inventory of "atypical" points, that is, the points where the exposure is significantly above the national average (while still below the limits). ANFR also elaborates the protocol used to measure the public exposure to electromagnetic fields. ANFR is also in charge of devices monitoring (phones, smartphones, tablets…). We insure that DAS limits (2 W/kg) are respected. We also check if the necessary information is properly provided to consumers.

2013 will indeed be the year of public exposure to electromagnetic fields. It began with the Bill introduced by MP Ms. Abeille from the Environmentalist Party. This Bill was forwarded to the Parliament Economic Commission for further analysis.
In 2013, we will publish our report on technical experiments which were lead in France to assess the possibility to reduce public exposure to electromagnetic fields due to mobile operators antennae without decreasing coverage and quality of service. Such experiment is a world premiere until now. 2013 will also be the year when ANSES, the French sanitary authorities, publishes its new report on the sanitary effects of such a field.

The Agency is a neutral, technical expert in that area. By participating in public meetings, advising elected officials and also the general public through its website Cartoradio, the Agency participates in turning this potential concern into a serene public debate. Finally, in 2013 we will provide a mobile version of Cartoradio, with the location of all mobile based-stations and the results of more than 26,000 field measures.

The ANFR organizes an international Conference on June 26 and 27 2013 entitled "Spectrum & Innovation": what is it about?

The Conference "Spectrum and Innovation" was instigated by Ms. Fleur Pellerin, delegated Minister in charge of Small businesses, Innovation and Digital Economy. We want the Conference to be a major event in 2013 for the digital economy sector in general and radiofrequencies in particular. The objective is to show to a large audience of professionals from the digital economy how spectrum is key to their sector and how this resource is crucial to economic growth in the coming years.

Different themes will be dealt with: how mobility is shaping our society and stimulating innovation, how radiofrequencies constitute a growth leverage for industry and small businesses, or even the spectrum needs for 2020. To debate on these subjects only experts in their fields have been chosen. The Conference will also be a chance to listen to influential and renowned speakers: Ministers, European and foreign institutions officials, renowned academics and business leaders (BBC, Bouygues Telecom, Cisco, Eutelsat, France Télévisions, Free Mobile, IBM, M6, NRJ Group, Orange, Qualcomm, Renault, SFR, TDF, TF1…).

We expect these two days to shows us what exciting new developments can be in store in the coming years. The Conference will prove how spectrum can foster innovation, growth and job creation.

Biography

Gilles BRÉGANT was born in Chambery in September 1963. He graduated from Ecole Polytechnique (1986) and from Telecom ParisTech (1988). Following an 8-year-career at France Telecom research center, Gilles Brégant was appointed technical adviser to the Minister in charge of Research (1996-1997). He had to coordinate international projects and themes in relation with information technology. He then worked for the department of trade and industry as deputy director in charge of Prospective. He was appointed secretary general of the ministerial task force "Digital Economy" (2001-2005). He was then appointed Technical Director of Conseil supérieur de l'audiovisuel (the French Media Regulator) in 2005. Gilles Brégant is the CEO of ANFR since 2011.

Published in COMMUNICATIONS & STRATEGIES No. 90, 2nd Quarter 2013

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COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org

16Jul/13Off

Telcos and the investment challenge

MANERO Carole
Carole MANERO
Project Leader, Digiworld by IDATE


Capex momentum still positive, with telcos spending €237 billion worldwide

“CAPEX spending in 2012 was at its steadiest rate ever, coming in at 7% or slightly higher than in 2011”

IDATE has released the latest version of its annual report on telcos’ spending strategies around the globe. As always, the report is a chance to check in with an indicator that has become a key measure of the telecom industry’s health.

Carole Manero, who directed this report that draws on a unique global database of telco capex on fixed and mobile systems, says that, “spending in 2012 was at its steadiest rate ever, coming in at 7% or slightly higher than in 2011”. As a result, capex for telecom carriers worldwide in 2012 was higher than in 2008.

Mobile investment is driving growth

According to IDATE, spending reached €132 billion in 2012, which is €9 billion more than in 2011 (about €15 billion in total CAPEX growth between 2011 and 2012), and driven especially by telcos investing in migrating infrastructure to mobile broadband.

