TELECOMS, MEDIA
& ENTERTAINMENT
OUTLOOK 2015
OVUM.COM
@OVUMTELECOMS
Welcome
Over the last year, while the technology and
digital content and services businesses have
continued to globalize, the telecoms operator
business has become more local.
Rather than building out regional and
global footprints, operators have refocused
their M&A strategies as they bid to become
dominant players in fewer markets. It
turns out that there are more synergies
to be gained by integrating fixed and
mobile operator businesses within a single
country than by running mobile operator
businesses in different ones, even within
the same region.
As we look ahead to the trends and strategies
that will shape 2015, it is interesting to do so
through a local versus global lens.
Telecoms networks are evolving into video
distribution platforms, and global Internet
(content) service providers are coming to
view telecoms operators as local partners
that can help bring their services to market
by offering billing, distribution (retail), and
network support. We are already seeing this
through the partnership programs of music
streaming service providers Spotify, Deezer,
and Rhapsody; OTT communications service
providers including Facebook, WhatsApp, and
Line; and OTT video provider Netflix.
When it comes to local content, telecoms
operators are already emerging as strong
contenders for the right to broadcast national
sporting events such as soccer. In doing so
they are coming into direct competition
with national broadcasters and pay-TV
companies. Over a period of time we can
expect the process of in-market consolidation
to extend to TV providers. In 2014 we have
seen Telefonica acquire a majority stake in
the owner of pay-TV company Canal+, and
AT&T successfully bid for DirectTV. In time we
can expect to see other local digital content
businesses such as newspapers sucked into
this in-country consolidation.
The ability to integrate fixed and mobile
services has as much resonance in the
business sector as in the consumer market.
And the telco partnership model is equally
as relevant to enterprise applications
as to consumer ones. However, to serve
multinational enterprise customers, telecoms
operators have always had to offer regional
and global capabilities. As operators further
their machine-to-machine (M2M) ambitions,
the ability to offer global connectivity and
pricing is going to be a key differentiator. We
are already seeing the emergence of global
and regional operator M2M alliances that
could provide this capability.
In this year’s Telecoms, Media & Entertainment
Outlook 2015, Ovum thought leaders give
their views about how the evolving telecoms
and media landscape will play out in 2015.
This report comprises 12 interviews with
Ovum analysts looking across the telecoms,
consumer services, and technology and media
sectors. After each interview we include recent
research republished from Ovum’s Knowledge
Center on the relevant topic area.
I very much hope you enjoy reading the
report, and do please get in touch if you have
any follow-up questions for our analysts.
Mark Newman
Chief Research Officer, Ovum
For all enquiries please contact us at:
+44 (0)20 7017 4994
enquiries@ovum.com
OVUM.COM
©2014 OVUM. ALL RIGHTS RESERVED.
03
Ovum Telecoms
and Media
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telecoms, media and IT markets. We offer a greater breadth
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Multi-disciplinary teams
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Telco
Media
TELECOMS
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years
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Media Technology
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IO
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Ovum’s expertise spans the breadth of
the telecoms and media sector
Service providers sit at the centre of our coverage. We look at the
business of being a communications service provider, their core
business and commercial strategies. When it comes to technology,
our expertise spans CSP fixed and mobile networks and the IT
systems that support their operations and products.
On the services side Ovum has analyst teams covering consumer,
enterprise and wholesale markets. But our expertise goes beyond
the traditional telecoms sector. We have built deep knowledge of
IP communications, digital media and other adjacent sectors. We
understand the TV and music industries and the growth potential
that they offer.
OVUM.COM
©2014 OVUM. ALL RIGHTS RESERVED.
07
3
01
MOBILE
OPERATORS &
SERVICES
Q+A
2014 HAS BEEN A TOUGH YEAR FOR MOBILE OPERATORS
IN EUROPE. IS 2015 GOING TO BE ANY EASIER?
Not really. Ovum forecasts that operators’ mobile revenues in Europe will decline
by 1.7% year-on-year in 2015. In particular, pressure in Western Europe will
continue, with revenues declining by 2.7% year-on-year compared to a rise of 1%
for Eastern Europe. However, this is an improvement on 2013 to 2014. Western
European retail connectivity revenues saw a 3.1% decline, with Eastern European
growth of 0.4%. The appetite for mobile data is encouraging data revenue growth;
2015 will see data revenues in Western Europe breach 50% of the total for the first
time, while Eastern Europe grows to 37%.
ARE THERE ANY SIGNS (YET) THAT OPERATOR
CONSOLIDATION IS LEADING TO PRICE STABILISATION?
It’s a mixed picture. For example, in the US, pricing is most affected by the
rapid migration of customers to equipment financing plans, in which customers
pay separately for the device and the monthly service plan. AT&T and Verizon
are also rapidly migrating customers onto data sharing plans, which reduces
revenue per connection.
In Europe, Austria saw aggressive consolidation to three players, but the impact
in terms of pricing and ARPU varies from operator to operator. T-Mobile and
Telekom Austria have seen improvements in ARPU in 2014, but 3 is still seeing a
decline. In the Netherlands, Vodafone and T-Mobile’s post-consolidation situation
is improving, while KPN’s remains weak.
WHAT IS GOING TO BE THE MOST DYNAMIC SEGMENT OF
THE MVNO MARKET IN 2015?
Geographically it will be new MVNO markets such as China, where China Unicom
reported more than 200,000 MVNO subscribers within one month of launch.
China’s potential is phenomenal; we forecast that it will account for 35% of global
MVNO subscribers in 2019.
For services we believe that the mobile virtual network enabler (MVNE) space
will continue to grow. Network operators and platform providers will look to both
enhance their offerings to MVNOs and optimise their profitability from hosting
retailers. Furthermore, we expect to see new MVNOs and MVNEs serving the
growth in wearables, M2M, and IOT.
WHAT SORT OF PRICING INNOVATION DO YOU EXPECT TO
GAIN MOMENTUM OVER THE NEXT 12 MONTHS?
Over the next two years, we believe packages incorporating content will become
increasingly common. However, the manner in which content is incorporated into a
package can vary greatly. Today, it can be zero-rated, so the telco covers the cost of the
traffic generated, or the operator can cover the cost of the subscription to a service
(with traffic consumed deducted from the user’s plan). Moving forward we expect
more sponsored data examples, with a third party paying for the data consumed.
Asian markets in particular are seeing a surge in mobile plans where data for
specific applications is not charged. Today these have primarily focussed on social
networking applications, especially in emerging markets.
STEVEN HARTLEY
PRACTICE LEADER
Bundled content subscriptions are more common in Europe and North America,
with the likes of Spotify and Deezer leading the way. Such deals offer promotional
benefits for both the mobile operator and content provider.
Sponsored data has been much hyped but we have seen very few examples of it
being adopted yet in Europe or North America. There seems to be more interest in
Asia, specifically in China.
CAN MOBILE OPERATORS INNOVATE IN TERMS OF NEW
SERVICES?
Most mobile operators face an uphill struggle to innovate in terms of services.
Development budgets at the likes of Google dwarf the R&D available to operators,
which must also fund new networks. There’s also the fact that mobile operators
can be limited to just one market, whereas the Internet giants have global
customer bases.
Consequently, we encourage operators to partner with those best positioned
to develop new services. The emphasis should be on developing the network
platforms capable of delivering new services quickly, cost-effectively, and to a
high quality. In the Internet world more services than ever are being deployed
and the services landscape is evolving constantly. Trying to keep pace with such
change without agile and flexible networks risks destroying the service provider’s
commercial viability.
But there will be exceptions. Large domestic or international operators will have
the greatest opportunities to achieve economies of scale. However, the challenge
for these players remains in harnessing the skills and corporate focus to develop
IP services. Subsequently, funding may be a more efficient use of capital than
developing services in-house. Several telcos now have venture-capital arms, and
we expect these to become more important innovation channels.
WE HAVE SEEN A NUMBER OF MOBILE OPERATORS BUY
FIXED AND ENTERPRISE SERVICE PROVIDERS OVER
THE LAST 12 MONTHS. DO YOU EXPECT THIS TREND TO
CONTINUE IN 2015?
Absolutely. We are finally seeing fixed–mobile convergence happening. Users
demanding broadband everywhere and the pressure to deliver rapidly growing
volumes of data efficiently are pushing operators into action. There is also
commercial pressure; as triple-play bundles become ubiquitous, quad-play
becomes the new battlefield.
Moves into the business segment are driven by the hunt for new revenues, along
with the increased blurring of consumer and business services through trends
such as bring your own device. It’s unlikely that the surge of interest in this space
will enable either revenue or margin growth to be maintained at current levels,
but we expect telcos to continue focusing on this area.
Global Mobile Market Outlook:
2014–19
GLOBAL MOBILE SUBSCRIPTIONS WILL GROW TO
8.5B BY 2019
Global mobile subscriptions are forecast to rise by 1.8 billion
between end-2013 and end-2019, from 6.7 billion to 8.5
billion, equating to a CAGR of 4.2% over the period and 28% in
absolute terms. Asia-Pacific will be the biggest contributor to
growth in subscription numbers, and will account for 53% of
total global subscriptions at end-2019, and 55% of global net
additions during the forecast period. Africa will see the most
rapid increase in subscription count, with a CAGR over the
forecast period of 7.4%.
FIG 1
MOBILE SUBSCRIPTIONS BY REGION
9
8
FASTEST SUBSCRIPTION GROWTH WILL COME FROM
EMERGING MARKETS
The top 20 fastest-growing markets in subscription terms
over the forecast period will be emerging markets, largely
because of their stronger population growth and pent-up
demand in low-penetrated market segments. No developed
market made the top 20 list.
Developed markets will see growth continue to slow over the
forecast period and are much more likely to see changes to
their customer bases from shifts in subscription share rather
than overall market growth. Therefore, customer retention
will become more important, and customer initiatives will
target churning customers rather than new ones. Operators
will continue to use subsidies on “hero” devices as well as
device exclusivity to acquire customers from rivals. But
they will also need to respond to the lower service pricing
associated with operators’ equipment-financing programs
and SIM-only/BYOD offers.
FIG 2
7
MOBILE SUBSCRIPTION CAGR BY REGION
Subscriptions (billions)
6
4.2%
World
5
0.9%
Western Europe
4
1.9%
Eastern Europe
3
North America
2
Latin America & the Caribbean
3.0%
3.1%
3.9%
OESEA
1
4.3%
Middle East
0
2013
2014
2015
2016
2017
2018
2019
5.1%
Central & Southern Asia
 Africa
 Middle East
 Central & Southern Asia
 North America
 Western Europe
 Oceania, Eastern & Southeastern Asia
 Latin America & the Caribbean
 Eastern Europe
<<
SOURCE:
INSERT
OVUM
FIG 1 >>
10
©2014 OVUM. ALL RIGHTS RESERVED.
0%
SOURCE: OVUM
OVUM.COM
7.4%
Africa
1%
2%
3%
4%
CAGR
5%
6%
7%
8%
Ovum’s latest forecast covers both mobile service revenues
and Retail Connectivity and VAS (RC&V) revenues (a subset
of total service revenues, consisting of revenues generated
specifically from the provision of voice and data services to
consumer and enterprise end-users). Global mobile service
revenues are forecast to grow at a CAGR of 2.3%, from
$957bn in 2013 to $1.1tn in 2019. Retail connectivity and VAS
revenues will reach $1.1tn in 2019, up from $938.5bn in 2013.
The bulk of the difference between total service revenues and
RC&V revenues is a combination of wholesale, enterpriserelated, machine-to-machine (M2M), and Internet of things
(IoT) services. These will become more important revenue
sources for service providers (especially Western Europe)
where RC&V revenues are declining or flat.
FIG 4
RETAIL CONNECTIVITY AND VAS REVENUES BY REGION
400
350
300
250
Revenue ($bn)
MOBILE SERVICE REVENUES WILL REACH $1.1TN
BY 2019
200
150
100
50
FIG 3
TOTAL SERVICE AND RETAIL CONNECTIVITY REVENUE
0
1,150
1,100
Revenue ($bn)
2014
2015
2016
2017
2018
2019
 Africa
 Middle East
 Central & Southern Asia
 North America
 Western Europe
 Oceania, Eastern & Southeastern Asia
 Latin America & the Caribbean
 Eastern Europe
SOURCE: OVUM
1,050
DEVELOPED MARKETS WILL CONTINUE TO FEEL REVENUE
PRESSURE
Many developed markets, and remarkably all markets in
Western Europe, will begin to see year-on-year declines
in revenues by 2019. In fact, more than one-third of the 67
countries tracked in Ovum’s forecast will experience some
decline by 2019, and one-third (25 markets) will see year-onyear revenue declines in 2014.
1,000
950
900
850
2013
2013
 Total service revenue
2014
2015
2016
2017
2018
2019
 Retail connectivity & VAS
SOURCE: OVUM
Western Europe is the only region expected to see revenue
decline over the forecast period, but growth in most other
regions will be modest, with CAGRs below 3% over the
forecast period. Globally, revenues will grow at a CAGR of
just 2%. Central and Southern Asia, Africa, and OESEA will
grow faster than average, at CAGRs of 5.1%, 4.5%, and 3.6%,
respectively, through 2019.
A decline in retail connectivity revenues in many developed
markets in Europe, North America, and Asia-Pacific is
imminent. Western Europe will see a CAGR of -1.7% between
2013 and 2019, which in absolute-value terms equates to a
drop of $15.3bn. All 17 Western European markets covered by
the forecast are set to experience revenue decline over the
next five years. The biggest declines in the region will occur in
Denmark, Italy, Greece, and Belgium.
To improve flat or declining retail connectivity revenues
in these markets, operators are heavily promoting pricing
innovations such as SIM-only tariffs, hybrid price plans, and
free on-net calls or secondary SIM cards given as loyalty
rewards. Despite these efforts, prices in many markets will
continue to fall, leading to declines in ARPU and ultimately in
retail connectivity revenue.
OVUM.COM
©2014 OVUM. ALL RIGHTS RESERVED.
11
In Central and Southern Asia, India will drive growth in
retail connectivity revenue. Revenues in India (which
accounted for 69% of revenues in the region in 2013) will
grow at more than twice the rate of all other markets in the
region. With relatively low mobile data costs in India, the
growing availability of low-end smartphones and 3G data
services put the market in a good position to capitalize on
mobile data services. But regulatory and economic barriers
will probably make LTE deployments sluggish over the next
several years.
PRICE COMPETITION AND A MORE DIVERSE MIX OF
CONNECTIONS WILL CAUSE ARPU DECLINE
In nearly all markets, ARPU will fall over the forecast period
as a result of increased competition and a rise in take-up
of non-phone connections, which will constitute a growing
proportion of net additions over the forecast period. This is
particularly the case in developed markets, where smartphone
penetration is already high and where most operators’ net
additions will be driven by customers moving from one
operator to another, rather than from market growth.
North America continues to report the highest ARPU of any
region and will continue to see figures twice that of Western
Europe, the region with the next-highest ARPU, through 2019
(see Figure 5). North America’s high ARPU is largely due to
the high cost of data, whose proportion of total revenue is
rising. Central & Southern Asia is set to have the lowest ARPU
through the forecast period, at just $2.47 in 2013 and falling
to $2.41 in 2019.
FIG 5
MONTHLY ARPU BY REGION
$60
Monthly ARPU
$40
$20
$0
2013
2014
2015
2016
2017
2018
2019
 Africa
 Western Europe
 Middle East
 Oceania, Eastern & Southeastern Asia
 Central & Southern Asia
 Latin America & the Caribbean
 North America
 Eastern Europe
SOURCE: OVUM
12
©2014 OVUM. ALL RIGHTS RESERVED.
OVUM.COM
The slowdown in new-customer acquisition will drive pricing
competition among operators, which will in turn push down
ARPU. A fall in flat-rate monthly tariffs and the introduction
of shared data plans will encourage prepaid-to-postpaid
migration and churn within the existing customer base.
Tablets and other connected devices along with VAS services
that aim to capitalize on these new types of connections
will increase the mix of nonphone connections in the short
term. Because these attachment subscriptions tend to carry
lower ARPU than phone subscriptions, they will drive down
overall ARPU. They will also probably boost churn somewhat
among existing customers. Increasing availability of Wi-Fi
might encourage some customers to use their cellularcapable portable devices exclusively over Wi-Fi. And a general
lack of consequences (such as early-termination fees) for
downgrading service might also encourage such behavior.
WORLD’S MOST ARPU-RESILIENT COUNTRIES
Just 10 of the 67 countries covered in Ovum’s mobile
revenues forecast will experience ARPU growth over the
forecast period, all of them emerging markets. ARPU growth
for all but two of these markets will be somewhat short-lived,
occurring in the near term, with decline predicted in all but
two markets by 2017. Vietnam and Romania are the two
exceptions. Figure 6 shows the 10 global markets that will
experience net ARPU growth over the forecast period.
MOBILE DATA SERVICES WILL ACCOUNT FOR NEARLY HALF
OF GLOBAL REVENUES IN 2015
Although voice still makes up the majority of mobile service
revenues in 2014, in 2015 mobile data (including mobile
broadband access, mobile messaging, and mobile VAS) will
overtake mobile voice in terms of revenue mix, with voice in
sharp decline in most markets. Yet operators are set to see
healthy growth in data-capable connections and usage, the
revenue generated will be insufficient to offset the decline in
voice over the next five years. As a result, the decline in voice
revenues will be the biggest factor in ARPU decline.
MOBILE DATA ACCESS WILL BECOME THE PREDOMINANT
SUBSCRIPTION SERVICE
With growth in mobile messaging plateauing and VAS
accounting for just a small proportion of mobile data revenues,
mobile broadband will drive mobile data revenues over
the forecast period. Operators must seize this opportunity,
particularly in markets where mobile broadband penetration
is low. In developing markets, they are aiming to increase
the penetration of mobile data services and smartphones. In
some cases, this means lowering costs to expand the audience
served. In others, more creative and flexible options for
customers to consume and pay for data usage are needed.
In developed markets operators should focus attention on
pricing innovation to take advantage of this opportunity. They
must also encourage new service innovation, including strategic
partnerships and service bundling with nontraditional, nontelco, over-the-top (OTT) players and services.
A surge of LTE deployment will increase the number of
data subscriptions associated with new LTE connections,
contributing to revenue growth from mobile data services.
In addition, we will see tremendous activity around new
services and new types of connections, such as MVNO
subscriptions, M2M, and portable connected devices. The
continuing rise in the number of VAS offerings will increase
customer stickiness.
FIG 6
MARKETS FORECAST TO SEE ARPU GROWTH OVER
2.5%
Rest of OESEA
1.3%
Romania
0.9%
South Korea
0.9%
India
0.8%
Kenya
0.7%
Vietnam
0.5%
China
0.5%
Turkey
0.3%
Saudi Arabia
0%
2%
1%
3%
CAGR
SOURCE: OVUM
OVUM.COM
©2014 OVUM. ALL RIGHTS RESERVED.
13
02
FIXED
OPERATORS &
SERVICES
Q+A
WE HAVE SEEN A NUMBER OF FIXED/BROADBAND
OPERATORS INVEST IN CONTENT – MORE SPECIFICALLY
SPORTS TV RIGHTS – IN 2014. ARE WE GOING TO SEE
MORE OF THE SAME IN 2015?
Definitely. In the triple-play world, content – and more specifically exclusive
content – has become the key means of differentiation. Unfortunately for
telecoms operators and existing TV providers premium content is a scarce
commodity, so increased competition will push up prices. Nonetheless operators
must be aggressive if they wish to gain a foothold in this space
The increased costs will put pressure on margins, potentially making telco returns
lower than originally anticipated. The rising content acquisition costs are already
being felt by existing pay-TV providers, such as the US cable operators, and
affecting their financial performance. We therefore expect content acquisition to
become increasingly important in the longer term. Indeed, escalating costs may
even drive operators into content production.
WHICH FIXED BROADBAND TECHNOLOGIES HAVE MOST
POTENTIAL FOR GROWTH IN 2015?
We forecast that fiber to the home or building (FTTH/B) will be the fastestgrowing wireline broadband technology in 2015. FTTH/B subscriptions will grow
at 19.6% globally year-on-year to 180.9 million in 2015, versus total broadband
subscription growth of 6%. This outstrips cable growth of 3.6% year-on-year.
In contrast DSL subscriptions will fall 0.1%, driven by migration to high-speed fiber,
cable services, and, to a lesser extent, mobile broadband. Yet this masks evolution
within DSL. VDSL subscriptions will grow 18.8% year-on-year in 2015 compared
to ADSL’s decline of-1.4%. This migration also highlights the debate surrounding
the FTTH business case: should operators invest in FTTH or sweat existing copper
assets, albeit achieving lower performance?
Although greenfield deployments are almost universally accepted to be fiber,
legacy copper networks are more complex. Civil engineering costs to deploy to
the home are high, even before considering equipment capex. Then there are the
commercial discussions around how to migrate users that are reluctant to pay
premiums for fiber services.
New technologies such as vectoring and G.fast promise ever-increasing
performance over copper, though requiring that fiber be brought closer to the
premise. We expect vectoring in particular to become more commercially available
in 2015, especially in Europe where legacy copper networks and straitened
investment capabilities mean its benefits outweigh any performance lag.
HOW IMPORTANT IS WI-FI BECOMING AS A VALUE-ADDED
SERVICE FOR FIXED OPERATORS?
For wireline-only players, Wi-Fi offers mobility, a crucial element of today’s
convergent broadband services. For integrated players, Wi-Fi enables the
customer experience to be managed across cellular, wireline, and Wi-Fi in a
ubiquitous broadband offering. Both players also have the opportunity to
wholesale access to mobile-only players looking for Wi-Fi offload.
KAMALINI GANGULY
SENIOR RESEARCH ANALYST
Yet directly monetizing Wi-Fi from end users will remain difficult. In the short
term, customers and carriers will continue to see Wi-Fi as an extension of wireline
or wireless broadband access services. For example, US cable players report that
bundling Wi-Fi into the wireline package helps them to reduce churn, attract
new customers, and upsell to higher tier packages. Consequently, the scale and
quantity of available hotspots are critical.
So although it is clear that Wi-Fi will grow in terms of traffic over time, there is less
clarity that it will grow in terms of revenues. Carriers will charge some customers
for access at premium locations, such as stadia or airports, but will have to share
those revenues with venue owners, or charge the venue directly. Paid-for, sessionbased, or subscription-based Wi-Fi access will continue to exist, but these access
services will yield diminishing returns as the wider availability of Wi-Fi access
points drives down prices and perceived value.
WHAT SORT OF PRICING INNOVATION ARE WE SEEING IN
FIXED BROADBAND?
Wireline broadband pricing innovation is moving much more slowly than mobile.
Most broadband plans today are simply tiered by speed. However, in mature
markets triple-play dominates and here content becomes the key differentiator
at both the operator and plan level. The operator’s content acquisition strategy
mentioned above will become vital, as will the packaging of that content into
appropriate bundles that offer upsell opportunities.
We also expect online subscription services to come bundled with broadband
offers, regardless of whether they are delivered to the TV. For example, Spotify
Premium subscriptions are bundled into many wireline and mobile subscriptions.
We are now seeing the likes of Netflix incorporated into TV packages, and
delivered via the TV and also the ISP’s home and mobile broadband packages.
Finally, the move to multiscreen, online content delivery is prompting a growing
number of integrated operators to launch quad-play offers that combine wireline
and mobile broadband connectivity along with TV and home phone. We forecast
that quad-play bundles will grow globally at a staggering 39% year-on-year in 2015
– more than double the rate for triple-play. As a proportion of total broadband
subscriptions quad-play will remain low at 3% globally, but 10% in mature regions
such as Western Europe. However, this only emphasizes its future potential.
Global Fixed Voice and Broadband
Outlook: 2014–19
FIXED TELECOM INDUSTRY STILL IN FLUX
Ovum tracks total service provider fixed revenues (including
voice, broadband, wholesale, enterprise, services, etc.) and
capex based upon operator guidance separately from the
fixed voice and broadband forecasts. Global service provider
fixed revenues and capex have generally declined over the
past few years. Much of the revenue trend is due to fixed
voice lines and revenues continuing to decline due to OTT
VoIP, fixed-mobile substitution, and the growth of other types
of communication, such as messaging. Also, due to numerous
3G/4G upgrades, mobile capex has grown as a share of total
capex, at the expense of fixed capex.
Figure 1 shows the global fixed voice revenues forecast versus
the forecast for global fixed broadband revenues. Global
fixed broadband revenues will grow from $234bn in 2013 at
a CAGR of 3%, surpassing that of voice revenues after 2016.
Fixed voice revenues will decline from $322bn in 2013 at a
CAGR of -5% to $231bn by 2019. The combined fixed voice
and broadband market was $555.9 billion in 2013. Growth in
fixed broadband revenues will not be sufficient, especially in
the latter years, to compensate for the decline in fixed voice
revenues. As a result, combined fixed services revenues will
drop to $506.7bn by 2019, a CAGR decline of 2%.
SIGNS OF A FIGHT-BACK EMERGING
But signs are emerging that service providers are fighting
back with OTT-like fixed voice and video products; OTT
partnerships and deals; higher broadband speed tiers; new
IP-based products like multi-screen access, M2M, connected
home, and security; better customer service; and M&A.
These counter-strategies have gained a lot of strength and
momentum over the past year. The success of double-play
and triple-play bundling is also helping telcos and cable
companies to minimize fixed voice churn, while increasing
revenues.
In 2016, cable will dominate the TV landscape but the share of
IPTV households will also grow. The growing share of IPTV/
FIG 1
GLOBAL FIXED VOICE REVENUES VS GLOBAL FIXED BROADBAND REVENUES
$400
$350
$300
US$ (billions)
$250
$200
$150
$100
$50
$0
2012
2013
 Global fixed voice revenues
 Global fixed broadband revenues
SOURCE: OVUM
16
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2014
OVUM.COM
2015
2016
2017
2018
2019
telcos among TV subscribers is relevant because IPTV has
long been the reason for telcos to upgrade their networks
with next-generation access technologies like VDSL2, FTTN,
and FTTH, which have also enabled service providers to offer
higher-speed tiers reaching 100Mbps and beyond.
In contrast, there were 699 million fixed broadband
subscriptions at the end of 2013 and these will continue
to grow at a CAGR of 5% until 2019, reaching 920.2 million
subscriptions. All major regions will continue to see growth
throughout the forecast period.
