This note reviews the highs and lows in the telecom industry in 2019 and Strand Consult’s annual predictions which we’ve done for the last 19 years. Strand Consult has followed telecommunications industry for almost 25 years. 2019 was a year with much political and regulatory attention and a renewed appreciation for how the industry ensures the digital society that is ubiquitous, fast, safe, green, and inclusive.
Unfortunately 2019 was not the year which marked more milestones for women achieving leadership in the industry. Of the 25 board members of the global industry association GSMA, just three are women. Notably, two of the three are American. Moreover, the heads of most telecom regulatory authorities are men. Only the US has succeeded to deliver the first and only woman for the Director role at the International Telecommunications Union.
Also in 2019, 5G became a mainstream topic and rebooted the discussion of the value that telecommunications brings to society including innovation, security, and inclusion. Consider the many transformations that the industry has delivered from the invention of the telephone, which required a person (a switchboard operator) to connect two people. Today the digital world, including its businesses, the communications of individuals, and the operations of the public sector is predicated on the advanced infrastructure that the telecom industry provides.
In 2019 Strand Consult published many research notes and reports to help telecom companies navigate a complex world. We focused heavily on the problem of Chinese equipment in telecommunications networks. While the media has largely focused on Huawei, the discussion should be broadened to the many companies that are owned or affiliated with the Chinese government including but not limited to TikTok, Lexmark, Lenovo, TCL, and so on. Although some of our customers disagree with our views, Strand Consult’s job is to publish what is actually happening and how policy decisions may affect their business in the future.
The Chinese propaganda machine has succeeded to mislead many journalists and press outlets, particularly with the unchecked claims that Huawei's products are technologically superior. Few media will dare to publish an analysis comparing the operating conditions foreign companies get in China compared to the favorable treatment Chinese companies enjoy abroad. Moreover, there are little to no critical articles investigating Huawei's role to suppress human rights in China. The vast majority of stories about Huawei start with the company giving an exclusive interview to a friendly, Chinese-speaking journalist in a leading medium which is then syndicated globally.
Too many have a naïve view of the China debate and have not considered the ramifications of turning over key technologies to the autocratic country, not to mention the risk for the telecommunications industry and its customers. See Strand Consult’s research note The biggest taboo in European telecom industry is the cost of cybersecurity and this note on the challenge companies have to admit they’ve been hacked by Chinese actors.
2019 will also be remembered for the standoff between the free people of Hong Kong against the Chinese government led by Secretary General Xi who prides himself on total control. This should demystify the statistic of why the majority of world’s cyberattacks originate from hackers in China, as Strand Consult’s explains. 2020 will see the issue with continued focus.
Telecom companies want to be green
In the coming year, there will be a continued drive to make everything green, and telecommunications is no exception. The future will favor those firms which can build environmental value into their business. Telecom companies can either purchase Guarantees of Origin (GOs) from their energy providers or enter into power purchase agreements (PPAs) with green energy providers. The first solution does not increase the supply of green energy and is thus "greenwashing", while the second model is the true green solution. In Denmark, Google has already shown the way by purchasing solar cell capacity from Better Energy A/S. Telecom companies should investigate these solutions. See the research note New partnerships help telecom and tech companies become green.
5G launched without a great vision
5G is coming faster and stronger than 2G, 3G or 4G. With each new G, implementation and adoption time gets shorter. However, regulators in many countries are failing to keep pace with the technology, as they are behind on frequency allocation and rollout policy. Indeed, few regulators have succeeded to make infrastructure rollout more efficient or auctions more quickly. The pressure is on the Federal Communications Commission (FCC) in 2020 to deliver an auction for the C-band so that the US can stay in the global 5G race and correct for the misguided history of handing out frequency to government users without accountability measures in place.
Strand Consult has worked on these problems for years and notes that it is still too difficult and expensive to roll out new network in most countries. See our reports on How mobile operators can reduce cost for mobile masts and improve mast regulation, Why the Quality of Mobile Networks Differs, and How to deploy 5G: Best practices for infrastructure, regulation and business models which describe how to address these challenges effectively. In Denmark Strand Consult has helped to reduce total annual rental costs for mobile masts by about 20 percent. In most countries, 5G will be first marketed as an alternative to fixed line broadband. Wireless solutions based on 5G will help stimulate competition.
The performance of most EU countries on 5G is disappointing. Countries which used to lead the world in mobile standards are nowhere to be found with 5G. Unless the EU reverses course on its anti-investment telecom policy, don’t expect to see the EU lead in 5G or any other G in 2020, 2021, 2022, 2023 or for that matter in 2030. See Strand Consult’s research note Five Nordic Prime Ministers signed an agreement on 5G. Here are five reasons why Europe has already lost the 5G race.
