Mobile and the Digital Economy [Analysys Mason, 2014]

8/12/2019 Mobile and the Digital Economy [Analysys Mason, 2014]

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analysysmason.com

MOBILE AND THEDIGITAL ECONOMY


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CONTENTS

Introduction p3

Mobile handset data revenue will be drivenby volume in emerging markets and value indeveloped countries p4

OTT messaging volumes will nearly doublein 2014 p6

Almost 40% of tablet users worldwide usedevices bought by friends and family p8

Three essential M2M strategicconsiderations for small operators p10

Operators must play on current strengths

and develop new competencies to thrivein the digital economy p12

Big data will not automatically lead todeep insights p14

LTE predictions for 2014: operators willreap the benefits of carrier aggregationbut VoLTE will have limited impact p16

M2M services other than connectivity willaccount for 53% of M2M revenue in 2016 p18

Customer experience management value-based delivery and service support p20

The four critical policy criteria for mobilespectrum renewal p22

Network virtualisation opportunities forCSPs begin in the core of next-generationnetworks p24

LTE to be deployed worldwide by 2018:AsiaPacific and Latin America dominatenetwork launch plans p26

Monetising LTE services: developing newrevenue streams through differentiationand innovative pricing p28

What we offer p30


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Analysys Mason is proud to present our latestinsights on the most important trends drivingthe development of the mobile sector.As consulting and research specialists with over 25 years of experience in telecoms, media and

technology, the Analysys Mason team offers a winning combination of extensive industry knowledge,

advisory expertise and unique research methodologies. Our clients rely on us as a trusted partner in

developing strategies for success across the entire mobile telecoms and media value chain.

Our expertise in mobile trends and topics is unsurpassed, drawing on the strategic expertise of our senior

consultants, the recognised thought leadership of our team of specialist mobile analysts, and a suite ofin-depth research programmes covering mobile services, networks, content, technologies and devices.

To help you get the most out of 2014, members of our team have shared their thoughts on some of the key

issues that will be important to you during the next 12 months.

Some of the key articles in this collection include:

Three essential M2M strategic considerations for small operators

Operators must play on current strengths and develop new competencies to thrive in the digital economy

LTE predictions for 2014: operators will reap the benefits of carrier aggregation but VoLTE will have

limited impact

The four critical policy criteria for mobile spectrum renewal.

We hope you find these opinion pieces and expert commentaries of interest and value. We welcome your

feedback and encourage you to contact the authors directly if you would like to discuss any of the points

they have raised, or are looking to understand how a specific issue or trend will affect your business.

To find out more about our experience and services, please visit www.analysysmason.com, and you can

also follow us on Twitter at @AnalysysMason.

We look forward to working with you to support your success in the mobile market in 2014 and beyond.

BRAM MOERMANChief Executive OfficerAnalysys Mason

INTRODUCTION


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Traditional voice and messaging services aredeclining and new data services are taking theirplace, driven by next-generation mobile networksand the increased ownership of smart devices.

Telecoms retail revenue worldwide will reachUSD1.64 trillion in 2018, up from USD1.50 trillion in2012. Mobile handset data revenue will lead thegrowth it will increase by about USD160 billion, at aCAGR of more than 10%, to reach USD358 billion in2018 22% of total retail revenue.

Our report Global telecoms market: interim forecastupdate 20132018(available at www.analysysmason.com/GTF-interim-2013), presents our latest analysis

of the key trends in telecoms markets worldwide.Compared with our previous forecasts, we haverevised up our expectations for mobile handset datarevenue to take into account the faster-than-expected shift from voice to data in the most-developed markets, and the better-than-expectedtake-up of smartphones in some emerging markets.Our new forecast for mobile handset data revenueduring 20132018 is about 3% higher than ourprevious forecast.

Growth drivers: value in developed countries,volume in emerging markets

Mobile handset data revenue will grow during thenext 6 years in all eight geographical regions that we

have modelled (see Figure 1).

However, market dynamics and challenges fortelecoms service providers vary substantially byregion. We have identified two major drivers ofmobile handset data revenue growth.

Value.Increased spend per user on mobilehandset data services will be the main driver ofgrowth in developed regions (Central and EasternEurope (CEE), developed AsiaPacific (DVAP),

North America (NA) and Western Europe (WE)).We forecast that about 85% of mobile handset datarevenue growth during 20132018 will come fromincreased spend on data services as existing usersupgrade to smartphones, and about 15% from newusers entering the market. The average spend peruser (ASPU) on handset data will increase bydouble digits in Europe, and single digits in NAand DVAP.

Volume. An increased number of smartphoneusers will be the main driver of growth in emergingregions (emerging AsiaPacific (EMAP), LatinAmerica (LATAM), Middle East and North Africa(MENA) and Sub-Saharan Africa (SSA)). The

number of smartphones will increase at a CAGR of26% twice the rate that we expect in developedregions. Smartphone penetration of handsets willreach about 50% in EMAP in 2018 and about 60%in LATAM we assume that handset subsidies,cheaper devices, and data package offerings willstimulate demand in countries where theaddressable market is still very high but new usershave less disposable income than establishedsubscribers. Handset data ASPU will continue tobe low in 2018 about USD2 per month in EMAPand LATAM, and about USD1 per month in MENAand SSA.

EMAP, NA and WE offer the greatest opportunities

for handset data revenue growth

Figure 1 shows that about 75% of mobile handsetdata revenue growth will come from three regionsduring the next 6 years.

Emerging AsiaPacific.The region will account forabout half of the growth in smartphone numbersduring 20132018 because the addressable marketin China and India is enormous. We forecast a solidsmartphone growth (CAGR 24%) because

Mobile handset data will be the single largest source of revenuegrowth in telecoms markets during the next 6 years, as the shift fromvoice to data looks robust in developed countries, and smartphonepenetration gains momentum in emerging markets.

PABLO IACOPINOSenior Analyst

Global Telecoms Forecastsand European CountryReports researchprogrammes

MOBILE HANDSET DATA REVENUEWILL BE DRIVEN BY VOLUME INEMERGING MARKETS AND VALUEIN DEVELOPED COUNTRIES


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affordable devices such as the inexpensive Androidhandsets that are manufactured in the region willbecome abundant, which will drive handset dataservices among lower-spending users. EMAP willgenerate around USD80 billion in handset datarevenue in 2017 when it will overtake DVAP tobecome the second-largest market after NA (aboutUSD100 billion).

North America.Growth in the number ofsmartphones will continue to be solid, as thesuccess of tethering plans for smartphones andmulti-device plans shift to data spend from mobilebroadband USB modems. At the end of 2018, 84%of handsets will be smartphones in NA, up from

54% in 2012. LTE take-up is stronger than we hadexpected in the USA, and most nationwideoperators were expected to have widespread 4Gcoverage by the end of 2013. Mobile handset datarevenue will grow at a CAGR of 10%, mainly drivenby an 8% growth in handset data ASPU. The USAwill remain the leading market in the world, withhandset data revenue of about USD90 billion in 2018.

Western Europe. We expect handset data ASPU todouble in WE (from USD4 per month in 2012 toUSD8 in 2018), but will remain substantially lowerthan in NA and DVAP (both above USD20), and willnot be enough to offset the big decline of voice andmessaging. The actual growth of handset data

revenue in the first half of 2013 slightly exceeded

our

expectation as the shift from mobile broadbandcontinues, and operators tend to attribute morerevenue to the data element, when this is part of avoice and data package. In 10 of the 16 WesternEuropean countries covered, year-to-date datasuggests that the decline in large-screen mobilebroadband connections is happening even fasterthan we previously forecast, with the Netherlands,Portugal, Spain and the UK representing somesignificant examples.

For more information, please contact Pablo Iacopino,

Senior Analyst, at [email protected]

Figure 1: Mobile handset data revenue growth (20122018), and smartphones share and LTEs share ofhandsets (2018), by region, worldwide [Source: Analysys Mason, 2014]

elecoms retail revenue worldwide will reach USD1.64 trillion in 2018, up rom USD1.50 trillion in

2012. Mobile handset data revenue will lead the growth it will increase by about USD160 billion,

at a CAGR o more than 10%, to reach USD358 billion in 2018 22% o total retail revenue.

