What was 2016 like for telecom market: new technologies, fashionable trends, alternative services and additional earners. It was not easy, but it was interesting.
In 2016 the number of mobile subscribers exceeded the Earth's population (7.4 to 7.3 billion, as Ericsson reports). Countries with more than one SIM per resident made this possible. Some regions still exist where subscribers remain unreached by mobile communication but mastering 100% service penetration looks symbolic.
Market will continue to saturate with services although operators seem to have reached the limit in traditional business areas. Now they are providing more gigabytes and minutes for the same money. Many see their revenues and service marginality go down. For example, in Russia, as TMT Consulting reports, revenues from mobile services have been in a negative trend for two years in a row. However, there have been some signs of improvement for operators: in 2016 their profits decreased only by 0.3% compared to 0.7% decrease of 2015.
Subscribers are taking advantage of high mobile speeds and new functions of their gadgets. Pokémon Go was one example of how subscribers could have a blast with new smartphone features. The first day the app was launched more than 900 thousand people around the world downloaded it. In two months the number of users exceeded 500 million people. Undoubtedly, AR and VR technologies will continue to influence development of applications. The operators' task is to provide required channel bandwidth and quality.
With the growth of OTT services operators are facing serious cost increase. Market consolidation which was one of the industry drivers in the noughties slowed down in most of developed countries. It was caused by legislative limitations and issues associated with combining such large and expensive assets. That is why big operator groups were paying more attention to development of their own digital services than to mergers and acquisitions. Approaching full coverage of subscribers with basic services is another factor forcing operators to create new services and applications and stimulate their own growth.
Agile, DevOps, IT Operations – all these trendy practices have been introduced in most of the large companies from banks and industries to telecom operators. The IT component plays an increasing role in the communications industry and the speed of change of telecom giants depends directly on their flexibility. The latter in its turn can be ensured by transition of IT systems to a new level.
Automation as it exists now is aimed at rapid launch of new projects although the projects themselves mainly concern the areas traditional for operators. So the purpose is to work faster and save money for new projects. Variety of initiatives of 2016, like chatbots, fresh big data algorithms and cloud technologies in NFV/SDN can significantly expand the sphere from which manual labor and routine procedures could be excluded in the future.
In the light of the telecom evolution operators have to decide who they see themselves in the future. If they move towards becoming an IT company it can completely change their entire business model and ultimately the multipliers with which they are traded on stock exchange. Naturally, vendors would rather want operators to stick to the Managed Services model which will preserve traditional market roles. However, it is expected that even in this case telecom operators will lay emphasis on digital communications with subscribers and digital sales. This means that transition to the digital component is inevitable but with the Managed Services approach this will involve closer interaction with IT providers.
In 2016 operators in developed and leading developing countries completed construction of 4G networks. According to analytical report of Open Signal, in Europe (Netherlands), Asia (Japan, Hong Kong, Singapore) and USA availability of 4G reached 80-90% which means LTE connection can be provided permanently. The highest 97% was recorded in South Korea. Meanwhile, the study showed some interesting results: in France, Germany, Italy and the UK 4G availability remains at 60%.
At the end of 2016 operators could take a breather. LTE networks were launched in North America, Europe, Asian-Pacific region and Latin America. Active investments in this sphere are expected mainly in Africa and the Middle East where 4G networks are still poorly represented.
For example, Iran is anticipating rapid growth only next year. Operators are still building the network in the regions and investments will be returned only after a few years. Main investments in Brazil and China were made in infrastructure development in 2015.
Although the path to 5G is open, operators need some time to recover from 4G costs. They also need to transfer subscribers to the new standard, provide them with devices with LTE and with new SIMs supporting this technology. In Western Europe, North America, Japan and South Korea this task was half solved by the end of 2016. Other regions are unlikely to achieve the same results even by the end of 2017. They will probably require several more years.
In 2016 the US came close to frequency allocation for 5G. In 2017 the search for solutions for the future standard will be continued. The final standard should appear in 2018. For operators this means that the sales will begin no earlier than the end of the current decade. 2016 provided operators with the opportunity to reduce their CAPEX and they can enjoy it until mass launch of 5G networks.
The question about which additional services should be developed by operators remained open in 2016. A lot of answers were suggested and some were diametrically opposite.
Convergence, a term somewhat forgotten in the industry, became relevant again. Mobile and landline operators continued to consolidate their assets. Traditional triple play, one of the marketing achievements of operators in developed countries, is ready to grow to quadruple play which implies a single account for cable television, broadband Internet, landline phone and mobile.
Telecom companies showed some originality it their intention to acquire content producers. American AT&T aimed to purchase Time Warner while MegaFon in Russia acquired Mail.ru Group.