5G will be a repeat of 4G in certain ways
Like 4G, most of the value in 5G will accrue to players other than the telecom operators providing the networks. In 4G, most of the value went to smartphone makers and over the top service (OTT) providers such as Google, Facebook, and Apple. In most countries, ARPU and earnings for mobile operators have fallen year after year—even though the speed and quality of mobile networks have increased. Strand Consult would like mobile operators to focus on how partnerships and creative business models can use 5G to create value for their shareholders. Our new research How to deploy 5G: Best practices for infrastructure, regulation and business models can help. Mobile operators have had successful revenue partnerships with premium SMS to develop the service market and MVNO brand strategies to reduce their sales & marketing costs. Operators need to look at these models to find partners for 5G.
OTT, IOT, and all the other services
Already with 5G, we see the world moving to the over the top (OTT) providers and when it comes to Internet of Things (IoT). This creates a challenge for how mobile operators can engage in partnerships and business models. The big question is whether it will be a market that will be dominated by classic mobile operators or by MVNOs like Cisco IoT and Wireless Logic that offer corporate clients one stop shopping. Unless mobile operators are smart, they will relegate themselves to dumb pipes again.
Regulation will hit telecom operators again in 2020
The need for greater security in networks and removing vulnerable elements will hit operators in 2020 with new standards for resilience. While Huawei likes to spin that restrictions on its equipment are mere trade war tactics, the debate about security will become more holistic to encompass the many elements of security including software, vendors, and risk management. See Strand Consult’s note on the topic The debate about network security is more complex than Huawei.
The need for network security can be traced through telecom network policy. Strand Consult documents that already in 2005 restrictions were placed on Chinese technology for the 3G rollout. It is telling that the current US President defends European technology companies Ericsson and Nokia while many European operators defend their Chinese suppliers. It will be interesting to see whether the new European Commission will finally ”walk the walk” and demand the same safety and security standards of Chinese companies that European, US, Korean and Japanese firms have had to uphold in EU.
Similar to the financial industry, the telecommunications industry will be subject to accountability requirements and compliance to ensure security. The big question is whether it will be easier and cheaper to meet these requirements when using Chinese equipment. Strand Consult doubts this.
The mobile operator’s classic business model is probably dead and buried
Most of the world’s mobile operators have evolved their business model in face of competition and revenue erosion by OTT players. Mobile operators have realized that revenue from traditional streams of voice, SMS, and MMS is in free fall. In 2020 the industry will see a new direction in which operators divide into infrastructure companies and service companies. We believe that this split comes in many forms and models. We think we will see companies that make a classic split, but we also think that we will see companies that will make more creative splits in which divesting masters and towers is just the first step. We expect this trend could translate to spectrum. We envision an industry divided into three elements: infrastructure, services and spectrum.
Such fragmentation will require a new view of spectrum and it ownership and use. When it comes to spectrum sharing, dynamic spectrum sharing will open several new technical possibilities. To see the future spectrum market, look at the introduction of Citizens Broadband Radio Service (CBRS) in USA, a model likely to spread and which is creating a new value chain and dynamic market. Many new and exciting companies have already entered and created equipment and services. This is the same dynamic underpinning the introduction of premium SMS, MVNOs and in connection with the app industry that has emerged at the top of the smartphone universe.
There are now four models of spectrum:
1. Licensed spectrum owned by mobile operators
2. Dedicated spectrum with optional synchronized sharing (see German model)
3. Unlicensed spectrum with asynchronous sharing
4. Unlicensed spectrum with synchronized sharing.
Of note is massive rollout of 5G and fixed wireless access (FWA) solutions. If 5G is hot in 2020, then 5G/FWA will be super-hot in 2020. Strand Consult’s forthcoming report on 5G/FWA will show how fixed line providers can extend their service and revenue with 5G. The business and economics of this development follow a similar dynamic to the MVNO market, and customers can reuse this knowledge from Strand Consult.
Wireless solutions will battle FTTH for supremacy but will also partner for opportunity
Remember the many pundits and policymakers who described fiber to the home (FTTH) as the only ”future-proof” solution. Not only was that prediction proven false, but wireless solutions are complements and substitutes to wireline networks. Those FTTH providers which have seen their business languish can get a boost from 5G. Mobile operators aiming for 4G/5G solutions can sharpen competition in the broadband market and cannibalize the DSL/fixed line market.