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Technological enablers and widespread adoption ofmobile Internet access have lowered the barriers toentry in communication services markets.Over-the-top (OTT) messaging services, in particular,have proved popular and adoption levels soaredin many countries in 2012 and 2013. This articleprovides an outlook for the messaging marketto 2018 and considers the implications formobile operators.

IP messaging is turning out to be a killer app forthe mobile Internet

Major Internet players such as Apple, Facebook andGoogle have identified the messaging market as a

target for market disruption and one that cancomplement their core businesses. In addition,specialist start-ups such as Kakao, Line andWhatsApp have driven innovation in feature sets andsupporting business models. The segment provedwildly successful, and we estimate that 55% ofsmartphone owners worldwide were active users ofIP messaging services at the end of 2013.

The services are driving much higher levels of userengagement compared with SMS. WhatsApp recordedan all-time high of 10 billion outgoing messages in asingle day in June 2013, which equated to an averageof more than 30 messages per user per day. Weestimate that the total volume of messages sent frommobile devices via IP services exceeded the volume ofSMS messages for the first time in 2013, at morethan 10.3 trillion compared with 6.5 trillion worldwide(see Figure 1). These trends are set to continue,driven by increased adoption levels. We forecast thenumber of users on smartphones to increase fromabout 1 billion in 2013 to almost 3 billion in 2018.Messaging volumes associated with OTT services areexpected to almost double in 2014 and will reach 37.8trillion messages sent in 2018.

Operators need to reassess their role in themessaging market

The weakening role of operators in the messagingvalue chain suggests that it is only a matter of timebefore SMS services are dislodged from their currentdefault position on smartphones. OEMs and OSproviders are moving aggressively into themessaging market and it will be increasinglycommonplace for alternative messaging services tobe set as the default. The ubiquity of operatorservices is often cited as their key strength or uniqueselling point (USP). However, in messaging, intensiveusage tends to be clustered within relatively smalluser groups, and many users switch rapidly between

different services. Any interoperability issues aresolved by an easy download of another app. In thisfragmented market, operators could potentially beleft as the third-rate fallback option, behind nativecapabilities provided by the OS (Android, iOS orWindows Phone) and behind the large-scale,cross-platform apps.

Operators IP-based initiatives, whether industry-standard such as RCS or based on proprietaryplatforms, could serve to limit substitution in somemarkets, but are likely to only secure minoritymarket shares. In most cases, the momentumbehind OTT alternatives is too strong, and operatorsare lacking compelling means of differentiation in

messaging.

As operators decide whether or not to seriouslycompete in messaging, they should focus onthe following.

Support for a broader consumer proposition builtaround voice and video:Operators will struggle tocompete directly with the major Internet playersand niche providers of messaging services.

More than half of smartphone owners worldwide are alreadyactive users of OTT messaging apps, and there are no signs of themarket slowing.

STEPHEN SALEPrincipal Analyst

OTT MESSAGING VOLUMESWILLNEARLY DOUBLE IN 2014


Mobile Services andNext-Generation Servicesresearch programmes


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Instead, they need to focus efforts on supportingservices where they are able to differentiate andderive revenue.

Improving the feature set available to the B2B,B2B2C and wholesale sectors:Given the limitedopportunity in the consumer retail space,operators should focus their efforts on using theirnetwork assets and brand strengths to ensure thatthey are well positioned to address opportunities inother segments. Working with partners andfostering ecosystems is critical to success in thebroader communication services market.

Cost reduction: Competition from major players

with extensive financial resources and indirectbusiness models further underlines the need foroperators to focus on cost reduction. Messagingmargins are very vulnerable when services such asWhatsApp Messenger can run on operating costsin the tens of cents per subscriber per year.

Our recent report OTT communication servicesworldwide: forecasts 20132018 (www.analysysmason.com/OTT-WWF-2013) provides aquantitative outlook for traditional and IP-basedcommunication services in 47 countries and 8regions. The report is partnered withOTTcommunication services worldwide: stakeholderstrategies (www.analysysmason.com/OTT-strategy-2013), which provides more detailed

discussion of the different approaches available toplayers, whether mobile operators or alternativeproviders of OTT services.

For more information, please contact Stephen Sale,Principal Analyst, at [email protected]

Figure 1: Messages sent via mobile handsets by service type, worldwide, 20102018[Source: Analysys Mason, 2014]

Major Internet players such as Apple, Facebook and Google have identified the messaging market as

a target or market disruption and one that can complement their core businesses.

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According to Analysys Masons major worldwidesurvey of 43 000 tablet users across 17 countries(available at www.analysysmason.com/tablet-survey-2013), 43% of respondents did not buy thetablet that they use. Instead, many tablets were givenas gifts by friends and family (39%) or provided by anemployer (4%). This partly explains the under-use of3G/4G on tablets, because people are more likely toreceive non-cellular tablets as gifts. Our surveyshows that less than 10% of tablet respondents inthe UK and the USA use cellular networks to connecttheir tablet, highlighting simultaneously theopportunity and the challenge that this marketrepresents for operators.

Wi-Fi availability and connectivity costs are majorinhibitors to 3G and 4G adoption on tablets

The survey results highlighted that usage of tabletsvaries widely by region. However, we observed somecommon trends, particularly when looking at theopportunities for cellular connectivity on tablets 47% of respondents had a tablet with cellularconnectivity, but only half of them actually used thatcapability. We identified the following three keyfactors that affect cellular connectivity attachmentrates on tablets.

Wi-Fi satisfies the connectivity needs of mosttablet users.45% of respondents with a 3G/4G-capable tablet who did not use this capabilitystated that Wi-Fi availability was the main reasonfor not enabling a SIM in their device. Tablets aremostly used at home, at work and in public places,where Wi-Fi is commonplace, particularly indeveloped markets. Wi-Fi is also used while on themove via smartphone tethering.

The price of cellular connectivity is not decliningas fast as the average retail price of tablets. This

has increased the percentage of the total cost ofownership (TCO) that is attributed to servicecharges. For example, the TCO over 12 months forthe LTE version of Amazons Kindle Fire HDX with a5GB monthly data plan on AT&T is four timeshigher than the cost of a Wi-Fi-only Amazon KindleFire HDX, because of the high data charges.

There is a direct link between mobility and theuse of 3G/4G on tablets.The shaded area inFigure 1 illustrates this link. However, somecountries fall outside this correlation, particularlyin the Middle East, where mobility is high butconnectivity is low; and in South Africa, wheremobile data connectivity is often used as a

replacement for fixed services.

43% of tablet users did not buy the tablet thatthey use

Operators need to effectively use retail channels topromote and educate customers about their servicesand offers directly at the point of sale. For example,understanding ownership trends in terms ofreplacement cycles is critical for synchronisingoperator marketing strategies with actual tabletdemand from new and current tablet users. However,a fundamental difference between purchasebehaviour for tablets and smartphones is the impactthat gifting or sharing has on their distribution andaccess. Overall, 43% of survey respondents did notoriginally buy the tablet that they used 39% wereacquired from a family member or a friend, who hadeither given it as a gift or who was simply lending orsharing the tablet.

16% of respondents indicated that the tablet thatthey used did not belong to them. Among those,60% of the devices belonged to a family member,most likely living in the same household, and 26%belonged to an employer.

ALMOST 40% OF TABLET USERSWORLDWIDE USE DEVICES BOUGHTBY FRIENDS AND FAMILY

On 22 October 2013 Apple announced that it has sold 170 millioniPads since the launch of the tablet in 2010. The unprecedented useof tablets at a mass-market level in Western countries has manyimplications for operators and device manufacturers.


RONAN DE RENESSEPrincipal Analyst

Mobile Devices andDigital Economyresearch programmes


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Family members accounted for a significantmajority 79% of tablets given as gifts.