Bundling remains an important way for service providers
to differentiate themselves from competitors and reduce
churn. Globally, more than 44% of consumer (not total)
fixed broadband subscriptions in 2013 were already part
of such a bundle and Ovum forecasts a steady increase
until 2018. While penetration of double- and triple-play
continue to increase (though double-play will eventually
decrease due to triple-play substitution), the penetration
of quad-play remains small due to the difficulties of trying
to tie a household-based service like fixed broadband to
an individual-based mobile service. As markets approach
saturation in all three elements of the triple-play, and fixed
market substitution plays an important role, service providers
will look to quad-play to stem declines.
However, there are exceptions to this positive outlook
in mature European markets (where telcos are losing
subscribers to cable companies) or in the US (where service
providers are deliberately migrating rural customers to their
more profitable mobile business. There are also exceptions
in developing countries like India, where the rate of growth
in subscriptions has slowed due to lack of investment and
a growing mobile culture, rather than fixed. But in general,
the demand among consumers for fixed broadband access
remains strong. So the fixed broadband pipe is still the
best hope for service providers to capitalize on all of their
comeback IP-based products and strategies.
FIXED BROADBAND BEST HOPE TO FUEL THE TELCO
COMEBACK
Fortunately for most service providers, fixed broadband
subscriptions continue to grow strongly, compensating to a
large extent (but not completely) for the decline in the fixed
voice market. Fixed voice lines will remain above 1 billion,
even at the end of 2015, but will decline at a CAGR of 2% to
reach 903.9 million lines by 2019. The principal drivers behind
the decline continue to be fixed-to-mobile substitution and
OTT VoIP.
SHIFTING TECHNOLOGY MIX AS DSL MIGRATED TO
FTTH/B AND CABLE
DSL SUBSCRIBER DECLINES IN MULTIPLE COUNTRIES
Among the major fixed broadband access technology
segments that Ovum forecasts, DSL is the largest technology
segment today and will remain so even in 2019. However,
Ovum is now tracking declines in DSL subscribers in multiple
countries across multiple regions of the world and expects
that number to rise to 30 by 2019. At an aggregate global
level, DSL subscriptions actually fell from 388 million in 2012
to 386 million in 2013. We forecast that there will be little
growth and most likely a continuation of the decline until 2019.
FIG 2
GLOBAL FIXED VOICE SUBSCRIPTIONS VS GLOBAL FIXED BROADBAND SUBSCRIPTIONS
1,200
1,000
Millions
800
600
400
200
2012
 Global fixed voice revenues
2013
2014
2015
2016
2017
2018
2019
 Global fixed broadband revenues
SOURCE: OVUM
OVUM.COM
©2014 OVUM. ALL RIGHTS RESERVED.
17
FIG 3
GLOBAL FIXED BROADBAND SUBSCRIPTIONS BY TECHNOLOGY
1,000
900
800
Subscriptions (millions)
700
600
500
400
300
200
100
0
2012
2013
 DSL
2014
2015
 Cable modem
2016
 FTTH/B
2017
2018
2019
 Fixed other
SOURCE: OVUM
Some of these subscribers are on low-speed DSL networks
and are migrating to mobile subscriptions. Some are being
migrated deliberately by service providers to FTTH, or as
part of a nationwide government broadband plan. Others are
being enticed by the higher DOCSIS 3.0 speeds advertised
by cable companies. Also, within the broader DSL category,
subscribers on FTTN and FTTC networks with VDSL2 are
growing and contributing to a DSL revival in some markets.
FTTH/B AN OPPORTUNITY FOR DIFFERENTIATION AND
HIGHER ARPU BEFORE COMMODITIZATION
Ovum forecasts that FTTH/B subscribers will be the fastest
growing fixed broadband market segment with 17% CAGR,
more than doubling from 118 million in 2013 to 298 million in
2019. Much of this growth will come from Oceania, Eastern
18
©2014 OVUM. ALL RIGHTS RESERVED.
OVUM.COM
and South-Eastern Asia (almost 200 million of the 298 million
subscriptions in 2019), particularly China, and other Asian
countries where either service providers have been deploying
for years, such as Korea, Japan, and Taiwan, or where the
government has encouraged national-broadband-type
deployments such as in Singapore and Malaysia. But in every
region, the CAGRs will be very high. In absolute numbers,
after OESEA, Eastern Europe will have the largest number
of FTTH/B subscriptions in 2019 (40 million), followed by
Western Europe (24 million) and North America (20 million).
But the higher ARPU opportunity is not likely to last for
long, again especially in developed countries heading for
saturation. The same is true for FTTN/C. In those countries,
the attention is already turning to customer retention and
satisfaction, with upgrades to FTTx being given for free or at
minimal increments, as customer expectations rise. FTTH/B
ARPU will equal that of DSL or be lower as an incentive to
migrate from cost-inefficient copper networks. There will
be exceptions in developing countries where FTTH/B will be
aimed at an elite market that is able to afford such services or
businesses, and is unlikely to reach mass-market demand.
CABLE COMPANIES WILL CONTINUE TO GAIN STRENGTH
AND BE MORE RELEVANT
We forecast that cable broadband subscribers will increase
from 137 million in 2013 to 165 million by 2019. Cable
companies are a major source of competition for telcos.
In many markets, they continue to gain share of fixed
broadband subscribers from telcos, leading with broadband
as the anchor product, and deploying Wi-Fi in large numbers,
especially in Asia, where they are threatened by the spread
of quad-play. New revenue streams from business, cloud
services, and mobile backhaul will help increase revenues
and possibly subsidize FTTH for adjacent residential areas.
However, cable companies too will find it increasingly hard
to translate market dominance and network upgrades into
sustainable tariff premiums based on higher-speed tiers, as
many of their markets approach broadband saturation.
NEW TECHNOLOGIES AND TOOLS WILL HELP WITH
SPEED BOOSTS AND COST REDUCTIONS
VDSL2 vectoring, TWDM-PON and 10G-EPON/GPON and
DOCSIS-over-EPON and GPON are all next-generation
technologies, in addition to the ongoing deployments of
VDSL2, DOCSIS 3.0, and GPON/EPON FTTH, which will
enable service providers to offer higher-speed tiers, some
cost-effectively. DOCSIS 3.1 and G.Fast, another copper-based
technology, will debut in 2015. The CCAP platform, intelligent
ODNs, and OSS/BSS tools are all platforms and tools that
will help with cost reductions. New tools to model bandwidth
capacity required for OTT partners will help with monetization.
Service providers have more tools in their arsenal than ever.
DON’T WAIT FOR G.FAST
Many European service providers are expressing great
interest in G.Fast, which is a technology expected to provide
FTTH-like speeds up to 1Gbps in brownfields that remain
difficult and expensive otherwise, as existing infrastructure
has to be removed and existing roads have to be dug up.
The higher vectoring speeds would provide a much more
foolproof competitive advantage over cable companies, which
routinely market 150–200Mbps services (e.g. Virgin Media,
UPC). Trials are ongoing and at least one European incumbent
will start pre-standard commercial deployments in 2015. But
G.Fast would still involve bringing fiber within 100m of most
customers, which takes time and money, the use of vectoring
in many areas, reverse power which may be unpopular with
customers, and a CPE upgrade, and the standard is not yet
ratified (so interoperability will be an issue). In some cases, it
may be appropriate to evaluate the FTTH business case again
versus G.Fast.
WI-FI, QUAD-PLAY BUNDLING, AND CONVERGED SERVICES
TO BRIDGE THE GAP BETWEEN FIXED AND MOBILE
Fixed services have been a stodgy competitor to mobile due
to the lack of exciting devices to harness changing consumer
experience demands and very little innovation in pricing and
plans. The devices situation is changing due to the evolution
of set-top boxes and the booming growth of TV Everywhere
services. But more importantly, the understanding that most
mobile device traffic in fact flows over Wi-Fi connections
in homes and offices via fixed-line backhaul is changing
the perception and value of the fixed network and fixed
broadband connections. As a result, cable and fixed-only
telcos are building Wi-Fi hotspots in venues and homes.
Others are launching quad-play bundles and fixed-mobile
converged services with multi-screen content as a key driver.
IMPLEMENT VDSL2 AND VECTORING-RELATED UPGRADES
WHERE EFFECTIVE
A very large number of subscribers in Europe and elsewhere
remain on ADSL2/2+ networks with lower-speed tiers. Even
where there is VDSL2 coverage, the number of subscribers
lags behind considerably (e.g. 1 million in 2013 out of 12
million covered by Deutsche Telekom). If telcos are serious
about stretching their copper networks to the maximum and
retaining their DSL subscribers, there is urgency in speeding
up deployments of FTTN, VDSL2, vectoring, or a combination
thereof to provide higher, more consistent speed tiers.
Competition will only intensify and will spur additional value,
such as higher speeds (e.g. Google offering 1Gbps FTTH, albeit
only in the US so far; the spread of LTE with higher speeds
and mobile access). It may soon be too late to cost-effectively
win back lost DSL subscribers.
OVUM.COM
©2014 OVUM. ALL RIGHTS RESERVED.
19
03
TV
Q+A
WHAT DO YOU THINK OF ALL THE ONLINE SERVICES LIKE
IPLAYER, YOUTUBE AND NETFLIX? IS ANYONE EVEN
WATCHING TRADITIONAL TV ANYMORE?
Linear TV is still the dominant media format in terms of audience size, reach,
spending (both consumer and advertising), and consumption across all media.
Even in countries where the adoption of online viewing is at its highest, the share
of viewing time achieved by OTT and non-linear TV (VOD, DVR) is barely 20%. The
disparity between TV and online viewing formats is even more pronounced when
we compare advertising spend. It will be many, many years (if ever) before linear
TV loses its position as the mass-market entertainment format of choice for every
single country on Earth – even in Bhutan, which banned TV until 1999.
IF THE ONLINE SERVICES AREN’T ACTUALLY IMPACTING TV
MUCH, WHY IS THERE SO MUCH FUSS ABOUT THEM?
They are having an impact – just not as large as some coverage suggests. Our
research demonstrates that rather than substantially cannibalizing traditional
TV, OTT services are actually augmenting them. For example, the vast majority
of Netflix subscribers in the US and UK subscribe to some form of pay TV, which
indicates that there is significant overlap between TV fans and Netflix fans. So OTT
services are not currently considered substitutable for TV but actually augment it,
in much the same way HBO or Showtime does.
The impact of free, ad-supported video on demand (AVOD) services exemplified by
YouTube or China’s Youku skew sharply towards younger demographics for whom
on-demand, non-main screen consumption of short-form content is becoming
increasingly prevalent. YouTube streamers such as Michelle Phan and TotalBiscuit
have forged successful careers completely outside the usual pathways to fame.
Collectively Youtube streamers have spawned the multichannel network model
whereby multiple streamers are represented by an organization that assists
with everything – ad sales, production, promotion, community management,
merchandising, and sponsorship deals.
Short-form viewing over online platforms is prevalent amongst younger
demographics and we may well be living with two or three younger generations
who will grow up with a lower propensity to pay for TV.
SO, FOR THE TIME BEING, IT LOOKS LIKE WE’RE IN A
SITUATION WHERE TRADITIONAL TV AND THE ONLINE
UPSTARTS CO-EXIST?
For years people have talked about how the Internet will do to TV what it has done
to newspapers, music, and (to an extent) video games; that is, lower the cost of
access and democratize content production and distribution. And Youtube does
exemplify these values that the Internet holds dear. However, outside of AVOD,
what is actually happening is arguably more interesting. The first major incursion
of TV content onto the Internet was iTunes. It relies on transactional retail and
rental charging models and is heavily curated – not values forged in the furnace of
online business models. The next, Netflix, has thrived using a model totally alien
to the giants of digital media: no advertising, premium subscriptions supporting a
high paywall, tightly curated content, and expensive original productions that only
the likes of major broadcasters or Hollywood studios can compete with.
ED BARTON
PRACTICE LEADER
We are now seeing traditional TV distributors and channels assert their existing
dominance in the value chain by leveraging online distribution for their own
ends. Multiscreen or “TV everywhere” services distributed over the top to devices
acquired by consumers such as PCs and tablets (as opposed to the leased set-top
box) are now a common part of the pay-TV value proposition. But they, along
with broadcasters such as CBS and HBO, are going further with the launch of OTT
subscription TV: streaming services that deliver linear TV streams.
OTT subscription TV streaming and Netflix operate on commercial models based
entirely on what they learned from traditional TV and home entertainment
distribution respectively. The Internet has not come close to disrupting TV and
does not need “saving” by Google, Apple, or anyone else. The greater likelihood,
as observed by Michael Wolff in The Hollywood Reporter, is that “TV is disrupting
the Internet”.
WHAT ABOUT A SILICON VALLEY TECHNOLOGY GIANT
ACQUIRING ULTRA-PREMIUM SPORTS RIGHTS?
Buying exclusive rights to the most popular sports in the biggest TV markets
costs billions of dollars a year. Pay TV can make these investments because it
has metronomic monthly billing relationships with tens of millions of households,
giving it the predictable cash flows to pay the huge costs that acquiring such
rights entails. If a technology giant used its cash pile to acquire these rights, it is
more than likely that shareholders would consider this a poor use of capital, to
put it mildly.
WHAT IS THE FUTURE OF TV, THEN?
New ways of distributing visual entertainment will augment traditional TV, and
cannibalization (such that it exists) will be slow. Subscription-based VOD (SVOD)
services will take spending from home-entertainment disc sales, not TV. TV
advertising will continue to be the dominant advertising format: no other media
commands the reach or share of voice that TV does night after night in every
country in the world. Traditional TV players will continue their march onto the
Internet and increasingly onto the mobile Internet. Soon no one except analysts
will worry about DTH, DTT, OTT, or mobile broadband; they are all just conduits to
the audience and will converge or hand off content distribution seamlessly from
one to the other in realtime as required by the viewer.
Premium TV will continue to be the cornerstone of the multiplay bundle but the
bundle will evolve. OTT services will increasingly be bundled with fixed and mobile
access. Zero rating data usage of bundled services against monthly data caps will
become increasingly common. The growth in services, distribution technologies,
consumer endpoints, and the emergence of addressable TV advertising will enable
companies to segment the audience to a much finer degree than ever before.
Hence being successful in this environment will require addressing individuals
rather than households.
Telco–OTT Partnership Series:
Netflix and Pay-TV Operators
SUMMARY
IN BRIEF
Ovum’s Telco–OTT Partnerships Tracker records collaborations
between telcos and over-the-top (OTT) players, and recently
identified a string of agreements between some of the
smaller US cable operators (Atlantic Broadband, Grande
Communications, and RCN) and Netflix. As of September 2014
the VoD streaming service had agreed 11 such partnerships
within a 12-month period. Operators have typically seen Netflix
as a threat to their established subscription TV businesses, and
viewed the idea of partnering with such a powerful challenger
as a significant conflict of interest. However, some believe
that working with Netflix can give a substantial boost their
broadband and TV offerings by providing easy access to (as
well as brand association with) a popular video on demand
(VoD) service. These partnerships give Netflix direct exposure
to a pay-TV audience, and the ability to reach viewers from
within a tried and trusted interface, with a high-quality set-top
box (STB) user experience more-or-less guaranteed. Each side
stands to leverage the other’s core competencies, thereby
improving the quality and reputation of their own offerings.
OVUM VIEW
Pay-TV operators are starting to realize that there is no point
in trying to curb their customers’ online activity or deter
them from accessing popular OTT services and applications
such as Netflix and YouTube. OTT video services were long
viewed as the enemy by operators wary of their core TV
businesses being undermined by Internet start-ups, but
more and more are seeing value in collaborating with
their erstwhile competitors. Rather than a threat, Netflix
represents a potential complement to traditional pay-TV
services. In particular, those without a strong premium VoD
play are at less risk of cannibalization than the incumbent
pay-TV operators, and stand to gain from the expanded
content choice Netflix can bring to their platforms. It is telling
that most of Netflix’s service provider partners to date are
not first-tier players in their respective pay-TV markets,
suggesting that those with greater subscriber share and/or
more significant premium content businesses to protect are
more wary of such alliances.
Adding Netflix expands the range of viewing options available
to pay-TV customers, most of who are already exposed
22
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to the service via other channels. Although there is a clear
prospect of cord-shaving associated with increased OTT
VoD usage, the tide of off-net video consumption continues
to rise, and operators may as well seek to capitalize on it. A
significant proportion of traditional pay-TV subscribers are
already engaging with OTT subscription VoD (SVoD), and with
frequent users of such services more likely to downgrade
or churn from their pay-TV subscriptions, operators must
somehow react to this challenge. Rather than risk alienating
their customer bases by obstructing access to OTT services,
Ovum believes operators should capitalize on this growing
trend by offering a superior user experience to that available
from unmanaged services delivered over the public Internet.
They are also likely to benefit from their association with the
Netflix brand.
Pay-TV customers’ propensity for consumption of OTT SVoD
services means that Netflix also stands to gain from such
partnerships. They should provide an effective marketing
channel through which to steer the service toward an
established base of subscribers who value service quality
and convenience. Operator alliances will help Netflix focus
its offering on a more concentrated audience of higher-value
viewers that already demonstrate a propensity to pay for
their home video entertainment.
MARKET OVERVIEW
THE PAY-TV MARKET IN BRIEF
The North American and Western European pay-TV markets
are mature, offering limited prospects for overall subscriber
growth, and an increasingly difficult competitive climate
as operators struggle to differentiate themselves from
one another. In particular, second-tier and smaller payTV operators are up against the rising costs of premium
content acquisition and the futility of trying to challenge the
dominance of incumbents with “me too” offerings. Moreover,
the transactional VoD market presents only a limited
additional revenue opportunity, as consumers veer further
toward more cost-effective SVoD offerings. Meanwhile all
operator-delivered VoD services are under threat from a
rapidly improving range of OTT alternatives. Increasingly,
operators have to look beyond high-value premium video
content and offer something that is different and will deliver
FIG 1
FIG 2
CONSUMER USE OF OTT SVOD
USE OF OTT SVOD BY USERS CANCELLING OR DOWNGRADING THEIR
PAY-TV SUBSCRIPTIONS
35%
34%
30%
32%
Rarely
25%
20%
Atleast once a month
15%
44%
16%
10%
48%
Atleast once a week
5%
0%
Pay-TV customers
Free-to-air viewers
0%
 Use online SVoD at least once a month
SOURCE: OVUM
value to consumers. To this end, the ability of telcos and cable
operators to deliver video over their broadband networks is
proving a vital asset.
Data from Ovum’s 2014 Consumer Insights survey shows
that pay-TV customers are at least twice as likely as freeto-air-only viewers to also be using online SVoD services
such as Netflix. Meanwhile, around half of those regularly
accessing these services (once a month or more) have either
downgraded or cancelled their pay-TV subscriptions or are
considering doing so; fewer than a third of consumers who
rarely use OTT SVoD have either downgraded or cancelled
their pay-TV subscriptions.
THE ONLINE VOD MARKET IN BRIEF
Ongoing improvements to broadband access speeds and
reliability and the growing adoption of connected video
devices such as tablets and smart TVs have opened the
floodgates for a proliferation of OTT VoD offerings. But
although the rising popularity of online VoD services
continues to undermine the traditional pay-TV model, OTT
service providers also face challenges to their continued
success and long-term growth.
One such challenge is the development of a highly crowded
and fragmented marketplace, in which consumers have
a growing choice of online SVoD services. Most of these
are constrained with regard to their availability across the
diversity of connected device platforms, and few appear to
offer anything resembling a comprehensive content catalog.
More importantly, there is a critical disconnect between the
OTT and traditional TV experiences – operators’ STB UIs
(as well as those of free-to-air broadcast services) remain
separate from the point of access to online TV applications.
53%
Everyday
10%
20%
30%
40%
50%
60%
SOURCE: OVUM
Although consumers appear happy to use their personal
computers and tablets to access online video services,
the need to switch between the traditional TV UI and the
TV apps screen poses a barrier to the use of OTT VoD in
a “lean-back” scenario via the main living room screen.
Furthermore, although broadband signals to the home are,
on the whole, much faster than they have ever been, they
remain subject to the overall instability of the public Internet.
This can negatively impact the viewing experience and hence
consumer perception of Internet-delivered TV offerings.
COMPANY OVERVIEW
NETFLIX
Netflix is the world’s most widely used provider of Internetdelivered SVoD services, which it has offered in its core US
market since 2007. Netflix has established operations in
several other markets, including Canada, the UK, Ireland,
the Netherlands, the Nordics, and Latin America. In July
2014 the company announced that it plans to expand into
six additional markets, thereby extending its European
footprint to 13 countries by the end of the year. Access fees
are competitive, with basic TV access subscription charges
currently standing at $7.99 per month in the US, £7.99 in the
UK, and €7.99 in most European markets.
Netflix’s expansion continues apace, with the domestic paid
subscriber base growing by 22% to 35.0 million in the year
to June 2014; international subscriptions rose by 84% to
12.9 million in the same period. Meanwhile the overall profit
margin for the streaming business (expressed in terms of
profit contribution as a proportion of revenues) reached 17%,
up from 10% a year earlier. With its established reputation
OVUM.COM
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23
TABLE 1
TABLE 2
NETFLIX OPERATOR PARTNERSHIPS
TIERED PRICING EXAMPLE FOR TIVO CABLE BUNDLES
COUNTRY
OPERATOR
TYPE
ANNOUNCED
VIRGIN MEDIA – BROADBAND + PHONE
UK
Virgin Media
Cable
September 2013
Up to 50MB
Up to 100MB
Up to 152MB
Sweden
Com Hem
Cable
October 2013
£20.50
£22.50
£28.00
Denmark
Waoo
Telco/ISP
October 2013
US
Atlantic Broadband
Cable
April 2014
VIRGIN MEDIA – BROADBAND + PHONE + TV
US
Grande Communications
Cable
April 2014
60+ channels
130+ channels
230+ channels
260+ channels
US
RCN Corp
Cable
April 2014
10 HD channels
11 HD channels
43 HD channels
59 HD channels
US
Suddenlink
Cable
May 2014
US
GCI
Cable
June 2014
TiVo 500GB
10 Sky channels
14 Sky channels
Sky Sports and Sky
Movies – 15 in HD
US
Midcontinent Communications
Cable
June 2014
Multiscreen
TiVo 500GB
TiVo 500GB
44 Sky channels
US
Cable ONE
Cable
July 2014
Belgium
Belgacom
Telco/ISP
September 2014
Catch up TV
Multiscreen
BT Sport and ESPN HD
TiVo 1TB
France
Bouygues
Telco/ISP
September 2014
France
Orange/FT
Telco/ISP
October 2014
US
Catch-up TV
Multiscreen
BT Sport and ESPN HD
France
SFR
Telco/ISP
October 2014
US
Sky On Demand catchup and box sets
Catch-up TV
Multiscreen
Belgium
Belgacom
Sky On Demand catchup and box sets
Catch-up TV Sky On
Demand catch-up and
box sets
France
Bouygues
Telco/ISP
Sky Movies On Demand
£20 per month
£30 per month
£45 per month
£95 per month
SOURCE: OVUM
for innovation around the user experience and a catalog that
is supported by substantial investment in original content,
the Netflix brand is going from strength to strength. Its entry
into new markets is eagerly anticipated by consumers and in
some cases feared by established players in the TV space.
DESCRIPTION OF THE DEALS
ACCESS TO NETFLIX VIA THE PAY-TV OPERATOR’S STB
Netflix now has a total of 14 partnerships that enable
the distribution of its service via pay-TV STBs. Three
regional US cable operators – Atlantic Broadband, Grande
Communications, and RCN – announced partnerships with
Netflix in April 2014, enabling them to offer their customers
direct access to the Netflix streaming SVoD service via their
decoders. The agreements came in the wake of similar
landmark deals with the UK and Swedish multi-system
operators Virgin Media and Com Hem, announced in
September and October 2013 respectively.
Netflix’s list of regional cable partners includes Suddenlink
(announced in May 2014) GCI Communications (June),
Midcontinent Communications (June), and Cable One (July).
The nature of the product arising from the partnerships is
straightforward. Pay-TV subscribers who also take out a
Netflix subscription can receive the streaming VoD service via
their STB, employing the same UI and remote control device
as used for pay-TV content provided by the operator.
The Netflix app has been integrated into the cable operators’
TiVo-powered services, enabling the hybrid delivery of live
and on-demand pay-TV programming and OTT content via
a single STB. In the case of the deals struck in April with
Atlantic Broadband, Grande Communications, and RCN,
integration with the pay-TV service is closer than in the earlier
24
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Up to 152MB
SOURCE: VIRGIN MEDIA
app-based implementations, providing a dedicated “virtual”
Netflix channel that is accessible via the regular electronic
program guide.
The majority of Netflix’s pay-TV partners are cable operators,
but it does also have some telco alliances. In November
2013 it teamed up with the Danish alternative network
operator Waoo, which offers Netflix to its FTTH customers
via a proprietary (i.e., non-TiVo) STB. September 2014 saw
the announcement of further partnerships – with French
telco Bouygues and the Belgian incumbent, Belgacom,
whose rebranded Proximus TV service will integrate Netflix
into its new generation of decoders starting in December.
Bouygues made Netflix available via its existing Bbox from
mid-September, and will also offer the service via its Android
STB, which will launch in November 2014.
In early October 2014 Orange France announced a
partnership whereby it will offer Netflix to its TV customers
from November 2014. Another French telco, SFR, has made
the service available through its STBs via Google Play.
STRATEGIC GOALS
PARTNERING WITH NETFLIX PROVIDES ADDED VALUE,
DRIVING BUNDLED UPSELL OPPORTUNITIES AND
CUSTOMER LOYALTY
Operators without an extensive or comprehensive VoD offering
clearly have much to gain from teaming up with a best-of-
FIG 3
POTENTIAL ADDRESSABLE NETFLIX AUDIENCE AMONG SELECTED PAY-TV OPERATOR PARTNERS
Orange France
5,776
Virgin Media
3,734
Belgacom
1,200
Suddenlink
1,200
Cable One
750
599
Com Hem
300
Midcontinenet
230
Atlantic Broadband
116
GCI
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Pay-TV subscribers (000s)
SOURCE: OVUM AND OPERATORS
breed SVoD provider that enjoys strong brand recognition and
is to some demonstrable extent offering consumers what they
want. For smaller players, outsourcing VoD to a market-leading
third party makes clear economic sense because it enables
them to bypass the costs of content, infrastructure, service
development, and subscriber acquisition.
