… in a hyperconnected future
Preface A note from the author
It’s been over 20 years since I worked on a groundbreaking business case for a major brand who wanted to create its own mobile service by renting mobile airtime. I’d first come across mobile wholesale models at Orange in the mid 90s, and by the turn of the century the idea started to take flight – visionary mobile network operators were going virtual. At the same time as wires were being ditched, the MVNO model was being born. Since then it’s been non-stop: negotiating agreements, building platforms and converging services. Are we about half way there? I feel now it’s time to stop, to reflect, and think about where this is all headed. Jump 20 years ahead to today. Has the MVNO model been successful? With over 320m MVNO connections, I’d say so. However, having worked on over 100 projects, we’ve seen our fair share of ones that made the dead pool. Whilst many operators have embraced the MVNO model, there is still huge uncertainty amongst many of them and operators’ platforms have not evolved to make wholesale work well. Sorting out these bottlenecks will save new entrants from wasting launch funds and will also unleash what we believe will be a massive opportunity in wholesale. Let’s jump 20 years ahead again. We’re in a new deep end. In this paper we make some bold predictions about the evolution of the wholesale industry. We leave you with some ideas to help capitalise on this future, whether a service provider, platform, or infrastructure player. We recognise that the nature and mix of connectivity will be unrecognisable when compared to today, and urge the fixed and mobile industries to collaborate to create the truly ubiquitous landscape required in a hyperconnected future.
Arun Dehiri is the Managing Director of Red Dawn Consulting E: arun@reddawnconsulting.com M: +44 (0) 7970 653134 W: www.reddawnconsulting.com 2
A hyperconnected future underpinned by wholesale Join us on a journey to the future… It’s 2040 – about 20 years from now. Mary is cruising in her driverless car down the motorway while asking her virtual assistant to find the best alternative route to her parents’ house due to a build up of traffic ahead. Her son Harry is in the back seat, participating remotely in a classroom activity, his VR gadget giving him a 3600 view of the Amazon rainforest. As they slow down, the woman can spot the victim of a car accident being treated by a robotic arm remotely controlled by a medic. Here’s the vision. In 2040 today’s nascent innovations have become mainstream, for example driverless vehicles, virtual assistants, seamless navigation, virtual reality. New technologies aim to improve highly important and, sometimes, risky areas of life: from education to finance to transportation. Seamless and ubiquitous connectivity is key to manage many of the risks involved. These technologies need to be underpinned by connectivity that is always on, integrated, adaptable and cost-effective. Otherwise, Harry misses an important lesson, Mary doesn’t spend precious time with her parents and the emergency service does not treat the victim.
In this paper, we explore wholesale’s role in this hyperconnected world. By understanding the value chain from services to platforms to infrastructure, we see what needs to be done to capitalise on this huge opportunity.
Creating value in the wholesale value chain
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Services
Platforms
Infrastructure
Where will demand for wholesale services come from in a hyperconnected future?
How will platforms evolve to bridge the gap between infrastructure functionality and the explosion of demand for digital services?
How must converged network wholesale models evolve to support emerging segments, OTTs and on-demand models?
Demand for wholesale connectivity will boom to 2040 Wholesale volumes globally 2019
2025
To set the scene for our discussion, we quantify the demand for wholesale connectivity leading up to 2040. To recognise most companies’ 5-7 year horizons, we have set a medium-term point at 2025.
2040
Mobile connections1 Total no. connections
No. MVNO connections
8.0bn
8.9bn
10.3bn
4%
12%
20%
320m
1.1bn
2.1bn
There are three main categories to consider in our analysis: MVNOs as we know them today, IoT and emerging hyperconnected service providers. The figure below shows the kinds of emerging players we predict will drive the wholesale market.
Mobile IoT connections2 Total no. connections
No. wholesale IoT connections
1.3bn
5.0bn
10.4bn
14%
25%
40%
182m
400m
4bn
We now discuss the implications of these trends for the participants.