Replacement rates for tablets are relatively long,particularly in the most mature markets. Accordingto the survey results, 49% of tablet owners in theUSA and 46% in the UK expect to keep their tablet formore than two years. Tablet users that do not ownthe device they use may therefore present a bettertarget sales demographic than existing tablet usersduring the 2013 holiday season, particularly incountries where tablet adoption growth hassignificantly slowed down, potentially showing earlysigns of market saturation.

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Questions: How do you connect your tablet to the Internet?Please tick all that apply, Where do you regularly use yourtablet? (please select all that apply).

For more information, please contactRonan de Renesse, Principal Analyst, [email protected]

Our survey shows that less than 10% o tablet respondents in the UK and the USA use cellular

networks to connect their tablet, highlighting simultaneously the opportunity and the challenge that

this market represents or operators.

Figure 1: Relationship between tablet 3G/4G connectivity and tablet user mobility, by country[Source: Analysys Mason, 2014]1

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Fixed substitution?

Missedopportunity?


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Much of the value is tied to a small number of largecontracts with players such as automotivemanufacturers and utilities, but there is considerablevalue in the long tail of smaller contracts. We believethat small mobile network operators (MNOs) canposition themselves effectively to win these M2Mcontracts, even if they lack the resources to win largesingle contracts. This article outlines three stepsthat smaller operators can take to strengthen theirM2M strategy.

Getting the basics right: infrastructure anddedicated teams

The tools and processes that MNOs use for the

consumer retail market cannot be used for M2M.Small MNOs (typically those that cover a local orsmall regional market) that want to compete withlarger players need to recognise this and invest inthe following two basic elements of an M2M service.

A device connectivity platform:For M2M, MNOsneed the systems in place to automate theprovisioning, in-life management (for example,fault monitoring and policy management) anddecommissioning of SIMs because of thepotentially large volume of M2M connections.Some global operators, such as Vodafone, havedeveloped their own systems, but small operatorsshould consider buying a device connectivityplatform from a vendor such as Ericsson or JasperWireless as a low-cost and low-risk solution. At alow volume of 500 000 connections, this optionrepresents an NPV increase of 78% in comparisonwith using legacy platform infrastructure, whencalculated over a 5-year period.

A dedicated M2M team:Successful MNOs in theM2M sector have dedicated teams for M2Mbusiness activities, including marketingcommunications, product marketing, sales

support, platform support and partnershipmanagement. These MNOs have the humanresources required to best address the uniqueaspects of the M2M ecosystem, which include longsales cycles, intensive presales effort and asolutions-based sales approach. TeliaSoneraprovides a good example of how an operatorshould structure its M2M business unit(see Figure 2). For a more-detailed discussion onthis, see Analysys Masons M2M insights formobile network operators, available at www.analysysmason.com/M2M-insights-2013.

Targeting established customer bases

Challenger MNOs should prioritise their currententerprise customers as targets for M2M solutions.From interviews we have performed with enterprisesbuying M2M services, we know that they are morelikely to look to their current telecoms provider thana new operator when adopting M2M services.

To increase the effectiveness of their M2M businessdevelopment effort, MNOs should segment theirsales force based on the enterprises volume ofconnections rather than its number of employees,which is operators typical approach. Largeenterprises do not necessarily have a high number ofM2M connections, while small and medium-sizedenterprises (SMEs) might.

Avoiding highly competitive verticals

Small MNOs should avoid M2M applications such asthose for the automotive sector, in which largeoperators (such as AT&T, Telefnica and Vodafone)are likely to win the large contracts on offer. Instead,the contender operators should focus on a smallnumber of verticals where they can offer greaterdifferentiation.

M2M is a growing market and is expected to generate USD15 billionof cellular connectivity revenue worldwide in 2018, according to ourlatest M2M forecasts (see Figure 1).

THREE ESSENTIAL M2MSTRATEGIC CONSIDERATIONSFOR SMALL OPERATORS

NUNO AFONSOConsultant

Custom Research


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The company went into bankruptcy and has sincesold off most of its assets. Researchers and businessplanners at Kodak knew what was happening andwhat would happen to its market, and wereplanning a future of digital cameras, teleprocessing,online storage and archiving, and near-instant imageproduction. However, the company chose not toparticipate in that future, every year makingreasonable business-case-based decisions tocost-reduce its current business to maintain margins,rather than moving into some new, risky area.

Telecoms operators need to learn from the exampleof Kodak, by recognising their business strengthsand planning how to use them in new digital

economy businesses. Analysys Masons DigitalEconomy Software Strategiesprogramme isresearching how the leaders in this digital revolutionare moving into the digital economy of the future.This article examines the strengths that telecomsoperators can use to move beyond current telecomsservices, via a classic core competency analysis.

Operators core competencies are impressive

Telecoms operators participate in one of the largest,most dynamic industries in the world. They also havealmost inconceivable business and operationalstrengths (see Figure 1), which they can use to moveinto new areas.

Established customer relationshipsConsumers are familiar with operators brands, andin most cases trust them. This relationship couldhelp operators move into areas such as securitysoftware and services, and mobile money.

Operators also know a significant amount about theirusers, such as what kind of offers they take or reject,where they live (in some cases), their family unitmembers, and the locations in which they use theirservices. Such knowledge could lend itself to the

provision of location-based services or predictivemarketing services.

Established billing relationships

Millions of people worldwide already give money tothe operators, some monthly via postpaid bills, andsome more often via prepaid top-ups. Operatorsknow their credit history, and often have stored creditinformation about their users. They can make use ofthese established billing relationships to sell newservices to their customers. Amazon.com, forexample, started by just selling books, but its productrange has expanded dramatically.

Large amounts of behavioural data

Even without advanced technologies like deep packetinspection (DPI), operators have a large volume ofbehavioural data on their users, including who theycall, when they call, and when they access theInternet. DPI makes even more informationaccessible, such as who they visit and, perhaps, whatthey do (privacy laws may intervene here). In addition,operators know if users are accessible (presence),and whether they are heavy users of BitTorrent orexhibit other network-intensive behaviours.

Knowledge of these behavioural data points gives anoperator the opportunity not only to market targetedor even personalised services and service packagesto its users, but also to provide information to other

businesses that can benefit (subject to privacy laws).Operational strengths

Operators are experts at hiring, training, and movingto exactly the right place, technicians who canperform complex tasks to plan, add to, configure andmaintain a complex network with a vast array ofservices with very high quality. They have spentmore than USD30 billion per year for the past 1520years on buying or building BSS and OSS to improveefficiency, increase service quality, and speed up the

OPERATORS MUST PLAY ON CURRENTSTRENGTHS AND DEVELOP NEWCOMPETENCIES TO THRIVE IN THEDIGITAL ECONOMY

Kodak, once a giant in imaging in the pre-digital world, is now but ashadow of its former self. As its analogue, physical market changedto virtual and digital one, the company continued to focus on film, itscash cow, rather than planning for future opportunities.


MARK H. MORTENSENPractice Head, BSS

Service Fulfilment,Customer Care andDigital Economy SoftwareStrategiesresearchprogrammes


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introduction of new services. Few other industrieshave invested as much.

Operators know how to build, operate, and maintaindata centres keeping the computers powered,cooled and running efficiently, while ensuringsoftware is up-to-date and resolving any operationalissues. Any provider of cloud-based services such asIaaS, PaaS or SaaS would need this knowledge,putting telecoms operators in a strong position toprovide such services.

Telecoms operators know how to define, offer,implement and support complex services viaself-service, stores, kiosks, web and customer

service representatives, providing a good operationalbase for any ecommerce service.

Operators must use their established strengthsand add new competencies

To move into new digital economy markets, operatorsmust work out both how to use their existingstrengths and what new competencies are required.Many of the new services make good use of theoperators current core competencies, although manyrequire new competencies to be added.

Operators must make big decisions about how andwhere to move into new digital economy services

Moving into new digital economy services will require

operators to make many major decisions, includingthe following.

Which services should the operator provide?To fuel growth, operators will probably have tolaunch a number of new digital economy services,not just one. Questions include which services, andthe length of time for which investment will berequired.