As a global operation, Netflix may benefit from economies of
scale with regard to content acquisition that many regional
and smaller national operators are unable to match. For
larger players that are already established in the VoD market,
such an alliance may appear more risky because it threatens
the cannibalization of the players’ own branded offerings.
The reality, however, is that competitive market conditions
mean that operator-delivered VoD is not proving to be a
universally lucrative business opportunity. With ever-growing
numbers of pay-TV users going online to find content, even
the more successful operators recognize that enabling
customers to make their own content choices from within a
convenient, familiar, and trusted user environment may be
more conducive to loyalty than simply leaving them to their
own devices.
In the cases where Netflix is delivered through TiVopowered digital video recorder services, the partnership
increases operators’ ability to upsell customers to highervalue bundled offers. Virgin Media, for example, offers
incremental tiers for its TiVo-powered service, adding more
TV content and features – as well as a bigger price tag –
with each increase in the bundled broadband speed. Com
Hem has a similar tiered structure, with the more content-
rich and fully featured TiVo options priced significantly
higher than the no-frills basic TV package. The inclusion of
Netflix (which requires an additional subscription) extends
the range of available content services within the TiVo
proposition. The telco partners have not announced plans
to bundle Netflix into specific packages – most are using it
to market their new-generation STBs, which typically come
with an upgrade fee.
Partnering with Netflix does not necessarily present a direct
additional revenue opportunity for operators, but it does
add perceived value, thereby enhancing the stickiness of the
overall pay-TV/broadband combined proposition.
PARTNERING WITH THE OPERATORS EXPOSES NETFLIX TO
A HIGHER-VALUE AUDIENCE
A key benefit of these alliances for Netflix is their potential
to further strengthen perceptions of both its brand and the
quality of its proposition. Such partnerships expose Netflix to
a high-value base of consumers with a proven willingness to
pay for video entertainment.
The convenience aspect benefits Netflix as well as operators.
Distribution via pay-TV operators’ STBs gives it a clear point
of differentiation from rival OTT VoD services such as iTunes,
Amazon Instant Video, and Google Play, which tend to be
limited to specific Internet-connected devices and platforms.
Association with pay-TV operators provides Netflix with a
ready-made addressable audience that can easily access its
service without having to leave the regular user environment.
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25
Despite its seemingly unstoppable growth, Netflix still
faces challenges around the reliable delivery of its services
over a wide range of disparate – and largely unmanaged –
broadband networks. Integrating its application into the UI
of an operator’s STB gives Netflix a much better chance of
providing a consistent and high-quality viewing experience
than relying on the open Internet for delivery to standalone
devices such as smart TVs and media streaming players.
Virgin Media’s TiVo box, for example, allocates additional
dedicated bandwidth (on top of the subscribed broadband
allowance) for the uninterrupted delivery of OTT services.
Although there is no suggestion that operator partners are
actually prioritizing traffic to ensure quality of service, RCN
claims to be “optimized for Netflix,” citing superior picture
quality and faster start-up times among its benefits.
It is perhaps unsurprising that Netflix appears to select its
telco partners, at least in part, on the basis of the quality of
their broadband networks. Several of its existing operator
partners rank highly in Netflix’s ISP Speed Index: Waoo, Com
Hem, and Virgin Media topped the lists of larger broadband
providers in Denmark, Sweden, and the UK respectively as
of August 2014; Suddenlink ranked third out of 16 larger
ISPs in the US. An expanded view of the index reveals that
the delivery speeds of some of Netflix’s smaller partners are
significantly higher than average. Grande Communications,
RCN, Midcontinent Communications, and Atlantic Broadband
ranked third, fourth, fifth, and 12th respectively in August
2014, with Suddenlink achieving the 17th fastest Netflix
throughput of a wider panel of 60 ISPs. The majority of these
operators have shown historically high rankings in the ISP
Speed Index, suggesting that Netflix uses this monitoring tool
to inform its selection of pay-TV partners.
RESULTS
BOOSTING THE CUSTOMER BASE
Neither the operators nor Netflix have reported indicators
around service take-up arising from their service
partnerships. However, it is worth noting the extent of the
pay-TV viewership to which Netflix has become exposed
through such partnerships. As of June 2014, Virgin Media
indicated that 60% of its TV customer base – some 2.3 million
homes – received its TiVo-powered service. Meanwhile Com
Hem reported 17% penetration (equating to just over 100,000
subscribers) as well as a return to positive growth for its
digital TV customer base in 2Q14.
The overall TV customer bases of some of the operators that
offer (or are preparing to offer) Netflix via their TV customers’
STBs are highlighted in Figure 3.
26
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53
04
DIGITAL MEDIA
Q+A
NICK THOMAS
PRACTICE LEADER
WE’VE SEEN FURTHER GROWTH IN DIGITAL MEDIA
SERVICES IN 2014, BUT HOW WILL THIS CHANGE IN 2015?
IS THERE A MARKET FOR DIGITAL MEDIA SERVICES IN
EMERGING MARKETS?
We expect OTT media services such as Netflix for video, Spotify for music and
Steam for video games, to continue to grow in 2015 and as they expand their
footprint. However, we are seeing traditional providers moving into the OTT space
and competing against their new digital competitors. A trend towards consolidation
is also helping traditional providers to compete more effectively. Tier 2 operators
will compete by collaborating with best-of-breed partners to create attractive
bundles of content and services. But only one outcome is certain: As consumers
become increasingly empowered, competition for their attention will intensify.
Absolutely. We see a very strong appetite for such services in emerging markets,
whether in Africa, Latin America, the Middle East or Asia. Primarily driven by
mobile adoption, the market for digital content such as music, video and apps is
potentially huge, although monetising this via either paid or ad-supported models
remains challenging.
IS ADVERTISING SPEND NOW MIGRATING FROM
TRADITIONAL MEDIA TO DIGITAL (INCLUDING MOBILE)?
Some observers feel that consumers will never pay for digital content and
services, but Ovum doesn’t share this view. While monetising digital media
content is challenging there are plenty off companies that are succeeding in
building strong revenue streams from consumers, whether they are selling music,
video, gaming or e-books. Some are global players which offer a whole ecosystem
of hardware and software, but others are niche players which have understood
what their customers want.
Based on what we are seeing in the 50 markets that we track in detail, we expect
digital’s share of the whole ad market to grow further. This will be boosted by
the continued growth in mobile advertising and by new measurement metrics
that better reflect actual value. But digital growth is not simply at the expense of
traditional advertising revenue – the picture is more nuanced than that. In many
markets, for example, traditional TV or print advertising will continue to dominate
for the next few years. While consumers are undoubtedly spending more of their
time interacting with connected screens, it will be some years before this digital
shift is fully reflected in ad revenues.
WHAT AREAS OF DIGITAL MEDIA PRESENT NEW REVENUE
OPPORTUNITIES IN 2015 AND BEYOND?
OTT video continues to be one of the hottest areas not just in the media space, but
in the telco space too, with video dominating network traffic. Netflix’s presence
continues to grow as it launches in more territories, while other OTT services
– including those from traditional pay-TV operators – will provide competition.
Digital music is now a key component of many operators’ content bundling and
we will see more partnership deals in 2015. One other sector where we expect
to see strong growth over the next few years is digital publishing. We forecast
that the global market for e-Books will exceed $30bn by 2018. Beyond Englishlanguage markets, this presents a strong opportunity for new digital revenues.
Video gaming has a large and loyal audience willing to pay for digital content and
services and we also expect to see significant growth opportunities around digital
and mobile advertising.
WILL CONSUMERS PAY FOR DIGITAL MEDIA CONTENT AND
SERVICES, OR WILL IT ALL BE FREE?
WILL THE DIGITAL MEDIA MARKET BE DOMINATED BY A
HANDFUL OF GLOBAL PLAYERS IN FUTURE?
The impact of the Internet giants such as Amazon, Apple, Netflix, Facebook, and
Google on the digital media space cannot be underestimated. But there are many
areas where they are not leading the market.
Music subscription services face a
difficult balancing act between price
and value
OVUM VIEW
FIG 1
DEGREE OF IMPORTANCE OF MEDIA ACTIVITIES, JULY 2014
SUMMARY
According to Ovum’s new digital media consumer insights
survey, music is an essential part of everyday life for a big
share of consumers, more so than watching TV and playing
video games. The difficulty for much of the recorded-music
sector has been transferring the popularity of music onto
the balance sheet. Streaming is the current poster child
for music industry success, but many questions over the
business model’s future, such as how much are consumers
prepared to pay for access to millions of tracks, and whether
royalty rates are high enough to satisfy disgruntled artists
remain unanswered.
HOW IMPORTANT IS MUSIC?
Music is unquestionably important to most people’s lives,
regardless of where they are in the world. Although not
everyone spends money on recorded music or buys tickets
to a gig or festival, a very high percentage of people listen
to music on the radio at home or in their car. Restaurants,
shops, and bars use music to create a particular ambience to
encourage people to either relax or feel enlivened to improve
their customers’ experience.
Just how important music is to consumers was one of the
many questions included in a consumer survey conducted by
Ovum in July. Over a three-week period, 15,000+ consumers
across 15 countries were asked a number of questions
about their media use. In terms of importance, music was
considered essential by 42% of respondents, and important
by a further 43% (see Figure 1).
Although listening to music was less important than browsing
the Internet and reading the news, it was considered more
essential that interacting on social media and watching TV. Only
16% of respondents said listening to music was unimportant.
Comparing the survey findings with the current state of
the recorded-music industry suggests a large proportion
of consumers’ interest in listening is not being satisfied
by paid-for services. Annual sales of recorded music have
been falling for more than 10 years and 2014 is expected to
add one more to the total number of consecutive years of
annual contraction.
30
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Watching TV
Watching short videos
Reading the news
Reading a magazine
Reading a book
Playing video games
Listening to the radio
Listening to music
Interacting on social networking sites
Browsing the web
0
20
40
60
80
100
Share of respondents (%)
 Essential
 Important, but not essential
 Unimportant
SOURCE: OVUM
Few doubt that streaming is going to play a major role in the
music business’ future. All the major record companies have
hailed growth in streaming revenue during recent financial
results presentations and income from streaming already
accounts for the majority of record company earnings in a
growing number of countries. Some still remain unconvinced
of the benefits of streaming – rock band Coldplay made its
most recent album Ghosts available to streaming services in
September, which was four months after it was released on
CD and as a download.
HOW CAN DISGRUNTLED ARTISTS BE APPEASED?
Although the number of artists insisting on windowing
streaming services is shrinking, the same cannot be said for
the number publishing royalty statements and complaining
of low royalty rates from the likes of Deezer and Spotify.
Streaming services are often drawn into social media
disagreements with analysts over the benefits of their
business model to artists: Spotify went so far as to create
the website spotifyartists.com at the end of 2013 to detail
its contribution to the music business and how royalties are
calculated (see Figure 2).
FIG 2
FIG 3
SPOTIFY ROYALTY CALCULATION FORMULA
MAXIMUM MONTHLY FEE WILLING TO PAY TO SUBSCRIBE TO A MUSIC
STREAMING SERVICE
1
2
Spotify
monthly
revenue
Artist’s Spotify streams
Total Spotify streams
3
4
70% to master and
publishing owners
Artist’s
royalty
rate
5
Nothing – I will only use
advertising-funded services
Artist
revenue
Nothing – I have no interest in
music-streaming services
More than £10
SOURCE: SPOTIFYARTISTS.COM
More than £5, up to £10
More than £2, up to £5
Spotify says on its website that that the real measure of its
success is the progress made in convincing consumers to
“pay for music again” by converting “millions of pirates into
monetized users” and “increasing the total money spent by
paying listeners by graduating them to a much more valuable
form of consumption.”
There are, though, plenty of unanswered questions
concerning just how many consumers the streaming services
can convince to pay. Spotify has already published evidence
showing the impact its service has had on piracy: It has given
consumers an alternative to the current myriad of online
music distribution services. However, an interesting finding in
the Ovum consumer insights survey suggests the untapped
number of future paying subscribers is limited.
The average price for most of the leading music subscription
services is $9.99/€9.99/£9.99 per month for online and
mobile access. Bundled deals by media and telecoms
companies with the leading subscription services can reduce
the price and, in some cases, make access free. Spotify is
currently the global leader in terms of paying subscribers
with 10 million from 57 countries, followed by Deezer with
5 million from 180 countries and Rhapsody with 2 million
from 32 countries. For each of the services, the share of
addressable consumers across their whole footprint taking a
subscription is low. However, the Ovum study found that only
a small share of consumers would be happy to pay the full
price to subscribe to a music service.
Up to £2
0
10
20
30
40
Share of respondents (%)
SOURCE: OVUM
to £10 must be of concern to proponents of the subscription
model. Spotify acknowledges on its spotifyartists.com
website that the per-stream payout generated by a premium
service user is “considerably higher” than for a user of the
advertising-funded tier and so if the results of the Ovum
survey are indicative of consumer sentiment towards the
value of music subscriptions, then the benefits of streaming,
in terms of royalty payments at least, will continue to cause
disquiet amongst artists.
HOW MUCH WILL PEOPLE PAY?
Ovum asked the 15,000+ respondents what was the
maximum monthly fee they would be willing to pay to
subscribe to a music streaming service. Only 10% said they
would be happy to pay the current going rate or above – 7%
were willing to pay more than £5 and up to £10, with a further
3% prepared to pay more than £10 (see Figure 3). The highest
share of respondents that agreed to pay something opted for
up to £2. More than half of those surveyed said they would
not pay anything.
There were differences in the findings by region and country,
but the low share of respondents that said they would pay up
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31
05
PAYMENTS
Q+A
2014 SAW APPLE’S MUCH-ANTICIPATED ENTRY INTO THE
MOBILE PAYMENTS MARKET WITH APPLE PAY – WHAT
IMPACT WILL IT HAVE?
Apple has a well-thought-through payments strategy that supports both NFC
proximity and remote m-payments. The Apple Pay application is being integrated
with Passbook, turning the advertising and loyalty service into a fully fledged
digital wallet. We expect Apple to use the location capabilities of iBeacon
to further enhance its digital wallet proposition. Apple can also draw on the
dedicated mobile advertising capabilities of its iAd platform. Apple Pay is backed
by the major card schemes and launched in the US with a strong line-up of local
banking and retail partners. We expect it to do likewise in other markets.
We fully expect Apple to do a good job of marketing its mobile payments services,
particularly NFC proximity payments. The company will not pitch NFC as a
technology, but as something that will make in-store payments fast, easy, and
even fun. Apple might just be able to kick-start mobile proximity payments, and if
usage improves then more merchants might be prepared to invest in NFC. Apple
has also made an effort to stress the security and data privacy features of Apple
Pay, which will use biometrics, tokenization, and an embedded secure element.
This is critical, because concerns over security and privacy are the biggest issue for
consumers when it comes to m-payments.
Apple Pay will be disruptive for existing digital wallet services such as Google
Wallet and those run by mobile operators. Apple Pay should also worry online
payment providers, particularly given the fact that Apple has 800 million iTunes
accounts on file.
IS LOCATION THE “SECRET SAUCE” FOR M-COMMERCE
APPLICATIONS?
The ability to identify a user’s location and deliver contextually relevant
information, advertising, and marketing messages is a compelling proposition.
Moreover, the real-time aspect of location data enables an adaptive approach to
marketing, allowing businesses to change their marketing messages in real time to
meet an individual consumer’s needs.
But location-based commerce must be handled with care. Although consumers
are used to navigation and store-locator services, hyper local m-commerce such
as push messages within a geo-fence will be a new experience. Location targeting
of this kind raises the stakes on user privacy; service providers must ensure it is
respected and guarded. They must also tread carefully in terms of the frequency
with which they target users based on their location – too much and it will be an
annoyance and perceived as spam.
THERE HAS BEEN A RUSH OF DIGITAL WALLET
LAUNCHES OVER THE PAST FEW YEARS, WITH MORE ON
THE WAY. IS THIS SUSTAINABLE? WHAT IS THE FUTURE
FOR DIGITAL WALLETS?
Ovum’s 2014 Customer Insights survey shows that most consumers view the
digital wallet as a “nice to have” rather than an essential service. Unless this
changes, the current scenario that has multiple digital wallets in a single market
is unsustainable in the longer term and there will be consolidation, leaving one
or two digital wallets per market. The ultimate danger for digital wallets is that
EDEN ZOLLER
PRINCIPAL ANALYST
consumers gravitate to standalone m-commerce applications that perform a
dedicated function very well and have a clear value proposition.
The digital wallets best positioned for long-term survival will be collaborative
ventures that are able to achieve scale. Organizations that include financial
institutions will be in a good position as consumers deem them the most trusted
parties to provide m-payments. Digital wallet initiatives that build on strong loyalty
programs and that focus on consumer engagement could also gain longer-term
traction. Mobile-optimized wallets in emerging markets will continue to have a
robust outlook because mobile is often the only viable way for unbanked consumers
in these markets to access m-commerce, financial, and payment services.
ADVERTISING IS THE MONETIZATION ENGINE
DRIVING AN INCREASING VARIETY OF M-COMMERCE
APPLICATIONS. WHAT ARE THE CHALLENGES AND WHO
WILL BE THE WINNERS?
Mobile advertising messages have to be relevant and well targeted, which is
not easy if consumers are only comfortable sharing very high-level information
due to concerns over data privacy. This was one of the key findings from Ovum’s
2014 Customer Insights survey. The data insights that are available need to be
actionable and of good quality if mobile advertising is to be effective, which is
dependent on high-caliber data-mining and analytics capabilities. Developing such
capabilities requires a major commitment and considerable investment.
The advertising capabilities of m-commerce service providers vary considerably.
Diversified OTT players (such as Google and Facebook) that are active in the
payments space have a wealth of mobile advertising expertise and data insights to
draw on. Retailers with strong loyalty programs are likewise adept at leveraging
customer insights for upselling, cross-selling, and rewards. The majority of mobile
network operators are novices by comparison.
WHAT DO CONSUMERS WANT MOST FROM M-COMMERCE?
WHICH FEATURES AND SERVICES DO THEY VALUE MOST?
Service providers often take a scatter-gun approach to m-commerce applications,
stuffing digital wallets with services that are not always well thought through
and therefore miss the mark. The attributes that consumers prize most in an
m-commerce application are guaranteed security, simplicity, utility, and convenience.
WHAT DIRECTION IS OMNICHANNEL COMMERCE TAKING
AND WHAT ARE THE CHALLENGES?
Online, mobile, and social media have joined traditional in-store consumer touch
points. At the same time, consumers can use multiple touch points for a single
action in their shopping journey, using multiple connected devices. Today these
include desktops, laptops, tablets, smartphones, and feature phones, but in the
future they could also include connected TVs and cars.
An omnichannel shopping experience gives merchants and other service providers
new ways to engage with consumers and the opportunity to gather data insights
across multiple touch points. But enabling this experience is not easy. Service
providers will have to support both remote and proximity payments, and leverage
multiple enabling technologies. They will have to ensure a consistent consumer
experience across multiple touch points and devices.
Location-Based M-commerce:
Trends, Opportunities, and
Challenges
TRENDS AND OPPORTUNITIES
LOCATION DATA BRINGS A NEW DIMENSION TO TARGETING
The value of location is not just in its ability to act as an
enabler for compelling applications, but in its ability to
generate rich data insights that are unique to mobile. Realtime location data can bring a new dimension to targeting.
Location data connects a person’s digital activity with the
physical environment, providing a more complete view of
consumer commerce and related behavior, such as how
consumers engage with brands in both the physical and
digital domains.
The real-time aspect of location analytics offers a more
adaptive approach to marketing, enabling a business to
change its marketing and engagement in real time to meet
an individual consumer’s needs. The value of location can be
further enhanced by adding longitudinal and behavioral data
points to the mix. The objective is to provide a fuller view of a
user’s contextual location activity over time by incorporating
related insights based on behavioral, demographic, and
historical data.
that has not been exposed to the location-based campaign.
The effect of mobile location campaigns can be impressive:
Compared with a control group, 32% more people responded
to a location-based campaign, in research carried out by
NinthDecimal for a US Fortune 500 retailer.
LOCATION-BASED INVENTORY CAN COMMAND HIGH
PREMIUMS
The strong results that can be delivered by location-based
marketing campaigns mean that location-based mobile
advertising inventory can command premiums of 10–20%
over non-location-based inventory. Factors that can affect the
degree of the premium include:
whether location-based inventory has “geoprecise” latitude
and longitude coordinates attached to it
times of peak demand for location-based inventory, such
as holiday seasons
the extent of bid density, i.e. the extent of competition on
the advertising network/exchange.
LOCATION-BASED TARGETING CAN DELIVER STRONG
RESULTS
The power of location-based commerce is strongly evidenced
by the performance metrics reported in a wide variety
of marketing and advertising campaigns that use mobile
geotargeting to achieve their objectives. A 2013 report from
Verve Mobile, a mobile-location-advertising specialist, states
that campaigns that leverage location targeting outperform
campaigns that do not by a factor of two. The report found
that all location-based marketing strategies exceeded
the industry average click-through rate (CTR) of 0.4%. For
example, a 2013 geofence-based campaign carried out by
Verve for Cub Cadet, a US lawn and utility vehicle supplier,
produced an average CTR of 1.1%.
BRANDS PLACE HIGH VALUE ON LOCATION-DATA INSIGHTS
Brands are becoming more aware of the potential benefits
of location-based advertising and marketing, and in line with
this are showing keen interest in the targeting capabilities
afforded by location-based data insights. This is strongly
evidenced by the findings of a survey Ovum conducted in
2013 with marketing executives across 300 US companies
active in mobile advertising. Out of a wide range of targeting
insights, the two types of location-based information
together scored the highest, as shown in Figure 1. Twentyfour percent of respondents cited general or specific location
data as the most useful type of targeting insights for mobile
advertising campaigns. The findings also underscore the fact
that location-based data is most effective when combined
with other attributes, notably demographic data and
behavioral insights such as a user’s search and browsing
behavior, which also scored well with respondents.
Another mobile-location-advertising specialist, NinthDecimal
(formerly JiWire), has developed the Location Conversion
Index, which measures whether individuals who viewed a
location-based mobile advertising message were later seen
in that advertiser’s desired location. The LCI also measures
location-based campaign outcomes alongside a control
group, i.e. an audience group of the same size and profile
CONSUMERS VALUE LOCATION SERVICES BUT ARE WARY
OF IMPACT ON PRIVACY
Location is central to the mobile experience and powers some
of the most popular types of mobile applications: local search
and discovery, navigation and travel, retail, geosocial services,
and more. Many location services have a strong utility
orientation, making them practical, useful applications that
34
©2014 OVUM. ALL RIGHTS RESERVED.
OVUM.COM
provide
genuine value to consumers.
FIG 1
MOBILE TARGETING ATTRIBUTES DESIRED BY BRANDS
FIG 2
REMIT OF LOCATION BASED APPLICATIONS
WHAT TYPE OF TARGETING INSIGHTS ARE MOST USEFUL FOR YOUR
MOBILE AD CAMPAIGNS?
MARKETING
RETAIL
Loyalty programs
CRM
Coupons and offers
Event/product
promotions
Payments
Payments
Click-and-collect
Delivery/order tracking
In-store search and discovery
In-store navigation
In-store promotions
In-store information
SOCIAL
Crowdsourcing
Messaging
Games
Check-ins
Photo and videos
(geotagging)
SMART CITIES
Access
Local search & discovery
Maps and navigation
Parking
TRANSPORT
Local information
Mapping and navigation
Parking
Public transportation
Road/traffic-flow
management
Turnstiles/road tolls
LOCATION
APPLICATION
DOMAINS
PUBLIC SERVICES
ENTERPRISE
VERTICALS
Fleet management
Delivery/order tracking
Workforce management
Asset tracking
Warehouse
management
Sports
Events
Automotive
Travel and hospitality
Emergency services
Healthcare
Education
People tracking
Weather reports
SOURCE: OVUM
 We only need very high-level targeting
for our campaigns (i.e. no deep insights
required) –12%
 Detailed demograpgic information – 15%
 General location information (e.g.
geolocation-aware) –14%
 Location-specific information (e.g.
geofencing) – 10%
 Device operating system in use –10%
 Insights into consumer preferences and
usage of native applications –11%
 Insights into consumer search and
browsing behavior –13%
 Insights into a consumer’s usage according
to time of day –7%
 Inisghts into a consumer’s usage according
to the type of movile device used (tablet,
and although this feature is still the sector’s bedrock, the
remit of location-based services has expanded dramatically,
as shown in Figure 2 (an illustrative rather than exhaustive
list of possibilities). At the same time, many applications
whose primary function is not location are being enhanced
by having location capabilities added to them, most
conspicuously in apps related to games, messaging, social,
shopping, and advertising. Location is becoming a common
feature of mobile applications.
smartphone, feature phone) –8%
SOURCE: OVUM
Consumers’ favorable views of mobile location services are
evidenced in the findings of a 2013 US survey from the Pew
Research Center. The survey found that 74% of US adult
smartphone owners used their devices to get directions or
other location-based information. At the same time, 30% of
respondents said that at least one of their social-network
profiles was set up to share their location information.
However, although consumers might value location-based
applications, they are aware of and concerned about their
impact on privacy, which has implications for locationbased commerce.
LOCATION APPLICATIONS ARE PROLIFERATING, AND WITH
THEM M-COMMERCE OPPORTUNITIES
Dedicated mobile location applications are expanding in
terms of volume, variety, and the number of segments they
cover. Location-based applications have traditionally been in
the domain of mapping and navigation, for obvious reasons,
A GROWING RANGE OF ENABLING TECHNOLOGIES BRINGS
FLEXIBILITY AND CHOICE
There are multiple enabling technologies that can be used to
detect the location of a mobile device/user, as shown in Figure
3. Consumers themselves can also be a source of location
data, when they supply their addresses when registering for a
service or opt into a mobile marketing program.
The proliferation of location technologies gives service
providers, solution providers, retailers, and other parties
more flexibility and choice than ever before when it comes
to implementing location-based services and commerce
applications. It also presents new opportunities for service
innovation, which is particularly noticeable with BLE/
beacon applications.
At the same time, more smartphones are equipped with
multiple sensors that can enhance location capabilities,
such as an accelerometer, an altimeter, a barometer, and
a gyroscope. These sensors can measure direction, turns,
speed, and height above sea level to create a fuller view of
the nature and characteristics of a given location.
