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Monday, December 20, 2010

The inevitable 2011 predictions - successes and failures

It's the time of the year for snow-induced travel chaos and long lists of predictions. So before I chance my luck at Heathrow later today, I thought I'd put my stake in the ground with an assessment of winners and losers for 2011.

I'm focusing here on my main research themes at the moment:

  • Mobile broadband and 3G/4G, technology and business models
  • Mobile data traffic management and the network core
  • New telco strategies and revenue opportunities
  • Next-gen communications services
  • Devices and smartphones

HSPA/+ and smartphones for data - Really, the big story in 2011 is going to be "more of the same". More smartphones at both low and high ends, more dongles, and slow but certain growth in new device categories. Despite the fervour over LTE, it's going to be the growing maturity of "normal" 3.5G which is going to be driving the industry, if not the headlines. This will have a number of knock-on effects for both infrastructure and device vendors. Increasing densification of 3G networks in urban areas, along with network-sharing deals, will be top of the list for many operations and strategy departments. Policy (discussed below) will continue to be an issue.

Shifting demographics and usage patterns (eg cheap Android phones, new & unpredictable app adoption) will drive the need for coverage and capacity in unexpected places. A growing volume of prepay data users in Europe, Latin America and Asia will start using 3G, and rapidly ramp up their data consumption both via smartphones and featurephones. Many of those incremental users will be using "vanilla" unsubsidised devices, which are more difficult for operators to control.

Infrastructure vendors will continue pitching both HSPA equipment and managed services, while talking-up LTE. However, operators in developed markets will start considering whether fully-outsourced networks - while offering predictable Opex - might actually reduce their strategic flexibility. Disruptive Analysis believes that "under the floor" players have the potential to be even greater threats to telcos than the much-maligned so-called OTT providers, hollowing out operators' core skillsets, source of value and key differentiator - the network itself. 2011 success rating: 10/10

Evolved policy management - Linked to the growth of mobile data, and the shifting revenue/cost equations of mobile broadband networks, Disruptive Analysis expects to see a continued intense focus on traffic and policy management solutions. A particular theme will be a move towards more "holistic" approaches, shifting from the easy-but-crude approaches to managing content at the GGSN towards much more RAN-centric and device-centric approaches. Using an optimisation server stuck in the core of the network to squash down video content will be viewed as a primitive solution - not least by regulators, who will likely flex their stance on Net Neutrality to allow greater levels of active traffic management, but only when it is actually essential. Applying blanket policies in the network core, irrespective of actual or predicted congestion levels in the radio, and without a user's-eye view of QoE (no, not QoS) will start to become a competitive disadvantage.

As part of this, expect to see more refined pricing / charging strategies. New ways of tiering charges by volume, or by speed / time / device are very likely. However, we are still unlikely to see successful deployment of the mythical gold/silver/bronze tiers of service beyond speed caps. Ultimately, the largest gating factor on QoE is the radio network, and no amount of QoS-twiddling is going to make a big difference if your house is on the edge of the cell. Device-specific pricing will have far more success than attempts to charge differentially for certain Internet applications. Despite DPI vendor hype, the network does not really understand applications, just traffic types. Some broad categories might be applied (eg P2P), but attempts to try to charge differentially for VoIP or social networking or even video are doomed to failure. There will also be growing recognition that the "tonnage" way of metering mobile data by GB is not really a useful or appropriate way to align usage with actual costs of running the network. 2011 success rating: 9/10

Own-brand operator OTT services: This is going to be the big surprise of 2011. I've been talking about access-independent services for some time, but it's still been a taboo among many operators. The idea of Operator #1 launching services targetting Operator #2 and #3's access customers has sat very uneasily with the clubby, collaborative, "we're all in this together against Google and Facebook" interoperability mentality of the telcos. This ethos is now fraying. Various collaborative efforts (think RCS....) have ended in failure as coalitions of the losers. Most operators, either publicly or privately, through major efforts or skunkworks, are now thinking about decoupling access and service, and attempting to play the Internet companies at their own game. This is absolutely the right approach, and one which is currently underestimated by many - who will find out to their costs when they lose first-mover advantage.