How should the operator enter the digitaleconomy market?Operators have three majoroptions here.

- Become a digital economy service provider in thatservice themselves, using thier own competencies.

- Partner with another company, perhaps via awhite-label arrangement. Several operatorforays into mobile commerce are using this model.

- Provide the B2B2C infrastructure for othercompanies to enter the digital economy space intheir markets. This option is the most radical, butrepresents, in our opinion, the largestopportunity for CSPs. In this case, the operatorwould provide not only the communicationschannel part of the value chain, but also servicessuch as billing, advertising, customer supportand installation. Its B2B2C customers would nothave to invest in their own infrastructure to try tocompete (in their niche) with the leaders in thedigital economy field the Magic five of thedigital economy, Amazon, eBay, Facebook, Googleand Twitter and all the others entering the space.

Where should the operator try to become a digitaleconomy services provider?Operators must decidebetween providing services worldwide or just intheir home markets, and, for B2B2C, whether toprovide services to businesses worldwide.

Some operators have already launched digitalsubsidiaries, and we will track further investments

As the science fiction writer William Gibson hasremarked, The future is already here, its just notevenly distributed. Operators such as DeutscheTelekom, SingTel, SK Telecom and Telefnica havecreated digital subsidiaries to increase digitalservice revenue. Services such as digital advertising,local content, gaming, cloud computing services,

online back-up, home and office security, e-health,electronic marketplace and mobile education are allbeing investigated, or are already implemented. Theseleading-edge CSPs are already each investing aboutUSD1 billion dollars per year. Analysys Mason will followthese, and other, operators, as well as the vendorsand partners that help them. We will report on theservices and how the operators are achieving their results.

For more information, please contactMark H. Mortensen, Practice Head, [email protected]

Millions o people worldwide already give money to the operators, some monthly via postpaid bills,

and some more ofen via prepaid top-ups. Operators know their credit history, and ofen have stored

credit inormation about their users.

Figure 1: Core business competencies of telecoms operators[Source: Analysys Mason, 2014]

Established customerrelationships

Established billingrelationships

Large amounts ofbehavioural data

Operational strengths

Brand recognition

Established, ongoing contact

Offers accepted and rejected

Residence, family unit, locations

Customers send money on areturning basis

Knowledge of credit history

Applies to prepaid as well aspostpaid

Who they call and when

When they access the intrnetand what they visit

When sleeping and awake

Naughty or nice

Distributed, mobile workforce BSS/OSS systems Data centres Services


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There are few CSPs today that are not able to findmore value in the data that they already have, andadding more data will not necessarily help.

To gain deeper insights, CSPs need to adopt one oftwo approaches:

using innovative tools that employ machinelearning techniques to derive unseen correlationsand patterns in the data

employing highly skilled teams for a givenuse case.

Machine learning will be essential to the analysisof large volumes of transient data

The sheer volume of data generated by telecomsoperators, because of their unique access to allaspects of our digital lives, can be overwhelming forusers. This data comes from a diverse range ofsources, including:

sentiment analysis on social media

clickstream from our online activities

sensor reading from machines

billing data

call patterns, detailing who we interact with, andwhere and when we interact with them.

CSPs have a significant and growing need todetermine which factors are significant and,therefore, which attributes they should collect,model and use. Matters are made worse whenmonitoring transient data because in particularbecause although data storage costs are falling, theyare not free, so CSPs still have to decide which datashould be stored even before it can be analysed.

When CSPs have decided which data to store, theyare faced with the challenge of analysing it.Traditional approaches required the use of skilledstaff that understand the data sets and, through trialand error, are able to create algorithms and modelsto predict or segment the data. When faced withpotentially hundreds of attributes, this can be betterachieved through the use of machine learning. Theseautomated techniques provide clear guidance onwhich attributes are most significant and enableCSPs to create models based directly on thisknowledge. Furthermore, applying machine learningto streaming data enables decisions to be made ontransient data that need not be subsequently stored.

At the core of machine learning technology is alibrary of algorithms that can be applied to data givento them. Specialised algorithms can be applied todifferent requirements, such as finding influencerswithin social networks or identifying potentialcandidates for churn. The technology gains self-learning experience by processing actual data sets,and in general the larger the data sets, the moreaccurate the results.

Machine learning has several potential businessuses in the telecoms sector, but can be mosteffective in cases where in-line analysis of streamingdata and personalisation is required. Manualtechniques for developing and refining models

become uneconomic on a large scale, whereas theapplication of self-learnt modelling can scale tomeet this challenge. This could enable CSPs toproduce more-targeted offers, or provide tailoredadvertising to an individual, for example. Theautomation of the modelling also makes it possibleto consider much more data for example, metadatawithin photos or a fuller range of network data.

BIG DATA WILL NOT AUTOMATICALLYLEAD TO DEEP INSIGHTS

The move to store increasingly large quantities of data is in partwelcome, but there is no guarantee that the data will be used toprovide additional value.


JUSTIN VAN DER LANDEPrincipal Analyst

Analytics SoftwareStrategies, RevenueManagement andCSPIT Strategiesresearch programmes


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Experts can provide further insight based on deepexperience and industry knowledge

Machine learning is not a panacea for CSPs that aretrying to deploy analytics to improve theirorganisation. It needs a supply of data in order toself-learn, and data is not always available whenlaunching new services, targeting new markets orassessing the potential impact of new technology.

Skilled staff with deep experience can provide a moreinsightful approach to a given issue.

The most common issues have often been addressedmany times before, and products and knowledgehave been applied to provide a robust, low-risk andquicker-to-deploy solution than building modelsfrom scratch. The ability to take and integrate anoff-the-shelf application that provides deep insightsinto specific use cases can outweigh the flexibilityfound in more-generic tools and systems.

For more information, please contactJustin van der Lande, Principal Analyst,at [email protected]

Te ability to take and integrate an off-the-shel application that provides deep insights into specific use

cases can outweigh the flexibility ound in more generic tools and systems.


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LTE will make the spectrum-rich richer, and thespectrum-poor just a little better off

In 2014, more operators will deploy LTE-A carrieraggregation (CA), including operators doing initialLTE deployments. CA benefits operators withmultiple spectrum positions, those with smallpieces, and particularly operators that are combiningacquired networks. The initial focus is on higher-speed services, but we expect more deployments of5+5MHz carrier aggregation as emerging marketsdeploy LTE in 2014.

Early testing of carrier aggregation is enablingoperators to bind separate spectrum channels

together to create larger channels and fasterwireless services, and reduce opex and capex costsfrom running multiple networks. SK Telecom and LGUplus in South Korea are offering commercial LTE-Acarrier aggregation services supporting speeds of upto 150Mbps, and EE in the UK has demonstratednear-300Mbps LTE-A service in London. Largernetwork operators such as AT&T, Sprint, Telefnica,Verizon and Vodafone, as well as operators holdingmultiple spectrum positions such as EE, T-Mobile,Telstra, will be early implementers of carrieraggregation.

Band fractionalisation will be less of an issuethanks to broad device support

LTE band fractionalisation will come to an end in2014. Despite early and well-publicised concernsregarding the number of different bands supportingLTE (25 for FD-LTE and 11 for TD-LTE), the markethas as we had expected focused on five bands forFD-LTE (700MHz, 800MHz, AWS (1.7GHz and 2.1GHz),1.8GHz and 2.6GHz) and four for TD-LTE (2.3GHz,2.5GHz, 2.6GHz and 3.5/3.6GHz).

Devices are able to support approximately six bands(the new iPhone 5S/5C support 17 via different

models), thus providing room to support both localbands as well as the more commonly used globalbands. 2.6GHz and 1.8GHz are early candidates forLTE roaming, but neither band is in use in NorthAmerica. The rapidly expanding international base ofsupport for the APT700 plan is making NorthAmerica an LTE island, but device support for one ofthe international bands alleviates this problem. Onearea that remains potentially problematic foroperators is support for LTE-A, which we expect willlargely be a local phenomenon and not available forroaming services.

