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Re-defining the mobile landscape

Contents

In this paper, RDC presents a fresh look a the mobile landscape to change the way we view mobile service providers and the platforms that enable them. This is the first paper in our series on mobile evolution: • Paper 1: Mobile Innovators on Networks • Paper 2: Future-proof platforms • Paper 3: Lifestyle service strategies

A note from the editor Recently, we held a round-table meeting bringing together senior mobile industry executives to ponder future growth strategies. A major sticking point was figuring out who to include when we think of service providers, which now need to embrace connectivity types beyond cellular, including low power and satellite. I was given a challenge to come up with a broader term than concepts such as MVNO, which have now become siloed and outdated. This was a catalyst for a step change in thinking; to push the boundary into a new concept to spur a new wave of mobile innovators: MIONs

1. Executive summary

It’s time for a fresh look at the mobile industry : a new way of thinking The exponential and somewhat haphazard growth of the mobile industry over the last 20 years has led to more than 600 networks serving over 10 billion customers and IoT devices. Between these networks and end customers sit two groups of business which have evolved and become confusingly fragmented. Firstly, service providers are a customer’s initial point of contact to receive any mobile service. Secondly, platform providers act as the conduit for service providers to connect to networks. This paper proposes looking at the range of service providers with a new lens, one that consolidates the various players into one umbrella group, Mobile Innovators on Networks or MIONs. This group is made up of mobile brands, sub brands, MVNOs, digital service providers and IoT players. We extend this group to embrace satellite service providers to cover a broader set of connectivity. This simplification to one common category is a crucial step in helping the industry rationalise and become more efficient.

Consolidating the various service providers (mobile brands, sub-brands, MVNOs, Digital Service Providers and IoT players) under one category called ‘Mobile Innovators on Networks’ (MIONs) is a major step to a more efficient mobile market

In Chapter 2, we demonstrate how different service providers have spawned from major market triggers. Whilst each of the MIONS have different growth agendas and challenges (explored in Chapter 3), they have a set of common requirements, but often are left confused as to how to develop innovation. MIONs fundamentally share two characteristics: Firstly, they rely on mobile networks for connectivity and secondly, they rely on innovation to keep customers engaged. Both requirements are addressed by platforms and can be better tackled by thinking of MIONs as one group. In Chapter 4, we look at challenges and growth strategies, and take a deeper dive on how platforms can help with these in Paper 2, ‘Future Proof Platforms’. © 2020 confidential

1. Executive summary

This new MIONs view has several benefits for the industry The umbrella concept of

impacts key players

Regulators: consumer interests, data protection, security and competition policy can be considered in a consistent manner for all services distributed over mobile. This avoids new ‘over the top’ or undefined entrants falling through the cracks. Standard setters: embracing mobile as a whole enables developers and suppliers to work in harmony. Industry bodies such as GSMA,TM Forum, ETSI and OMASpecWorks will be able to facilitate common process to foster a broader mobile ecosystem.

Operators: MIONs expand operators’ ability to reach new segments and to soak up excess network capacity under wholesale models. This is becoming increasingly important with 5G and associated network slicing. Even without wholesale, operators can partner with application providers to distribute their own services. Platforms: there are relatively few platform providers serving a growing number of connections with evolving needs. Considering a broader spectrum of customers will strengthen core capabilities and boost growth potential. We focus here on platform providers, as they play a significant role in bridging the gap between MIONs and networks, providing essential operating functions and enabling innovative services to be developed for end customers. However, all too often platforms limit themselves to serving incumbent operator brands and virtual operators. It’s time for them to broaden their thinking to embrace a wider set of service providers. In the next paper in RDC’s series on mobile evolution, ‘Future Proof Platforms’, we critically explore the roles of platforms in the mobile ecosystem. The outcome is a set of strategies for interacting better with networks and service providers, with the ultimate aim of developing innovations to give customers a superior mobile experience

2. Making sense of the landscape

A range of service providers has emerged… Major industry milestones have triggered lasting trends

Triggers

Figure 1: Timeline of mobile evolution milestones Global mobile penetration surpasses 50% Virgin Mobile becomes first major MVNO iPhone 3G unveiled launch