Games, videos, social networks – operators are paying more and more attention to these assets that have potential for additional monetization. Cisco predicts that by 2020 mobile traffic will exceed that of desktop. Within the next few years operators will become more persistent in their attempts to introduce a single payment for all communication services and for content received through various channels, whether it be music, games or TV shows.
Pinning hopes on video content whose traffic is constantly growing seems justified as operators do not want to become a dumb pipe. If it comes to that, they would at least want to get access to advertising spots.
Social networks, messengers and other communications services are another line of development for operators. These services are at the peak of popularity with mobile audience and they have greater traffic than video. For young audience the operator is more of an add-on to messengers than vice versa. Operators can take advantage of this by launching MVNO targeted at users focused on social networks and messengers. Ideally, to do this, social networks and messengers should belong to operators themselves. This will enable a smart synergy between the digital and the operator's businesses.
IoT market keeps growing in the industry. According to analytical report of Berg Insight, operators' revenue from IoT may amount to more than 11 billion euros in 2016. In Russia IoT accounts for 20% of telecom market.
Analytical reports of TMT Consulting and MTS estimated the size of the market in 2016 at 1.597 billion rubles, the share of the Russian M2M/IoT segment being 300 billion rubles. Number of M2M SIMs in Russia reached 7.8 million (compared to 6 million in 2015).
Quite traditionally the main growth drivers were the banking sector, M2M in transport, CCTV and smart home. MTS became the leader of the Russian M2M/IoT market. The volume of their telematic data was 52% compared to other players.
MegaFon at the end of last year introduced smart home technologies under the brand name Life Control. It is positioned as an ecosystem of smart devices ready for quick connection and use. The new system is available in Moscow, St. Petersburg and Yekaterinburg but MegaFon promises that the devices will operate throughout the country. Speaking of other operators, Tele2 concluded an agreement with the Skolkovo Center and Nokia to develop their own IoT projects.
For operators IoT has been one of the ways to expand their service spectrum, not least because it is often based on mobile M2M. However per device the income produced by these activations is insignificant compared to 'human' SIMs bought. This means that the number of M2M activations should at least reach the number of usual activations to contribute tangibly to operators' revenues. Unfortunately, 2016 was no turning point for M2M market but operators have high hopes for the near future as smart transport and industrial automation continue to grow.
The launch of Apple Pay in Russia in 2016 was an important milestone for mobile payments. Now many people even use it to pay for the subway. It is rather simple: you add your bank card to your IPhone and attach it to the turnstile.
Operators also increased their presence in the mobile finance industry. MegaFon launched its own payment card tied to mobile number and its account. Other operators have their own projects in partnership with banks.
Mobile payment services continued to boom in the Third World countries. In Asia and Africa the number of countries with two or more such services significantly increased. Range of services provided by operators through mobile payments also continues to grow. Apart from transfers, deposits, insurance and purpose loans are also available to subscribers now.
According to research of Javelin Strategy & Research total volume of the world's mobile payments can reach $180 billion by the end of 2016 and will reach $410.5 billion by 2020.
Some operators, for example, Orange Polska and MTS, have recently launched or purchased their own banks. Being at the cutting edge of digital transformation telecom operators and banks are actively borrowing techniques from the world of digital services. Mergers of operators and banks could be another way to compensate for the drop in income from basic telecom services. Especially since for many subscribers banks have already moved inside their smartphones and operators are there by default. The sphere of mobile and Internet payments could become the point where the synergy between banking and communication services is achieved.
Analysts predict that next year could be the year of new breakthrough technologies. Dik Vos, CEO at SQS, predicts growth of artificial intelligence, smart transport in particular, which could result in radical job losses in developed countries. He believes that unemployment could threaten up to 30% of the working people.
Deep automation which is expected in transport, industry and in business services will undoubtedly require better and deeper use of Big Data. New methods of working with big data should be used by artificial intelligence to simplify their analysis and draw conclusions. Deep learning is another area which will attract new big data projects.
In view of major investments made by leading telecom players in media assets in 2016 this trend could be picked up by other operators. As there is a large overlap between the audiences of operators and OTT companies the latter will inevitably become interesting for investments as the former will search for additional profit earners.
New mobile Internet speeds will be tested by several major market players as 5G will become a reality. As the standardization of 2018 is approaching, next year will witness the most important discoveries in 5G.
After success of AR in 2016 it is highly probable that VR will become the killer app of 2017. Mobile operators have not yet experienced pressure from the VR market but the increase in bandwidth and emergence of new smartphones and tablets compatible with VR devices can change the situation.
In light of the current trends the best that operators could do is to transit to Agile as soon as possible. This will get them into digital gear of OTT companies and help make accurate and timely decisions. Switchover to methods spread by digital invaders and IT businesses could be the key factor that will help telecom giants stay afloat during the forthcoming global changes.