France, the biggest spender among EU Member countries

In Europe, France was the biggest spender among EU Member countries: €6.8 billion in 2012, only just ahead of the UK where telcos spent €6.7 billion

Breakdown of total CAPEX worldwide, in 2012

Worldwide CAPEX breakdown

Source: IDATE, July 2013

Emerging markets also driving CAPEX growth

According to IDATE, CAPEX in emerging countries (BRIC + MEA + LATAM) grew by nearly €9 billion in 2012, representing 57% of total growth between 2011 and 2012.
- Emerging market countries need to build their networks, including cellular, and upgrade them.
- These countries are relying chiefly on mobile infrastructure, due to a lack of landline infrastructure.
- Worth noting is that China has become the biggest spender in Asia-Pacific which is still by far the most dynamic region, with an aggregate capex in fixed and mobile systems of over €100 billion in 2012.

Streamlining Investments

Telcos have several ways of streamlining their investments, including resource pooling, outsourcing and even insourcing, even if we are not seeing any common thread emerging, either nationally or by carrier profile.

Telco spending patterns around the world, 2008-2012

CAPEX Dynamics

Source: IDATE, July 2013

This is an excerpt of our insight Telcos face to investment challenges being a part of our ongoing monitoring service Telecom Players & Markets Watch

2Jul/13Off

Next Gen Networks : reaching the DAE

CHAILLOU_ValérieValérie CHAILLOU

Head of Research, Telecoms Business Unit, IDATE


Deployment costs & access market revenue in Europe

The goals set by the European Commission for ultra-fast broadband (UFB) are ambitious. By 2020, they aim to provide all European households with ubiquitous coverage of 30 Mbps and 50% of households with 100 Mbps access.

Cost of NGN deployment for reaching the goals of the DAE

NGN deployments are underway in all countries of the European Union but are progressing at very different rates from one country to the other. Some governments have created national programs that lay down their own goals to try and accelerate deployments, through both private operators and public players. IDATE has published a report in which NGN deployment costs have been modeled according to various scenarios. We will look closely at three of these: the "Base Case" scenario, which considers a gradual evolution of current NGN access; the "Vectoring" scenario, which anticipates improvements in copper-based technologies to reach the speeds laid out by the DAE; and the "FTTH" scenario, in which FTTH/B would be deployed on a massive scale and would provide the most future-proof performance in terms of speed. This last scenario is itself analyzed according to two different options (90% or 100% FTTH coverage), which lead to significantly different costs. The cumulative costs of these scenarios between 2011 and 2020 range from 71 to 230 billion EUR.

Cost comparison of NGN deployment scenarios en Europe

Total cost and cost per capita for next gen networks deployment in Europe

Source: IDATE

Revenues tied to the UFB access market

In parallel, IDATE has also conducted a study to evaluate the value of the UFB access market. This study is based on a thorough analysis of UFB services offered by key players in markets that represent different degrees of UFB maturity. This analysis allows us to identify different types of delivery model that may include one or more goals (maintaining positioning, increasing ARPU, reducing churn, unbundling withdrawal, etc.). The commercial positioning of operators will thus match a given delivery type that will depend on the level of competition, in particular. From there, it is possible to determine what the trends will be in terms of UFB ARPU over the coming years and thus assess one of the two key variables of access revenue. The other variable is the number of UFB subscribers, which should continue to grow relatively steadily through 2020 if we take all technologies into account. According to our estimates, the UFB access market is expected to reach 48 billion EUR by 2020.

Costs vs. revenues: Which scenario should we prioritize?

Despite some very interesting revenue potential (combined revenues exceed the cost of the most expensive scenario by 2020), the FTTH scenario is not really feasible (regardless of the coverage option considered) because cable operators—whose infrastructures offer faster speeds, are less expensive to upgrade and offer very good performance—will continue to play a major role in this market. The Base Case scenario seems to be a more feasible option in that it represents a continuation of what currently exists, namely a combination of technologies and accelerating deployment. However, it also presents risks, particularly the possibility of slow migration of broadband subscribers to UFB. Whichever scenario is implemented, operators will still need to invest significantly in deployment while reserving some investment for generating demand, without which their expected revenues cannot be achieved.

This analysis is an extract from our FTTx market insight which we propose within our ongoing monitoring of the worldwide FTTx market.