Digital networks launched First mass produced handsets

Major trends

1990

Apple App Store & Google Play go live Netflix introduces streaming, WhatsApp launches

2000

Mobile becomes mass market

Apps become part of everyday life

MVNOs

2020… Data-only, M2M SIMs

OTTs are born

MVNOs take off

Digital Service Providers

5G initial launch

4G initial launch

2010

Sub-brands become part of MNO strategy

MNO brands & sub-brands

IoT ecosystem matures

New network sliced based wholesale models

IoT service providers

MIONs (Mobile Innovators on Networks) The mobile industry as we know it today has only existed for a relatively short time, and yet, it has evolved at dizzying speeds and in multiple directions, as seen in Figure 1. The resulting fragmentation of service providers causes uncertainty for end-users, networks, and associated platforms, which in turn stifles innovation. It is now time to bring these players under one roof and simplify the ecosystem.

The explosion of the mobile market over the past 20-30 years has led to numerous players competing for customer engagement via mobile interaction

2. Making sense of the landscape

…supported by a new breed of platform Platforms play a crucial role in

success

The term MIONs captures service providers reliance MIONs have one core thing in common: they do not own mobile on networks and highlights the role of platforms as the infrastructure and hence rely on unsung heroes of our hyper-connected world networks to exist and reach Figure 2: Snapshot of players in the global mobile customers. landscape Therefore, the success or failure Operator (~7.8bn) | IoT (~1.8bn ) | Mobile 10bn connections (~10bn) | Virtual Operators of MIONs in developing new ‘customers’ (~0.4bn) customer services rests on the relationship and level of Mobile services | M-commerce | Retention Accessing & Loyalty | Lifestyle services | Connected mobile integration they achieve with machines services networks, which can only be done through platforms. Digital Service Providers:

In the next chapter, we will Relying on consider each of the MIONs: 400 service delivery their evolution and issues they platforms face, before looking into growth Connected strategies in Chapter 4. to ~630 networks © 2020 confidential

OTTs ~175, Apps ~2.5m

IoT service providers: ~600 Virtual Operators: ~1,200

MIONs

By thinking of MIONs as one Via 2.8k group, with a common set of service needs, the industry, and providers & platforms in particular, is then 2.5m apps (MIONs) able to provide a more integrated and standardised approach.

Operator: Main brands ~700, Sub-brands ~250 BSS/OSS | MVNE/A | VAS platforms | Application platforms: ~400 Core & radio access networks: ~600 Satellite networks: ~30

3. Mobile innovators re-defined

Incumbent operators adopt a mass market approach… : Operator owned brands Operator (MNO) core brands The prominence of mobile brands began gaining momentum around 1992, when Nokia launched the first mass-produced GSM phone and digital networks were introduced. The resulting boom in mobile services led to a proliferation of operator brands, fuelled further in mid-90s by the introduction of pre-paid tariffs and lowering of the price of devices, coupled with brands subsidising the cost of such devices. Many markets have reached saturation in terms of subscriber growth and airtime revenue. Going forward, operators are seeking revenue growth in adjacent services: pay-TV, media, healthtech IoT, enterprise solutions, AI, etc, and/or via sub-brands that target specific niches. This requires a re-think of capabilities, with a need to upgrade legacy concepts in favour of flexible service delivery architectures. Figure 3: Mobile growth (1992-2020) !

Mobile subs (m) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

120% 100% 80% 60%

• Legacy infrastructure stifles innovation • Price erosion of core services

20%

• Limited scope for segmentation

• Difficult to maintain loyalty

40%

Mobile subscriptions (millions)

Challenges

Penetration (%)

3. Mobile innovators re-defined

...and increasingly turn to sub-brands for more segmented targeting : Operator owned brands (contd.) Sub-brands As operator brands became household names, they often got polarised to a particular mass segment. Facing strong price-competition, since the early 2010s, operators started to embrace a multi-brand strategy in order to target particular segments without diluting the master brand. Sub-brands are gaining traction, representing 1.5% of all mobile connections today and we expect this to double in reach over the next 3-5 years1. Figure 4: Prime examples of subbranding delivering significant subscriber growth2 Subscriber additions since launch of respective sub-brands: • Giffgaff – 2009 • Red – 2011 • Congstar - 2007 Parent brand