The year 2020 will see many operators will switch off their 3G network while 2G is on life support. Operators will see value by refarming spectrum to focus on 4G and 5G LTE solutions. The benefits of having a clean 4G / 5G network are so great that upgrading 2G / 3G / 4G to 4G / 5G will mean that operators worldwide will recognize that a total network swap is best.
During the period 2011 - 2016, operators worldwide implemented 4G. At that time, it turned out that the costs associated with rolling out 4G were like a network swap and upgrading the existing 2G and 3G networks. During this time many operators replaced their 2G/3G networks with new networks supporting 2G/3G and 4G. In connection with the introduction of 5G, we will experience the same, and operators such as TDC in Denmark and Telia in Norway have chosen to replace their entire existing network. Read more here. The real cost to rip and replace Chinese equipment from telecom networks.
Net neutrality or internet regulation was invented by the OTT players to cement their business models and provide reduced, if not, free delivery of traffic for the largest platform companies. OTT companies funded many non-profits to conduct global marketing campaigns to overwhelm regulators with millions of comments. Strand Consult has documented how the policy has had the opposite of the intended effects in many countries, strengthening the market position of Google to the detriment of startups in many countries.
It is telling how many countries in Europe, Latin America and Asia have had net neutrality policy in place for years with nothing to show for it. The policy has not produced locally made innovation or an increase in infrastructure investment. There is an important case study in the FCC recognizing a mistake and reversing it. The FCC realized that the heavy-handed 2015 policy did not deliver the intended effects and thus removed it and restored the proper role of the competition authority to police anticompetitive practices on networks. Notably in the more than two years of Restoring Internet Freedom in the US, investment has boomed, internet speeds have increased, and the pace of internet startups has not slowed down.
2020 should be the year that policymakers come clean and admit that net neutrality regulation is not working to deliver investment or innovation. Telecom regulators should make policy that incentivizes the best new technologies in networks, not freezing in place obsolete architectures from 40 years ago. In any event, it makes no sense to create network policy which rewards the richest companies such as Google with free transit when they can afford to pay for their use of telecom networks.
Privacy: EU, US and the rest of the world
The drive for online privacy regulation worldwide reflects distrust and disappointment in the large platforms, however regulation, however well-intended, can have the opposite of the intended effect. 2020 will mark the two-year anniversary of the General Data Protection Regulation (GDPR) in the European Union. EU policymakers promised that the GDPR would bring a level playing field. Instead the opposite has happened; the largest platform companies have increased their market share and revenue in the region. In some two decades of successive data protection regulation in the EU, small and medium sized internet companies have failed to grow, and consumer trust online is at its lowest point ever, according to Eurostat. Ongoing reporting by Politico shows how large players have gamed the system and how European data protection authorities have difficulty enforcing the rules.
Meanwhile the Federal Trade Commission has moved quickly to address violations and impose significantly tougher penalties than EU authorities; the FTC’s $5 billion fine against Facebook is twenty times greater than the maximum fine in EU. It offers a valuable comparison of the US risk-based approach versus that of data fundamentalism in the EU. The former focuses resources on sensitive data and is oriented to preserve the mutual interests of the collector and user whereas the latter assumes that all data is equal and requires the same treatment in all situations. Notably the EU approach is more expensive for small and medium size companies and makes it harder for startups to get a foothold. The forthcoming California Consumer Privacy Act (CCPA) threatens to upend more than two dozen existing privacy regulations in the US and add pressure on Congress to resolve the discrepancies. The key takeaway is that the entire online ecosystem should not be punished for the sins of the large players. Ideally there should be a platform privacy law with the toughest obligations for the large players, while the rest of the ecosystem can evolve with safe harbors to adopt certifiable technical privacy standards.
A new appreciation for the role that telecom companies provide for society
In 2020 security of telecommunications networks will become a key theme in policy circles. Whereas regulators in the past overwhelming focused on low prices and ubiquity, people will come to appreciate that security is also important and worth paying for. This may evolve into new regulatory obligations for mobile operators, like the network requirements for first responders and national security users.
The human rights discussion will also be broadened to network equipment and other technology providers. In Europe and in large parts of the world, the focus is on protecting a democratic social model where freedom, freedom of expression, privacy and human rights are important elements. Europe attempts to focus on the rights of citizens, including data protection, and many want to preserve a role for technology to improve the quality of life and add value to our society. In a dictatorship like China, technology is instrumental for the state to fulfill its goals, regardless of whether it improves quality of life or promotes human rights. It will become increasingly difficult for European policymakers to defend the use of many Chinese technologies which violate EU rules.
2019 was Strand Consult’s 24th year in business and its 19th year in making predictions in which we try to inform, delight, and challenge our audience. We invite you two see for yourself whether we were right over the years.