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35
FIG 3
FIG 4
TECHNOLOGY OPTIONS FOR LOCATION BASED COMMERCE
EXPANSION OVER TIME OF TOUCHPOINTS USED BY LOCATION
Traditional
Bluetooth
BASED COMMERCE
Bluetooth Low
Energy/
beacons
GPS
Smartphone
Tablets
User-supplied
Magnetic
fields
NFC
Wearable
technology
Embedded
tags
Smart TVs
Point-of-sale
Out-of-home
digital media
Connected
cars
Wi-Fi
Cell-tower
triangulation
Smart cities
LTE Direct
SOURCE: OVUM
LOCATION WILL PLAY OUT ACROSS MULTIPLE SCREENS
AND IOT
Location-based commerce today is predominately
smartphone-centric, but this is changing as the range of
devices, screens, and embedded touchpoints capable of
supporting location-based commerce expands. The range
of potential touchpoints has grown to include smart cars
with in-vehicle displays; wearable devices such as the
Samsung Gear watch; outdoor or indoor connected kiosks;
and out-of-home digital signage that can be complemented
by embedded tags (see Figure 4). Anchored devices in the
home can also play a role in location-based commerce, such
as smart TVs and household appliances such as connected
fridges. The domain of location-based commerce can also
extend to smart cities, as in location-enabled parking
applications that use the sensor networks that are a core
component of smart-city deployments. Such developments
place location-based commerce on a trajectory that will see it
evolve to embrace the Internet of things.
WEARABLE TECHNOLOGY
THE HEAT IS ON
There is a lot of excitement about wearable technology, and
although the ecosystem is still emerging, the number of
wearable devices coming to market is increasing. Notable
examples include the Samsung Galaxy Gear smart watch and
Sony’s SmartWatch 2. Google Glass is adding to the heat,
even though the product is still in open beta mode, under
the Explorer program. The current version of Google Glass
already supports search, navigation, messaging, GPS-enabled
applications, and hyperlocal information (as used in the Field
Trip app). On the m-commerce side, Google Glass incorporates
©2014 OVUM. ALL RIGHTS RESERVED.
Connected
appliances
IP address
lookups
SOURCE: OVUM
36
Desktops/
laptops
OVUM.COM
the Google Now application, which supports location-based
product discovery by leveraging a user’s product-search
behavior. Meanwhile, developer Eaze has produced an
eponymous payment application for Glass, which enables
Bitcoin-based payments using a “nod to pay” feature. Google
will no doubt be looking at other ways that Glass can enable
m-commerce in the future.
Wearable technology is a potential platform for locationbased commerce, one that is being explored by a number of
players, with PayPal being one of the first to publicly state its
interest. At Mobile World Congress in February 2014, PayPal
announced an m-payment application for the Samsung Gear
smart watch. Gear owners can use the PayPal app to check in
and pay at local stores, save and redeem offers, send money,
and receive payment notifications. PayPal is also looking to
introduce new hyperlocal location features for the Gear based
on beacon technology.
WEARABLE TECHNOLOGY AS A PLATFORM IS
INTERESTING, BUT A LONGER-TERM PLAY
We can see a case for wearable devices in certain
m-commerce applications, such as the use of a smart watch
for lower-value tap-and-go mobile proximity payments,
such as for travel and transit. However, the prospect that
wearable devices will become a mainstream platform for
m-commerce, location-based or otherwise, is debatable. An
immediate challenge for wearable technology is that it lacks
the scale that is needed to make mobile commerce successful,
and given the fact that the wearable-technology market is
nascent, building scale is a long-term scenario. The wearabledevice market is also a fragmented space, with a number of
operating systems in play, including Android, Firefox OS, and
Tizen. Meanwhile, most consumers are still getting to grips
with m-commerce on mobile phones, let alone connected
watches. In the short-to-medium term, m-commerce on
wearable platforms will be a case of too much, too soon for
the majority of consumers.
OUT-OF-HOME DIGITAL MEDIA
Out-of-home (OOH) digital media uses strategically placed
connected displays to target consumers with advertising
messages at specific locations they are likely to occupy
while on the move. OOH digital signage is becoming an
increasingly common feature in urban environments. It can
be located on streets, at train and subway stations, outside
buildings, inside shopping malls, at event arenas, in airports,
and more. OOH digital media is growing rapidly as more
investment is made in connected signage, particularly in
emerging markets, where there is less opportunity to reach
large audiences via TV or device-based advertising. Ovum
estimates that OOH digital media will generate digitaladvertising revenues of US$18.9bn in 2018, accounting for
8.6% of the digital-advertising total. OOH digital-media
displays might be confined to one location, but they are not
inert. Content/advertising feeds streamed to connected
displays can be adapted in real time to anticipate and target
the needs of consumers based on local conditions. For
example, in 2013 French online fashion brand La Redoute ran
an OOH digital-billboard campaign in Paris that harnessed
real-time weather data (via sensors) to change the type of
clothes advertised on the billboard. In warm weather, lighterweight clothing would be featured, with the opposite if the
temperature dropped.
Google has also experimented with ways to enhance OOH
digital commerce. In November 2013, Google leveraged the
technology used in the Google Now smartphone application
to bring geotargeted search results to digital displays at 160
bus and Tube station locations across London. The displays
featured the Google search bar for users to locate local
restaurants, shopping, live events, points of interest and
local news. The results were tailored to the location of the
screen, the time of day, and the weather: For example, in bad
weather, results returned information about local cinemas.
We expect to see scenarios develop in which connected OOH
digital media and smartphones support integrated locationbased messages across both platforms. For example, an
OOH digital display ad could be synced with a smartphone
application and triggered when the smartphone user enters
a geofence where the OOH display is located. US-based
iSign Media has an offering that supports exactly this kind
of scenario. The company’s Smart Antenna software-asa-service product can be embedded in digital signage or
point-of-sale (POS) systems. Smart Antenna uses Bluetooth
to identify mobile phones and tablets, and to push messages
to these devices when they are within 100 meters. It also
supports Wi-Fi for interactive communications.
EMBEDDED TAGS
Embedded tags leveraging NFC or QR codes can be used to
add interactivity to OOH digital and other media touchpoints
in a way that can enhance location-based commerce. A
strategically placed digital-advertising display for a product
can feature an NFC tag that consumers tap to open a link
to a mobile website or application that is designed to drive
location-based commerce. For example, the application might
contain further product information, along with a discount
offer and a map to the nearest store where the product is
found. Applications of this kind are becoming more common
in large cities. The advantage of interactive OOH displays for
advertisers is not just the ability to give consumers additional
information: They can also benefit from the data that NFC
tags can capture, such as date and time. Clear Channel
Outdoor, a leader in OOH advertising, is so convinced by
these benefits that it is linking 75,000 OOH digital and static
displays across 23 markets to Connect, a mobile advertising
platform that supports interactivity via QR codes, NFC tags,
and – in emerging markets – SMS.
CONNECTED CARS
Vehicles with inbuilt connectivity present a significant
opportunity for location-based commerce that will grow
quickly over the next couple of years. At its simplest level,
marketing messages can be pushed to the connected invehicle navigation screen to promote in-path targeting. For
example, route maps being used for a journey could feature
the locations of retail outlets where a desired product can be
found. Incorporating demographic and behavioral data sets
would allow for personalized targeting, such as messages
sent during a lunchtime drive flagging restaurants and
grocery stores that match a consumer’s eating preferences.
IN VEHICLE M-COMMERCE APPLICATIONS
Ford Motors is seeking ways to promote in-car commerce
with its Sync AppLink platform, which links to its Sync in-car
command system, enabling drivers to sync with selected
mobile applications that can be controlled via in-vehicle
voice commands. One and a half million Ford cars come
equipped with Sync AppLink. Pizza chain Domino is a major
brand partner, and Ford owners who download the Domino
mobile app can order pizzas while in the car. General Motors
is preparing for an in-car-commerce push via its Chevrolet
AppShop. It has a formed a partnership with online travelbooking agency Priceline to make its travel app available on
most 2015 Chevy, Buick, GMC, and Cadillac models via the
Chevrolet AppShop.
STREAMING RADIO
Location-based marketing opportunities could also be linked
to Internet radio services available with connected vehicles.
In 2013, location specialist Placecast tested location-based,
in-vehicle audio advertising with Aha Radio, a personalized,
Web-based radio-streaming service for mobile devices
that can be synced with connected cars. The trial involved
geofences that when entered by a vehicle would trigger
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37
audio and visual ads from participating retailers that would
be streamed to drivers listening to Aha Radio. The streamed
audio ad included an option to receive a coupon for products
via email. In addition, music-streaming giant Pandora has
announced a new in-car advertising platform with an initial
brand lineup including Taco Bell and Ford.
THE CONNECTED HOME
CONNECTED APPLIANCES
Connected household appliances are those capable of
supporting connectivity with a wider network of devices and
services, via fixed or mobile broadband. Connectivity alone
does not make the appliances smart, which is where contextaware sensors – which can detect changes in temperature
and other localized conditions – come into play. Connected
appliances can work in background mode and according
to predefined rules, and they can send data to other
appliances and devices, with or without screens. Samsung
and LG are active in leading the charge in the market for
smart household appliances, which is understandable given
their position in the smartphone and wider digital-devices
ecosystem, including smart TVs. For example, Samsung sells
a smart refrigerator featuring Wi-Fi connectivity, an LCD
touchscreen and a number of applications. In the future,
location-aware smart-appliance applications could see a
connected fridge monitor contents and send an alert to a
smartphone user when an item is running low. A retailer’s
application that syncs with the connected fridge and
smartphone could update the user on any offers related to
the product, along with directions to a store stocking the
product on the user’s route home.
SMART TVS
Connected, Internet-enabled smart TVs are now available
from all major TV manufacturers. In line with this, the
connected-TV ecosystem is expanding with a range of
complementary, second-screen smartphones and tablet
applications, typically oriented to social-media interactions.
Second-screen advertising is also starting to gain ground,
though it is in its infancy and is often viewed as experimental
by broadcasters and brands. Some broadcasters use adsync formats, which enable second-screen users on mobile
to engage with ads aired during shows on their TV screen,
typically through games or other interactive applications.
Automatic content recognition (ACR) also has potential
for first- and second-screen interactive advertising. The
technology, which is not new, enables TVs and mobile devices
to be synchronized to deliver real-time advertising and other
content to a program the viewer is watching. The Shazam TV
app uses proprietary ACR technology to tag TV content and
ads on the first screen to deliver associated information to a
user’s mobile screen. ACR is also slowly being incorporated
into connected TVs from the likes of LG and Samsung. In
the US, Pearl, a venture of eight TV stations formed to
explore new opportunities in digital media, started a trial in
April 2014 to explore ARC opportunities for interactive TV
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©2014 OVUM. ALL RIGHTS RESERVED.
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and advertising. Pearl members include Cox Media, Hearst
Television, and Meredith Local Media Group, among others.
Most second-screen applications today do not include a
location-based element, though it is easy to see how they
could: For example, a TV ad featuring a new car could include
an offer of a test drive, along with information about local
dealers and maps to their premises. Another challenge is the
comparatively low share of users who actively use smart-TV
technology. Although mass-market adoption might apply to
sales of smart TVs, it has not yet translated to actual usage.
Ovum estimates that only about half of smart-TV connections
are actually activated, meaning that location-based, secondscreen commerce is a longer-term play.
SMART CITIES RELY ON SMART LOCATION SERVICES
Location-based services are integral to the smart-city premise
of managed, more efficient mobility, and location-based
commerce will be part of this vision. We are already moving in
this direction with OOH digital media, and other applications
will follow. Sensor networks in parking lots are already used
to support location-based parking applications, helping
drivers locate parking lots with free spaces and guiding them
to alternatives when they are full.
There are also several m-payment parking applications
available, such as the Parkmobile app, which can be used
for parking lots throughout the UK. Applications of this kind
are a retail enabler and as such already affect commerce
indirectly by making shopping easier: Consumers can avoid
the frustration and wasted time spent trying to find parking
while out shopping. But the remit of parking applications
could be extended to directly support location-based
commerce, such as via offers and coupons from retailers
close to the parking space.
THE LOCATION-BASED-MARKETING ECOSYSTEM IS
EXPANDING
The location-based-marketing ecosystem is already big and
complex, and over the next few years it will expand more as
new players enter the market, while those that have been
on the periphery in experimental mode formally join the fray
(see Figure 5). And there are no doubt other players waiting
in the wings that we have not shown here. This means
competition, innovation, and opportunities for partnerships. It
will also mean consolidation, particularly among the specialist
location-based-technology startups in the hyperlocal
sphere, where there is a lot of seed activity. Another area
consolidation will hit is mobile location advertising and
analytics, where again there has been intense activity, but
over a more prolonged period of two to three years. The focus
on location-based advertising and analytics is understandable
given the rich targeting potential offered by mobile location
data insights.
FIG 5
EXPANSION OF THE LOCATION COMMERCE ECOSYSTEM
Smart-TV
manufacturers
Govenments
and local
authorities
Automotive
manufacturers
Digitalsignage
networks
Application
developers
Mobile
operators
Device
manufacturers
Enterprise
verticals
Public Sector
(Health
Education)
Retailers
Large
enterprises
Payment
providers
Technoology/
solution
providers
Advertising
Agencies
Mobile
advertising
networks
OTT players
First Wave
Second Wave
Locationanalytics
specialists
Homeappliance
manufacturers
Third Wave
SOURCE: OVUM
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39
06
INTERNET OF
THINGS
Q+A
FIRST THINGS FIRST: WHAT IS THE INTERNET OF THINGS?
The Internet of Things is a buzzword. Its definition and constituents are expanding
and evolving. All of the companies involved in the establishment of today’s ICT
service infrastructure believe they have a pivotal role to play in the IoT. However,
few accurately know what that role will be, or have a realistic estimation of the
size of the opportunity.
The IoT is beset by far more questions than answers. It is a hive of seemingly
contradictory developments. The interconnectivity of the world around us will be a
combination of the ad-hoc with the deliberately structured. The enablement of the
underlying fabric of society through connectivity will be both transformative as
well as barely noticeable should it be executed correctly.
THAT SOUNDS AMAZING! HOW CAN WE BEGIN TO
IMAGINE THE IOT?
The symbol of a cloud was often used in engineering diagrams to represent
a network of unknown structure, or a network that was too complicated to
effectively illustrate. The Internet is a classic example of such a network, so much
so that the term “the cloud” became a common synonym for it. The Internet of
Things is at least as complicated as that, if not more so! Perhaps the symbol for
the IoT should be a galaxy.
At the heart of the IoT lies a core of paid-for point-to-point connectivity. Some
of these connections are fixed and some are mobile. Some of them are public
and some are private connections. Some are personal while some are enterprise
connections. A portion of those connections will be end-points, while others will be
hubs, routers, and gateways acting as points of aggregation and concentration for
a vast and fuzzy halo of local area attached devices.
Local devices will piggyback the paid-for point-to-point connections to
communicate with the public and private servers that make up the Internet.
The information they send may be relayed to other devices within or at the
end of other communications chains. There will also be opportunistic, proximal
communication directly between IoT devices, where data will be exchanged
without it ever needing to be routed via the Internet.
IT SOUNDS BIG! BUT WHAT IS IT ALL FOR?
Put simply, it is about making things better. Effectiveness and efficiency will be
the operative words for the IoT. This will be true for the enabling technology and
service providers of the ecosystem, the businesses and organisations that they
serve, and the human populations that will ultimately benefit. Many business
models are actually likely to remain the same. The critical difference is that the IoT
will enable organizations to do what they do far better than before.
There is a lot of inefficiency in peoples’ lives, as well as within society, government,
and business, that the IoT will organically evolve to cater for. An often-cited
example is the increasing portion of national GDP spent on healthcare. Chronic
illness management through preventative and predictive intelligent processes,
which utilise communications channels to provide warnings ahead of disaster, can
make the systems that we have today better, for the eventual benefit of everyone.
The way that some companies do business may well change. They may still have
the same expertise and the same products, but come to sell them differently – as
JAMIE MOSS
SENIOR ANALYST
managed services rather than one-off purchases, for example. Intriguingly, in a
more efficient and effective world we should find that we need less of things. Yet a
considerable amount of today’s economy may actually be reliant on wastage and
inertia to generate growth.
SO WHAT ARE SOME OF THE KEY QUESTIONS
SURROUNDING THE IOT?
The big questions are around who will proliferate. Which entities and which
types of entity stand to benefit the most? How might existing revenue streams
be disrupted and how could those rewards come to be reallocated? Can there
be an opportunity for all in a market that is in theory limitless? Can consumer
IoT develop a business model that goes beyond just the sale of niche hardware?
Is the “network effect”, i.e. the mash-up of cloud-based datasets, a viable
business model?
With so many unknowns and so much still to be proved, the IoT is a hugely
interesting area to research! It is also a very real phenomenon and is
happening now. The foundations for the IoT were laid with the rollout of our
telecommunications networks, the establishment of the Internet, the development
of our computer systems, and the proliferation of the electronic consumer goods
market. The IoT is the next stage of our human society; it is the interconnection of
all this; it is our connected world.
Driving Scale in the Internet
of Things
SUMMARY
IN BRIEF
The Internet of Things (IoT) is expected to encompass billions
of devices by 2020, with a market set to be worth trillions
of dollars in revenue, but for the moment, take-up remains
limited. In part, this is because the landscape for standards
and protocols in the consumer IoT is still fragmented, and
because interoperability between connected devices is
limited. Operators, chipset makers, and home-appliance
and electronics retailers are beginning to offer products and
services that enable users to control a number of devices
from a single hub or app, with a view to making IoT easier to
install, operate, and understand.
OVUM VIEW
Although the consumer IoT remains a niche market,
increasing smartphone penetration and new standards
such as Bluetooth Smart are boosting the popularity of
wearable and connected devices.
There are still numerous barriers to take-up, however,
particularly in the connected home. Many devices are
unable to communicate with one another, meaning that
users are potentially buying into multiple ecosystems to
control appliances or functions such as lighting, heating,
and cooling.
A number of stakeholders, including retailers such as
Staples and chipset manufacturers such as Qualcomm and
Intel, are working to address this problem by releasing
products or standards that can communicate across
multiple protocols, or that can tie together connected
devices from different manufacturers.
Security has also proven to be an entry point for the
connected home, as home-security provider ADT has
shown with its Pulse home-automation product. Fixed
and mobile broadband players, such as Comcast and AT&T,
have also entered this arena, using their existing networks
to offer monitoring and automation.
Although predictions place the future value of IoT in the
trillions of dollars, take-up remains slow. What’s needed
to drive interest beyond the early-adopter segment is a
“killer enabler” – that is, the IoT must enable consumer
experiences that were not possible before, as was the
case with the introduction of the smartphone.
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RECOMMENDATIONS
The industry must break out of its silos: A key barrier to
growth is the limited interoperability between devices
and ecosystems. Each device is connected through a
separate app to a single hub device (e.g. a smartphone),
which means increased cost and less functionality for
the consumer. Open-source initiatives are an important
step in the right direction, but stakeholders need to
better communicate the benefits to consumers. The other
important point is to make the technology accessible to
people who might not be as able to use a smartphone,
such as the elderly or the disabled.
Build on a number of interlocking technologies: Given
the proliferation of technologies and proprietary
standards, consumer IoT should not rely on a single way of
connecting. Different technologies will have their own use
cases, depending on which devices they connect to. Wi-Fi,
for example, is better suited to stationary, data-heavy
devices, while Bluetooth is better for wearable devices,
such as fitness trackers and smart watches.
MARKET STATUS
The Internet of Things has been the object of much discussion
for years, but it remains a fragmented set of verticals rather
than a true market. It can be divided into two main segments,
consumer and industrial, which are for the most part
exclusive and which each encompass a variety of activities
(see Figure 1). Perhaps unsurprisingly, the consumer side has
received the most interest from operators and customers,
relating as it does to the connected home, connected car, and
wearable devices. As a result, this analysis will focus primarily
on the consumer IoT market in the US, in the interest of
providing enough focus to explore the area in depth.
Consumer IoT is still relatively fragmented. The challenge for
stakeholders, whether they are operators, OEMs, standards
bodies, or retailers, is to bring each strand together, using
the technology that consumers already own. The popularity
of smartphones has done much to enable that process,
by bringing connectivity to widespread standards and by
bringing technologies such as cellular, Wi-Fi, and Bluetooth
into a single device. The ability to download apps to connect
to specific devices or IoT services also makes it easier to
FIG 1
CONSUMER AND INDUSTRIAL IOT VERTICALS
CONSUMER IOT
Wearables
Connected Home
Connected Car
Beacons
Fleet Management
Smart Metering
Production Line
Management
Patient Monitoring
INDUSTRIAL IOT
SOURCE: OVUM
control devices that use standards that are not built into
smartphones, such as ZigBee or Z-Wave.
Stakeholders have gotten involved in certain consumer IoT
verticals according to their specific strengths. For instance,
mobile operators and smartphone manufacturers have been
active particularly in promoting connected-car offerings, with
AT&T adding LTE connectivity to a number of General Motors
car models. At the same time, Apple’s CarPlay and Google’s
soon-to-be-released Android Auto offering enable users
to connect and use their smartphones safely while driving.
Core features include navigation, text-message playback and
composition (using voice commands), and music control.
Wearables and beacons are also growing in popularity, thanks
to the ubiquity of smartphones and the introduction of new,
low-energy versions of Bluetooth, most recently Bluetooth
Smart. Apple was the first company to use beacons on a large
scale, deploying its iBeacons in its own retail stores to detect
the proximity of iOS devices and perform actions accordingly.
Meanwhile, fixed-broadband providers, electronics
companies, and home-security firms have entered the
connected-home and home-automation markets. Security
firm ADT reports that almost 14% of its 6.4 million customer
accounts are signed up to its ADT Pulse home-automation
service, and AT&T has launched its Digital Life home-security
and -automation service in 81 markets across the US.
Barriers to entry in the connected-home market are still
high. One reason is the array of technologies used to connect
a home’s smart devices, meaning that users frequently have
to choose one of several different standards and ecosystems.
Although these ecosystems can exist side by side, they
do not work together, meaning customers might have to
download a variety of apps to control all of the different
functions in their home.
There are a number of possible solutions to the question
of interoperability, such as office-supply retailer Staples’
Connect home hub and Apple’s Home Kit. Chipset
manufacturers Qualcomm and Intel are championing rival
open-source protocols to connect multiple connected devices
to one another, rather than routing communications through
the cloud or through a home hub.
MARKET DYNAMICS
One way to organize the different technologies involved in
the Internet of Things is to use different technologies for
different functions or types of devices. For instance, Wi-Fi is
better suited to connecting stationary, data-intensive devices
such as smart appliances, while Bluetooth works for devices
worn on the body (the personal area network). Cellular
connections, in the form of M2M, are typically used for smart
metering and security applications (see Figure 2).
This system of organization, however, is just the first step.
Each connected device typically operates through its own
app, meaning that consumers have to navigate multiple apps
to control different functions in their home or personal area
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43
FIG 2
CONNECTED-HOME TECHNOLOGIES BY APPLICATION
WiFi
Bluetooth
ZigBee /
Z-Wave
Cellular
STATIONARY OBJECTS
LIGHTWEIGHT DEVICES
PROPRIETARY STANDARDS
M2M
• Appliances, smart fridges
• Home gateways
• Wearables
• Speakers
• Mesh networking
• Home automation
• Remote controls and
security sensors
• Smart meters
• Security applications
MORE STATIONARY
MORE MOBILE
SOURCE: OVUM
network. A number of companies are attempting to manage
this problem by tying together multiple solutions into a single
hub or standard.
with a number of other technologies – for example, some
manufacturers have tested AllJoyn as a way to bridge to
devices using the ZigBee standard.
US office-supply retailer Staples, for instance, has launched
a home hub, called Staples Connect, which is designed
to control a variety of devices from a single app or PC. It
is compatible with a number of technologies, including
Bluetooth, Wi-Fi, and ZigBee, though certain devices still
require a physical bridge to the hub, meaning an extra
step for the system to navigate. Similar products are
available from other US retailers, such as Lowes’ Iris Home
Management System, and Wink, which offers a hub for
connected products and is available in Home Depot stores.
The key to Qualcomm’s strategy is in making AllJoyn as
simple as possible to operate, in addition to making it
compatible with a wide selection of technologies and devices.
Its onboarding service enables the user to set up a connected
device via a smartphone app with a simple visual interface;
the app discovers the device and walks the user through the
steps of connecting to the network. The process is simplified
for the manufacturer as well, since using AllJoyn’s onboarding
service requires limited development work to make the
device compatible.
Chipset makers Qualcomm and Intel have each also
introduced open-source projects to enable compatible
connected devices to communicate directly with one another,
regardless of product category or brand. Qualcomm is
championing its project, AllJoyn, through the AllSeen Alliance,
which includes OEM and ODM partners such as Panasonic
and smartphone maker Xiaomi. Intel has partnered with the
likes of Dell, Samsung, and Broadcom to launch the Open
Interconnect Consortium.
Operators and security companies have also entered the
space, offering a single solution to control a number of
connected-home and home-monitoring services (see Table
1). One of the largest players is home-security firm ADT,
which provides home automation through its Pulse offering.
Connectivity is delivered through the proprietary Z-Wave
standard, which allows for mesh networking, and customers
can control their devices through their smartphones or tablets.
Devices encompass areas such as smart TVs, smart audio,
and the connected home. For example, AllJoyn could
enable a connected oven to communicate with the TV and
notify the user when their dinner is ready via a message
appearing on the TV screen. Connectivity is mainly via Wi-Fi,
but the company has designed AllJoyn to be compatible
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US operator AT&T has taken a similar position with its
Digital Life connected-home offering. It currently uses 3G
connectivity for the main controller, so that commands can
be delivered via the mobile network outside the home and
via the fixed network in the home. Within the home, Digital
Life also uses Wi-Fi and the Z-Wave standard for connectivity,
along with two proprietary protocols for security. AT&T is
TABLE 1
US, CONNECTED-HOME AND HOME-SECURITY OFFERINGS
COMPANY
CONNECTED-HOME OFFERING
ADT
Pulse
AT&T
Digital Life
Comcast
Xfinity Home
Time-Warner Cable
Intelligent Home
DirecTV
LifeShield
Cox
Home Security
SOURCE: OVUM
considering adding support for other standards, such as
ZigBee or Bluetooth. AT&T is also part of the AllSeen Alliance,
working with Qualcomm to promote greater interoperability
among connected devices.
