Wireless Operator Strategies

Wireless Operator Strategies provides both a deep and broad perspective of the operator market, combining granular operator-level and market-level data with ecosystem-wide understanding of wireless operator challenges and opportunities.

August 11, 2010 16:08 suerudd
August 11th 2010 Doing the FCC’s job? On Monday August 9th. Verizon and Google issued a joint ‘suggested policy framework for lawmakers’ which reads as if it had come from the FCC, leading to an appropriate response from FCC commissioner Michael J. Copps that it is “time to reassert (FCC’s) authority”. The framework endorses all the good ‘motherhood’ concepts - openness for legal content, nondiscrimination that does not block or degrade the Internet, and transparency for both wireline and wireless. And it addresses some of the traffic and network management concerns raised in my blog of May 27th . But the sting is in the tail. The fifth and sixth points posted in the expository blog carve out two major markets. The ‘Carve Out’.Two key markets are carved out for minimal FCC oversight and therefore would not be subject to many ‘net neutrality’ and access requirements. First area is ‘differentiated online services’ that integrate application services with bandwidth – “healthcare monitoring, the smart grid’ etc. i.e. vertical markets where performance and security must be guaranteed. The proposed Verizon and Google approach allows each application to be ‘nailed-up’ to a specific network - rather than the Virtual Private Networks VPNs) with Service Level Agreements(SLAs) that operate today. This could lead to significant innovation – if only it were not based on exclusive bi-lateral transport and applications vendor deals. Haven’t we been here before? Didn’t this lead to the original Enhanced vs. Basic Services split of Computer Enquiry II.  And it recreates the comparatively unsuccessful ‘Walled Garden’ approach to applications. Second ‘carve out’ is wireless broadband which is claimed to have “unique technical and operational characteristics” and to be “more competitive and changing rapidly”, so “in recognition of the still-nascent nature of the wireless broadband marketplace” Verizon and Google recommend against applying any of the “wireline principles” except transparency. Broadband is Broadband is Broadband….Although wireless has historically had special treatment, mobile broadband is rapidly reaching parity with wireline speeds and quality. Over the next two years applications will operate seamlessly across wireless and wireline networks and many users may not even be aware which network they are on. To users Broadband is Broadband. All applications require an appropriate class of service at a competitive price. Special value added networks and mobile broadband cannot and should not be carved out from the general area of FCC broadband service oversight. Reactions and Furor on both sides of the ‘pond’ In the US, Wall Street Journal welcomes this ‘Traffic Plan’ and TIA notes that the “Verizon and Google…rightly addressed important issues such as the need for network management welcoming it as a “step in the right direction … and a possible solution to the uncertainty created by the Comcast decision.” But bloggers and the New York Times Opinion page started discussing carrier/search engine business alliances and making jokes about ‘VerGoogle’ that have now prompted a strong tweet denial from Google “We've not had any convos with VZN about paying for carriage of our traffic. We remain committed to an open internet.” Wired magazine however, describes the ‘differentiated online services network’ as a “left-field proposal to anticipate an entirely new information highway for ‘fast lanes’” and believes that “Google and Verizon have proposed creating a second, paid-access-only internet” “over an unspecified global network”. Could that be Verizon’s new Packet Optical Transport Platform (P-OTP) network? Across the pond reactions are still evolving. Financial Times subtly points out that “industry insiders on Capitol Hill and at the FCC are questioning Google’s motives for an apparent about-face on its position as one of the most powerful advocates of net neutrality.” Others reflect the stronger view that the EU is taking on Net neutrality.with one blogger warning that “An obvious outcome … is that when Google is dragged backwards through an antitrust investigation by the EC or DoJ, it will find no favours from civil society after this betrayal…..Good luck, Google - you thought China was sticky in terms of political support, you'll find that was a storm in a delicate teacup.”

July 6, 2010 17:07 Phil Kendall

Yesterday in Paris, Orange unveiled its new five-year strategic plan, Conquests 2015. The plan covers four strategic priorities:

    The conquest of employee pride – to re-build its reputation as an employer;
    The conquest of networks – covering fibre-optic build in France, LTE deployments, the monetization of mobile data traffic (read: no unlimited data plans) and green networks;
    The conquest of customers – delivering a superior customer experience and helping customers navigate through their connected/digital lives;
    The conquest of international development – targeting 2x growth in revenues from emerging markets, with total customers growing from today’s 200m to 300m by 2015.

We published a report profiling the world’s 20 largest mobile operators last week, providing a SWOT and overview of strategic directions. We knew a new Orange vision was on the way, but there are only so many events that can postpone a report’s publication. It is with relief that I can say that, in terms of the key elements of this new strategic plan, enough had been discussed in the past to allow us to predict this quite accurately.