VoLTE will emerge as a (limited) market service

VoLTE is unlikely to make a significant impact in 2014because few countries will have the breadth ofnetwork needed for useful service (Japan and theUSA are the notable exceptions). However, we expectthat both countries will launch VoLTE services, withcircuit-switched fallback (CSFB), as a precursor tomore-advanced services including RCS and othervoice-over-data-enabled services. Other countrieswith concentrated users such as EE in the UK,Telstra in Australia may also launch VoLTE with HDVoice as a competitive differentiator. Voice supportfor most operators has to include a fallbacksolution for non-native VoLTE calls, or calls in areaswhere LTE coverage is lacking or limited. We alsoexpect carriers will move more slowly towards Single

Radio Voice Call Continuity (SRVCC) because thecomplexity of that solution demands a simplificationby the equipment vendors for widespreadimplementation.

South Korea is the world leader in VoLTE penetration,largely because of the ability to offer 100% LTEnetwork coverage all three national carriers haveembarked on aggressive (and highly competitive)network build-outs. SK Telecom announced that ithad more than 4.5 million VoLTE users as of June

LTE PREDICTIONS FOR 2014:OPERATORS WILL REAP THE BENEFITSOF CARRIER AGGREGATION BUT VoLTEWILL HAVE LIMITED IMPACT

LTE continues to make an impact on the mobile networking landscape,and 2014 will mark the arrival of new features and capabilities thatshow just how capable the technology is in meeting mobile broadbandrequirements for a wide range of mobile operators.


CHRIS NICOLLPractice Head, Networks

M2M andNetworkTechnologiesresearch streams


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2013 and it leads the South Korean market in termsof VoLTE subscribers. For operators to rely on LTEfor their voice coverage, complete network build-outsare required. Verizon Wirelesss network, the USAslargest LTE network, had about 303 million peoplecovered in September 2013, out of a total populationof 317 million.

South Korea is proving to be the LTE technologytest-bed, with both LTE-A with carrier aggregationand VoLTE in commercial use. Devices supportedinclude the Samsung Galaxy S3 and S4. However,VoLTE still appears to be a future application in allmarkets except South Korea, as early LTE MNOs use

both dual radio (supporting voice on a separate call)and CSFB for early voice support.

Mobily announced in May 2013 that it had workedwith partner Huawei and completed tests of VoLTEand enhanced Single Radio Voice Call Continuity(eSRVCC). These are probably the first such tests inthe Middle East and North Africa.

For more information, please contactChris Nicoll, Practice Head,at [email protected]

Figure 1: LTE-A test results by operator, September 2013[Source: Analysys Mason, 2014]

In 2014, more operators will deploy LE-A carrier aggregation (CA), including operators doing

initial LE deployments. CA benefits operators with multiple spectrum positions, those with small

pieces, and particularly operators that are combining acquired networks.

Country

Australia

Austria

China

Japan

Philippines

Portugal

Russia

South Africa

South Korea

Turkey

Operator

Telstra

A1 Telekom Austria

China Mobile

NTT DOCOMO

Smart Communications

Optimus

Yota

Telkom Mobile (8ta)

SK Telecom

LG Uplus

Turkcell

Maximum downlink speeds (Mbps)

A300 (expected)

580 (trial)

233 (TD-LTE)

300 (expected)

210

300

300

210 (TD-LTE)

150

150

900 (laboratory), 150

Figure 2: Activities relating to VoLTE, selected operators, 20112014[Source: Analysys Mason, 2014]

Date

February 2011

August 2012

August 2012October 2012

April 2013

May 2013

July 2013

1Q 2014

4Q 2014

Event

Verizon Wireless (USA) completed first VoLTE call

SK Telecom (South Korea) deployed first HD VoLTE service and LG Uplus launched VoLTE service

MetroPCS (USA) launched limited VoLTE serviceKT (South Korea) launched VoLTE

EE (UK) announced network upgrades to provide support for new services including VoLTE

Mobily (Saudi Arabia) completed VoLTE trials

Bharti Airtel (India) requested permission to trial VoLTE

Telefnica Germany (O2) will demonstrate VoLTE

China Mobile will launch VoLTE


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Operators need to determine what role they will playin this ecosystem.

The threat of decreasing connectivity revenue, whichmobile network operators (MNOs) have beenconfronting on the consumer retail side of theirbusinesses in the past few years, is beginning toemerge in the M2M sector as it matures andcompetition intensifies. Operators are moving up theM2M value chain and delivering end-to-endsolutions, rather than just simple connectivity, in aneffort to combat this trend.

Connectivity margins could stagnate or shrink inthe increasingly competitive M2M market

Many verticals and industries are undergoing adigital transformation, adopting M2M technology toconnect many different devices and machines. As aresult, M2M has gained significant traction as a newbusiness area for MNOs. Operators are well placedto provide the near-ubiquitous connectivity needed tomaintain links between modules and sensors and tohelp drive business transformation for their clients.

The M2M connectivity sector is maturing. Enterpriseshave had only a few choices when procuring an M2Msolution, but more and more MNOs are launchingservices for this market. Competition for connectivityis also coming from dedicated M2M MVNOs, satelliteconnectivity providers and other connectivity service

providers using dedicated, non-cellular spectrum.

The margins associated with connectivity will besqueezed as competition increases. The proliferationof new M2M applications that utilise 3G and 4Gnetworks and generate high data usage, such asvideo surveillance or connected car services, couldoffset declines in connectivity revenue. Nevertheless,MNOs will face the challenge of remainingcompetitive while M2M connectivity is becoming

commoditised and connectivity margins threaten tostagnate or shrink.

Non-connectivity services are expected toaccount for an increasing share of M2M revenuein 3 years time

MNOs need to develop their M2M business models toexpand their role beyond that of a connectivityprovider. Most operators have recognised this, andare moving up the value chain by offering M2Msolutions that combine connectivity with partnershardware or software, according to the results of arecent Analysys Mason survey.

Ten leading global operators indicated that theyexpect non-connectivity services to account for morethan half of the average revenue per connection(ARPC) from M2M services by 2016 (see Figure 1).Connectivity is expected to remain the largest singlecomponent of M2M revenue because it is thecornerstone of MNOs M2M businesses, but its sharewill decline from an average of 79% in 3Q 2013 to just47% in 3Q 2016.

Operators transition from pure connectivity providersto end-to-end (E2E) M2M solution providers is one ofthe primary drivers behind this evolution in the M2Mservice revenue. This is already underway: operatorsare increasingly partnering with M2M serviceproviders in various verticals to provide E2E M2M

solutions, so that they can exploit all possible valueopportunities. Many operators have assembled E2Eproduct portfolios that will enable them to generatemore value-added-services revenue. They willcontinue to develop new collaborations and launchnew strategic partnerships models including thosewith application developers and systems integrators,which are often essential partners for delivering E2Eservices.

M2M SERVICES OTHER THANCONNECTIVITY WILL ACCOUNT FOR53% OF M2M REVENUE IN 2016

The Internet of Things promises to usher in a new wave oftechnological evolution. In a few years time, billions of things cars, utility meters, TVs and even furniture will be linked via theInternet and sending information about their status and condition.


MORGAN MULLOOLYAnalyst

IoT and M2M Solutionsresearch programme


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1 Question: Approximately what percentage of M2M averagerevenue per connection (ARPC) is generated by the provision ofconnectivity services, application services and other servicesin 3Q 2013, and what will the proportions be in 3Q 2016?;n= 10. For more primary research on the M2M market, seeAnalysys Masons M2M carrier scorecard 2013 (available atwww.analysysmason.com/M2M_scorecard_2013), which rankscommunications service providers performance and positionin the M2M market.

For more information, please contactMorgan Mullooly, Analyst, [email protected]

Figure 1: M2M average revenue per connection by service type, 3Q 2013 and 3Q 2016[Source: Analysys Mason, 2014]1

8%21%

13%

32%

79%

47%

0%

25%

50%

75%

100%

3Q 2013 3Q 2016

PercentageofARPC

Connectivity services

Application services

Other services

Te threat o decreasing connectivity revenue, which mobile network operators (MNOs) have been

conronting on the consumer retail side o their businesses in the past ew years, is beginning to emerge

in the M2M sector as it matures and competition intensifies.