MARKET OUTLOOK
According to Ovum forecasts, the number of M2M connections
in North America is expected to exceed 77 million at end2019, when it will be worth $11.9bn in annual revenue. These
figures, however, do not include devices that connect via
other technologies, such as Bluetooth or Wi-Fi. Estimates of
the future annual revenue of the Internet of Things are in the
trillions of dollars, with billions of connected devices expected
by 2020. Yet take-up remains slow, with growth inhibited
mainly by a lack of understanding among both consumers and
manufacturers of what the IoT is and what it does.
The phrase “Internet of Things” is partly to blame, since
it obscures the fact that the devices in connected homes
and cars and wearables should be able to communicate
with one another, rather than only with the Internet or the
cloud. Qualcomm’s AllJoyn and Intel’s Open Interconnect
Consortium projects are intended, separately, to address that
problem, by simplifying the development and onboarding
processes and pulling in partners from across the industry to
ensure that devices are mostly compatible with one another.
Most stakeholders are in agreement that what’s needed to
spur growth in the Internet of Things is a “killer enabler,” rather
than a killer app. Many point to Apple’s iPhone as the enabler
for the App Store, which allowed third-party developers to
create apps, turning the iPhone into a device with functions
completely unrelated to its original design as a phone –
whether a spirit level, a flute, or a calorie counter. As the
IoT Consortium puts it, if the Internet of Things is to be truly
successful, it will need to enable totally new experiences.
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45
07
OTT VOICE AND
MESSAGING
Q+A
FACEBOOK CLOSED ITS MULTI-BILLION-DOLLAR
ACQUISITION OF WHATSAPP IN OCTOBER 2014. WHAT
WILL THIS ACQUISITION – AND THE CONTINUING
POPULARITY OF THIRD-PARTY MESSAGING AND VOIP
APPS – MEAN FOR MOBILE OPERATORS IN 2015?
Since Facebook’s acquisition of WhatsApp was announced in February 2014,
both companies have strengthened their market positions. By November 2014,
Facebook Messenger had 500 million monthly active users (MAUs) to WhatsApp’s
600 million, largely due to Facebook’s decoupling of the Facebook Messenger
mobile app from the Facebook mobile app. Tencent’s WeChat is also closing on
half a billion MAUs, and apps such as Kakao, Line, and Viber Media have hundreds
of millions of users. This means that there is more than one messaging app user
for every five of the world’s 7.1 billion mobile subscriptions, an increasing number
of which also enable VoIP and revenue-generating services such as content,
marketing, advertising, and payments.
In the face of the massive growth in popularity of mobile messaging and VoIP
apps, in 2015 mobile operators will continue their fight to remain relevant in
the mobile messaging and voice market. But they will be smarter about it than
has been the case until now. For some operators, this will continue to mean
OTT-specific price plans and/or partnerships, and it’s possible there’ll be more
MVNO-type deals such as the collaboration between German operator E-Plus
and WhatsApp. Other operators will continue to transition their messaging and
voice services towards IP-based communications, which might consist of taking a
proprietary approach, using the GSM Association’s RCS standards, experimenting
with WebRTC, or a combination of all three. Operators will need to ensure that
their IP-based messaging and voice services enable multi-device access, Wi-Fi
offload, and SMS fall-back.
WE HAVE SEEN A NUMBER OF OPERATORS LAUNCHING
OR CONTINUING TO INVEST IN THE PROVISION OF
ENHANCED MESSAGING AND VOICE SERVICES IN 2014.
WILL WE SEE MORE OF THE SAME IN 2015?
Vodafone, Orange, Sprint, and Verizon are among those operators that have
launched or further invested in the development of their mobile messaging and
voice applications during 2014. Some of these apps are based on RCS, while those
that are not will become RCS-compliant as and when it is appropriate. For those
mobile operators that have seen a decline in their legacy messaging business,
or are expecting to see a decline, such investment is critical in order to maintain
relevance as a communications provider. Consequently Ovum believes that an
increasing number of operators will invest in updating their messaging and
voice services in 2015. Approaches could include: launching their own messaging
and VoIP app, introducing an RCS-based service, partnering with a third-party
provider to offer a “proprietary”, white-labelled messaging and/or VoIP service, or
developing and/or launching one or more WebRTC-based services.
PAMELA CLARK-DICKSON
SENIOR ANALYST
THIRD-PARTY MESSAGING AND VOIP APPS HAVE
INCREASINGLY BECOME PLATFORMS FOR THE PROVISION
OF CONTENT AND COMMERCE. SHOULD MOBILE
OPERATORS ATTEMPT TO EMULATE THIS APPROACH, OR
SHOULD THEY REMAIN FOCUSSED ON ENHANCING THEIR
CORE COMMUNICATIONS SERVICES?
WeChat, Kakao, Line, Viber, and Tango, among others, have rapidly diversified their
messaging and VoIP apps in order to generate revenues. Variously, the companies
have added monetization features oriented towards consumers and the enterprise
market. The former category includes games, digital content, and payments
(premium SMS, carrier billing), while the latter includes payments, marketing, and
promotions. While mobile operators have had some experience in providing their
consumer customers with content, we believe that operators would have more to
gain by first of all enhancing their core communications platforms for consumers,
and then opening up access to these enhanced communications platforms to
enterprises in order to facilitate access to consumers, whether that be a thirdparty content provider seeking to sell content to a mobile user, or a contact center
wishing to use an enhanced voice service to communicate with a customer.
WILL MORE OPERATORS DEPLOY RCS-BASED SERVICES
IN 2015?
In recent years, each year has been viewed as a “make-or-break” year for the GSM
Association’s Rich Communications Services (RCS). In 2015, however, this really
may be the case. Three tier-1 non-European mobile operators – Verizon Wireless,
AT&T, and China Mobile – are scheduled to launch RCS-based messaging and voice
services, either concurrently with or following their launch of voice over LTE (VoLTE)
services. VoLTE is being viewed as an opportunity for mobile operators to capitalize
on RCS’ voice and video communications capabilities, and its capability discovery
feature. While other MNOs are also scheduled to introduce RCS services in 2015,
the success, or otherwise, of those launched by Verizon, AT&T, and China Mobile will
likely be a bellwether for the future of RCS. The GSMA expects that there will be
87 launches of RCS-based services by 2015, including 10 launches prior to Mobile
World Congress in March 2015 – up from 40 launches in 33 countries in 2014.
WE HAVE SEEN AN INCREASED NUMBER OF OPERATORS
LOOKING INTO WEBRTC OVER THE PAST 12 MONTHS. DO
YOU EXPECT THIS TREND TO CONTINUE IN 2015?
WebRTC has garnered an increasing amount of interest and activity from
operators in recent months, even though the standard itself is still not completely
stable, and it is not yet fully integrated into Microsoft Internet Explorer and Apple
Safari. These factors have not deterred operators and enterprises from trialling
or launching WebRTC-based services, largely because the investment required
is minimal and the barriers to entry are low. For example, Telenor’s Appear.
in web video conferencing service is based on WebRTC, as is Telefonica’s cloud
communications platform, Tokbox. Meanwhile the Norwegian Red Cross, call
center service provider LiveOps, and Amigo Loans are already using WebRTCbased communications. Consequently we expect increasing interest in and activity
around WebRTC from operators and the wider industry in 2015. It also appears
that WebRTC and RCS will be complementary rather than competing technologies
which, either on their own or combined, would provide operators with a significant
opportunity to provide innovative communications services.
As Facebook closes its acquisition of
WhatsApp, expect to see VoIP and
more MVNO-type deals
OVUM VIEW
SUMMARY
The social networking giant Facebook has swiftly closed
its $19bn acquisition of WhatsApp, days after receiving
approval for the deal from the EC. The EC’s sign-off was a
significant hurdle for the merger, which received approval
from the US Federal Trade Commission more than six
months ago. The completion of the deal means that
Facebook and WhatsApp can move forward on integration,
although it appears that WhatsApp will remain autonomous
– at least in the short term.
WHATSAPP WILL LIKELY LAUNCH VOIP, AND MAY
ANNOUNCE MORE MVNO-TYPE DEALS
The closure of Facebook’s acquisition of WhatsApp means
that the social network owns three very successful messaging
apps – its own Facebook Messenger, Instagram, and
WhatsApp. Each app targets a different market segment,
which is a factor that the EC referenced in its ruling, which
stated that the merger would not stifle competition in the
messaging apps market in Europe. The EC concluded that
although Facebook Messenger and WhatsApp are two of
the most popular apps, consumers tend to use both, often
alongside multiple other communications apps.
Since news of the acquisition broke in February 2014,
Facebook has significantly updated its own Messenger
app, which looks set to become the company’s mobile
platform for communications, content, and commerce. No
announcements have been made with regard to adding
payments to Messenger, Instagram, or WhatsApp, but
Facebook hired David Marcus, the former president of
PayPal, in June. More recently, a hacker claimed to have
uncovered a person-to-person payments feature in
development for the Messenger app. Messaging apps such
as KakaoTalk, Line, and WeChat are already generating
substantial revenues by selling content and enabling
payments on their platforms; it would be a logical next step
for Facebook to do the same with Messenger.
However, it remains to be seen in what context Facebook
would enable payments for WhatsApp. WhatsApp’s next
major product release was to have been VoIP, but the
company missed its 2Q14 deadline. With the deal now closed,
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the onus will be on WhatsApp to launch the VoIP service.
The company’s management has previously stated it does
not intend WhatsApp to become a platform for content
distribution, so for the foreseeable future WhatsApp will
remain primarily a communications platform. It is possible,
though, that Facebook could add a payments capability to
WhatsApp, so that users could purchase add-on bundles of
messages (or VoIP minutes) for contacting non-WhatsApp
users, for example.
Perhaps more interesting is WhatsApp’s experimentation
with different ways of working with mobile operators. For
example, in April 2014 the German mobile operator E-Plus
launched a WhatsApp prepaid SIM card, effectively enabling
WhatsApp as an MVNO on its network. With 600 million
monthly active users, who between them send and receive
more than 60 billion messages per day, WhatsApp has much
to offer potential mobile operator partners as an MVNO –
assuming its partnership with E-Plus proves successful.
Knowledge Center
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enabling you to access and share our insight, and engage
with our analysts, quickly and easily from wherever you
happen to be.
The service includes a wealth of time-saving features that help you leverage our findings and connect
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08
SMARTPHONES
Q+A
WITH SMARTPHONE ADOPTION SLOWING DOWN AND
TABLET SALES DECLINING IN SOME PARTS OF THE
WORLD, ARE WE REACHING THE END OF A GOLDEN AGE
FOR MOBILE DEVICES?
Indeed, we are seeing evidence of market saturation in some parts of the world.
For example, Ovum expects UK smartphone connections to grow by only 5.2%
in 2015, down from 14% two years earlier. However, this is not necessarily due
to a lack of consumer appetite for mobile devices but rather a shift of spend
between different types of consumer electronics. Overall spend per consumer
on devices is finite and tends to grow at a slow pace, driven by macroeconomic
factors. Each time a new device segment is created (such as tablets or wearables),
it undoubtedly cannibalizes existing segments such as PCs or portable game
consoles. Looking ahead, the tablet market is unlikely to regain its former glory,
but we may be entering the Bronze Age for smart wearables.
WE HAVE SEEN GIANTS LIKE APPLE AND SAMSUNG
LOSING MARKET SHARE IN 2014. DO YOU THINK THIS WILL
CONTINUE IN 2015?
Apple and Samsung have been slightly shaken this year, but they still enjoy a very
strong market lead and unrivaled access to financial resources. History has told us
that mobile giants can lose their competitive edge in the space of a couple of years
(e.g. Nokia, Motorola). 2014 has been the most competitive year for smartphones
so far, with excellent products brought to market by LG (G3), HTC (HTC One M8),
and Sony (Xperia Z3). The gap in terms of technology and features offered by the
top market players in the high-end segment is narrowing, putting more emphasis
on software and platforms instead. The launch of the iPhone 6 has helped Apple
regain market confidence. Samsung, however, has shown signs of weakness
with an underperforming Galaxy S5 and a confusing device portfolio including
the Galaxy Note and now Galaxy Alpha, all vying for a position in the high-end
smartphone segment.
WILL 2015 BE THE YEAR OF WEARABLES?
According to a survey conducted by Ovum in mid-2014 across 15 countries, less
than 10% of respondents planned to buy a wearable device in the next 12 months.
In parallel to this more than Twenty smart wearable devices were launched since
the survey was conducted. Consequently, the wearable market is more likely
to create a new record in terms of failed start-ups and company losses than
sales in 2015. In addition, there is a risk of pushing products to consumers too
early and damaging their perception of wearables and corresponding services,
subsequently limiting future potential. We will, however, see some success stories
and innovative use cases in 2015 that will transform the mobile industry in the
longer term.
RONAN DE RENESSE
LEAD ANALYST
WHO WILL BE THE WINNERS OF 2015 – ANY NEW RISING
STARS?
Apple stands to remain a winner in 2015 thanks to its new iPhone and iPad lineup
and its entry into the wearables market. Apple is likely to capture most of the
wearables market value thanks to its very loyal early adopter fan base.
The corporate mobile market is relatively underserved, especially in the tablet
space, and key player BlackBerry continues to lose market share to Apple, which
entered a partnership with IBM earlier this year. Microsoft is making Office
available for free on iOS and Android, which should open the door for tier-2 mobile
brand devices to be used in a work environment. Lenovo, for instance, is likely
to leverage its acquisition of Motorola to develop a strong mobile offering to its
corporate customers from the PC business.
2015 will also see a stronger influence from consumers in technology and device
adoption, primarily through crowdfunding. Websites such as Kickstarter and
Indiegogo significantly reduce the barriers to entry for technology start-ups, and
not just in the US. Indiegogo grew 300% year on year in Europe in 2013, and 700%
in the UK alone. We will certainly see a few rising stars coming from crowdfunding
websites in 2015.
WHAT WILL BE THE KILLER APP FOR MOBILE DEVICES
IN 2015?
The most successful apps tend to enhance and simplify common activities, as
WhatsApp did with communications, or make the best use of the environment and
context in which a handset is used, as Uber did for taxi bookings. It is very difficult
to create entirely new experiences on mobile.
Mobile devices are not the only ones getting smarter. 2015 will see a lot innovation
in the home with smart TVs, smart metering, and smart appliances gaining
stronger momentum. Mobile apps and platforms that best integrate these new
smart home technologies will have the best chance at creating a buzz. However,
the addressable market for these types of apps is still small and is set to grow
relatively slowly as replacement cycles for TVs and other appliances are usually
much longer than for smartphones.
Apple Watch will kick-start the
second generation of wearable
technology
OVUM VIEW
SUMMARY
This week at a widely anticipated event in Cupertino, Apple
finally took the wraps off of its smart watch, the Apple Watch.
Though we’ll have to wait until 2015 to get one, the device has
typical Apple design flair (and typical tie-ins to other Appleonly devices and services), along with a high price point and
multiple configurations.
This announcement ends a month of interesting smart watch
announcements – many, it has to be said, spurred by firms
wanting to announce before Apple – heralding the impending
second generation of wearable devices.
A SMART WATCH NORMAL PEOPLE MIGHT WANT
Wearable technology has been with us for several years, but
in terms of sales volume 95% of this market is made up of
fitness bands and sports trackers. Various manufacturers
(most notably Samsung and Pebble and more recently
Motorola, Sony, and LG) have released smart watches, but all
but the most recent – the Samsung Galaxy Gear S, Moto 360,
and LG G Watch R – had looks and functionality that even
geeks and early adopters found lacking.
Apple Watch, as expected, features a lovely design that
has had a lot of thought put into it. To avoid the screenobscuring issues of a touch interface on such a small device,
Apple Watch has a “digital crown” on the side of the case for
navigation and control. Features such as a sapphire screen,
built-in heart-rate monitor, and haptic feedback show an
unusual level of technology leadership from Apple, which
usually lets others try and fail first. The charging solution is
elegant, and that crystal on the back is reminiscent of quality
traditional pocket watches.
Crucially, the interchangeable strap options and multiple
cases and sizes show that Apple has thought more about the
fashion and jewelry aspects of a watch than its competitors.
This watch, along with the Moto 360 and LG G Watch R, finally
offers a device that non-techies might consider wearing.
Other elements of the Watch are more novelty or me-too box
ticking. Digital Touch is reminiscent of Nintendo Pictochat
with added heartbeat monitor – and just as likely to be
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used once and then never again. The health and fitness apps
look nice but don’t improve significantly on other existing
(and cheaper) solutions for those with more than a passing
interest, although the Apple versions will thrive if the various
major players (Nike, Fitbit, Garmin) get behind the apps
ecosystem.
IT’S STILL BETA-LEVEL TECHNOLOGY THOUGH
So what could stop Apple succeeding? Well, obviously the
price (and remember that is “starting from” and you’re also
going to need an iPhone) and that vague, distant release date
of “early 2015.” Expect to see the top-end Apple Watches
easily exceeding $500.
Also, aside from an “all day” quip by Tim Cook, there was
no word on battery life. Given that similar watches with
fewer capabilities are tapping out at 12 hours, with only the
bulky Samsung Galaxy Gear S doing somewhat better, it’s
unlikely the Apple Watch will do much better. The form factor
and nature of today’s chipsets (many still designed with
smartphones in mind) simply can’t accommodate largercapacity batteries and/or more measured performance. This
is still the major deal breaker for mass adoption: sure, tech
firms have trained us to charge our phones every day, but
devices like watches, fitness bands, and glasses need multiday capacities.
It was also disappointing – after all the talk of personal
devices, freedom, and flexibility – that an iPhone is needed to
make Apple Watch work. While full phone functionality (a la
Samsung Galaxy Gear S) may be too much to ask, something
that would work stand-alone at least some of the time would
have been a nice option. The watch even relies on the iPhone
for GPS, meaning people looking to use it for fitness will still
have to lug their iPhone around if they wish to use the watch
for navigation and to track their routes.
GET READY FOR REAL INNOVATION IN 2015
Today’s wearable technology is still largely based on
components designed for smartphones or other embedded
applications, which means extra bulk, inflexible power
options, and/or limited functionality. But as ARM, whose core
processors power at least 95% of wearables, will tell you,
this will change as newer, tailored components reach the
manufacturers.
Aside from nice looking devices (which we’re finally getting
after 18 months of false starts), smart watches will really
make their mark when they prove to be genuinely useful for
tasks that are just too tedious with a smartphone (especially
if typing in queries) – Siri and Google Now are the current
embodiments of this.
Mapping and personal navigation also make more sense
on a watch than having to keep one eye on your phone
while trying to navigate through busy streets. Interestingly,
Nokia’s Here location platform offers a great offline
mapping experience that may well fit with smart watches
not permanently paired with phones. WatchKit (the Apple
developer tool) and Android Wear are key elements here too
– who knows what useful applications third-party developers
will come up with once enough people have bought the
device to make it worthwhile. If you can also replace your
Fitbit or Jawbone Up fitness tracker, that’s another step
towards justifying the cost.
The four smart watches we’ve seen announced over the past
few weeks (Samsung Galaxy Gear S, Apple Watch, Moto 360,
and LG G Watch R) really represent an optimistic second wave
of devices that, while still flawed (in terms of battery life, size,
need for paired phones), point to a genuinely useful category
of devices emerging over the next 18 months.
In terms of the wider technology industry, we think:
Developers should look seriously at WatchKit and Android
Wear. Sure, the adoption numbers aren’t there yet – and
won’t be for some time – but functionality and new usage
cases may spur ideas for applications. At the very least it
will inform your thinking as you design apps. Even Tizen
(for Samsung devices) may be worth considering if it
survives into the next round of devices.
Telcos and media firms: stay informed, but don’t act yet.
While vastly improved on their ancestors, most of these
devices are still locally paired to phones, with little more
impact on either network data usage or media distribution
than Bluetooth headsets.
Device retailers: think about your marketing. Focus on
how to position the smart watch with more mainstream
consumers (the pairing, battery life, etc.) to ensure you
don’t get the same high level of returns seen with the
early Samsung watches.
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53
09
MOBILE
NETWORKS
Q+A
WE’VE HEARD A LOT ABOUT THE INTEGRATION OF
CELLULAR AND WIFI IN RADIO ACCESS NETWORKS. ARE
WE GOING TO SEE ANY MAJOR LAUNCHES IN 2015? AND
WHAT WILL THE SERVICE FEEL LIKE FROM AN END-USER
PERSPECTIVE?
Hotspot 2.0 launches are under way with the likes of Boingo, but they are small in
scale. In 2015 we will see Hotspot 2.0 become more widely available, especially in
North America, parts of Asia, and Western Europe. Hotspot 2.0 benefits end users
by making the network logon process automatic. The device will automatically
select an associated access point and enter the user’s credentials. This is an
improvement over the current situation where the end user has to open the Wi-Fi
client, select the appropriate network, and enter their credentials.
IS 2015 GOING TO BE A BREAKTHROUGH YEAR FOR SMALL
CELLS?
It really depends what you mean by breakthrough. Indoor or enterprise small
cells are already being deployed. Vendors and service providers are still working
out some of the business models around them, but they are being deployed.
Multiband radios, which will be more common in 2015, will help generate more
interest in indoor small cells as well.
The outdoor or metro small cell is a different story. It may be several more years
before they have the kind of widespread deployment that has been predicted for
them. In the metro space, small cells are just one of several tools a mobile operator
has at its disposal to improve network capacity and coverage. As such, mobile
operators are not moving quickly to deploy them unless they have to. This doesn’t
mean they won’t get deployed; we just don’t see a great rush to deploy them in
large volumes in 2015.
CAN WE EXPECT THE 5G STANDARD TO BE SETTLED IN 2015?
No. The 5G standard won’t be officially standardized for several more years. Of
course, that doesn’t mean we won’t see pre-5G demonstrations in 2015. These
demos and the various global research efforts will provide guidance on what the
final standard will look like. So, while the 5G standard will not be settled in 2015,
we should have more clarity on what the final standard will look like by the end of
next year.
DARYL SCHOOLAR
PRINCIPAL ANALYST
WILL LTE-A MAKE A BIG DIFFERENCE TO THE SERVICE
THAT CUSTOMERS WILL EXPERIENCE?
The challenge with LTE-A is that it won’t be applied ubiquitously across all networks,
or even within an operator’s footprint. Carrier aggregation, which increases network
bandwidth, will have the most notable impact on the end-user experience, and it will
be the LTE-A feature that mobile operators will most likely market.
Other features such as coordinated multi-point and enhanced inter-cell interference
coordination (eCIC) help create a more consistent end-user experience at the cell
edge. The end user will benefit from these enhancements, but most likely won’t
actually realize those enhancements have been implemented.
WHAT IS THE STATUS OF VOLTE IN DIFFERENT REGIONS?
VoLTE deployments are closely aligned with the timing of initial LTE deployments.
Markets where LTE has been widely deployed are further along with VoLTE than
those that are just starting to roll out LTE or have limited LTE coverage. As such,
markets such as Korea, Japan, Hong Kong, and Singapore already have commercial
VoLTE services.
But, VoLTE interest isn’t just limited to these markets. We have seen reports of
operator interest, trials, and ongoing deployments of VoLTE in Western Europe,
Middle East, Australia, and New Zealand. VoLTE commercialization appears to
be accelerating, with mobile operators wanting to free up spectrum and offer an
improved-quality voice service. However, new revenue opportunities from VoLTE
services appear limited.
What are the 5G candidate
technologies?
OVUM VIEW
SUMMARY
Vendors and operators discussing the future of telecom
networks are focusing on the development of 5G. Although
there are several candidate technologies for 5G, a few highlevel concepts are likely to define the new standard. This
Research Note aims to briefly explain these technologies and
highlight the opportunities and challenges of each.
The purpose of this article is not to discuss 5G requirements
but to identify technology candidates, relevant organizations,
and how the standard is likely to develop. The requirements
of a 5G network have been identified and are outlined by the
5G Infrastructure Public-Private Partnership (5G-PPP).
SETTING THE SCENE
5G is currently a hot topic, but there is still considerable
confusion in the market regarding all of its aspects:
technology, commercial opportunity, application in verticals,
and overall timeline for deployment. This confusion is
accentuated by the fact that the majority of mobile operators
have still not come across a successful way to monetize their
LTE networks.
But if we look to the past, can we identify what the next step
towards 5G should be?
A new mobile network generation usually refers to a
completely new architecture, which has traditionally been
identified by the radio access: analog to TDMA (GSM) to
CDMA (UMTS) and finally to OFDM (LTE). Clearly 5G will
require a new technology and a new standard to address
current subscriber demands that previous technologies
cannot answer. However, given current trends in traffic
growth, 5G necessitates a complete network overhaul
that cannot be achieved organically. Software-driven
architectures, fluid networks that are extremely dense, higher
frequency and wider spectrum, and billions of devices and
Gbps of capacity are a few of the requirements that cannot be
achieved by LTE and LTE-Advanced.
TECHNOLOGY CANDIDATES FOR 5G
Current technology developments and user demands are
merely providing a glimpse of the nature of 5G networks.
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At the moment, cost is not a major driver of 5G technology
discussions, allowing a much wider list of candidate
technologies to be considered. Rather than addressing cost,
this article outlines the radical and disruptive changes to the
existing network that will be required.
Clearly a new air interface will be needed. ZTE went as far
as to suggest that a 5G network will consist of several air
interfaces coexisting in the same network. From a theoretical
perspective, this is ideal (e.g. OFDM does not lend itself to
small cells and hetnets but other interfaces do), but from
an operational and economic perspective, this would mean
significant development costs and deployment effort.
A selection of technology candidates is outlined below.
EXTREME DENSIFICATION
Network densification is not new. As soon as 3G networks
became congested, mobile operators realized the need to
introduce either new cells into the system or more sectors.
This has evolved to include many flavors of small cells,
which essentially move the access point much closer to
the end user. There is simply no other way to increase the
overall system capacity of a mobile network significantly.
5G networks are likely to consist of the several layers of
connectivity that hetnets are currently suggesting: a macro
layer for lower data speed connectivity, a very granular layer
for very high data speeds, and many layers in between.
Network deployment and coordination are major challenges
to be addressed here, as they increase exponentially with the
number of network layers.
MULTI-NETWORK ASSOCIATION
Several networks are currently providing connectivity for
end-user devices: cellular, Wi-Fi, mm-wave, and device-todevice are a few examples. 5G systems are likely to tightly
coordinate the integration of these domains to provide
an uninterrupted user experience. However, bringing
these different domains together has proven to be a
considerable challenge. Hotspot 2.0 and Next Generation
Hotspot are perhaps the first examples of cellular/Wi-Fi
integration. Whether a 5G device will be able to connect
to several connectivity domains remains to be seen, and a
major challenge is the ability to successfully switch from
one to another.
