2018 Predictions for the telecom industry by Strand Consult

Recall the paradigm shift created by Apple and Android; it revolutionized the form factors of the smartphone. Google has powered many innovations which have driven down the price of technology for consumers.

2018 will likely see new technology with high user value for the mass market. This development will likely increase the demand for connectivity, subscriptions, bandwidth, software and hardware based SIM cards. But the question remains on how to build the additional infrastructure (primarily 4G, 5G and Nb-LTE) to accommodate the increased traffic in way that satisfies shareholders.  Strand Consult is not confident that most operators will experience increased revenue and earnings because of increased traffic and new technology.

The Internet of Things (IoT) market will likely grow significantly, as new services are deployed on top of old technologies, making the transition for consumers easier and cheaper. One example is devices for cars On Board Diagnostics (OBD) port which transforms old dumb cars into intelligent smart cars, a backward enablement for analog vehicles. Consumers will use their smartphone to make their car smarter and the driving experience better.

ODB solutions providers collaborate with mobile operators such as T-Mobile, Telia and others on combining technologies for new services. 2018 will prove that intelligent homes and cities can be realized incrementally without a complete overhaul of network and technology.

In 2018 many operators will declare the decommissioning of 2G/GSM and even 3G/UMTS networks and move toward 100% at 4G/LTE networks. The development will be driven by the positive experiences with 4G while the number of cheap phones that support different 4G frequency bands increases. The savings that an operator can achieve by operating a clean 4G network is so large that operators will try to expedite the processes. The case study is the American Verizon with its successful migration from CDMA to 4G/LTE, achieved faster than promised their shareholders.

In 2018 more Europeans will realize that politicians’ promise of 5G is hot air. The misguided net neutrality rules on the books and its heavy-handed privacy regulation coming online in May, the EU will likely be a dead zone for investment and innovation. The EU might be lucky to have some demo projects, but real services will be rolled out the US and parts of Asia.

Distribution channels will evolve in an interesting way

The world of connectivity is converging and diverging simultaneously. Existing value chains are breaking up while new ones are being forged. Telecom was once a vertically integrated industry in which the same firm sold network access, service, and device. This model has been disrupted at every level.

Diversification of the value chain has brought opportunity to market entrants. Consider how premium SMS services brought new ringtones, logos, Java games and TV voting or how MVNOs created new distribution channels. 2018 will bring more partnerships between operators, IoT providers, MVNOs, MVNEs and other players.

Strand Consult believes that the number of operators which can develop their own IoT services will be limited. Many operators will recognize that opportunity in offering solutions for global IoT connectivity.

Few competitors are teed up to challenge the dominance of Google and Apple in the app store market. While there is room for apps with unique offers, the clear majority of app-based services will be delivered through the two app stores that Apple and Google own and operate. In 2018 app store bottlenecks and related platform algorithms will get regulators’ attention.

Platforms will face big challenges in 2018

Google turns 20 years old in 2018. While Facebook, Amazon, Apple and other platform companies have been around for a while, they are bigger than most countries in users and revenue. Governments are struggling to figure out how to handle these players. Denmark has dispatched a Digital Ambassador to Silicon Valley with responsibility for these actors, as they are digital countries in their own right. Some believe there needs to be global government for these actors, a United Nations of Cyberspace as it were. There is no doubt that the EU wants them regulated.

It’s interesting to think about regulators’ assessment of the problem. They said that to spawn the next Google, we need net neutrality rules. Netherlands, Slovenia, or Chile have had these rules for almost a decade, and no Google has emerged from them. Indeed these countries have reduced the amount of internet innovation they made from before rules were adopted. If anything, net neutrality regulation has only strengthened the power of the existing platforms, giving them artificial subsidies in transmission and protection from competition.

It interesting that competition to platforms has emerged in those places with no net neutrality rules at all, namely China. Its plaforms such as Alibaba, the Amazon of China, and WeChat, its WhatsApp are getting smarter, better, and more integrated into the market by Chinese phones.

Many authorities will likely take up formal platform regulation in 2018, using net neutrality as a template.  Already Democrats in the US have called for it.  Platform neutrality regulation encompasses a grab bag of concepts such as transparency, hate speech, fake news, safe spaces, brand safety, content take down, the right to be forgotten, and market power. The most  important is the goal of platform regulation is to stop users from consuming information that leads them to make the “wrong” choice when they vote, and in this regard, policymakers believe that they know better than voters themselves.