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The monetisation of these services requirescommunications service providers (CSPs) to providemore flexible offers and manage each interaction inthe customer lifecycle to optimise the customerexperience. CSPs in developed and emerging marketsmust focus on extending the customer lifecycle andcreating a positive experience in order to differentiatethemselves from other CSPs that are focused onprice, device offerings and network coverage.

The importance of extending the customer lifecycle

Figure 1 represents the customer lifecycle andillustrates why CSPs need to pay more attention totheir processes and measure the interactions at

each stage of the customer lifecycle to keepcustomers longer and sell more products andservices with the overall goal of improvingprofitability. Our research shows that in the first yearafter acquiring a customer, a CSP spends between12% and 20% of revenue in acquisition costs, whichinclude marketing, selling, on-boarding andequipment subsidies. With such high costs in thefirst year, how do CSPs measure and manage theiroperational activities against the perceptions of howwell they are doing according to their customers?

CSPs can improve customer retention and driverevenue growth if they focus on three critical areas oftheir business.

Simplifying the pricing, packaging and purchasingprocess. Understand the usage and consumerbehaviour patterns to promote relevant offers thatcustomers value.

Streamlining the on-boarding process in order toavoid customer frustration and high support costs.

Understanding what drives customer requests.This reduces contact care cost and raisesNet Promoter Scores (NPS) for customers whoprefer self-care.

Value-based service differentiation in the customerexperience

After getting the basics right, CSPs should aim toensure a consistent customer experience across allcustomer touch points. Figure 2 looks at each phasein the customer lifecycle and contact points betweenthe customer and CSP employees. This contact couldbe either online or a live interaction. We haveidentified some areas based on our consulting andresearch work with CSPs to highlight where most ofthe value-based service differentiation can beachieved to raise NPS and customer satisfaction.

Figure 2 illustrates some data collected from a CSP

that we consulted with on a project to improvecustomer loyalty and operational processes. Itsegments the customer base according to historicalspending and internal measurements collected bythe CSP on interactions with the customer. The datareveals that 50% of this CSPs customer interactionsoccur in the billing phase. The analysis concludedthat a large number of enquiries resulted fromcustomers failing to understand how services werebilled. This drives up support cost and createsfrustration with the customer. The obviousconclusion is to redesign the bill and use other toolssuch as customised video billing, which we havecovered in our research into customer experiencemanagement. For further details, see our report

Customer experience management framework: howto retain subscribers and improve customer loyalty,available at www.analysysmason.com/CEM-Apr2013.

Requests for technical support also generate highlevels of customer contact activity. Figure 2 revealsthat almost one third of customer contact occurs inthis area. It is in this phase that the CSP may want tofocus on only the top 6% of its customer base toprovide exceptional support. This model is used in

Technology advances and service innovation will drive changesin how consumers use telecoms products and services.

CUSTOMER EXPERIENCEMANAGEMENT VALUEBASEDDELIVERY AND SERVICE SUPPORT


PATRICK KELLYResearch Director

Software - Network Practice


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In many countries, 15- to 20-year GSM licencesissued in the late 1990s are coming up for renewal.In addition, the first UMTS licences have alreadystarted to expire. Licence expirations offer nationalregulatory authorities (NRAs) the opportunity torealise multiple primary policy objectives relating tospectrum management while addressing secondaryissues such as spectrum refarming or ensuringcontiguity of spectrum holdings.

However, licence renewals are a time of high tensionbetween NRAs, incumbents and potential marketentrants, all of which are likely to have divergentopinions on the most appropriate approach tore-licensing the spectrum. Regulators risk harming

competition, interrupting services, discouraginginvestment, being seen as biased or enabling (thecontinuation of) an inefficient spectrum distribution.Operators, on the other hand, risk paying excessivelicence fees, receiving too little high-value spectrumrelative to competitors and being unable to provide aconsistent service. This article examines the variousapproaches to spectrum re-licensing and the criteriaNRAs should consider when evaluating differentapproaches.

Regulatory options

Benchmarking the action taken upon expiry of mobilespectrum licences across 43 countries since 2006, wehave found that regulators use three main categoriesof approach, with similar frequency (see Figure 1).

Automatic renewal, whereby the current licence-holder retains the spectrum licence. This cancome about through the issuance of indefinitelicences, or where there is an implicit highexpectation of renewal.

Administrative re-assignmentto another operator.

Auction-based approaches, whereby either thecurrent licence-holder or another operator canobtain the licence. As well as full auctions of allexpiring spectrum licences (with or without theprior harmonisation of the expiry dates oflicences), hybrid approaches whereby part of theavailable spectrum has licences renewed with partof it auctioned, or where a licence-holder retains afirst right of purchase can be used.

Policy objectives

Given the high stakes of licence re-assignment,it is imperative that regulators decide on are-assignment approach only after carefully

evaluating their policy objectives, assessing theextent to which these objectives are currently beingmet and considering how different potentialapproaches will affect these objectives in the future.

To this end we have identified the following fourcriteria that NRAs might want to consider whenevaluating licence renewal approaches, noting thatsome regulators may also be concerned with theamount of revenue to be raised and the complexity ofthe process:

market competitiveness and efficiency

investment-friendliness and service continuity

spectrum manageability

the transparency and fairness of award.

Each of the re-licensing approaches identified has adifferent effect on the policy objectives that are likelyto be of interest to regulators.

Automatic renewal regimes are investment-friendly, but result in low levels of manageability.In addition, as with administrative re-assignment,complicated issues such as how much to charge

THE FOUR CRITICAL POLICY CRITERIAFOR MOBILE SPECTRUM RENEWAL

MARK COLVILLESenior Manager

Licence expirations offer national regulatory authorities theopportunity to realise multiple primary policy objectives relating tospectrum management while addressing secondary issues such asspectrum refarming.


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0

2

4

6

8

10

12

14

16

18

Auction-basedapproaches

Automatic renewal Administrativere-assignment

No decision yet

Instancesofuse

Figure 1: Instances of approaches used for spectrum licence renewal, 43 countries, 20062013[Source: Analysys Mason, 2014]

In 2014, more operators will deploy LE-A carrier aggregation (CA), including operators doing

initial LE deployments. CA benefits operators with multiple spectrum positions, those with small

pieces, and particularly operators that are combining acquired networks.

for the spectrum may arise, as Ofcom is currentlyconsulting on with regard to 900MHz and 1800MHzlicences in the UK.

Administrative re-assignment procedures allow formaximum manageability and can be pro-competitive, but are prone to regulatory failure. Inparticular, this manageability may be achieved atthe cost of decreased investment incentives andminimal transparency.

Auction-based approaches ensure high levels ofcompetition and are generally transparent and fair.However, the uncertainty they introduce foroperators may dampen investment incentives,

while manageability and potentially servicecontinuity are also reduced.

Conclusions: NRAs should choose an approach toexpiring licences based on their market situationand policy objectives

In our view there is no single right answer for anNRA and the approach to be followed should bevery carefully considered in light of the individualmarket situation and the particular policy objectivesbeing followed.

Administrative re-assignment approaches may beadvisable at times when the NRA needs to maintainclose control of national spectrum distribution

because of technological changes or changingmarket dynamics. On the other hand, automaticrenewal lacks the flexibility to react to significantmarket changes but may be more appropriate if theinitial distribution of spectrum was competitive,transparent and fair (for example, via auction).

Auctions are best if the NRA wishes to re-assignlicences from a clean slate, with a long timeframeand does not expect any major changes in the future

value of the auctioned spectrum that would requireregulatory intervention. Hybrid auction-basedapproaches with harmonisation of expiry, first rightof refusal to incumbents or incorporating only part ofthe spectrum may offer increased levels ofmanageability, service continuity and investmentincentives while continuing to aid competition andoffering varying degrees of transparency. Theseapproaches may become increasingly attractive forregulators, in our opinion.