FULL DUPLEX
All existing mobile communication networks rely on a
duplex mode to manage the uplink and downlink. There are
frequency duplex or FDD schemes (such as LTE, where uplink
and downlink are separated in frequency) and time duplex or
TDD schemes (where the transmitter and receiver transmit
at different points in time, as in TD-LTE). A duplex mode is
necessary to coordinate uplink and downlink, but full-duplex
technologies are now being discussed. In these schemes,
a device transmits and receives at the same time, thus
achieving almost double the capacity of a FDD or TDD system.
This approach would entail major technology challenges –
requiring what is essentially self-interference cancellation
– and major changes in both networks and devices. However,
the potential increase in overall capacity is substantial.
MM-WAVE
Lower-frequency spectrum (450MHz–2.6GHz) – which is
currently relevant for mobile communications – is almost
fully congested. Massive amounts of spectrum are available
in the higher spectral bands, which may reach up to 300GHz.
Naturally, network design for such high frequencies is much
more complicated than operators are accustomed to: as
frequency increases, building penetration becomes more
difficult, to the point where a simple wall becomes an opaque
barrier for mm-wave signals. However, tens of GHz are
available in these bands that may be used for short-range,
point-to-point, line-of-sight connections, providing much
higher speeds for wireless connectivity.
VIRTUALIZATION, SOFTWARE CONTROL, AND CLOUD
ARCHITECTURES
A parallel evolutionary trend to 5G is software and cloud,
where the network is driven by a distributed set of data
centers that provide service agility, centralized control,
and software upgrades. SDN, NFV, cloud, and open
ecosystems are likely to be the foundations of 5G, and
discussion continues about how to take advantage of these
architectures. Although they are not new – and are likely
to be deployed for 5G – all these concepts are necessary to
provide the increased capacity and connectivity of billions of
devices that 5G specifications promise.
WHAT HAPPENS NEXT?
These technologies hold great potential and are a
revolutionary step when compared with existing network
technologies. The process for selecting which technology
or technologies will be implemented is likely to be a long
one and will depend on performance, implementation, cost,
politics, and many other issues. But it is reasonable to assume
that the technologies that cost the least are more likely to be
implemented, as has been the case with LTE-Advanced.
Mm-wave could be used by indoor small cells (in line with the
extreme densification principle outlined above), which would
provide very-high-speed connectivity in confined areas. The
high-frequency nature of mm-wave means antennas can
be very small, thus creating only a small impact on device
real estate. Nevertheless, Ovum believes mm-wave is an
extremely radical technology and may require many years of
R&D to be made cost-effective for the mass market.
Note that developments in mm-wave are not new: the
WiGig alliance, founded in 2009, is now focusing on 60GHz
spectrum, and in June 2014 Google announced the acquisition
of Alpental, a start-up founded by ex-Clearwire engineers
that has been developing technology for the 60GHz band.
MASSIVE MIMO
MIMO has been deployed in LTE-Advanced networks, where
the base station and end-user device uses more than a single
antenna to increase link efficiency. Massive MIMO refers to
the network, where the base station employs a much higher
number of antennas that create localized beams around each
connected device. The gains in capacity are enormous, but
so are the technical challenges associated with this concept.
However, the market is showing new interest in these
concepts, exemplified by a start-up called Artemis, which has
developed a product called pCell based on this technology.
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57
10
FIXED
NETWORKS
Q+A
THERE HAS BEEN A LOT OF INNOVATION IN TERMS OF
FIXED BROADBAND ACCESS TECHNOLOGIES IN THE LAST
YEAR. WHICH ONES WILL ACHIEVE COMMERCIAL SUCCESS
IN 2015?
The fixed broadband access toolbox is finally full. In 2015, we will see vectoring
trials turn into commercial deployments. We will see initial deployments of g.fast.
We will also see 10G PON deployments in selected countries along with a few
trials of TWDM PON.
It is important to understand that broadband access is not “one size fits all” –
multiple solutions are a must. The market is affected by government regulation,
such as LLU, along with competitive forces, economic growth, subscriber demand
for high-quality content, and the quality of copper lines. There is no single access
technology that meets an operator’s plans across any country. Operators are
adopting multiple solutions to meet the varying needs of customers while meeting
government regulations.
WHAT IS GOOGLE FIBER DOING? IS IT PROFITABLE?
While Google Fiber was not the first to deploy 1G FTTH network, Google has
created intense competition in many cities in the US. Basically, Google Fiber is only
pulling fiber into a particular neighborhood when the sign-up rate economically
justifies the deployment. Google is working closely with local governments and
community leadership to generate demand and lower marketing costs. Google is
offering free Internet to government and community institutions once it pulls fiber
into that neighborhood or in Google’s term “fiberhood.” Google Fiber’s approach
enables it to get a return on its investment quicker than more conventional telco
approaches to laying down fiber.
JULIE KUNSTLER
PRINCIPAL ANALYST
HOW ARE CABLE OPERATORS RESPONDING TO THE
HIGHER SPEEDS BEING OFFERED BY THEIR COMPETITORS?
Some cable operators are pushing forward on speed gains – downstream and
upstream. They are adopting a variety of solutions to enable speed gains and to
make upgrades more economical. It will be interesting to see how Vodafone will
use its acquired cable assets to pursue fixed–mobile convergence. In the US, we
are seeing several cable operators adopt FTTx PON solutions, including 10G EPON,
in order to compete with telecoms operators.
WHAT APPROACHES AND BUSINESS MODELS CAN HELP
OPERATORS GET A RETURN ON THEIR INVESTMENT IN
FTTX?
A number of operators are focusing on business services including mobile
backhaul (MBH) and fiber-to-the-enterprise. PON can support MBH and we are
seeing this application particularly in North America and Asia. We are also seeing
the marketing of PON to businesses. 10G PON and TWDM PON easily support the
downstream and upstream requirements of enterprises.
TWDM PON, and fast FTTx network
monetization, is on the horizon
OVUM VIEW
SUMMARY
With the completion of lab trials this year, commercial trials
planned for 2015, and initial deployments forecast for 2016,
TWDM PON (time wavelength division multiplexing) is on the
horizon. TWDM PON facilitates FTTx network monetization
with its support of high-revenue services (enterprises, mobile
backhaul [MBH], and fronthaul) over the same ODN as
residential subscribers.
TWDM PON FACILITATES NETWORK MONETIZATION
TWDM PON, as being standardized by the ITU FSAN Task
Group, combines the dedicated wavelength approach of WDM
PON with GPON’s support for multiple subscribers on each
wavelength. TWDM PON provides four or more wavelengths
per fiber, each of which is capable of delivering symmetrical
or asymmetrical bit rates of 10G or 2.5G.
A significant advantage of TWDM PON is its ability to
support different types of subscribers or applications by
using different wavelengths and different bit rates on those
wavelengths. A communications service provider (CSP) can
assign a single wavelength to a particular customer, such as
an enterprise, or to a particular application, such as MBH.
The ability to simultaneously support more subscribers,
more applications, and even network sharing leads to faster
network monetization.
TWDM PON can be added on top of an existing GPON or XGPON1 network; an existing GPON network can be upgraded
piecemeal and over time as determined by a CSP. In addition
to choosing when to deploy TWDM PON, CSPs can choose
how to deploy it. The FSAN Task Group developed TWDM
PON to support pay-as-you-grow wavelength additions.
Ovum has developed revenue and cost models for GPON,
XG-PON1, and TWDM PON. The ROI (return on investment)
horizon for TWDM PON is less than two years, compared to
significantly longer time horizons for GPON and XG-PON1.
The bottom line is that enterprise and MBH services have a major
impact on the ROI scenarios, even though TWDM PON elements,
such as tunable ONTs, OLT ports, and network electronics, are
more expensive than those used for GPON and XG-PON1.
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11
TELCO CLOUD
Q+A
WHAT ARE THE KEY DRIVERS/OPPORTUNITIES FOR
SERVICE PROVIDERS THAT ARE CONSIDERING NFV?
CONVERSELY, WHAT ARE THE KEY CHALLENGES?
The biggest opportunity driving CSPs to adopt NFV or SDN is the ability to operate
a more efficient and cost-effective network. Also, NFV and SDN make it much
easier and faster to create and deliver services. The biggest argument for NFV
is that it enables network components to make the transition from hardware
to software. In other words, components now run on commoditized hardware
platforms that might even be in the data center (standard computing platforms or
COTS equipment).
The challenge is to find a tangible and clear business case apart from cost savings/
efficiency alone, meaning that new revenue opportunities have to be clear if
operators are to invest heavily in these technologies. Also, replacing equipment
that has not reached the end of its life might be a challenge for the time being,
especially given the tough economic environment.
WHICH COMPANIES ARE PROVING BEST-IN-PRACTICE
FOR NFV?
There are many, including tier-1 infrastructure vendors Alcatel-Lucent, Ericsson,
Huawei, and NSN; IT vendors Intel, HP, and Dell; networking vendors Juniper
Networks and Cisco; and many start-ups and smaller companies such as Tail-F,
Affirmed Networks, and Metaswitch. Every company dealing with telecoms
network infrastructure is in the process of launching, or has already launched,
NFV-compatible products.
WHEN DO YOU SEE NFV MOVING FROM BEING AN
EMERGING TECHNOLOGY TO SOMETHING MORE
MAINSTREAM?
We should see some activity in real networks as early as 2015. However, I would
expect that NFV will not be deployed in the mass market for at least two years.
WHAT IS THE DIFFERENCE BETWEEN NFV AND SDN? ARE
THEY COMPLEMENTARY OR DIFFERENT ENTIRELY?
SDN is about the efficient programming of routers and switches, which translates
to more efficient, flexible, and cost-effective traffic management. NFV is about
the virtualization of network components, which essentially enables those
components that have traditionally been powered by proprietary hardware
platforms to be implemented in software and standard IT platforms. They are
complementary but do not require each other to work.
DIMITRIS MAVRAKIS
PRINCIPAL ANALYST
WHICH MARKETS PRESENT THE BIGGEST OPPORTUNITY
FOR NFV? IS ASIA ONE?
NFV is relevant to all developed markets, including the US (especially because of
the presence of large IT vendors), Western Europe, and Asia Pacific. China Mobile
and South Korean and Japanese operators are active in NFV activities and trials.
WHAT PERCENTAGE OF CAPEX AND OPEX WILL NFV
AFFECT?
Network capex and opex are likely to be affected by NFV, especially in the next
two to three years in the core network. Eventually, all network costs will be
lowered by NFV, starting with the data center, moving to the core, and eventually
reaching the access network. Because of its distributed nature, the radio access
network is not likely to be a major area for cost savings, though there are
significant efficiencies to be achieved by virtualizing network components (for
example, cloud RAN).
WHO ARE THE WINNERS AND LOSERS LIKELY TO BE?
If tier-1 infrastructure vendors do not plan correctly, they stand to sustain heavy
losses with NFV. The question remains whether the big vendors (Alcatel-Lucent,
Ericsson, Huawei, and NSN) can sustain their businesses with software licensing
revenue models alone. In any case, tier-1 operators are likely to still require
large vendors to integrate network systems, but the size of future nationwide
infrastructure contracts might be at risk. AT&T’s decision to choose a start-up to
enable a critical infrastructure component (Affirmed Networks for EPC) might
be the first of many announcements in which operators migrate from few, big
vendors to many, smaller software companies.
Software-centric Networks
Changing CSP Business Models
SUMMARY
IN BRIEF
Change is coming to communication service provider (CSP)
networks, because it has to: a more flexible, intelligent
network is fast becoming a strategic imperative for leading
CSPs. Until recently, network flexibility was largely limited
to automating specific tasks in a network, and these tasks
were not tightly coupled with overall business processes.
With software-centric networking, CSPs will be able to offer
services that are differentiated by the architecture and
flexibility of their network, and fully integrated with their
OSS/BSS systems, rather than simply providing connectivity.
While software-defined networking (SDN) and network
functions virtualization (NFV) technologies are at the core of
this upcoming change to networks, the real transformation
is all-encompassing, involving every aspect of CSP business
models.
OVUM VIEW
For leading CSPs, connectivity and capacity are no longer
enough. Increasing demand for personalized cloudbased services will require CSPs to deploy more flexible,
intelligent networks.
Changes in networking are more than just a technology
issue. SDN and NFV are at the heart of this change,
but the real transformation in networking involves all
aspects of the CSP business model, including business
processes, sales, marketing, revenue recognition,
operational methods and procedures, corporate
culture, organizational structure, and even the career
paths of staff. Ovum believes successfully navigating
these changes will be more difficult, and more
important to the future of these organizations, than
any technology migration.
With software-centric networks, a spotlight shines on
Intel. As the dominant vendor for processors used in
servers, Intel will play an important role in the evolution
of networks. The company has recognized this role and
is already investing in supporting the development of
software-centric networks.
The move to software-centric networks has changed
the culture of the industry. Technologists working in
networking are adopting architecture, technology, and
development approaches established in the IT industry.
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Partnerships, ecosystems, and collaboration are the new
currency in development of networking technology.
Deployment of software-centric networks will be a
decades-long effort. Right now SDN and NFV can best
be described as networking philosophies, where the
specifics of implementation are up for interpretation.
There is no standard approach to SDN or NFV products.
Mature technology solutions are still years away from
widespread market availability. Successful vendors will be
those that can deliver products incorporating the benefits
of software-centric technology today while providing the
flexibility to adapt to future technology changes. CSPs
need to minimize their risk and retain an attractive path
for network evolution.
CHANGE IS COMING TO CSP NETWORKS
CHANGE IS INEVITABLE AND IRREVERSIBLE
It’s still very early in the evolution to SDN and NFV
technologies. In a capex-constrained environment, such a
major adjustment in the architecture of CSP networks isn’t
going to happen overnight. Change is definitely coming,
though; simply delivering connectivity and capacity to
customers is no longer enough. A more flexible, intelligent
network is fast becoming a strategic imperative for CSPs in
differentiating their services. Existing architectures simply
can’t deliver the network performance to meet ever everincreasing customer service demands at a cost that makes
sense. The dynamic nature of applications and services and
relentless traffic growth continue to challenge the flexibility
and scalability of traditional network architectures.
NFV and SDN are the technologies at the heart of this
transformation, but the shift goes beyond the deployment of
new technology. CSPs are just beginning to adapt to “change
at the speed of software,” as the convergence of telecom and
IT operations transforms the delivery of communications
services. Cloud-based CSP business models are based on
flexible networks and Big Data. To support this means
change is inevitable, and the migration to software-centric
networking technology is irreversible. Vendors and CSPs that
are best able to adapt to this will be the ones best positioned
for future success.
SDN and NFV will change the landscape of the service provider
industry; how networks are designed and operated, and how
services are delivered and sold. However, there is still no outof-the-box SDN or NFV solution, no one-size-fits-all model for
software-centric networks. Rather than wait for standards to
develop and definitions to become clear, vendors have moved
forward with a variety of approaches to bring flexibility to
networks under the banner of SDN and NFV. While there are
initial deployments today, SDN and NFV technology have so
far had a limited impact on vendor revenues. Ovum believes
the transition to software-centric networks will be gradual,
with the full impact of these technologies not felt in the
market for two to five years, so service providers and vendors
still have time to get in the game.
CSPS DRIVING INDUSTRY CHANGE TO SOFTWARE-CENTRIC
NETWORKS
The transformation to software-centric networks is
happening on a global basis. That’s largely because CSPs
around the world see the network agility, time-to-market, and
cost benefits that will accrue from adoption of this technology
and are taking an active role in driving this change.
CSPs developed the first NFV white paper and followed up by
forming the NFV ISG to promote and standardize deployment
of this technology. AT&T with its User-defined Network Cloud,
NTT with its SDN-based Enterprise Cloud Service, Deutsche
Telekom with its virtualized IPv6-based TeraStream project in
Croatia, and Telefonica with its UNICA project have all made
very public pronouncements of their intention to migrate to
software-centric networks with SDN and NFV technologies.
Many other CSPs are moving in the same direction.
CSPs have also signaled their intention to reevaluate their
vendor relationships as SDN and NFV matures and are
evaluating innovative technology introduced by smaller
vendors. All the major carriers are involved in evaluating and
trialing SDN and NFV, and we expect these efforts to increase
through 2014 and into 2015.
THE ROLE OF SOFTWARE IN ENABLING CHANGE
Moving from software that is vertically integrated within
network elements to a software-centric architecture elevates
the role of software in networking. This heavy reliance on
software in future networks will have a major influence on how
CSP operations and networks evolve. To start with, software
reduces the barriers to entry and therefore opens the door to
new entrants. Some of these new entrants are vendors moving
from adjacent markets, including vendors from the IT market
such as Oracle, HP, IBM, and Dell. Other new entrants are
smaller vendors and start-ups that previously would have had
a hard time entering the CSP market.
The communications industry needs to move to an
environment that more readily supports rapid change.
Software has enabled such change in the IT market, and
software will bring new approaches to networking. The
use of open software projects, iterative agile development
processes, and the spiral lifecycle systems development
model will change networking as they have changed IT.
Cloud and SaaS applications are becoming pervasive in
the IT market, and CSPs are beginning to leverage the
power and flexibility of the cloud. Delivering network
functions from cloud-based software will allow CSPs to
continuously improve, evolve, and upgrade their networks
without being constrained by hardware development and
deployment schedules.
Finally, a reliance on software will impact procurement,
operational, and financial processes. For example, vendors
and CSPs will have to modify revenue recognition as they
shift to software products, and software license and asset
management become critical in operating networks.
BUSINESS MODELS AND PROCESSES MUST ADAPT
TECHNOLOGY IS A MEANS TO AN END
Right now SDN and NFV can best be described as networking
philosophies, where the specifics of implementation
are up for interpretation. The network designs, product
architectures, and interface protocols for software-centric
networks are still evolving in standards organizations,
industry forums, and the marketplace.
At this point it is not clear which specific approaches
will come to dominate the market. The technology will
continue to evolve, but technology is not the biggest issue
gating deployment of software-centric networks. This
transformation involves all aspects of the business model
of CSPs and will define the future path for vendors. The real
objective for CSPs is to find a path to future networks that
will be scalable, flexible, and cost-effective to implement.
Most important, these networks need to readily deliver the
future service capabilities that will drive profitability. At this
point SDN and NFV are two technologies that are part of a
much wider transformation occurring in CSP networks.
THE IMPACT OF SDN AND NFV EXTENDS WELL BEYOND
TECHNOLOGY
SDN and NFV technologies have thus far had little
impact on deployed network infrastructure, but they are
already having an effect on CSPs and their vendors. The
influence of SDN and NFV extends into the organizational
structure, business processes, sales, marketing and
revenue recognition, operational methods, procedures and
processes, corporate culture, and even the career paths of
staff at CSPs and their suppliers.
Deployment of software-centric networking would be
difficult and require significant effort and time even if the
technologies were mature and available off the shelf. This
change is even messier with the technologies still evolving.
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65
Vendors large and small are making organizational and
product changes to support the evolution to software-centric
networks. Equipment vendors are reinventing themselves
as software companies. The largest network equipment
vendors, such as Cisco and Juniper, are committed to
transition into networking software vendors. AT&T’s
User-defined Network Cloud program is evidence of the
deep-seated shift occurring in CSPs’ procurement process
as a result of SDN and NFV. Ovum believes successfully
navigating these changes will be more difficult, and more
important to the future of these organizations, than any
technology migration.
SDN AND NFV HAVE FOREVER CHANGED NETWORKING
While it’s still very early in the evolution to software-centric
networking, Ovum believes SDN and NFV have already
irreversibly altered industry views on how future CSP
networks will be designed and operated, and how services
will be delivered and sold. The development of these
technologies has provided a focal point for a revitalized
interest in communications networking, forever changing
how CSPs and their vendors approach the development of
network architectures and products.
The focus of networking has moved from the feeds and
speeds of the data plane to software-centric intelligent
networks. Instead of crafting applications to operate
within the constraints of the network, intelligent
software-centric networks dynamically adapt to provide
the connectivity that best serves each application. The
thought process is no longer which products and protocols
can we apply to the problem. Instead, system engineers
and network architects are working with software
developers to apply technologies and lessons learned
in virtualized IT networks and asking “What is the best
way to provide this service?” This quest by vendors and
operators to find a better approach will result in networks
that are much more flexible in providing new services
(monetizing the network) and more efficient in their use of
resources (cost-effective).
SDN and NFV have even expanded the lexicon of service
provider networking with a host of new acronyms and
terminology, largely borrowed from the IT industry,
coming into common usage. Who would have imagined,
even a few years ago, that CSPs would be talking about
service velocity, fast failure, and agile development to
describe aspects of rapid product innovation in software
development, or DevOps (a contraction of development
and operations) to encourage more nimble software and
application development.
Attending a networking-focused industry event? Be prepared
to discuss “bare metal” servers, hypervisor virtualization
platforms, and Linux kernels.
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NETWORK EVOLUTION WITH SOFTWARE-CENTRIC
TECHNOLOGY
MOVING TO TRUE CONVERGENCE
CSPs don’t just have one network – they have many discrete,
service-specific networks that operate in parallel and are
typically designed, managed, and operated by different
groups within a CSP. The result is a segmented infrastructure
that can be complicated and expensive to operate. While
there has been interest in convergence of these many
networks to reduce costs, so far technical, organizational, and
operational issues have limited progress on this front.
This will change with software-centric networks and
the accompanying network-wide visibility provided by
their control, management, and orchestration systems.
Moving to a common shared IP infrastructure with SDN
and NFV will support vertical layer convergence with a flat
architecture where optical, IP, and higher layers, including
the management, service, and orchestration functions,
can operate more effectively together. It will also support
horizontal convergence between different network domains
such as access networks, wireless networks, fixed broadband
networks, IP networks, metro optical networks, and core IP
networks. What is likely to have the biggest impact on future
CSP service capabilities will be the convergence of networks
and business support systems (BSSs), eventually allowing
business requirements to directly and dynamically impact
service parameters.
A RENEWED INTEREST IN COTS HARDWARE
SDN and NFV rely on commercial off-the-shelf hardware,
essentially x86 server platforms. Software for controllers,
virtualized network functions (VNFs) management and
orchestration systems, and virtualized networks all run on
servers. While the packet processing speed of commercial
servers is improving, these platforms are a long way away
from replacing proprietary high-capacity, high- performance
routers. Efforts are under way to improve the reliability
of commercial servers and produce carrier-grade server
platforms as well as carrier-grade hypervisor systems to
enable virtualized network functions on COTS hardware.
In addition to packet processing performance, scalability,
security, and the ability to manage virtualized software with
this technology are key issues for CSPs.
WITH COTS HARDWARE THE SPOTLIGHT SHIFTS TO INTEL
Servers are available from a number of vendors including
HP, IBM, Dell, Cisco, and Oracle. Versions of these servers
form the basis of many current networking appliances, and
there are efforts under way to enhance the performance and
reliability of servers for use in service provider networking
with SDN and NFV.
The processors at the heart of servers are generally x86
architecture devices supplied by Intel or AMD, with Intel
dominating the server market. Intel recognizes the changes
TABLE 1
INTEL’S NETWORK BUILDERS ECOSYSTEM PARTNERS
6Wind
AdLink
Advantech
Akamai
Alcatel-Lucent
Calsoft Labs
Altobridge
Amartus
Aricent
Arista Networks
Artesyn Embedded Technologies
Brocade
Clavister
Connectem
ConteXtream
Cyan
Dell
Erudine
F5
HCL Technologies
HP
Huawei
Indeni
IneoQuest
McAfee
Ixia
JDSU
Kontron
Lanner
Link Analytics
Mobivita
NEC
Netrounds
Neusoft
Nexcom
Nokia
Openet
Oracle
Overture
Pluribus
Procera Networks
Qosmos
Quanta
RAD
Radcom
Radisys
Red Hat
Saguna Networks
Saisei
Sandvine
Sideband Networks
SpiderCloud
Spirent
Supermicro
Tail-f
Tango Networks
Tech Mahindra
Tektronix
Tieto
Topsec
Vantrix
VMware
Wind River
Wipro
Yanzi
ZTE
SOURCE: OVUM
coming to communications networks and the role that Intelbased processors can play in this evolution. The company
is investing in specialized processors, software, reference
designs, and development of a large ecosystem based on its
products to support this new direction in networking.
Intel introduced its Highland Forest processor family in
December 2013, specifically to power higher-performance
network traffic requirements for SDN and NFV deployments.
Highland Forest processors are available with 4–10 CPUs and
incorporate Intel’s Coleto Creek communications chipset to
accelerate encryption and compression algorithms used in
packet processing. Intel’s data plane development kit (DPDK)
includes software libraries and drivers to support fast packet
processing. To enable rapid development of new networking
hardware platforms, Intel has introduced reference designs
for switches and servers based on its silicon. To make it
easier for vendors to bring transformative software-centric
networking products to market, Intel formed its Network
Builders program ecosystem to foster collaboration around
Intel technology.
Table 1 lists over 60 partners in Intel’s Network Builders
ecosystem, a list that illustrates the range of vendors
developing SDN and NFV technology. A few vendors
notable for their absence from this group include Big
Switch, Cisco (although Cisco acquired Tail-F in July 2014),
Ericsson, and Juniper.
THE RISE OF OPEN NETWORKING AND THE DEVELOPMENT
OF ECOSYSTEMS
Ovum believes software-centric technologies are clearly
the future direction for enterprise, data center, and service
provider networks. With the rise of SDN and NFV, the genie
has been let out of the bottle. Over time the networking
environment will become more open, but a fully open
framework, where networking products comply with open
standards and plug-and-play together, is not likely to happen
for many years.
SDN was initially introduced to provide university researchers
with a slice of school networks to experiment with. The
initial emphasis within the ONF was on an open networking
paradigm with simplified hardware forwarding plane
elements that would mirror the benefits of open computing.
This led to a view that SDN and NFV would all but eliminate
proprietary networking hardware in favor of white-box
forwarding elements and white-box servers.
Today, the view of software-centric networking has become
more nuanced, as CSPs and their vendors zero in on what
problems software-centric networking can solve and take
different approaches to what technology is required to
deliver that solution. Today, orchestration is seen as an
important part of a complete software-centric solution, and
integration with OSS/BSS systems as a major stumbling
block for deployment.