In this report, we looked at two key differentiators for operator performance: footprint (scale) and unification (both in the sense of integrated/converged networks and the provision of integrated services). The more profitable global mobile operators have strengths in these areas and it is good to see they form the basis of Orange’s new strategy.

Orange is very much committed to improving the value of its footprint, both in terms of growing its business in Africa and the Middle East (it is suggesting roughly three-quarters of its emerging market revenue growth could come from M&A here), but also in terms of its mature market footprint, where further consolidation (after the Orange / T-Mobile UK deal) can be expected.

In terms of unification, the next-gen network upgrades are a key building block there, as well as layering in services in areas such as health, education and payments. One of the more interesting statements in this strategy launch was that “Orange must become a multimedia coach for its customers by working alongside them to make their digital life easier”, with Orange’s CEO Stéphane Richard adding that Orange “are trying to be activists for an open world”. That trusted partner role has taken over from the own-branded services/content role as a priority for telcos and it is encouraging that Orange is focusing on its key strengths there.

May 27, 2010 20:05 suerudd
Throttle or Choke.‘Net Neutrality’ proponents argue that there should be no restrictions by service providers on any type of end-user access to content, equipment or modes of communication but in April a U.S. Court of Appeals ruled that the FCC had exceeded its authority when it told Comcast not to ‘throttle’ BitTorrent’s peer-to-peer video exchange and related applications - even though BitTorrent was ‘choking’ performance for other Comcast users. FCC is now proposing additional regulation and Congress is getting in on the act. Lurking behind the partisan rhetoric of ‘Net neutrality’ are serious issues. It is time to deal with them. Issue 1. Harm to the Network. Ironically Comcast was trying to protect its customers from ‘harm to the network’ as the Communications Act requires. Many service providers - including many mobile operators - are struggling to manage the disproportionate traffic demands of a few heavy duty users whose peer-to-peer or high bandwidth applications slow down performance for everyone else. Solution: Some equitable form of network management is not only reasonable but essential for the broadband networks to function. Issue 2. Service Quality at a Fair Price. Insistence by ‘Net Neutrality’ advocates that everyone get the same access with the same ‘class of service’ leads rapidly to a lowest common denominator for all. When video ‘bandwidth hogs’ block more time sensitive or more valuable, low bandwidth applications there is a good case for throughput guarantees. Solution: In both fixed and mobile broadband markets, tiered classes of service for different user applications with different bandwidth requirements and different priorities at different prices will enable operators to balance broadband traffic demand with new capacity expansion. Issue 3. Exclusive Walled Gardens. The owners of broadband access have been tempted recently to consider exclusive deals with preferred application and content providers – like Google and YouTube. Often there are only one or two access providers, so small new or innovative vendors are concerned they will be relegated to a lower class of service. This is not just a US issue. In April European Union telecoms commissioner Neelie Kroes suggested that “users should be able to access and distribute the content, services and applications they want”…”Nor should telecommunications providers be allowed to block services provided by direct competitors.” Solution: Toll highway operators should not choose the customers’ automobiles. Nor should the automobile companies pay the user tolls in advance for the fastest highways. A primary reason for communications regulation is to prevent access providers from extending their power to control access to limit content choice or overcharge for services. Networks need a clear and neutral boundary between transport and applications so that choices are separate and made by end users. Let’s deal with the real challenges to delivering broadband for all - instead of firing political rhetoric at one another

March 3, 2010 18:03 suerudd
March 3rd. 2010, Newton MA. USA Tariff and Revenue Strategy(TRS) service looks at the financial outlook for service providers in 2010 and 2011.  Although growth will be slow, TRS expects telecommunications to outpace the economy. The glass is definitely ‘half-full’. Real US growth is beginning to come from the manufacturing sector. US Federal Reserve has announced that January 2010 was the 7th. consecutive month of US manufacturing growth. Output of business equipment rose 0.9 percent in January, and information processing equipment increased 1.7 percent. In UK today’s strong service sector report is stimulating talk of positive first quarter GDP growth; and the February US numbers show stronger than expected service sector growth and continued manufacturing expansion. For the telecommunications sector in 2010 the substitution of telecommunications for travel and of messaging and email for business transactions should continue to increase penetration as a percent of overall industry activity. Because telecommunications increases labor productivity it will continue to outpace the slow economic recovery, even if there is little job growth. Slowing rate of job losses has not been great news – though this is exactly how things look just before the economy turns up . Think ‘sine wave’ and ‘positive first derivative’. The slow recovery is not slow enough however, to totally depress Communications Investment. Capital expenditures (CAPEX) for telecommunications equipment and network deployment are expected to recover significantly in 2010, even if the level may not get back above that of 2008. Even as operators are laying off thousands of employees to improve competitive efficiency, they are optimistic enough to announce significant 2010 CAPEX for broadband telecom (fixed and mobile) over the next 18 months. These operators expect next generation IP based infrastructure to leverage the hardware volume of the information industry and lower their overall cost of operations. BTW: It is hard to quantify the exact impact of these savings on operator financials – but TRS is working on it. In 2010 and 2011 we expect that mobile broadband and IP based infrastructure will have the performance to begin to fill the ‘Broadband Gap’.  Mobile Broadband at 2- 20 MBps may actually be the cheaper, better way to deploy broadband services in rural and low density areas around the world. This infrastructure deployment will itself stimulate further economic growth. As April comes and the weather improves the glass may very slowly start getting fuller. Sue Rudd - srudd@strategyanalytics.com