Sub-brand

-10m

-5m

10m

giffgaff has succeeded by using social media to target subscribers and using members to deliver ‘self care’ customer support Red has attracted subscribers by offering low-cost, month-to-month tariffs, in particular data only users

Congstar attracts the youth segment by offering low-cost voice and/or data tariffs

3. Mobile innovators re-defined

Virtual operators have boosted customer choice… : Virtual operators (MVNOs) The late 1990s saw a wider acceptance of the ! Challenges separation of networks (NetCos) and services (ServCos). NetCos focus on the infrastructure and • Squeezing of airtime margins capacity management whilst ServCos focus on • Limited call control capabilities commercial aspects such as branding, distribution and customer services. This led to operators allowing and, • Lack of telecoms knowledge in some countries being mandated to, provide other brands to offer mobile services on wholesale basis by • Reliance on network operators buying airtime from network providers, giving birth Mobile to the Virtual Network Operator (MVNO). We predict an upsurge in MVNOs offering ‘hyperconnected services’3 including virtual education, health and entertainment. These will be given a bandwidth boost with 5G, which will facilitate a boom in video streaming services. Figure 5: Global MVNO segments breakdown, 2020 & 20303 (with examples) 1,500 MVNO Players 3,450 MVNO Players Entertainment

18%

10%

6% 6%

2020

7% 5% 4%

Financial services Virtual education

14%

2030

12%

24%

Hyperconnected services Virtual health

16%

18%

26%

Driverless car

18%

Virtual assistants

Specialised data service

Discount

Multi-play

Business

Lifestyle/Yout h

Intl./roaming

Retai l

Ethnic

3. Mobile innovators re-defined

…with the success in Europe and North America expected to be replicated globally : Virtual operators – MVNOs (contd.) Since the first major MVNO success with Virgin in 1999, operators have increasingly embraced this model as a way to utilise excess capacity and reach niche segments beyond their influence. At the same time, MVNOs have grown in scope and depth, reaching diverse segments beyond discount and focusing on specific populations or communities. Currently, MVNOs make up 13.8% of subscribers in North America and 10.7% in Europe. While the global average is around 5.1%. we expect this to more than double over next 5-10 years, boosted by IoT, youth geared offers, quad-play, 5G and network slicing. Particular growth will come from LATAM, SSA, MENA and APAC as regulation eases and non-voice revenues, such as from m-commerce, justify business cases. Figure 6: MVNO opportunities across the world North America ~221

Europe

67m

~808

MENA

13.8%

~19

115m 10.7%

8m 1.5%

LATAM

APAC

SSA ~60

16m 2.3%

~16

7m 0.8%

Keys & Global numbers No. of MVNOs in the region Global ~1,500

~375

210m 4.5%

Share of MVNO vs. MNO connections in the region Global = 5.1%

3. Mobile innovators re-defined

Emerging innovators are relying on mobile networks… : Digital Service Providers Over-the-top service providers (OTTs) These are disruptors of traditional service delivery models, offering both content and communication services that directly compete with operators’ core offerings, using Wi-Fi or mobile data to distribute services rather than the traditional distribution models (e.g. cable, satellite). Unlike other MIONs they do not include a SIM in their offering, making them ‘network agnostic’.

Challenges

• Lack of platform capabilities e.g. tariffing • Less sticky billing relationships • Reliance on network performance • Lack of CRM tools

In 2010, Netflix debuted streaming and WhatsApp launched, ushering a new family of providers under the over-the-top (OTT) designation for both media & communications. Nowadays, we are witnessing a substitution of pay-TV in favour of VOD platforms4 and a decline in traditional voice usage in favour of VoIP services5. This has led to the erosion of operators’ traditional revenue streams: the global OTT market is projected to reach USD332.52bn by 2025, growing at a CAGR of 16.7% from 2018 to 20256, meaning the telecoms industry needs to embrace OTTs and their best practices to recuperate lost value. Figure 7: OTT examples