What CSPs really want in their networks is a multivendor
environment, so vendors are promoting openness in
their SDN and NFV products as a proxy for a fully open
networking framework. Vendors are labeling their SDN and
NFV products as “open” because they have APIs that are
made available for third-party development or are based on
software released under an open source license. Everyone
says their APIs are open, but that doesn’t mean they comply
with a standard, it doesn’t necessarily mean they are open
source, it certainly doesn’t mean they are interoperable
among vendors, and it doesn’t prevent vendor lock-in. To
resolve these issues and reduce deployment risk for their
customers, vendors are building ecosystems based on their
SDN or NFV products solution.
ECOSYSTEMS REDUCE DEPLOYMENT RISKS
Venturesome CSPs that are willing to invest in softwarecentric networking technology are faced with a dilemma
common to innovative customers. Deploying an immature
technology, especially one with as broad a scope as SDN
and NFV, means devoting significant resources to testing,
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67
evaluating, and integrating the technology. With vendors
offering so many different approaches to SDN and NFV,
CSPs looking at early deployment of these technologies
face the risk of betting on the wrong horse and winding
up with a solution that cannot effectively migrate to
potentially superior approaches that may evolve in
the future. To minimize deployment risk, vendors are
establishing ecosystems as a way to demonstrate industry
support for a particular technology approach.
Ecosystems are springing up around a wide range of SDN
and NFV solutions. Some vendors are participating in
multiple ecosystems to demonstrate the universality of their
technology, while other vendors are using an ecosystem
to reduce the perceived risk by presenting the large set of
partners that have agreed to work with their specific solution.
Given immature technology and a lack of standards,
ecosystems for software-centric networking solutions will
compete in the market alongside vendor-specific solutions
and products based on open source projects. However, largely
driven by customer demand for multivendor compatibility,
continued pressure to adopt an open networking paradigm
will eventually lead to progress in standards related to SDN
and NFV, and a migration to common approaches in product
architectures and interfaces.
A STRONGER INTEREST IN COLLABORATION
In the past, industry collaboration has largely been limited
to activities such as multi-source agreements (MSAs) or
the long process of standards development. However,
movement towards SDN and NFV technology has already
produced a major transformation in industry culture, as
vendors and CSPs are much more ready and willing to work
collaboratively. Partnerships, ecosystems, and collaboration
are the new currency for development of networking
technology, especially in these early days of software-centric
technology evolution, because they offer the fastest path to
introducing new capabilities into the market.
The Open Daylight project, formed by vendors in April 2013
to develop an open source SDN controller framework,
and the proliferation of ecosystems demonstrate the
willingness of vendors to work together towards a common
goal in the development of SDN and NFV solutions. What
seems to be even more significant is how CSPs have
become much more open and willing to collaborate with
vendors and other operators on demonstration projects
and proof-of concept trials and to take very public stands
on preferred technology directions.
The formation of the NFV Industry Specification Group (NFV
ISG) is another sign of how CSP culture is changing with
respect to collaboration. Carrier representatives, together
at a conference, recognized they had similar interests in
leveraging IT virtualization technology. Rather than work
individually with vendors, they quickly developed a public
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white paper to get their message to a wider audience. Just a
month later they followed up by forming the NFV ISG within
ETSI to promote the development of NFV. Telefonica took
a similar approach in January 2014 when it led 12 CSPs in
producing a white paper that publicly declared their common
interest in IP and optical convergence and the development
of interoperable solutions based on industry standard data
and control plane solutions. The very public pronouncements
supporting software-centric networking by AT&T with its
User-Defined Network Cloud project and by Telefonica on
its UNICA project are further evidence of how much the CSP
culture has changed.
OVUM’S EXPECTATIONS FOR DEPLOYMENT
Software-centric network technologies are still developing.
No single industry-accepted solution is yet ready for
deployment; instead, many competing solutions are making
customer deployment decisions more difficult and raising
risk. Adding to this risk is uncertainty about potential cost
savings. Network agility is a major long-term driver for
software-centric networks, but cost efficiency will play a
strong role in the justification of early deployments. CSPs
are not yet comfortable with projections of capex and opex
savings with software-centric networking technologies, and
this is not likely to be fully resolved until they have more
experience with the technology.
Ovum sees a gradual path to deployment of software-centric
networks, taking a decade or more. We anticipate pockets
of SDN and NFV deployment over the next couple of years
as service providers get familiar with the technologies in
production environments. Software-centric networking
makes sense where services have a variable demand
characteristic, so applications such as mobile core, content
delivery networks (CDNs), and data center interconnect
(DCI) are prime candidates for early deployment. Early
deployments will focus on providing network functions, while
deployments of services that are more heavily integrated
with OSS/BSS systems will lag behind.
PAUL LAMBERT
Senior Analyst
LAXMAREDDY
VITTALAPURAM
Research Analyst
ARI LOPEZ
Principal Analyst
RICHARD MAHONY
Director Research &
Analysis
RAY MALEKOUT
Market Forecaster
TAREQ MASARWEH
Principal Analyst
NIDHIR MAUDGALYA
Principal Forecaster
DIMITRIS MAVRAKIS
Principal Analyst
THECLA MBONGUE
Senior Analyst
CLARE MCCARTHY
Practice Leader
NICOLE MCCORMICK
Principal Analyst
CAMILLE MENDLER
Lead Analyst
CHARLOTTE MILLER
Research Analyst
DAVID MOLONY
Principal Analyst
CHARLES MOON
Practice Leader
JAMIE MOSS
Senior Analyst
NIKHIL NANDANWAR
Analyst
NISHI VERMA NANGIA
Senior Analyst
RAVI NEELAM
Research Analyst
MARK NEWMAN
Chief Research Officer
DANSON NJUE
Research Analyst
EMEKA OBIODU
Principal Analyst
ADAORA OKELEKE
Research Analyst
PANKAJ PAINULY
Research Analyst
AMRIT PAL SINGH
Analyst
ISMAIL PATEL
Research Analyst
KRISTIN PAULIN
Senior Analyst
CARRIE PAWSEY
Senior Analyst
MICHAEL PHILPOTT
Practice Leader
NIGEL PUGH
Principal Consultant
FRANCESCO RADICATI
Senior Analyst
IAN REDPATH
Principal Analyst
MATTHEW REED
Practice Leader
RONAN DE RENESSE
Lead Analyst
BRIAN RIGGS
Principal Analyst
MIKE ROBERTS
Practice Leader
JAMES ROBINSON
Research Analyst
VIVEK ROY
Research Analyst
MIKE SAPIEN
Principal Analyst
LUCA SCHIAVONI
Research Analyst
DARYL SCHOOLAR
Principal Analyst
ALLA SHABELNIKOVA
Research Analyst
GARETH SIMS
Head of Forecasting &
Financial Analysis
RASHMI SINGH
Research Analyst
CRAIG SKINNER
Senior Consultant
SANDEEP SUKHAVASI
Analyst
KRIS SZANIAWSKI
Lead Analyst
DOMINIC TAIT
Managing Editor
DARIO TALMESIO
Practice Leader
ADAM THOMAS
Principal Analyst
NICK THOMAS
Practice Leader
PAULINE TROTTER
Principal Analyst
SHAILENDRA UPADHYAY
Research Analyst
ROHIT VELURY
Research Analyst
SUBRAMANIAN
VENKATRAMAN
Lead Analyst
MATT WALKER
Principal Analyst
IAN WATT
Principal Consultant
KEVIN WHITE
Consulting Director
LANG XIAO
Research Analyst
EDEN ZOLLER
Principal Analyst
@OVUMTELECOMS
OVUM.COM/linkedin
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51
12
ENTERPRISE
SERVICES
Q+A
WHAT DO YOU EXPECT TO BE THE MOST VIBRANT
SEGMENTS OF THE ENTERPRISE SERVICES MARKET IN 2015?
At Ovum, we’ve been tracking the enterprise services market for two decades.
It’s becoming more difficult to pinpoint annual trends, because businesses large
and small are beginning to treat their service providers more as partners than as
mere vendors. This means that in some cases, investments span two- to five-year
contract periods, even for smaller businesses. Of course most enterprises still
think primarily of telcos as vendors, but the partner-led approach is just beginning
to take root beyond the largest companies in the most developed markets.
Therefore, to identify the really interesting trends, it’s best to consider what sorts
of services enterprises with a partner-led approach are planning to consume.
Three come to mind. First, collaboration. The impact of consumer communications
applications, the need to refresh aging enterprise communications infrastructure,
and the availability of next-generation communications services from telcos
have created an opportune moment for businesses to consider how they enable
their employees to work. Expect more businesses to ask providers to help them
offer workspace services (whether they call them this or not) for a mobile, social
generation of employees.
The second has to be machine to machine (M2M). You know when you start seeing
billboard advertisements from the usual clan of systems integrators and software
vendors in airports, touting how M2M can transform businesses, that it’s time
to seriously consider what M2M can – and can’t – do for one’s business. Hype
aside, we are seeing the maturation of M2M ecosystems for applications such as
fleet and asset management, alarms and surveillance, digital signage, and POS
among others. These are now available not just for large firms willing and able to
fund bespoke solutions, but for companies of all sizes. This is because telcos (and
others) are industrializing them. We are witnessing the democratization of M2M.
The third is cloud. However, cloud is not monolithic – it is not a thing or a solution.
It’s a way to consume all sorts of ICT services. But more on that in a moment.
HOW WOULD YOU CURRENTLY JUDGE TELECOMS
OPERATORS’ EFFORTS TO BECOME MAJOR PLAYERS IN
THE CLOUD MARKET?
We’re still at the early stages of cloud adoption, so the fact that telcos have met
with only limited success so far is not necessarily a sign that they won’t profit
handsomely from cloud in the future. There is an increasing awareness of the
value of the network when it comes to cloud service delivery and assurance, and
that’s one good sign for telcos. But we also need to face facts: the public cloud ship
has sailed, and telcos aren’t on it. Five years ago several tier-1 telcos had the assets
to claim a growing share of the public cloud market, but they lacked the foresight
and agility to do so. They’ve been left behind by the likes of Amazon and Microsoft.
Our recent research, which we will publish in early 2015, indicates that leading
telcos are taking a more nuanced approach now. Specifically, they’re targeting
hybrid and private cloud services, looking to migrate clients from hosting and colocation, and they are busy striking partnerships with the public cloud giants for
secure cloud-interconnect network services. They’re thus positioning themselves
as partners for enterprises that wish to move workloads across public, hybrid,
and private clouds on demand. Of course, systems integrators are doing
this too. But we believe this is a realistic strategy, at least for telcos with ICT
experience and assets or those willing to buy them. However, this strategy will
EVAN KIRCHHEIMER
PRACTICE LEADER
not necessarily guarantee success. There are many variables, including how telcos
adapt to become more partner-friendly and open to application developers, and
how they equip their sales teams with the skills to sell such services, as well as
whether and how they build professional services and consultancy teams to
advise enterprise clients.
The verdict? Well, the jury is still out. However, given telcos’ heritage, any strategy
based primarily on secure connectivity is likely to win the day.
THERE HAS BEEN GROWING INTEREST IN THE SME
MARKET OVER THE LAST TWO TO THREE YEARS. WHAT
SUCCESS STORIES WOULD YOU POINT TO?
For every MNC deal there are thousands of SME ICT opportunities. It’s
interesting you term it the “SME market.’ By asking the wrong questions
when formalizing strategies for SME segments, telcos have been relegating
themselves to being bit pipes. I’d contend there is no SME market – there are
hundreds of micro-markets. That itself is the nub of the issue: how can telcos,
which are so good at scale and industrialization, deploy those skills to attack a
completely heterogeneous opportunity?
Our research with SMEs shows that while telcos are not always the most trusted
partners for ICT, they’re not far from the top. In many countries, telcos have
nearly unassailable brands and deep in-country reach that IT giants can only
dream of. So, there’s a platform. Also, I think there’s a very strong link between
cloud and SME. I’ll point to two examples. The first comes from Australia, where
incumbent Telstra has built itself a strong, mature SME cloud service proposition,
T-Suite. Through its strong partnership with Microsoft, it has managed to sign
up hundreds of thousands of deals with SMEs for connectivity plus IT services –
albeit focused on productivity applications. Its next challenge will be to roll out a
cloud marketplace that takes account of job roles and micro-industries in which
these SMEs operate. It’s the combination of generic cloud applications, bundled
with connectivity services, plus the appearance of micro-vertical customization
which is key.
On that front, let’s look at Vodafone in Italy. I heard recently from Manlio Constantini,
who heads Vodafone Italy’s enterprise business. The Italian market is an SME
market. He’s doing some very interesting work bundling connectivity with hosted
IP telephony (a service Vodafone calls One Net), and then adding in cloud-based
security and business productivity apps like 365. But he’s going one step further.
For example, Vodafone has teamed with a local bank to offer retail customers
POS services – all in one bill – for the modest additional sum of €5 per month. This
speaks to what telcos do best: they industrialize and bill like no other industry.
Any viable SME strategy for anything other than connectivity will need to be
rooted in cloud, industrialization, and micro-vertical applications. Telcos must
become not just cloud, but partnering, experts to make this a reality.
Telcos: Rethinking Cloud
Partnerships and Strategy in AsiaPacific to Seek New Growth
OVUM VIEW
SUMMARY
Cloud has not lived up to its promise of being a major
growth driver for telcos. Partnerships should be one of
the cornerstones of any ICT services strategy for telcos,
but carriers in the Asia-Pacific region have generally not
been able to fully capitalize on the variety of partnership
platforms in their ICT transformational journeys. Few have
created any sustainable differentiation in their offerings,
especially in cloud, where newcomers to the region have
leapfrogged past them. For many telcos, the ownership of
customer relations and the idea of being able to “go it alone”
remain obstacles to building extensive partnerships that can
be mutually beneficial.
The realization that both the industry and their competitors
are forging ahead has created in telcos an urgent need for a
rethinking of overall strategy. Some telcos have gone back to
the drawing board; others are looking at how best to partner.
Telcos need to be pragmatic about their role in cloud – few
will have the capacity to be bold innovators or be radical in
this industry, so what are their options? Since early 2014,
telcos in Asia-Pacific have announced several interesting new
partnerships and business strategies that could increase their
relevancy in the cloud market in the region.
KEY MESSAGES
Asia-Pacific telcos need to revisit their cloud strategies, given
that the majority have not had much traction or success.
What they have done in the past is not working well enough,
and non-telco competitors have leapfrogged them despite all
the natural advantages telcos had at the beginning.
Telcos need to determine for themselves what their role
should be in the cloud industry. Many could grow by providing
MPLS connectivity for enterprises. Some should consider
the wholesaling route, leveraging existing assets without
much additional capex to ensure a potentially very profitable
business. It is not realistic to expect telcos to become fully
fledged cloud providers – many do not have the assets or
the capabilities, and so offering such services would require
extensive partnering. For the more progressive telcos in the
region, either developing new partnerships with systems
integrators and vendors or straight acquisitions might be
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the best route forward. It is encouraging to see telcos in the
region recognizing their earlier shortcomings and rethinking
their overall partnership models and strategies.
PARTNERSHIP STRATEGIES EVOLVE
SINGTEL: IF YOU CAN’T BEAT THEM, JOIN THEM
The last 12 months have seen the rapid growth of cloud service
providers in the Asia-Pacific region, including Amazon Web
Services (AWS) and Microsoft Azure. IBM SoftLayer has also
recently established a direct presence in the region, and Google
and HP are expected to increase their efforts, too. Many of
these non-telco players have established themselves as leaders
in the cloud race globally, and are now sidelining telcos to a
certain extent in Asia-Pacific. At the moment, enterprises can
only access these cloud services using the Internet. However,
with security concerns mounting and application performance
more critical than ever, enterprises want more secure access
with lower latency, bypassing the Internet.
SingTel recently announced a partnership with Microsoft
Azure to give enterprises access to their cloud platforms
via SingTel’s MPLS virtual private network. SingTel’s MPLS
network will integrate directly with Microsoft Azure’s Express
Route service. This was first rolled out in Singapore and other
Asian markets, and will be followed by Australia and New
Zealand in the second half of 2014. Microsoft has announced
a similar agreement with AT&T for North America and
comparable agreements have also been made by AWS and
IBM SoftLayer with BT, Verizon, and Equinix.
Although telcos may have lost the initial battle with some of
these large public cloud providers, enterprises want secure
MPLS access to cloud platforms. This puts some telcos in a
very enviable position, because IBM, Microsoft, and AWS do
not own any MPLS networks in the region. If telcos cannot
beat the large public cloud providers in this battle, it is best
to collaborate with them. As these non-telco cloud providers
expand deeper into the Asia-Pacific region, telcos should
forge alliances with them, leveraging their extensive MPLS
network footprints. This would be a way to benefit from
the accelerating demand for cloud services without massive
capex. Partnerships such as this will allow telcos to further
monetize their huge investments in MPLS networks.
As cloud providers continue to build in-country cloud
datacenters to service Asian businesses, MPLS networks
will become more critical than ever before. Ovum believes
that this is an opportunity for the many telcos that consider
building large cloud datacenters highly risky – an MPLS
network partner strategy is a safer bet. For telcos, the
challenge is to build mutually beneficial relationships, which
could also include reselling cloud services from these nontelco providers to their enterprise customers. Overall, this
kind of partnership will ensure that telcos (especially tier-2
and tier-3 service providers) are not too far off the center of
gravity of the cloud market, enabling them to prosper as the
industry grows.
SPARK NZ: ACQUIRING TO SCALE
Given the pricing environment in the industry today, it would
not be surprising if weaker players are acquired by stronger
ones looking to build scale. Globally, telcos including Verizon
and Bell Canada have been on the acquisition trail over the
past few years, seeking to bolster their cloud capabilities
and capacities. However, Asian telcos have been slower
off the mark in this area – generally speaking, Asia-Pacific
telcos have lower risk tolerance in acquisitions. However,
acquisitions may be high on the agenda again, at least for the
progressive telcos in the region.
Spark New Zealand (formerly Telecom New Zealand)
has been at the forefront, having reached a provisional
agreement to acquire the cloud specialist Appserve. Appserve
brings to Spark New Zealand its desktop-as-a-service
offering, as well as cloud datacenters across the country with
a broad range of customers. This new deal follows Telecom
New Zealand’s acquisition of cloud specialist Revera in 2013.
Although few (if any) telcos in the region have publically
stated that they are seeking acquisitions to bolster their cloud
capabilities, Ovum believes that this might be a good strategy
to make up lost ground. It may be too much to expect that the
majority of local telcos will seek acquisitions, but those with
deeper pockets should consider this strategy. It is difficult to
speculate which telcos will acquire more cloud assets, but a
prime candidate would be Telstra. It has recently sold several
units, including CSL, Telstra Clear, and Sensis, thereby building
a war chest. Telstra’s CEO has indicated that it will acquire
other organizations “if it makes sense.” Asia- Pacific expansion
is now one of the cornerstones of its overall corporate
strategy, and acquiring a cloud provider in the region would
give it some momentum.
NTT Comms has made several high profile acquisitions in
the last 24 months, and should not be ruled out, but it has
invested heavily in datacenters over the last three years.
Another telco that has always been acquisitive is SingTel,
especially on the digital content front, and it might adopt an
acquisition strategy to accelerate its regional ICT ambitions.
It recently opened a 150,000 square foot datacenter in
Hong Kong.
One of the biggest challenges for many telcos is building
scale in an industry that faces rapidly shrinking margins.
Acquiring other players might be one of the most attractive
fast-track routes to scale. The challenge will be identifying
candidates to acquire, given that few local entities have been
successful in cloud.
SOFTBANK AND CHINA TELECOM: WHOLESALE AS A WAY
TO GROWTH
Telcos have been in the wholesale game for a long time.
There is a natural assumption that they could extend this
experience to cloud, wholesaling spare datacenter capacity to
cloud providers by white-labeling their services. In the past,
few telcos in the region seriously considered this approach
because many had envisioned themselves providing cloud
services directly. However, wholesaling and white-labeling
is an alternative way to partner for growth in the region,
and this model has gained significant traction. Several cloud
providers are looking to enter or further penetrate the AsiaPacific market, but are unwilling or unable to commit the
capex needed to build large datacenters.
VMware recently confirmed a deal with SoftBank to introduce
its vCloud Hybrid Service in Japan. SoftBank will provide
VMware with the necessary datacenter facilities, sales
support, and its own network to support the IaaS public cloud
offering. VMware has made a beta program available for now,
with an intention to make the product generally available
for launch in December 2014. The IaaS offering will include
data protection and disaster recovery services, in addition to
storage, networking, and security services. In China, despite
the increasing difficulty for US-based technology companies
to operate in the country, VMware has also confirmed a deal
with China Telecom to build a hybrid cloud service. VMware
will initially provide IaaS platforms, with disaster recovery
and desktop-as-a service in later stages. The software
solutions will be branded China Telecom E-surfing Hybrid
Cloud Service.
Cisco’s InterCloud initiative is another vehicle that telcos in
the region can possibly tap into, leveraging telco datacenters
to host cloud services. Telstra and NTT Comms have already
publically stated that they will be part of the ecosystem. The
expectation is that more will be keen to work with Cisco given
its strong relationships with telcos in the region (and globally).
Ovum believes that a wholesaling strategy is ideal, especially
for tier-2 telco service providers or even incumbents that
are late to join the game in their respective countries. Telcos
should consider this approach, given the expense of building
fully-owned datacenter infrastructures.
CHINA TELECOM AND TELSTRA: SYSTEMS INTEGRATOR
AND IT VENDOR PARTNERSHIPS CAN BRING VALUE
Cloud migration is a complex endeavor, and the struggle
does not end after workload migration. Management,
integration, and orchestration issues are just some of the
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©2014 OVUM. ALL RIGHTS RESERVED.
73
challenges that often arise after implementation. These
are areas in which few telcos excel, and are therefore areas
where they probably require partners, especially if they
want to be taken seriously by enterprise clients. Telcos are
realizing that, if they are not able to build these capabilities
themselves, the best alternative is to have strategic alliances
with systems integrators, vendors, or even consulting firms
such as Accenture.
Ovum believes that partnerships with systems integrators
will evolve over the next 12 months. They will focus more on
specific segments of the cloud market as telcos recognize
that they cannot seriously compete across the entire
value chain. China Telecom recently announced that it has
entered into a three-year agreement with IBM to help SMEs
implement secure, cost-effective, and scalable SAP cloudbased applications. IBM will provide integrated and seamless
management across all SAP architectures and delivery
models, and clients will be able to migrate and integrate new
applications in the cloud, while maintaining and operating
current applications. Meanwhile Telstra recently launched
its managed private cloud offering to cater for missioncritical applications and workloads that cannot be migrated
to a shared environment. This ready-made offer will be a
Vblock solution. Private cloud is another area where telcos
could benefit from striking partnerships, given the lack of
credibility that they have in this sphere. Although what Telstra
is offering has its appeal, most enterprises would probably
prefer to engage an integrator with a long-established record
in building and managing private cloud environments.
The question for many systems integrators and vendors is
what telcos could bring to the table to make any relationship
mutually beneficial. In China, telcos hold an ace: because it is
a closed market, partnerships are a must for entry into the
market by foreign providers, and telcos own the extensive
MPLS networks that systems integrators and vendors need.
Elsewhere, telcos should creatively bundle a variety of cloud
offerings (e.g., SaaS or IaaS) into their existing portfolios.
They should also recognize that they have large installed
bases of customers that integrators will want to tap into.
Finally, some integrators will be interested solely in the
professional services element of any cloud engagement,
rather than the cloud services portion. Any relationship that
is built with clear and well-defined rules of engagement can
be mutually beneficial.
74
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with more than 1,500 individual metrics
including connections, unit sales,
revenues, capex, traffic, and events
across enterprise and consumer markets.
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HEAD OF FORECASTING &
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Nidhir Maudgalya – Research Analyst
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13
ASIA
Q+A
CHARLES MOON
PRACTICE LEADER
WHAT SORT OF SHAPE IS THE ASIAN TELECOMS MARKET
IN AS WE LOOK AHEAD TO 2015?
IS LTE HAVING MUCH OF AN IMPACT IN TERMS OF DATA
USAGE AND ARPU LEVELS?
At first glance, Asia’s mobile and fixed broadband markets look quite flat. We are
forecasting between 6% and 8% subscription growth over the next year. What
the top-line numbers don’t reveal is that large segments of the population will
be upgrading to 4G in developed markets, nor does it show how many first-time
smartphone buyers will be coming online. In terms of broadband, fiber is the main
story, as China continues to see widespread rollouts across its major cities.
Certainly LTE is having an impact in terms of usage as the demand for video
remains, and providing faster pipes will allow people to consume more data.
Are operators able to charge more for the additional usage? I don’t think this is
the case. Yes we have seen ARPU increase for various operators (LGU+ in Korea
is probably the most prominent example) as they move to LTE, but the ARPU is
coming from consumers upgrading to more expensive plans in order to get a free
device rather than an appetite to pay more for data.
This implies a huge opportunity for telcos to boost revenues on the back of
increased demand for data. The main issue that continues to plague not just Asian
operators but most others around the world is the impact of competition. As
competition for upgrading these consumers intensifies, pricing is likely the first
thing that will suffer.
DO YOU ANTICIPATE MUCH CONSOLIDATION,
PARTICULARLY BETWEEN FIXED AND MOBILE
OPERATORS?
Many operators in Asia already enjoy having both fixed and mobile assets –
Singtel, KT, KDDI, Telstra, and Indosat for example. The question in this region is
whether operators will start offering quad-play or, failing that, more significant
bundle discounts on their higher-margin mobile packages. Beyond the regulatory
aspects, the main determinant of this is the competitive position of quad-players,
and at the moment I don’t see a big incentive for operators to undermine their
mobile margins.
WHICH OPERATORS ARE HAVING THE MOST SUCCESS IN
TERMS OF SERVICE INNOVATION?
I see more service innovation coming from the fixed-line side, particularly from
fiber operators looking to leverage their ultra-broadband networks. A good
example is the retail service provider My Republic in Singapore, which offers
super-cheap 1Gbps broadband at less than US$40/month, then provides addons such as low latency (for gamers) and the Teleport streaming service, which
accesses content from Netflix and Pandora – OTT players whose content is not
available to Internet users in the country. This was exactly the type of operator the
Singapore government had in mind during the development of the Next Gen NBN,
and you can see the impact My Republic has had, with retail fiber prices dropping
almost 90% since launch.
WHICH MARKETS ARE SEEING THE MOST AGGRESSIVE
FIBER DEPLOYMENT?
