January 17, 2018

Telecom industry: What to expect in 2018

By Prince Osuagwu

Research Consultant, John Strand, of Strand Consult has taken a peep into 2018 and predicts that the telecom landscape, worldwide, would be brighter.

The Researcher said this would be hinged on a counter strategy to last year’s realities where politicians and regulators made policies on ideology and idiosyncratic preferences rather than on evidences.

Strand says that the bane of development in 2017 was the division of operators, while some operators accepted such obnoxious policies as the new normal, others challenged them in court.

Dynamic future

The research says that in 2018, some countries would open the door for markets to drive a dynamic future, while others would double their efforts in doing away with the failed policies of the past.

The research predicted that Africa will experience consolidation which is needed among many players in the region, as the Continent is known to have high penetration, high churn, and low Average Revenue Per User, ARPU.

It tipped Africa as gearing for more investment in the networks, which is the foundation of the modern society, as political and regulatory pressure adversely affected the market last year.

The research categorically states, “2017  exposed how politicians and regulators make policy not based on evidence, but on ideology and idiosyncratic preference. There were also counter trends all over the world. Some quarters opened doors for markets to drive a dynamic future while others doubled down on failed policies of the past.

Some operators accepted bad regulation as part of the new normal while others challenged it in court. Financial analysts incorporated regulatory burden as one of the parameters for assessment, and CEOs readied questions about the impact of regulatory policies.

“The regulatory world was brutal in 2017, especially in the EU. There it was effectively a re-nationalization of networks but without financial compensation to the shareholders. Policymakers made rules for mobile coverage, faster broadband, free roaming, data protection, and intellectual property, many rules which negatively impacted shareholder value.

Preserving democracy

Moreover, regulators justified their actions by saying they are protecting the internet and preserving democracy, but the real question is whether it is a cover for politicians to take control of communication and shut down their political enemies. Brexit, Trump, and Emmanuel Macron’s successes frighten many underperforming politicians,” the research provided.

The threat to the free and open internet is not the telecom companies that build and operate networks, but the governments that want to control people and the information they see. Political elites are also threatened by the internet’s capabilities to empower people through platforms, as well as its ability to create a media outside of national broadcasts. As such internet platforms are also a target for government regulation.

Technological ambitions

The CEO also revealed, in the report, what might happen around the world in the next 365 days. According to him, European politicians will spend a lot of time boasting about their technological ambitions but the dream will not become a reality for Europeans. The EU will continue to fall behind the US and East Asia, as these regions implement 5G network.

“The US will be an exciting region to watch, a reset after the 2015 Title II debacle.  The combination of tax reform and regulatory right-sizing will boost American operators in 5G, IoT, and wireless broadband technologies. In Latin America, attention will be paid to limited ability to develop local services and limited level of investment. A culprit may well be that key networks are still state-owned, frustrating their entrepreneurial abilities. A possible pendulum swing is afoot, and privatization is long overdue in many countries.

“Asia is probably the most exciting region in 2018 as China, South Korea and Japan will take another leap into the future. China is grooming Huawei to be a one-stop shop for telecommunications, enterprise solutions, smart cities, and energy production. By 2018, Huawei will be not only largest manufacturer for telecom equipment but solar panels as well. India, once a textbook success story for its mobile market liberalization, is a basket case. Increasing broadband regulation imperils investment, and performance in infrastructure deployment and internet adoption lags.”

Increase traffic

The report further states that, 2018 will likely feature the production of new technology with high user value for the mass market, whose 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 a 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.

Internet of Things

The Internet of Things (IoT) market will also 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 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.

Decommissioning 2G

Strand continues, “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.

World of connectivity

“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.

Room for apps

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, says Strand. He pridicts that; “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.

Digital ambassadors

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.

Internet innovation

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.

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.

Conclusively, the report predicts that 2018 will be a challenging year for creative people and innovative companies. “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 limit the possibilities for business models. The price of technology has fallen so much, user interfaces are so user friendly that what we 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.  We hope these predictions give you inspiration for 2018. It is our 17th year in making predictions, and we try to inform, delight, and challenge our audience.”