March 2, 2010 19:03 Phil Kendall
We are currently updating Q4 operational/financial data in our Wireless Operator Performance Benchmarking research, with the last 7 days seeing a large number of operators report results. There are two over-riding themes coming out of the results so far. Firstly, for most operators Q4 was better than Q3, which is great news. The slight problem is that this is better in the sense of “less worse”. If you get mugged two days in a row, the chances are the mugger will get less off you on the second day – you probably haven’t got a new phone and your spare wallet won’t have all your replacement cards/ID in it yet. So that’s obviously a much better mugging. So the fact that revenues and profits didn’t fall as fast in Q4 as they did in Q3 is equally good, right? Secondly, “relentless” cost control / management is a standard item in strategic directions for 2010. A few operators are predicting flat EBITDA for this year, many are expecting moderate single-digit declines. Mobile data remains the growth engine, but falling revenues from voice/termination/roaming will be hard to overcome. So its cost control that will save operator profitability in 2010: distribution mixes and device subsidies seem to be key items up for debate in most mature markets. I worry for an operator recovery in 2010. The recession will be officially over (it already is in many countries), but unemployment will increase, few workers will be banking on pay rises, private consumption will lag GDP growth (which is itself a real mixed bag across different countries), and governments will push through austere budgets. Plus everyone who put off upgrading their handset last year will want to do it this year, so we will see a higher share of mobile spend diverted to device vendors. Depressed yet? The debt crisis in Greece is perhaps a worst case scenario, though I’ll leave you with this sobering quote from OTE’s results last week: “In 2010, the OTE Group expects its revenue base to be further impacted by difficult economic conditions in all markets, lower consumer spending, intense competition, and regulatory constraints on its capacity to respond effectively to these factors. OTE management … will work hard to minimize revenue shrinkage and defend Group profitability.” OTE will not be the only operator to get mugged again in 2010. Phil Kendall

February 3, 2010 18:02 Phil Kendall
Softbank Japan will be switching off its 2G mobile network next month, one of the first WCDMA operators in the world to do so. In its financial results on Tuesday it said this would result in a small correction in subscriber numbers, though the revenue impact will be minimal - in Q4 2009, 3.6% of its customers were still on the 2G network, but they contributed just 1.7% of revenues. More importantly, terminating the 2G network is going to contribute to profit growth, so it’s all good news. For Softbank, that is. That’s just over eight years to move from launching a 3G network to closing down the 2G network. Unfortunately, no other operator is going to be running on those timelines, even NTT DoCoMo is going to see 10 years lapse between its 3G launch and 2G closure (down for March 2011).
  • Many operators in developed economies are now 6-7 years into their 3G lives and nowhere near the subscriber/revenue ratios seen in Japan in that timescale – most have yet to even get 40% of their subscribers onto 3G.
We spend a large amount of time in our forecast models looking at adoption curves for new technologies, predicting an inflection point for LTE is the latest to tax us. I have just run a speed test on my HTC Hero and (with the wind blowing in the right direction) I am getting 3Mbps down and almost 1Mbps up on a 7.2Mbps HSPA network. It’s hard to sit here today and decide at what point in the future I am going to find that performance completely unacceptable. New technologies are fun, but what is equally interesting for us is looking at the other end of the technology life cycle:
  • How should mobile operators manage the retirement of legacy technologies as they transition from 2G to 3G, or from circuit to packet voice?
  • At what point is it worth investing more in 3G subsidies for 2G users in order to save money by shutting down the old network?
The analogue to digital switch-over involved migrating a peak of 93 million analogue connections and even that has taken well over a decade to complete – this time around, there will be 4 billion 2G connections to migrate. While Softbank looks forward to lower network operating costs from April, very few other operators will reach that point even by 2015. We see huge promise in LTE and other mobile broadband technologies attracting users away from 2G services, but as vendors fight it out to have the fastest 4G demo at MWC this year it will be interesting to see how much space is devoted to technology co-existence. As regulators move towards technology-agnostic spectrum licensing, there will be a real skill in managing resources across 2G, 3G and 4G technologies and great opportunities for vendors to help operators make the transition away from 2G as painless as possible. Phil Kendall