Definitely China. Obviously in terms of scale it eclipses every other market in the
region, but what is interesting is how aggressive the Chinese government has
been with its targets around the Broadband China initiative. The government is
looking to double the number of fixed broadband connections to 400 million by
2020 and offer secure speeds of at least 50Mbps and 12Mbps in urban and rural
homes respectively. This will be the main driver of fiber in the region over both the
short and long term.
14
EUROPE
Q+A
WHAT SORT OF SHAPE IS THE EUROPEAN TELECOMS
MARKET IN AS WE LOOK AHEAD TO 2015?
We see 2014 as a year of preparation and anticipation. European markets are
still very weak in terms of revenue growth, which has remained negative for the
vast majority of mobile players. While the speed of decline has eased, there is
no evidence that the region will return to growth in 2015. But the years of sharp
decline are over.
Revenue contributions from digital services stand at a mere 3% for European
players and will increase, data consumptions remains really strong, and more
devices – in particular tablets – will be connecting to the Internet. But overall the
contribution of data remains muted. While the negative effect of MTR (mobile
termination rate) cuts will ease in 2015, voice services – which still represent a
large proportion of revenues – are at very high risk of OTT cannibalization; SMS
usage and revenues have been decimated and will not make a comeback.
We anticipate that European telecom operators will intensify their multi-play
offerings in 2015: virtually every cable and fixed-line operator has a mobility
strategy, largely based on MVNO (mobile virtual network operator) access, and
even the UK, one of the least integrated markets, will have more quad-play
offerings. In the short term quad-play will reduce churn and SRC (subscriber
retention costs), thus having a positive impact on profitability.
DO YOU ANTICIPATE MUCH CONSOLIDATION,
PARTICULARLY BETWEEN FIXED AND MOBILE
OPERATORS?
2015 will be another year of intense M&A activity in Europe: in the long term the
European telecom-media industry will have fewer players, and those remaining
will be mobile-fixed-TV integrated operators. Most of the M&A activities
will be directed towards the creation of players able to address the entire
communication, connectivity, and digital entertainment needs of individuals, their
families, and their “things.”
WHICH OPERATORS ARE HAVING THE MOST SUCCESS IN
TERMS OF SERVICE INNOVATION?
We have not seen any European operator starring in terms of service innovation.
Mobile operators have lost control of devices, while fixed TV players are still able
to control STBs (set-top boxes) and innovate their service offerings by adding
functionality to their STBs. In terms of service innovation there are two important dichotomies: consumer
versus enterprise services, and telco-TV versus online service providers. Telco
operators are focusing their service innovation efforts on developing enterprise
services, while innovation in consumer services is coming from the online world
rather than from telcos.
DARIO TALMESIO
PRACTICE LEADER
WHAT’S HAPPENING IN TERMS OF PRICING TRENDS?
European operators have improved their pricing innovation capabilities: multidevice and family plans are becoming more popular in Europe, and fixed-mobileTV bundling is surfacing all over. European telecoms are preparing for a multidevice market and trying to position themselves as the focal point for Internet of
Things–related connectivity and service.
Music and online TV services are featuring in most “hard bundling” activities –
that is, in a way that customers cannot buy a subscription without the service –
although occasionally operators are able to sell online services to their customers
and charge them on behalf of OTT players for a commission.
Speed-based mobile and fixed data pricing differentiation continues to be widely
used across Europe, while the trend towards unlimited voice and messaging
continues to grow. In an effort to differentiate their price plans, mobile operators are
bundling new services, typically for roaming and IDD (international direct dialing).
IS LTE HAVING MUCH OF AN IMPACT IN TERMS OF DATA
USAGE AND ARPU LEVELS?
Yes. Mobile data consumption is growing faster than expected in many markets.
Underlying LTE ARPU is also growing, albeit at a slower pace.
WHICH MARKETS ARE SEEING THE MOST AGGRESSIVE
FIBER DEPLOYMENT
The Nordic, Baltic, and some central European players continue to lead the
FTTH market. In large, mature European economies the FTTx market is gradually
increasing, with FTTC/VDSL being the main drivers.
15
AMERICAS
Q+A
MIKE ROBERTS
PRACTICE LEADER
WHAT SHAPE IS THE US TELECOMS MARKET IN AS WE
LOOK AHEAD TO 2015?
WHICH OPERATORS ARE HAVING THE MOST SUCCESS IN
TERMS OF SERVICE INNOVATION?
The US telecoms market is relatively unique in that it is a mature market where
the major carriers continue to find ways to drive growth. This is true in both the
mobile and fixed markets, where growth is modest but consistent – which is no
mean feat in a mature and reasonably competitive market.
A. In the US mobile market T-Mobile has stolen the headlines with its Uncarrier
initiative, which it launched in March 2013 and continued throughout 2014.
Under the initiative, T-Mobile has launched service innovations roughly once
per quarter, including the elimination of service contracts and the introduction
of free data roaming and free music streaming services. T-Mobile’s share of US
mobile subscriptions increased from 12.7% in June 2013 to 14.3% in June 2014, and
revenues increased 15% in the year to the end of 2Q14.
We forecast that fixed broadband revenues in the US will increase to $69.4 billion
in 2015, up from $67.0 billion in 2014, as fixed broadband subscriptions increase
to 98.9 million households in 2015, up from 96.6 million in 2014. Similarly US
mobile revenues will rise to $203 billion in 2015, up from $199 billion in 2014, as
connections increase to 355 million in 2015, up from 344 million in 2014.
DO YOU ANTICIPATE MUCH CONSOLIDATION,
PARTICULARLY BETWEEN FIXED AND MOBILE
OPERATORS?
There has been a run of consolidation in the US telecoms market, with several
major deals completed and others in the works. In the mobile sector in early
2014 T-Mobile completed the acquisition of MetroPCS, and AT&T completed its
acquisition of Cricket Wireless. Looking more broadly across the telecoms market,
AT&T is in the process of acquiring DirecTV for $48.5 billion, and Comcast is
acquiring fellow cable operator Time Warner Cable for $45.2 billion. In November
AT&T also announced plans to acquire Mexican cellular operator Iusacell for
$2.5 billion. However, Sprint abandoned its planned acquisition of T-Mobile due
to regulatory pressure, which leaves both operators as likely candidates for
consolidation in 2015.
WHAT’S HAPPENING IN TERMS OF PRICING TRENDS?
In the mobile market T-Mobile has launched a host of price cuts as part of its
Uncarrier initiative, and competitors have responded in some – but not all – cases.
In general Sprint, which T-Mobile may soon overtake as the third-largest US
mobile operator, has often responded to T-Mobile’s price moves, while market
leaders Verizon and AT&T have often tried to stay out of the fray, stressing their
advantages such as better network coverage and a wider selection of devices.
16
MIDDLE EAST
& AFRICA
Q+A
MATTHEW REED
PRACTICE LEADER
WHAT ARE THE BROAD TRENDS IN THE TELECOMS SECTOR
IN THE MIDDLE EAST AND AFRICA IN 2015 AND BEYOND?
WHICH DIGITAL SERVICES ARE SHOWING PROMISE IN
YOUR REGION?
The Middle East and Africa continue to be high-growth markets for telecoms.
Over 2014, Ovum expects the number of mobile subscriptions in Africa to
increase by 9.7% and mobile subscriptions in the Middle East to increase by 4.9%,
compared to a world average of 3.5%. Nevertheless, growth rates in terms of
subscription numbers in the Middle East and Africa are declining as the markets
become more mature.
Kenyan operator Safaricom’s M-Pesa remains the template for mobile-money
services, but it is not the only success. MTN Uganda’s mobile-money service
accounted for 14.7% of its total revenues in 1H14, for example. Interestingly,
Safaricom’s dominance of the Kenyan mobile-money market could be under threat
following the recent award of three MVNO licenses in Kenya, two of which went to
financial services providers, Equity Bank and Mobile Pay. The mobile-money sector
still offers opportunities, but it is becoming more complex in terms of the number
of providers and the range of applications on offer.
However, a significant move is under way towards 3G and, in some markets, 4G
technologies, driven by the rollout of mobile broadband networks as well as by
the availability of increasingly affordable smartphones and other data-enabled
devices. Currently, about 28% of mobile subscriptions in the Middle East are using
mobile broadband technologies (mainly W-CDMA and LTE), compared to 13% in
Africa, but by 2019 mobile broadband will account for more than 70% of mobile
connections in the MEA region as a whole, according to forecasts by Ovum.
Of course, the Middle East and Africa is a highly diverse region, and in terms
of telecoms includes some markets that are among the most advanced in the
world as well as many that are among the least developed. According to Ovum’s
Broadband Development Index, which measures the adoption of high-speed
fixed and mobile broadband services in 191 countries, Qatar and the United Arab
Emirates are among the 10 most advanced broadband markets in the world,
ranking in fifth and seventh place respectively in 2014. However, the 10 lowestranked countries in the Index for 2014 are all also in the Middle East or Africa.
WHAT EFFECT WILL THE EXPANSION IN DATA SERVICES
– PARTICULARLY IN MOBILE – HAVE ON TELECOMS
BUSINESSES IN THE REGION?
Mobile data revenues in Africa are expected to almost double over the coming five
years, rising from about $10.8bn in 2014 to $20.9bn in 2019. Despite the changes
under way, Africa is the only major region in which mobile voice revenues are
expected to increase over the next five years, from $48.7bn in 2014 to $53.9bn
in 2019. In the Middle East, mobile data revenues are also expected to rise
substantially, from $9.9bn in 2014 to $16.3bn in 2019. Mobile voice revenues in the
Middle East will decline slightly, from $32.0bn in 2014 to $31.1bn in 2019.
WHAT ARE OPERATORS DOING TO ADJUST TO THE
CHANGING DYNAMICS OF THE MARKET?
Despite the diversity in the region, the broad trend towards data networks and
services is clear, and many of the major operators are revamping their strategies
to take advantage of the new opportunities in data as well as to minimize
the challenges of greater competition as well as slower overall growth. And
increasingly operators in the Middle East and Africa are looking beyond the
provision of data access and are also seeking to develop new, data-based digital
services. These digital services include mobile financial services, mobile and online
content, e-commerce, and services for the business market. For example, both
MTN and Millicom have recently unveiled new strategies that put the development
of digital services at the center of their plans, while Etisalat has set up a digital
services unit.
The mobile content sector has also become quite busy, and there have been
several new partnerships between operators and OTT content providers, with
operators hoping that providing content will encourage customers to use data
services, while content providers seek wider distribution. When Vodafone Qatar
launched LTE in mid-2014, it also introduced a content package with services from
Middle East music-streaming outfit Anghami and broadcaster OSN. In Nigeria,
MTN saw a big rise in its mobile content revenues after it tied up with local
providers such as Afrinolly. Airtel has launched Facebook’s Internet.org app, which
provides zero-rated access to a suite of Internet services, in Kenya and Zambia.
IS MUCH HAPPENING IN M&A OR CONSOLIDATION?
There is a trend towards consolidation and for investors to sell smaller,
underperforming units. In South Africa, Vodacom is in the process of acquiring
fixed-line provider Neotel. Essar is selling its Kenyan mobile unit Yu to Airtel and
Safaricom. Orange sold its Ugandan operation to Africell. Most of these have
involved relatively small transactions, but the past year has also seen one major
M&A deal: Etisalat’s $5.7bn acquisition of a controlling stake in Maroc Telecom,
which extended the UAE-based group’s footprint in the region.
Regional Data
TABLE 1
LTE SHARE OF TOTAL MARKET IN LEADING COUNTRIES* WORLDWIDE, DECEMBER 2010 TO DECEMBER 2015
COUNTRY
DEC 11
DEC 12
DEC 13
DEC 14
Korea
2.00%
29.28%
51.69%
Australia
0.30%
5.65%
21.92%
Singapore
0.01%
6.26%
0.88%
Japan
DEC 10
0.00%
Hong Kong
DEC 15
COUNTRY
69.89%
81.91%
Qatar
39.76%
53.30%
Brazil
22.47%
37.47%
52.12%
Kazakhstan
0.36%
0.56%
1.53%
9.53%
26.64%
39.80%
51.46%
Slovak Republic
0.04%
0.54%
1.52%
0.24%
6.34%
16.15%
35.64%
50.89%
Kenya
0.30%
1.52%
1.45%
Sweden
0.03%
0.22%
4.90%
10.24%
19.87%
28.88%
Russia
Norway
0.04%
0.08%
1.68%
12.87%
21.08%
28.20%
Colombia
4.96%
13.01%
20.65%
Nigeria
New Zealand
Canada
6.08%
11.69%
15.07%
20.06%
Peru
Kuwait
0.38%
8.92%
15.18%
18.70%
India
UK
0.33%
3.66%
11.34%
18.53%
Tunisia
0.99%
14.21%
12.97%
17.91%
Czech Republic
0.31%
5.60%
10.74%
16.59%
Poland
0.26%
Switzerland
Finland
0.02%
0.12%
DEC 10
DEC 11
0.09%
DEC 12
DEC 13
DEC 14
DEC 15
0.79%
1.26%
2.00%
0.50%
0.97%
1.63%
0.28%
0.61%
0.91%
0.10%
0.38%
0.75%
1.41%
0.04%
0.37%
1.30%
0.00%
0.01%
0.93%
0.01%
0.28%
0.91%
0.34%
0.81%
0.00%
0.03%
0.17%
0.16%
0.74%
0.01%
0.30%
0.70%
France
0.01%
5.57%
9.70%
14.98%
Uganda
0.00%
0.14%
0.18%
0.69%
Netherlands
0.01%
3.87%
9.32%
14.09%
Tanzania
0.00%
0.01%
0.24%
0.54%
9.34%
13.37%
Chile
0.09%
0.17%
0.41%
0.20%
0.40%
Austria
0.00%
0.07%
0.36%
0.55%
Denmark
0.01%
0.09%
0.99%
4.26%
7.71%
12.70%
Morocco
1.53%
6.15%
9.22%
12.42%
Argentina
0.06%
5.76%
9.95%
Mexico
3.32%
5.63%
9.58%
2.34%
4.70%
Croatia
China
Germany
0.00%
0.13%
0.74%
Spain
Estonia
0.38%
0.00%
0.17%
0.16%
0.36%
Senegal
0.02%
0.15%
0.32%
8.72%
Thailand
0.07%
0.13%
0.27%
0.02%
0.07%
0.22%
0.22%
2.46%
5.04%
8.24%
Philippines
Portugal
0.02%
0.86%
4.32%
7.43%
Bangladesh
0.22%
Slovenia
0.16%
2.85%
3.85%
6.81%
Ukraine
0.20%
1.44%
2.86%
5.60%
Pakistan
0.02%
0.15%
0.01%
0.65%
2.75%
5.29%
Cambodia
0.06%
0.14%
0.15%
1.99%
3.24%
5.16%
Indonesia
0.04%
0.13%
Serbia
0.03%
0.11%
0.01%
0.04%
Malaysia
Italy
Saudi Arabia
0.01%
UAE
0.02%
0.12%
2.00%
3.24%
5.16%
0.23%
1.55%
2.71%
4.71%
Hungary
0.32%
1.66%
2.96%
4.69%
South Africa
0.02%
1.19%
2.28%
3.96%
0.09%
1.89%
3.88%
Greece
Ireland
Taiwan
Lithuania
0.05%
0.31%
1.25%
Latvia
0.08%
0.15%
0.38%
1.66%
3.72%
2.16%
3.08%
1.71%
3.03%
Ghana
1.22%
2.93%
Israel
1.23%
2.60%
1.59%
2.40%
Romania
0.04%
0.97%
*This list only includes those countries whih will have launched LTE by December 2015
SOURCE: OVUM
84
©2014 OVUM. ALL RIGHTS RESERVED.
OVUM.COM
0.01%
0.03%
TABLE 2
TABLE 4
TOP 20 COUNTRIES BY DATA ARPU ($), 1Q14
TOP 20 COUNTRIES BY DATA REVENUES ($M), 1Q14
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Japan
COUNTRY
30.1
28.2
28.5
28.3
27.5
USA
COUNTRY
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
20,811
21,227
22,030
22,612
22,888
Canada
25.0
24.9
26.0
26.0
25.2
Norway
23.3
22.3
23.2
23.0
25.0
China
11,653
13,563
14,051
14,668
14,424
Japan
12,164
11,581
11,842
11,886
USA
20.6
20.8
21.4
21.8
11,634
21.9
UK
3,228
3,187
3,287
3,443
Australia
22.1
22.0
21.0
3,537
21.4
20.8
Korea
2,424
2,567
2,612
2,717
3,007
Ireland
18.0
18.2
18.5
18.6
18.9
France
2,873
2,849
2,903
2,926
2,925
Korea
15.2
16.0
16.3
16.9
18.8
Germany
2,849
2,905
3,078
3,136
2,863
Switzerland
14.4
15.6
17.3
17.7
17.6
Canada
2,046
2,052
2,160
2,140
2,097
Slovenia
13.5
13.8
14.9
17.0
16.1
Australia
1,953
1,969
1,914
1,971
2,013
UK
14.3
14.3
14.7
15.6
15.9
Russia
1,787
1,748
1,809
2,022
1,920
Sweden
12.7
12.8
13.7
15.4
15.1
Brazil
1,700
1,776
1,687
1,829
1,774
France
14.2
14.9
14.6
15.0
14.8
Italy
1,788
1,801
1,914
1,911
1,723
Qatar
13.6
14.5
13.9
15.0
14.6
Saudi Arabia
1,214
1,367
1,453
1,578
1,443
Singapore
12.4
12.6
12.7
13.2
13.2
Indonesia
1,304
1,311
1,558
1,517
1,437
New Zealand
12.9
12.7
12.5
13.0
12.9
India
1,222
1,244
1,251
1,302
1,385
Hong Kong
12.3
12.3
12.2
12.5
12.6
Argentina
1,571
1,604
1,619
1,594
1,289
Netherlands
11.6
12.0
12.6
12.9
12.5
Spain
1,300
1,298
1,348
1,326
1,273
Kuwait
11.3
11.8
11.5
13.1
12.4
Mexico
813
817
800
863
862
Bahrain
12.1
12.6
9.5
14.7
12.2
Taiwan
670
703
752
769
810
Finland
9.4
9.6
10.9
11.3
11.7
Malaysia
730
757
728
761
736
SOURCE: OVUM
SOURCE: OVUM
TABLE 3
TOP 20 COUNTRIES BY NON-SMS DATA ARPU ($), 1Q14
COUNTRY
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Japan
26.8
25.2
25.4
25.2
24.5
Norway
15.8
15.6
15.8
17.1
18.3
Canada
16.8
17.0
18.0
18.1
17.8
USA
15.3
15.6
16.0
16.4
17.7
Hong Kong
16.3
16.3
16.6
16.6
16.8
Korea
10.8
11.4
11.6
12.1
13.5
Australia
13.2
13.5
13.1
13.6
13.3
8.5
9.6
11.1
11.8
12.4
10.3
11.5
11.3
12.2
11.8
8.5
9.1
9.0
10.3
10.0
Austria
7.7
8.5
9.2
10.9
9.9
Ireland
9.0
9.3
9.9
9.7
9.9
Singapore
7.5
8.2
8.6
9.5
9.7
France
8.7
9.4
9.4
9.8
9.6
Bahrain
8.5
9.1
7.0
10.8
9.2
7.9
Switzerland
Qatar
Kuwait
UAE
6.8
7.4
7.8
8.0
Saudi Arabia
6.2
7.6
8.3
8.8
7.7
Taiwan
6.0
6.3
6.9
7.2
7.5
Spain
6.8
7.3
7.2
7.5
7.3
Israel
5.8
6.8
7.3
7.4
7.1
SOURCE: OVUM
OVUM.COM
©2014 OVUM. ALL RIGHTS RESERVED.
85
TABLE 5
TOP 20 OPERATORS BY DATA ARPU ($), 1Q14
OPERATOR
COUNTRY
KDDI
Japan
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
32.7
31.4
32.1
32.3
32.1
Rogers Wireless Communications
Softbank Mobile
Canada
26.6
26.7
27.9
27.6
26.7
Japan
28.6
26.7
27.2
27.0
26.2
Telus Mobility
Telenor Mobil
Canada
26.1
25.8
26.7
26.9
25.5
Norway
24.2
23.3
22.9
22.9
25.4
NTT DoCoMo
Japan
29.3
27.1
27.0
26.4
25.2
Hutchison 3G Ireland
Ireland
24.0
23.8
24.1
24.8
25.1
Netcom Norway
Norway
21.4
20.3
23.8
23.2
24.2
Verizon Wireless
USA
22.0
22.5
23.2
23.4
24.0
Bell Wireless Affiliates
Canada
22.1
22.2
23.5
23.5
23.5
AT&T Mobility USA
USA
22.0
22.3
22.7
23.2
22.9
Orange Switzerland
Switzerland
20.0
22.2
26.2
26.5
22.5
HI3G
Sweden
20.7
18.2
21.4
21.5
22.0
Optus
Australia
22.3
24.1
23.4
24.4
22.0
SK Telecom
Korea
16.3
17.3
17.5
18.1
21.1
MTS Mobility
Canada
21.5
19.8
20.1
20.3
21.1
20.8
Sprint Nextel USA
USA
18.8
19.5
19.6
20.8
SmarTone
Hong Kong
20.4
20.4
20.5
20.5
20.5
Vodafone Australia
Australia
22.5
21.4
19.8
20.1
20.4
Telstra
Australia
21.8
20.9
20.0
20.2
20.3
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
SOURCE: OVUM
TABLE 6
TOP 20 OPERATORS BY DATA REVENUES ($M), 1Q14
OPERATOR
COUNTRY
China Mobile
China
7,298
8,756
8,911
9,417
8,989
Verizon Wireless
USA
7,645
7,924
8,250
8,466
8,724
AT&T Mobility USA
USA
7,021
7,198
7,390
7,637
7,653
NTT DoCoMo
Japan
5,389
5,001
4,991
4,909
4,740
KDDI
Japan
3,656
3,585
3,730
3,811
3,860
China Unicom
China
2,384
2,672
2,838
2,906
3,037
Sprint Nextel USA
USA
2,663
2,796
2,813
2,856
2,975
Softbank Mobile
Japan
2,733
2,631
2,745
2,787
2,674
China Telecom
China
1,970
2,135
2,302
2,345
2,398
T-Mobile US
USA
1,522
1,902
2,158
2,223
2,348
SK Telecom
Korea
1,316
1,404
1,430
1,481
1,622
EE
UK
1,129
1,191
1,243
1,312
1,340
Orange France
France
1,205
1,211
1,212
1,213
1,214
T-Mobile Germany
Germany
946
983
1,081
1,145
1,093
O2 (UK)
UK
962
948
954
987
1,024
Telstra
Australia
954
935
920
947
976
Vodafone uk
UK
833
804
840
877
895
Kt corp
Korea
874
Vodafone d2
Germany
Vivo
Brazil
SOURCE: OVUM
86
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OVUM.COM
707
732
735
768
1,007
1,025
1,055
1,021
851
734
815
769
818
798
TABLE 7
TOP 20 SERVICE PROVIDERS BY PROPORTIONATE SUBSCRIPTIONS, 2Q14
OPERATOR
PROPORTIONATE SUBSCRIPTIONS
TOTAL SUBSCRIPTIONS
615,417,233
820,155,632
China Mobile CC
Vodafone
396,448,363
745,060,110
China Unicom
294,986,000
294,986,000
283,359,174
320,538,908
America Movil
Bharti Airtel
275,993,809
293,536,311
Telefonica SA
248,591,430
680,038,890
Telenor
204,802,754
402,670,309
China Telecom
180,439,300
180,439,300
Singapore Telecom
180,090,785
531,497,290
VimpelCom
169,798,035
218,104,000
MTN
166,221,860
214,294,833
Orange
153,726,835
242,453,559
Deutsche Telekom
144,217,240
178,604,032
AT&T Inc
141,612,475
435,962,441
Verizon
122,837,000
122,837,000
Axiata
118,689,857
256,292,969
111,110,978
127,050,339
Telecom Italia
MTS
106,952,441
110,197,001
92,121,538
127,952,000
92,088,785
240,026,321
Global Telecom
NTT DoCoMo
Proportionate subscriptions are calculated based on a company’s equity ownership stakes in other
telecoms businesses.
SOURCE: WORLD CELLULAR INVESTOR, OVUM
TABLE 8
TOP 20 SERVICE PROVIDERS BY PROPORTIONATE SUBSCRIPTIONS BY REGION, 2Q14
OPERATOR
AFRICA
AMERICAS
ASIA PACIFIC
EUROPE: EASTERN
EUROPE: WESTERN
MIDDLE EAST
USA/CANADA
China Mobile CC
–
–
615,417,233
–
–
–
–
Vodafone
71,981,102
–
183,965,235
15,649,675
124,541,608
310,743
–
China Unicom
–
–
294,986,000
–
–
–
–
America Movil
–
239,965,602
–
6,467,923
13,207,568
–
23,718,082
–
199,159,326
–
78,589
–
–
162,828,335
14,778,799
4,627,108
66,357,189
–
–
Bharti Airtel
76,755,894
Telefonica SA
–
Telenor
4,409,589
–
128,660,902
54,497,200
17,130,508
–
104,555
China Telecom
–
–
180,439,300
–
–
–
–
Singapore Telecom
24,863,010
–
155,202,321
–
25,455
–
–
VimpelCom
10,272,415
–
35,236,940
101,658,680
21,889,000
–
741,000
MTN
130,142,677
–
–
–
336,000
35,743,183
–
Orange
68,618,911
847,721
88,274
23,224,576
58,126,526
2,820,828
–
Deutsche Telekom
67,416
476,207
–
28,329,178
64,799,439
–
50,545,000
AT&T Inc
–
21,336,686
–
536,838
1,136,496
–
118,602,456
VERIZON
–
–
–
–
–
–
122,837,000
Axiata
–
–
118,675,157
–
–
14,700
–
Telecom Italia
–
80,450,562
–
–
30,660,416
–
–
MTS
–
–
–
106,952,441
–
–
-
Global Telecom
21,209,888
–
70,430,000
–
–
–
481,650
NTT DoCoMo
–
–
92,088,785
–
–
–
–
Proportionate subscriptions are calculated based on a company’s equity ownership stakes in other telecoms businesses.
SOURCE: SOURCE: WORLD CELLULAR INVESTORS, OVUM
OVUM.COM
©2014 OVUM. ALL RIGHTS RESERVED.
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