Now the devil here is in the detail - Vodafone 360 had great vision but has suffered from poor execution. Going forward, there should be some serious innovation around VoIP (both telephony and other voice applications), social network, OTT-style social TV for fixed broadband, and various enterprise / cloud offerings. There will be out-of-region expansion (perhaps AT&T in Europe, or Orange in the US) via smartphone apps, or on-PC clients. Third-party hardware is also an option - femtocells already work over other telcos' networks, and that model is likely to extend to set-top boxes and maybe tablets as well. - 2011 success rating 8/10  [Note: this one is success relative to general expectations & consensus (ie none) - clearly it's not going to change the industry overnight, but it will point the inevitable way to the future]

Femtocells - Various people have been asking me if 2010 was the "year of the femto", which I've been hesitant to agree to, as I see market evolution more as a steady progression. Nevertheless, the femto concept has been hugely validated by a number of high-profile launches, and we are likely to see continued growth in 2011. In particular, we will see a move from a coverage-led proposition to one more based around capacity and offload. There will also be an early move towards use of femtos in public spaces or "macro femtos" for capacity enhancement in the street, perhaps attached to street furniture or cable plant. However, obstacles still exist - not least the femto model for prepaid users who are using mobile broadband as a substitute for DSL or cable contracts (a lack of prepaid deals for fixed broadband is an ongoing omission of the industry, leaving money on the table). We will also see some early interest in LTE femtos, although the concept of building a completely "inside-out" network does not seem to have legs immediately. Disruptive Analysis also remains skeptical of the market for enterprise femtocells, except simple installations for SMEs. 2011 success rating: 7/10

LTE for data - Although HSPA will continue to go from strength to strength, there is a groundswell of both optimism and activity on LTE. Not only that, but a stream of spectrum auctions - especially 800MHz digital dividens - is coming through, which will almost inevitably be used for LTE deployment. Disruptive Analysis does not expect to see a wholesale switch to LTE, even in markets where it is deployed, but certain operators will be very aggressive, especially CDMA operators that are struggling to evolve their EVDO networks to match the reality of HSPA+. Other markets will use early LTE deployments as flagships and testbeds, especially for PC users. LTE smartphones will start to emerge during 2011, but will gain likely minimal uptake outside of the US and Japan. There will lots of noise about LTE M2M, but remarkably little action. 2011 success rating: 6/10

Tablets - I've been somewhat surprised by the iPad's success, but I still don't see tablets as a major game-changing trend, beyond the "Apple Effect". I still think that the iPad is primarily a nice (and for some groups of people also very useful) gadget which complements their PC/Mac and smartphone usage. I don't see massmarket Android platforms fulfilling the same roles and I certainly don't see tablets heralding some sort of mythical "post-PC" era. I do seem them as becoming important for "social TV" use cases in the home, though. I expect to see a declining % of tablets with embedded/activated 3G radios going forward - the bulk will be WiFi-only. 2011 success rating: 5/10

Two-sided operator business models - I spend a lot of my time examining realistic ways that operators might monetise "non-user" sources of revenue. At the moment, I'm seeing something of a mixed bag. Certain niches such as M2M are showing signs of growth. Others such as (some) operator app-stores have potential. Mobile advertising is growing but still small at an absolute level. There is growing interest in the "personal information economy" around identity and authentication, but it is early days and operators have various commercial, technical and regulatory challenges.

The willingness of telcos to enable "comes with data" models for new devices has been slow, largely because of the constraints of the legacy "subscription mindset". The SIM/subscription model is extremely ill-suited to most consumer electronics products, for example. Telcos have also been very slow at releasing and marketing developer-centric APIs on a commercial basis, focusing too much on capabilities well-served by alternative solutions, such as SMS or location. Instead, they should focus on more useful & unique information sets for developers, such as network congestion APIs, or mechanisms for communicating device capabilities, status and customer tariff plan.  