Media OTTs

Comms. OTTs

3. Mobile innovators re-defined

…and have become the first touch point for telco and retail access : Digital Service Providers Mobile Apps As mobile data speeds got faster, prices eroded and smartphones became ubiquitous, the new industry phenomenon of mobile apps emerged. In 2008, both the Apple App Store and Google Play were unveiled, simplifying the experience for customers and developers. A year before, the first iPhone had come into the market, triggering the smartphone revolution. Though the majority of its technology had been available for some time, the iPhone changed perceptions of what the mobile could be used for. The launch of 4G a few years later further exacerbated these trends. The popularity of apps continues in an upwards trajectory, with 204bn downloads and consumer spend reaching USD120bn in 20197. The growth of digital services has also allowed many tech and non-tech companies to reap the benefits of the digital world. In the app economy, apps are central to quality mobile experiences and have become a first port of call for many essential lifestyle services. With consumers spending over three hours a day on their mobiles in 20208, apps have become an essential lifestyle tool. Standard technical language and open development environments, facilitated by platforms, are key to creating harmony with these players.

Figure 8: Apps examples. In 2020, there were 2.5m apps across the Google, Apple, Amazon and Windows app stores

Apps as a business

Apps as a business tool

3. Mobile innovators re-defined

Machine based services are set to explode… : IoT service providers By the early 2010s, a series of drivers had come together that boosted the growth of IoT. Data communication became more reliable and speeds became faster, the hand-offs between Wi-Fi and cellular connectivity made it possible for seamless and on the move data connectivity. Data prices have started to fall, while devices management has become more sophisticated and battery lives have improved. Figure 9: IoT connections (billion)9 2019

2025

CAGR

Wide-area IoT

1.4

5.4

24%

Cellular IoT

1.3

5.0

25%

Short-range IoT

9.3

19.5

13%

Total

10.8

24.9

15%

Mobile customers

8.1

9.1

While the number of mobile customers will grow moderately in upcoming years, machine based IoT growth will be huge thanks to expanded 5G connectivity, cost decline and e-sims enabling devices to be shipped with the required capabilities.

Note: In addition to the numbers above, satellite IoT connections are approximately 10 million in 2019 growing to 30 million by 202510.

Challenges • Control of large SIM volumes • Need for strong operating functions, e.g. monitoring, security

• Real-time policy control requirements • Bespoke management of low-power, low bandwidth vs high-power, high bandwidth applications

3. Mobile innovators re-defined

…addressing a vast range of applications : IoT service providers (contd.) To monetize IoT services, service providers must ensure efficient management of large volumes of devices, from hundreds to thousands, including data and revenue management, monitoring and diagnostics plus responding to real-time demand. This is where platforms have a large role to play across a large number of application segments with variable models to cater for low bandwidth and high bandwidth applications. Figure 10: Main IoT application segments

Connected business

Connected Industry

Connected car

Connected health

Alarms | Asset tracking | Building automation

Robotics | Agriculture | EPOS & Vending machines

In-vehicle entertainment | Roadside assistance | navigation | Emergency assistance

Assisted living | Clinical trials | Telemedicine

Connected energy

Connected cities

Connected consumer electronics & home

Connected satellite applications

Micro generation | Smart grids | Smart metering

Digital displays | Traffic management | Smart lighting & parking

Wearables | Energy Automation | Personal Multimedia | Tracking | Security

4. Growth strategies for innovators

MIONs are often faced with a trade off between reach and value… Platforms can provide benefits across MIONs Figure 11: MIONs Mapping

Far

Strategies to increase value

Distance from core network

Customer reach potential

Digital service providers

IoT service providers

MVNOs

Strategies to increase reach

MNO brands & sub-brands Near

Value per customer

One aspect that gives more proximity to network operator functions is ownership of a SIM. However, it seems that the further a MION gets from its integration with the core network, the more customers it can reach. Therefore, it makes sense to embrace ‘SIM-less’ innovators into the development ecosystem which has a profound impact on growth. Platforms can help MIONs learn from each other. We use this hypothesis to derive growth strategies. © 2020 confidential

MIONs Success Factors: • An excellent user experience • Robust network performance • Service development capabilities • A seamless billing relationship • A CRM and loyalty focus 16

4. Growth strategies for innovators

…but can adopt strategies to achieve both There is no need for a trade off between reach and value Strategies

