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What’s in store: a sneak peak at the future
20 April 2011
Operators may be faced with squeezed revenues and competition from newcomers, but they can be the enablers of the mushrooming digital economy, says Keith Willetts
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telecoms forecast
Keith Willetts: At their core, phone companies facilitate
others to do something useful
As passengers on the Titanic were to find out so catastrophically, it’s sometimes hard to see what’s going on below the waterline.
The same can be said about the communications industry. On the surface is the fizz of smartphones, movies and apps galore, but deeper down it’s murky.
Despite their global customer base heading towards five billion people, with the internet and smartphones generating unprecedented volumes of network traffic, many operators and observers are a bit gloomy. Traditional services such as fixed-line voice are in decline, while high-margin services such as international/roaming calls are under pressure from niche competitors.
Market saturation, substitution, competition and regulation continue to squeeze revenues and margins, and although volumes — particularly for data — are rising dramatically, fixed price packages limit revenue while capital costs soar for new network investment.
Telecom growth worldwide will only be 1.8% in 2011, says IDC, so taking out inflation, that’s actually a contraction. China and India are still booming, but here too margins are being badly squeezed.
Despite being seen as an innovative industry, in reality telecom has had the same two products for over a century — renting lines and charging for phone calls — mobile is the same thing without wires. An industry that generates $1.5 trillion a year is coming under pressure from all directions — for example, Skype is now the world’s largest international phone company.
So where is the industry investing? Above the waterline there’s an ever increasing array of new, innovative services, but to date much of the innovation has come from players such as Google, Apple and Amazon. Under the water is the communications infrastructure, and meeting the explosive demands of these new services demands major capital investment in new fibre, radio spectrum and 4G mobile.
At their core, phone companies facilitate others to do something useful — they provide the means for anyone, anywhere to communicate easily and simply — but they don’t do the talking. So expand that idea to allow anyone, anywhere on the planet to do business in the digital economy. More and more goods and services are moving to digital format; movies, books, music, applications are here now but fast approaching are all kinds of other so-called ‘cloud’ services. These are services that replace things previously done by software on the desktop or on the head office server and can provide all manner of services to businesses and individuals on an online basis.
Add to that huge numbers of adjacent businesses springing up that need the kinds of competencies that communications companies have in their DNA. Smart grids, for example, where the gas or electricity meter is connected back to the grid so that generation can be flexed in line with demand and bills can be automated without someone coming to read your meter.
Online healthcare, e-government and mobile money services are all popping up around the world. Then there are the estimated 10 trillion devices that will become network enabled over the next decade. This machine-to-machine market is where devices embedded in everything from your car to your washing machine to your central heating want to get online.
For an operator, the prize is being the enabler of that mushrooming digital economy — not just shifting the information around but providing a global ‘trading platform’. It’s where economies of scale come into play as well as competencies in handling large numbers of transactions and tracking and billing for them, which phone companies can do very well.
Keith Willetts’s 10 predictions for the industry
1: The revenue and margin crunch for fixed and mobile services gets even more brutal, driving market share wars and a new focus on improving customer experience to help retain customers.
2: Net neutrality will start getting resolved, and governments will work harder to encourage infrastructure investments in super-fast fixed and mobile broadband — 4G mobile and FTTH start to roll in volume, but interim technologies like HSPA rule for a while.
3: Cloud services start to become mainstream, with telecom companies starting to play a major business-to-business enabler role.
4: The ‘connected home’ starts to take off, driving growth of femtocells (in home mobile base stations) and wifi multiplies. Technologies like ZigBee and Dash7 could be game changers.
5: Machine-to-machine expands — the connected home; automotive and tele-health applications. IPv6 becomes a critical success factor for this as internet addresses start to run out.
6: Operators start to mine the data they have to improve their wallet share so analytics tools mushroom: improving customer experience, revenue management, content targeting, enabling new business models such as advertising-driven, product management.
7: Mobile advertising starts to really take off and starts becoming core to many offerings.
8: Mobile money and payments — already big in Africa and Asia — become increasingly important in the developed world.
9: Security becomes a big issue — everything from cyber attacks rising to a big rise in mobile viruses.
10: Smart grids/smart utilities start to become an important investment area for telcos and suppliers.
Keith Willetts is chairman of the TM Forum