For more information see Mark Colvilles reportRegulator and operator strategies for expiringspectrum licences: renew, re-assign or re-auction?Available at www.analysysmason.com/ExpiringSpectrumLicences2013.

For more information, please contact Mark Colville,Senior Manager, at [email protected]


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Major communications service providers (CSPs) arenow convinced that virtualisation has maturedsufficiently to virtualise network functions. CSPs andvendors agree that the primary target benefits ofnetwork function virtualisation (NFV) and software-defined networking (SDN) are cost reduction andoperational flexibility. However, the role of software-based solutions to control, manage and operateCSPs networks has steadily been increasing fromlegacy intelligent network (IN) architecture incircuit-switched networks, to cloud computing,self-organising networks (SON), NFV and SDN.

The success of cloud computing and SDN in datacentres is attributed to the simple all-IP core

networks, compared with the multi-technology andcomplexities of CSPs costly transport and accessnetworks. This article examines the opportunities forvirtualisation in CSPs core networks and use casesbeing explored by a number of CSPs.

Virtualisation opportunities are readily available inCSPs core networks

CSPs worldwide spent about 77% of their capex(USD267 billion) in 2012 on their networks hardware, software, roll-out, professional servicesand associated network infrastructure. CSPs haveexpansive and regulated responsibilities for theircostly access networks, which virtualisation does notyet address. Field force operations and workflowconstraints on transport and access infrastructurelimit the extent to which CSPs can automate withouthuman intervention, which limits virtualisation usecases outside the core network layer. This makes thebusiness case for virtualisation less compellingbeyond the core network for CSPs.

The lines between cloud computing, NFV and SDNare blurred, and not just between IT and telecoms.These lines will continue to be blurred asvirtualisation overcomes traditional hardwarebarriers over time. Cloud computing and NFV havesome similarities, but are essentially different.

Cloud computingis the virtualisation of commodityIT hardware (namely x86 servers) and applications/software, which can run at least 99% availability level.

NFVis the virtualisation of telecoms-specificnetwork functions into applications that will run atleast 99.999% availability on suitable carrier-gradehardware and software.

Cloud computing is acceptable for non-real-timetelecoms software (OSS, BSS) on x86 servers, whileNFV is being developed to address real-timetelecoms network functions. SDN will bring aboutchanges in network architecture that will support theflexible use of network resources. It is a criticaltechnical element of fully realising the benefits ofcloud computing and NFV. Figure 1 illustrates theoverlap between CSPs IT and telecoms assets andfunctions, and the expansive scope of NFV toencompass the core network.

CSPs have largely virtualised their enterprise IT anddata centres to attain the cost savings from hardwareconsolidation and standardisation. Non-real-time

telecoms software systems such as customer care,caching, OSS and postpaid billing systems can easilyreside in a private cloud computing architecture.Vendors are developing NFV solutions for onlinecharging systems, service delivery platforms (SDPs)and, more importantly, the control layer.Virtualisation of the control layer/plane lends itself toimplementing virtualisation in the core network andthe intelligent management of traffic flows betweencore network function using SDN.

NETWORK VIRTUALISATIONOPPORTUNITIES FOR CSPs BEGININ THE CORE OF NEXTGENERATIONNETWORKS

The benefits of cloud computing (virtualisation of standard ITcomputing and storage) are well understood, and it is implementedin data centres worldwide.


GLEN RAGOONANANPrincipal Analyst

Infrastructure Solutions,Service Delivery Platformsand Software-ControlledNetworks researchprogrammes


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The success of cloud computing and SDN/OpenFlowin data centres is attributed to the simple all-IP corenetworks compared with the multi-technology andcomplexities of CSPs costly transport and accessnetworks needed for CSP SDN solutions. CSP SDN isstill largely in R&D and remains an open opportunityfor both telecoms and non-telecoms vendors.

CSPs are trialling a variety of networkvirtualisation use cases in their core networks

BT, Deutsche Telekom, NTT Communications,Portugal Telecom, Telefnica, Vodafone and Verizonare exploring NFV to rationalise core networkfunctions and the control plane, and SDN to optimise

traffic flows in the core network and ultimately in thetransport and access layer. The following areexamples of network virtualisation use cases thatCSPs are exploring in their core networks.

Virtualisation and service chaining the complex Ginetworkto reduce the cost of network componentsand to optimise traffic flows at mobile CSPs Giinterface the point in mobile networks wheremobile Internet traffic aggregates and continues togrow exponentially.

Traffic engineering (TE) to improve performance,traffic management and quality of service, firstly atmajor congestion points such as the CSPs Giinterface, ISP aggregation networks, mobile core

and content delivery head-end networks. SDN cansupport TE between core fixed and mobile networkfunctions such as policy control (PCRF, PCEF/DPI),caching, load balancing, DNS/DHCP, trafficmanagement, BRAS, AAA, IMS components (CSCF,MGCF, MRFC, MGW, TAS, NG-IN) and mobile

evolved packet core (EPC) components (MME, HSS,PGW, SON, ANDSF).

Services chaining of OSS, BSS and SDPcomponents for service delivery: Policy-enabledservices consumed by smartphones have led toincreased Diameter signalling traffic betweenCSPs mobile core, PCRF and OCS, which is confinedto the core and could be better managed by SDN.

Big data virtualisationto optimise the computingand storage footprint for online and offlineanalytics of CSPs numerous data sourcesincluding data warehouses, network elements,OSS, BSS, SDP and third-party sources.

Analysys Masons Software-Controlled Networking(SCN) research programme (www.analysysmason.com/softwarecontrollednet) looks at the evolution ofthe SCN landscape, the role that cloud computing,NFV and SDN will play in CSPs future networks andthe OSS requirements to realise the benefits ofvirtualised next-generation networks (vNGNs). The realchallenge is how to manage these vNGNs of the future.

For further details, see our report SDN and NFV at acrossroads: vendors innovating and positioning forthe future of CSPs network virtualisation(www.analysysmason.com/SDN-NFV-2013), which exploresthe SCN landscape and provide CSPs and vendorswith technical insight into the key components in anarchitectural view for building virtualised networks

solutions, which need to co-exist with CSPsestablished networks.

For more information, please contactGlen Ragoonanan, Principal Analyst, [email protected]

SDN

CSP

SDN

Network layer

Multi-serviceIP-based network

Access layer

Multi-technology fixed andmobile access networks

Core/aggregation

Distribution

Transport

Network layer t

i

ii i

i

,

Cloud computing

Next-generation telecoms Enterprise

SDN/OpenFlow

Enterprise IT

Virtualised applications(SaaS)

Cloud management(virtual domain, IThardware and network)

IT hardware

Enterprise IP network

NFV

Revenue management

Charging, fraud, interconnect

Service layer

Service delivery platforms

Control layer

IMS, Diameter, SIP OSS

careCustomer

Figure 1: ICT convergence in CSPs networks from cloud computing, NFV and SDN technologies[Source: Analysys Mason, 2014]

Te success o cloud computing and SDN in data centres is attributed to the simple all-IP core networks,

compared with the multi-technology and complexities o CSPs costly transport and access networks.


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These trends are analysed in Analysys Masonsreport on the outlook for LTE worldwide, available atwww.analysysmason.com/LTE-WWF-2013.

LTE network planning, trials and deployments areprogressing in emerging and developed regions

The first LTE deployments occurred in Finland andSweden, and the worlds largest LTE network is inthe USA, but emerging APAC and LATAM have thehighest number of planned LTE networks, accordingto Analysys Masons Wireless networks tracker(available at www.analysysmason.com/WNT) see Figure 1.

Adoption of the AsiaPacific Telecommunity BandPlan (APT700) in Brazil, Chile, Columbia and Mexicoprovides operators and users in the LATAM regionwith access to the worldwide LTE700 ecosystem,which offers a broad choice of equipment andterminals. The large number of frequencies that LTEsupports has generated concern among industryplayers, but in practice operators often need tosupport fewer than seven in order to provide a widerange of services for their users.