Mobile wholesale markets globally Entertainment
Discount
Youth/ media
Business
7%
4% 5%
International/ 9% roaming
Virtual education
4%
23%
Bundled
Financial services
14%
18%
2018
Specialised data services
1%
204 0
37%
21%
12%
17% 12%
Virtual health
Retail 6%
10%
1,490 MVNO players
Driverless car Virtual assistants
Ethnic
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Hyperconnected services
4,200 MVNO players
1 – Mobile connections refer to consumer and enterprise mobile subscribers; Mobile Virtual Network Operator connections are a subset of this category; RDC analysis 2 – Mobile IoT connections refer to mobile data-reliant, connected devices and are exclusive from consumer and enterprise mobile connections; RDC analysis
The inflexible MVNO model evolves to an ‘on-demand’ model Services
Platforms
Infrastructure
A 20 year view: 2.1bn MVNO connections, 4bn wholesale IoT connections and new on-demand wholesale players
Let’s start by visualising the future wholesale opportunity. In order to sustain a hyperconnected world of devices, systems and people in 2040, we predict that wholesale connections will grow more than six-fold for mobile usage, to 2.1 billion, and 22 times for cellular IoT usage, to 4 billion. As a percentage of total mobile connections, we predict the traditional MVNO market will start stagnating at around 20% by 2040, whereas IoT wholesale connections will reach 40% in the same timeframe. In our forecast, we have assumed that mobile, fixed and other types of connectivity will converge in 20 years’ time. We don’t make an attempt here to predict the mix of connectivity in the future between connection types (bearers1), however our proposed wholesale principles for service providers, platforms and infrastructure players remain the same. The key is to facilitate an open environment in which these value chain participants can evolve and trade openly to serve MVNOs, IoT and hyperconnected services. “Hyperconnected services” include innovations such as virtual education, health and entertainment, plus major technologies such as driverless cars, and are predicted to account for 37% of wholesale growth by 2040. We expect some of these new hyperconnectivity models to resemble the growth patterns of giants such as Facebook, Netflix or Alibaba. The bandwidth boost we are starting to get from 5G will lead to a major increasing in video streaming services – with virtual and augmented reality playing a big part. 75% of media data traffic will be made up of video (according to Ericsson Mobility Report June 2019), with social networking also being a large contributor. By then, they will want to be able to “rent” and manage parts of mobile and fixed networks. The imminent introduction of network slicing recognises the demand for more specialised service functionality when compared to the features that currently exist under standard, undifferentiated wholesale agreements. Service providers’ need for greater control and functionality will be addressed by platforms, which we explore in the next section. Currently, to have any control over the connectivity layer, brands need to have complex and cumbersome agreements with operators. We believe that in the medium- to longterm, shrinking margins and expanding capacity will force operators to share their networks with strategic complementary service providers and decrease barriers to wholesale. These wholesale buyers can fill in the gaps left by larger networks and penetrate markets that have a more specialised set of functionality needs.
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1 – Bearer services include 4G+, WiFi, XDSL, DOCSIS, proprietary connectivity protocols (e.g. Sigfox)
Platforms will evolve to serve a new generation of wholesale Services Platforms need to evolve to serve emerging hyperconnectivity service functionality
Platforms
Infrastructure Platforms will merge into infrastructure players or consolidate into large platform players
Traditional economics tells us that a price is set and a trade happens at the point where the supply and demand curves meet. We’ve discussed the demand from service providers and will explore the ‘supply’ side in the next section. Mobile wholesale trades need a layer in between to gel the supply and demand sides together. This platform layer has played an increasingly important role in rendering networks usable to wholesale players, providing operating and service creation functionality and in some cases aggregation of connectivity. It has taken a while for this enablement layer to mature to a level to create some kind of service flexibility for MVNOs. To date, there has been a lack of service innovation with MVNOs – with the majority of offers focusing on a low cost, no frills models (as shown in our diagram earlier). To cater for the emerging MVNOs and new players reliant on mobile wholesale, platforms need to make some fundamental enhancements to their architecture to translate network data into actionable inputs for services. Platforms will need to evolve in three ways cater for the propositions that will become mainstream well within 20 years. Firstly, through enhancements to core operational functionality around OSS and BSS, secondly through integrations with third parties value added plug-ins, and thirdly by aggregating a broader range of bearers, or connectivity types. Emerging platforms will need to facilitate on-demand connectivity and facilitate seamless on-boarding. The key role of platform players is the agility to facilitate end user innovations in support systems and commercial offerings. Spawning from OSS and BSS services such as billing, provisioning and CRM functions, enablers (MVNEs) are increasingly focusing on a suite of cloud-based richer functionality. This includes aspects such as value based pricing, zero rating, loyalty, campaign management, self care, device management, machine learning and community tools. Integrations with third parties will become more essential, such as payment gateways, social media platforms, application providers, retail and content partners. This requires a new set of settlement and contract management capabilities. On top of these logistical functions, some of these players aggregate the airtime, roaming and interconnect agreements from the host networks and other bearers. We believe that CRM style platforms with a payments / fintech component are major value drivers.