Another area that operators are in danger of failing on is around broadband prioritisation and attempts to derive revenue from "upstream" players such as Netflix or Google. The wrong way to do this is via confrontation or trying to enforce some sort of "pay per GB" toll. The ridiculous operator appeals to the EU for a Google tax earlier in 2010 are classic examples of what not to do "They're clever, we're dumb, please punish them". Frankly, Google and Netflix have more of a moral (and perhaps legal) argument to charge telcos, not vice versa. Instead, MNOs need to focus on "success-based" broadband value-adds, with measurable SLAs, not just vague promises of QoS. Cableco's pay for good TV content for their access customers - telcos may be prepared to pay for good Internet services for their broadband subs, as they have more to lose in a "switching war". Another option would be a Google-style affiliate model, where clear telco-enabled uplifts to advertising (by QoS, customer data targetting etc) would be rev-shared. However, I'm doubtful that we'll see a switch from aggression to pragmatism in many cases. 2011 success rating: 4/10

NFC - I've been a long-term critic of NFC, especially for mobile payments. The noise around the technology has risen to a crescendo recently, with Orange launching a major initiatives in 2011, and a three-way project by AT&T, Verizon and T-Mobile. Apple and Google are also rumoured to be joining the fray. I'm still very skeptical, especially when it comes to the more ridiculous notions of "bill this to my phone account", or attempts to integrate Oyster-style travel passes or hotel room keys onto handsets. None of these make obvious sense as operator business models. However, I wouldn't discount the chance of Apple of Google in particular doing something clever, such as an NFC-based way of authorising music purchases, or perhaps acessing specific services in particular locations. 2011 success rating: 3/10

LTE for voice - Despite talks of trials of VoLTE, Disruptive Analysis does not expect to see successful massmarket voice services launched on LTE for several years, with the possible exception of NTT DoCoMo. There are huge barriers to getting any form of LTE voice working well, especially to the levels that can be experienced with a $20 GSM phone. There are likely to be many, many challenges in getting primary telephony working well - we'll probably have to go back to the drawing board in terms of voice quality as well as the network side of things. Echo cancellation, packet loss concealment, all the clever stuff the Internet VoIP guys have been doing for years will need to be replicated in LTE mobile. It is conspicuous that the GSMA VoLTE initiative focuses on the middle of the network (interoperability) and much less the factors that drive customer experience (battery life, on-device call quality and so forth). In many ways, VoLTE is mis-named - it's really just ToLTE (telephony over LTE), and not a generic multi-app voice architecture, starting from first principles of "what are the use cases for voice in future, and how should these be supported?"

The network might be good at minimising packet loss and jitter, but the real difficult stuff in mobile VoIP is what to do with the data stream when packets are lost. Cure is actually more important than prevention, especially where RAN coverage will inevitably introduce problems. As for CSFB (circuit-switched fallback), it's a disaster in the making. Call setup times, breaking LTE data connections and so on. VoLGA? Maybe, but it needs either handset vendor support or perhaps a good OTT-style client implementation. Disruptive Analysis maintains that the best short-term solution for voice with LTE is one of the afore-mentioned $20 phones, and a strip of Velcro.   2011 success rating: 2/10

I'm struggling to pick out a single outright loser for the 1/10 spot (or even zero/10), so instead a quick list of next year's biggest turkeys:

  • IMS RCS. 'Nuff said.
  • Any new operator-specified handset OS.
  • Federated operator-run cloud services (although single-operator clouds have good potential). Likely to get hyped as a triumph for interoperability, and therefore the best candidate for a new losers' coalition.
  • Subscription-based Mobile TV (as always). Yes, there's a handful of iPad video addicts. And yes Japan uses terrestrial TV-to-the-phone. But massmarket TV on massmarket phones? No, just as unlikely as in 2006 when it was last hyped.
  • It's about time for the FourSquare-style "check in" model to implode under its own preposteroussness. The only good thing about FourSquare & peers is that it's a great way to know where not to go, if you want to avoid meeting dull social-media people.
  • Paid apps for Android, Symbian and BlackBerry. There's a strong correlation between a willingness to spend $$$ on apps and willingness to give Steve Jobs $300 gross margin per device. Everyone else counts their pennies & will go for cheap/free wherever possible.