MNO brands & sub-brands

MVNOs

IoT service providers

Digital service providers

Increase Value

Boost CRM & loyalty programs Develop value-based billing capabilities Upgrade legacy platforms to enable innovation Develop new lifestyle services Automate using AI for efficient operations

Increase Reach

Scale through channel & brand partnerships Develop wholesale capabilities (incl. satellite)

Integrate with social & other media Develop deep segment analytics understanding Distribute services over apps = degree of relevance

The clear overlap of strategies for MIONs highlights the opportunity for platforms to expand beyond the telecoms industry and target other service providers with similar solutions. RDC’s second paper, Future Proof Platforms, explores best-practices that platforms can adopt to address these strategies.

5. Conclusions

A MIONs view can have a profound impact on the mobile industry’s development It’s time for a re-think Our concept of bringing mobile service providers under a new umbrella category of MIONs answers some important questions to stimulate a fair, open and innovative environment: 1. How can operators expand their wholesale offering to attract a wider set of segments (combining cellular with satellite and low power connectivity)? 2. How can ‘SIM-less’ digital service providers and SIM-based players work in harmony to create innovation? 3. How can platforms expand their capabilities to target new customers and develop digital lifestyle services? 4. How can regulators and standard setters ensure they cover all mobile players and not only those integrated into networks? 5. How can service providers develop strategies to increase both revenue and value?

Removing industry fragmentation stimulates innovation and competitiveness, the two most important components of a healthy industry environment

5. Conclusions

What’s next? Now we have a simplified view of the landscape and we can look closely at growth strategies In the next paper in RDC’s series on mobile evolution, ‘Future Proof Platforms’, we critically explore the roles of platforms in the mobile ecosystem. The outcome is a set of strategies to interact better with networks and service providers, with the ultimate aim of developing innovations to give customers a superior mobile experience. Figure 12: Simplified view of the mobile ecosystem 10bn ‘customers’ Accessing mobile services

Customers

Digital Service Providers: OTTs ~175, Apps ~2.5m IoT service providers: ~600

Virtual Operators: ~1,200

Services

MIONs

Via 2.8k service providers & 2.5m apps (MIONs)

Operator: Main brands ~700, Sub-brands ~250 Relying on 400 service delivery platforms

BSS/OSS | MVNE/A | VAS platforms | Application platforms: ~400

Connected to ~630 networks

Core & radio access networks: ~600 Satellite networks: ~30

Platforms Networks

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Sources

Our sources References used in our paper 1. RDC – Sub-branding White Paper: Building the Fastrack – see RDC website 2. RDC – Sub-branding White Paper: Building the Fastrack – see RDC website 3. RDC – Redefining Wholesale White Paper – see RDC website 4. broadbandtvnews.com. Pay-TV Penetration In The Americas Will Decline To 48.8% In 2023. 5. Ft.com. 2020. Revenues From Voice Telephony Are In Decline. 6. Allied Market Research. Over-the-top (OTT) Market Outlook – 2025. 7. AppAnnie. The State of Mobile 2020 8. AppAnnie. The State of Mobile 2020 9. Ericsson Mobility Report November 2019 10. NSR M2M & IoT via Satellite report 2019 and RDC analysis

The content in this publication has been prepared for general information purposes only. We do not accept liability for any loss resulting from actions taken based on any material in this publication. The contents of this document shall not be copied or distributed for commercial purposes. When copied or distributed for non-commercial purposes, it shall include Red Dawn Consulting copyright notice. Publication date: 1st October, 2020

We make loyalty strategies work The content in this publication has been prepared for general information purposes only. We do not accept liability for any loss resulting from actions taken based on any material in this publication. The contents of this document shall not be copied or distributed for commercial purposes. When copied or distributed for noncommercial purposes, it shall include Red Dawn Consulting copyright notice. Red Dawn Consulting has provided rigorous market analysis and winning strategies to deliver growth for +100 companies in the Telecom, Media and Technology industry. Our strategies are grounded with an intimate understanding of competition, customers and emerging innovations from around the world.

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RDC Thought Leadership Paper: Mobile Innovators on Networks - MIONs