Emerging market countries are also takingadvantage of LTE technology. India, Malaysia andVietnam are the leaders in the emerging APAC regionfor the number of LTE networks planned. Operatorsin India, Malaysia and Nepal are also planning to

launch TD-LTE networks. We expect severaloperators in EMAP to deploy FD-/TD-LTE networks inorder to take advantage of their paired and unpairedspectrum. Ten dual-technology LTE networks arealready in commercial operation.

Trials show a growing base of LTE in Europe as wellas emerging APAC

Our research indicates that 59 LTE network trialswere in progress as of 31 July 2013. This figureincludes cases where an operator has multiple trialsunderway, but might not eventually deployoperational networks. However, we can reasonablyexpect (with more than 80% probability) that most ofthese trials will result in commercial deploymentwithin the next 2 years.

The largest number of LTE network trials is inCentral and Eastern Europe (at 26), emerging APAC(24) and Western Europe (20). Trials in the first two

regions are being driven by adoption of thetechnology among regional operators, such as BhartiAirtel and Reliance Infotel. Infrastructure vendorssuch as Ericsson, Huawei, Nokia Solutions andNetworks (NSN), Samsung and ZTE aredemonstrating the required network upgrade andtransition options, including LTE overlay andsingle-RAN solutions. For more detail on a return oninvestment comparison between LTE overlay andsingle RAN, please contact us and we can provide atailored analysis for your network.

Strong support for LTE in APAC and LATAM will startto offset the early influence that European and NorthAmerican operators (some of which have a 2- or3-year head start on deploying the technology) havehad on the device and network vendors. We expect amore-balanced global LTE market to emerge by2018, in which markets such as Brazil, India andRussia will each account for 5% of LTE connectionsworldwide.

LTE TO BE DEPLOYED WORLDWIDEBY 2018:ASIAPACIFIC AND LATINAMERICA DOMINATE NETWORKLAUNCH PLANS

LTE is out of the experimental stage and is being deployed worldwide.Operators in all markets are in the process of implementing LTE, butthe emergence of the APAC and LATAM regions is set to challengeEuropean and North American operators early lead.


CHRIS NICOLLPractice Head, Networks

M2M andNetworkTechnologiesresearch streams


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Emerging market countries are also taking advantage o LE technology. India, Malaysia and

Vietnam are the leaders in the emerging APAC region or the number o LE networks planned.

Operators in India, Malaysia and Nepal are also planning to launch D-LE networks.

Figure 1: Operational and planned LTE networks by region, July 2013[Source: Analysys Mason, 2014]

41

1828

1424 21

8 14

20

35 24

3220

12

14 7

0

10

20

30

40

50

60

70

WesternEurope

Emerging

AsiaPacific

NorthAmerica

LatinAmerica

Centraland

EasternEurope

Developed

AsiaPacific

Sub-Saharan

Africa

MiddleEast

andNorthAfrica

Numberofn

etworks

PlannedOperational

For more information, please contact Chris Nicoll,Practice Head, at [email protected]


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The experience of MNOs in countries such as SouthKorea show that LTE can add value to a businessand have a positive impact on ARPU and share prices when more than 28% of an MNOs subscriber basehas an LTE connection, operator share pricesconsistently outperform the index. This articleexamines how MNOs are experimenting withservices, segments and pricing in order to monetiseLTE offerings, and draws on our experience ofworking with operators worldwide.

MNOs must differentiate LTE services from thoseof 3G

LTE operators can begin to monetise LTE services by

offering four categories of service to established andnew segments of subscribers (see Figure 1).

Enhanced data for consumers is a key selling pointfor LTE

Operators can use the rich data experience of LTE tosell more data and develop new revenue streams.Video streaming providers such as Netflix alter thequality of video according to available bandwidth soa 6-minute clip on LTE would consume 80MBcompared with 27MB on 3G, thus driving usage.Operators are also bundling content with LTE ortop-tier plans, enabling new revenue streams forexample, EE in the UK uses its film service (EE Film)to monetise data and receives sales commissions

from video-on-demand provider FilmFlex.

VoLTE (+ RCS) allows operators to offer integratedvoice, video and instant messaging (IM) serviceswith the added benefit of mobility

VoLTE (+ RCS) will probably develop as a hybridservice for operators. They will be able to sell moreIM and video data, a market that over-the-top (OTT)players currently dominate. Additionally, 4G networkscan address the mobile opportunity for HD voice and

integrated services, and even drive usage away fromWi-Fi, thus generating new revenue.1South KoreaTelecoms VoLTE service is taken by about 50% of theoperators LTE subscribers.

Enterprise solutions can benefit from enhanceddata services

Enhanced enterprise LTE solutions such asvideoconferencing on-the-go and remote access tobusiness applications can drive data consumption.Verizon Wireless is one of many LTE operators thatoffers 4G mobility applications and solutions forSMEs and enterprise customers. A survey shows that67% of US businesses using LTE believe that it has

resulted in increased productivity.2

LTE can also provide connectivity as a substitute tofixed networks

It is possible to use LTE with a 4G router to offerconnectivity to the home and SME broadbandsegment, which could be a new revenue stream foroperators. For example, UK Broadbands nowbroadband service is offering connectivity using LTE+ 4G routers. This use of TD-LTE as a substitute forfixed networks could be an interesting solution inemerging markets.

Wholesale solutions may emerge as an attractiveopportunity for operators

Because LTE network latency is lower than 3G,operators can develop new revenue streams byselling bandwidth for wholesale services (such asutility and M2M services). Verizon is at the forefrontof this with projects in sectors such as education.

MONETISING LTE SERVICES:DEVELOPING NEW REVENUE STREAMSTHROUGH DIFFERENTIATION ANDINNOVATIVE PRICING

ROHAN DHAMIJAHead, India and South Asia

LTE is the latest telecoms industry buzzword mobile networkoperators (MNOs) have launched more than 200 live LTE networks in100 countries.


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Knowing whats going on is one thing. Understanding how to take advantage of events isquite another. Our ability to understand the complex workings of telecoms, media andtechnology (TMT) industries and draw practical conclusions, based on the specialistknowledge of our people, is what sets Analysys Mason apart. We deliver our key servicesvia two channels: consulting and research.

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CONSULTING RESEARCH

For more than 25 years, our consultants have beenbringing the benefits o applied intelligence to enableclients to make the most o their opportunities.

Our clients in the TMT sector operate in dynamic markets wherechange is constant. We help shape their understanding of the futureso they can thrive in these demanding conditions. To do that, wehave developed rigorous methodologies that deliver real results forclients around the world.

Our focus is exclusively on TMT. We support multi-billion dollarinvestments, advise clients on regulatory matters, provide spectrumvaluation and auction support, and advise on operational

performance, business planning and strategy. Such projects resultin a depth of knowledge and a range of expertise that sets us apart.

We look beyond the obvious to understand a situation from a clientsperspective. Most importantly, we never forget that the point ofconsultancy is to provide appropriate and practical solutions. Wehelp clients solve their most pressing problems, enabling them togo farther, faster and achieve their commercial objectives.

Analysys Masons research service covers consumer andenterprise services, as well as the sofware, inrastructureand technology underlying those services.

The division consists of a specialised team of analysts, who providededicated coverage of TMT issues and trends. Our expertsunderstand not only the complexities of the TMT sectors, but theunique challenges of companies, regulators and other stakeholdersoperating in such a dynamic industry.

Our research programmes cover the following six key areas:

consumer services

enterprise and M2M network technologies

telecoms software markets

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regional markets.

Our programmes offer a mixture of qualitative and quantitativemarket intelligence. The result is an essential resource for strategicplanning, investment, marketing and benchmarking.

CUSTOM RESEARCH

We also deliver tailored research that addresses specificbusiness needs or a wide range o organisations.

We deliver tailored research that addresses specific business needsfor a wide range of operators, vendors, industry bodies andregulators within the TMT sector. Our comprehensive knowledge ofthe TMT industries draws on a large base of market data that wehave collected over 25 years, refreshed through continuous researchand custom consulting project assignments.

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Mobile and the Digital Economy [Analysys Mason, 2014]

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