And I know I'm normally opinionated about everything, but I also have a few questionmarks, where I'm really not sure at the moment:

  • Operator-run appstores or app-malls. Might work out in certain contexts, but I can't see them worrying Apple. 
  • Large-scale M2M. I'm still unconvinced that a zillion sensors and fridges are going to get networked up. And if they do, they also guarantee that GSM/GPRS will be around for the next 30 years, and we won't be refarming much 2G spectrum any time soon.
  • New variations of the SIM card (eg OTA IMSI-updating, multi-IMSI, wholesale & switching etc)
  • Augmented reality
  • Whether Nokia can stage a return to its glory days with MeeGo
  • Will a major Internet / IT company buy into cellular, either via acquisition or as an MVNO
  • Satellite-based mobility

I'm going to be away for the next couple of weeks, so probably won't have a chance to review and respond to many comments - but I will try to get online at various points to review any feedback.

Happy New Year to all....

Now, let's see if I'm one of the favoured few to get out of LHR this afternoon.


John Hamill said...

Hi Dean,

My company is working on what you call "Operator OTT Services" and I agree that we will see a lot of these during 2011. What this space needs though is a decent name! We see the major interest in this area not in generating some small incremental revenues from a competitor's customer ... but rather as a mechanism to win the competitor's customer as a subscriber to your access network. This is what will really move the needle in terms of the business case. To date, I've heard this approach referred to as "Cuckoo Applications" and also "Trojan Horse Applications". I think there is possibly a better name than that though ... but I just can't think of it! :-(


Dean Bubley said...

Hi John

Interesting comment, thanks. It would be good to speak to you in January.

I think the "cuckoo" approach is only relevant in those instances where it's running on an in-country competitor's phones/network.

That's fine for some use cases, but my view is that this is more about looking for offerings to exploit the entirety of the Internet user base.

I see a lot of this being more about building *value* rather than immediate revenue. Most CEOs and CFOs would be happy to have Facebook's valuation added to their market cap, even if the added top-line revenue doesn't move the needle immediately. Such a service could always be spun off at a later date - in fact, there may well need to be some form of special share options to encourage the right people to participate.


John Hamill said...

Hi Dean,

Understood and agreed ... the "Cuckoo Applications" tag is specific to in-country services. I'll be happy to talk with you in January about the services we are launching with UK and Ireland mobile operators (and show you a demo). I think this is really a green-field area for the mobile operators and there is actually quite a lot that they can do in terms of applications for smartphones, tablets and laptops that differentiates them from Internet companies.

Your comment on spinning the services off as separate businesses is also prescient. OneAPI may go the way of RCS but most operators now expose their own proprietary APIs so that services that access mobile network capabilities don't have to be 'in-house' offerings.


Pim Bilderbeek said...

Hi Dean,

Like your predictions (well, i dont like the annual predictions game, but yours are OK). Would love to see operator branded OTT, but am afraid operators would somehow manage to turn this into an exclusive offering for customers only. Would love to see more 2-sided telcos, but am afraid shareholders rather dictate subscriber growth in BRIC countries.
Happy holidays!

Anonymous said...

Regarding Operator-run appstores:

It really is a question mark for me to..but in a different sense !

The question that I want to ask is - Why re-invent the wheel ??

Creating/Running/Managing an application store is expensive business and I don't think that these app stores will ever get the kind of eyeballs/downloads that the Android/Iphone app stores are getting right now.

Operators should tie up with app developers/software houses, create new applications and use these existing app stores as a fat pipe for delivering them.

By doing so, operators would be able to better decouple access from services (as mentioned on your blog). Such apps can be downloaded and used by any customer (irrespective of the access provider). These apps can integrate with the specific OSS/BSS of the operator and use existing Android/Iphone app stores as a hosting platform (thus using these app stores as a "reverse fat pipe").

Just my 2 cents !



Martijn Brouns said...

"...we are still unlikely to see successful deployment of the mythical gold/silver/bronze tiers of service beyond speed caps. Ultimately, the largest gating factor on QoE is the radio network, and no amount of QoS-twiddling is going to make a big difference if your house is on the edge of the cell."

On the fixed side, a lot of people buy ADSL2 and get less then the promised 20mbps when they live a few blocks too far from the ADSL router. However, millions of people buy that.

And... we also buy that at New Years Eve and when we are in a traffic jam in some remote area.