As the number of wholesale connections grows and platforms mature, we see two trends. Firstly, operators will buy or develop wholesale platforms in-house to customise wholesale customers’ experience directly – these platforms can be used as testbeds for wider legacy upgrades. Secondly, specialist platform players will consolidate to achieve scale economies and offer a more ‘end to end’ service. 6
Carriers will have clearly defined segment strategies Services
Platforms
Infrastructure
Capacity within networks will continue to grow but a more open-minded approach is needed to efficiently utilise this capacity
In this paper we define infrastructure to mean the connectivity layer, made up of a range of bearer services. These will evolve over time and include cellular, WiFi, fixed connections and any other wireless interface technologies. To date, there have been mixed strategies in offering wholesale services to third parties. Often, brand protection, lack of end customer control, cannibalisation of core customers and over-utilisation of capacity are the main drivers of carrier’s reluctance to openly share capacity As there will be an overall increase in data capacity over the coming years, and as carrier brands become more engrained in the segments they serve, the obvious way to soak up capacity is through third parties who have different distribution and brand models. We will see markets such as emerging APAC, Latin America, Middle East and Africa opening up to wholesale models following the example of Europe, North America and developed APAC. We have already discussed the service-led demand drivers of wholesale. But how can carriers stay relevant and capitalise on the opportunity? Firstly, carriers should consider how to maintain margins. As capacity (supply) and competition increases, we expect to see prices fall. Embracing the huge volume upside will no doubt compensate, but there are other value drivers. Offering a range of service levels (foreseen under the new network slicing models), richer intelligent network functionality, exposure to deeper ‘packet’ information such as location, browsing behaviour ‘call’ quality, and operating capabilities create justification for a higher wholesale price. Secondly, carriers will need to co-exist with other connectivity methods to offer wholesale service providers (brands, IoTs and on-demand players) achieved ubiquitous coverage. A premium will be commanded by those carriers offering more choice of, and interactivity with, bearer services. Thirdly, carriers should take a clear stance on their platform strategies i.e. whether to build, buy or outsource. The choice depends partly on scale (how many wholesale customers are being supported) and what functionality is required. Specialist value-added plug-ins can co-exist with home grown or third party platforms – the key is to maintain an open architecture.
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Today’s trend is the future’s mainstream What are we doing about it? In this paper, we have highlighted the three main growth areas for wholesale: the traditional MVNO model, IoT and emerging hyperconnected services. The 5G onset will lead to greater bandwidth availability and a new set of data opportunities, primarily around video streaming and virtual/ augmented reality. For these service opportunities to be realised, platform players and infrastructure providers must go through a fundamental mind-shift. This means not only developing richer functionality, but developing open architectures to embrace a wider ecosystem of participants. For platforms, this means easy access to payment gateways, social media platforms, application providers, retail partners and content players. New value based and event based pricing models need to be catered for, and settlement between content and retail partners need to be addressed. For carriers this means co-existing with a broader range of fixed and mobile connectivity providers, or ‘bearers’. The development path for these three participants (service providers, platforms and infrastructure players) will depend on which forecasted segments they are targeting, what functionality the require and which connectivity model suit their strategy.
To create a prosperous wholesale environment which will serve this hyperconnected ‘sharing’ economy of the future, we encourage these participants to think longer term to be sustainable and be more open to adjacent players in the ecosystem.
About Red Dawn Consulting Red Dawn Consulting (RDC) 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. We have developed many pioneering wholesale growth strategies though our rich toolkit to develop business cases, design propositions, negotiate capacity deals, create solutions architectures and launch blueprints.
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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.
Talk to us for more insight on wholesale strategies Arun Dehiri
arun@reddawnconsulting.com
Managing Director Adriana Portela
adriana@reddawnconsulting.com
Senior Consultant
Level 1, Devonshire House, One Mayfair Place, London, London W1J 8AJ United Kingdom
+44 (0) 333 301 3450 www.reddawnconsulting.com