France’s telecom regulator ARCEP presented coherent “platform loyalty regulation” as part of its annual net neutrality report to BEREC and the European Commission.  EU regulators want to reduce the market power of US firms, a goal not otherwise achievable by law or innovation by European firms.  The goal is similar for the General Regulation for Data Protection (GDPR), a gambit to make the EU standard for data protection the global one, regardless of whether there is merit to the approach.

Finding a revenue stream from these platforms is the holy grail for policymakers. 2018 will see more on focus on taxation. Facebook says they will now move to a local sales structure, providing offices to support local advertisers and returning tax revenue for countries. While Facebook has customers in 195 countries but offices only in 30, the change is likely not significant. The company reported that the shift probably not will increase their overall tax burden.

There is no doubt that some will take pleasure in platforms getting their just desserts, but the truth is that increasing regulation is not good for consumers and citizens. Regulation of fake news is often a cover for censorship. And increasing the burden on platforms is not a selling point for reducing regulation on telecommunications. The government just grows more entrenched overall.

Business models – it’s all about money or is it?

The basic idea of running a business is to generate revenue that covers marginal cost and fixed cost. Entrepreneurs find opportunities and create business models to make products and services accessible to more people. Advertising, a business model in which a third party pays the consumer’s cost to access content in exchange for an opportunity to communicate, is an important historical model. Without advertising there would be a lot less content in every medium.

Just as advertising fertilized content for radio, TV, print, search engines, and other media, sponsored data can help the broadband market by reducing the cost to end users and increasing the means content providers can reach audiences. But policymakers have artificially repressed this development with net neutrality, the incongruous argument that restricting the freedom of partnerships and pricing somehow improves consumer welfare and innovation. With such restrictions removed in the US, 2018 will be an interesting year to see whether consumer-centric models emerge. EU regulators on the other hand, will double-down on their net neutrality rules, attacking offers that attempt to give consumers free and reduced-price access under yet another preposterous argument that restriction of expression leads to media diversity.

The advertising model is analogous to phone subsidies, which increased the number of people with mobile phones. Increasing penetration through subsidies not only helped bring down hardware costs for consumers, it had the ancillary benefit to create the market for mobile traffic and networks and later a market for apps.

2018 will see the rise of the Chief Privacy Officer. Indeed, the GDPR requirements are expected to drive 75,000 new jobs as firms of 250 or more must conduct audits and hire staff to comply the EU regulation. While some suggest these actors could help firms use privacy to their advantage, it is also possible that privacy professionals, performing to regulators’, not consumers’ preferences, could doom the new ideas that emerges. The GDPR offers no safe harbor to test new personal data-based innovation nor relief for a failed attempts to create privacy-enhancing technology.

It’s not market failure that brings regulation, but market success

Strand Consult had little focus on regulation in the past. In the early days of the mobile industry, policymakers largely kept their hands off the market to let it grow. Indeed, the mobile industry was considered the manifestation of market competition, and governments reaped billions of dollars and euros with expensive spectrum auctions. Alas how that dream has been dulled by regulation of every kind (roaming, wholesale, access, neutrality, transparency, privacy, security, etc.) as well as fixed line regulation that is applied to mobile. Nobel economist Hayek described it best: it’s not market failure that brings regulation, but market success. CEOs should ask themselves which regulations they faced a decade ago versus today. With the explosion of regulation, Strand Consult has evolved its business to address its clients’ new challenges. With reports, workshops and consult, Strand Consult helps its clients, including governments, bring an evidence-based approach to telecom regulation and policy.

Conclusion – 2018 will be a challenging year for creative people and innovative companies

The year 2018 will be interesting. There will be tons of new solutions that can add value to society, but there will continue to be a challenge that increasing regulation will limited the possibilities for business models. The price of technology has fallen so much, user interfaces are so user friendly that what should now be focused on is how to create a number of sound business models that can stimulate adoption.

We expect more information to emerge in the early part of the year. CES in Las Vegas, and Mobile World Congress are two events which will set the tone for 2018. Strand Consult expects another exciting year and looks forward to contributing with serious knowledge and analysis to help our customers to navigate in a complex world. We also look forward to educating policymakers with a more realistic view of the industry.

 

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