Battleground

Battleground

15 April 2020 | João Marques Lima

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Over the next five years private enterprise networks will explode and create a competition battleground between telcos and cloud companies. But who will win? João Marques Lima searches for an answer.

From rulers of the land and the seas, telcos have in the past years seen a growing shift in business models as they both partner and compete with the internet guys like Amazon, Google, Facebook and Microsoft. With the arrival of the 2020s and the ongoing digital penetration worldwide, new frontlines on business battlegrounds are being drawn.

For telcos, one of the new lines of combat is the cooperation and collaboration with the cloud giants – who, themselves, are fighting their own cloud battles. 

According to GSMA’s Global Mobile Trends 2020 report, by 2025 the mentioned private networks will have become an extremely sought-after asset for almost everyone in the IT infrastructure field.

Confirming this, Tim Hatt, head of research at GSMA Intelligence, explains that there is a pragmatic reality that telecom operators will be both competitors and partners to the hyperscale companies.

“You already see, for example, the US mobile operators and carriers having partnerships with AWS, some with Microsoft, others with IBM,” he says.

“Likewise, in Europe, you see several partnerships with those same companies. You might have operators leasing cloud capacity from one of the big web-scale companies, but still owning the end customer relationship. And that’s been a wholesale model.”

Hatt continues adding that nevertheless, the opposite might occur, where for example, AWS is selling into for instance a company like Ford, but requires the services of an operator for a private network built on their campus.

“In other cases, they’ll be competing head on. The reality is that enterprise, digitisation as it’s often called, is just something that’s going through the wider economy. There are so many different technical components to that and no one company can actually do this on their own. It’s a mix of partnerships and competition.”

Nonetheless, partners or competitors, there is a fundamental question left unanswered: how will the profits be split in this new economic cycle?

For Hatt, this is still a question with no clear answer and “the way the value gets split among that remains to be seen”.

He says: “Amazon, Microsoft and Google have profited a lot by having exceptionally large scale capital expenditure (CAPEX) and with the shift of pretty much all enterprise applications on to the cloud, now it’s moving to a higher value add where you’re not only shifting applications onto the cloud, but you’re getting much more into things such as AI refinements to how data is utilised. And that’s a playful area.”

As telco efforts intensify to drive growth in digital, in the report, GSMA highlights that aside from costs associated with infrastructure investment, the biggest challenge will be to engineer internal cultural change that rewards agile operations and risk taking, rather than simply hitting quarterly KPIs.

“We’re talking about a sort of mentality shift away from selling a service to being a sort of partner of your client,” says Hatt. “The mobile operators, for example Vodafone or Telefónica, were selling into you know, company X. In the past that might’ve been a simple transaction of access to a given network for a certain service. But now, there is an internal cultural change. It’s about being responsive to understanding what that enterprise customer is actually looking to do with its own project, its own transformation plans and potentially being seconded to work in those plans with them. Just like what an Accenture or an IBM would do. It’s being as much a partner as a service provider.”

View from the top

Beyond enterprise connectivity, there are significant other market shifts about to take place this decade. Change that will not only further reinforce the evolution of wholesale, but also transform the way users use the infrastructure and applications deployed. Although 5G will still take more than half of this decade to become the de facto network, the amount of investment and revenues expected are set to break any existing records. 

Total mobile revenues reached $1.04 trillion in 2018, up 1.4% year-on-year. Following a further pick-up in 2019, growth will slow steadily to around 1% (real terms) growth to 2025.

The recent uplift in growth reflects a stabilisation of pricing trends, GSMA says. This includes Europe and India following consolidation moves, while data growth in emerging markets remains strong.

Growth to 2025 includes a modest uplift from 5G launches and IoT services with further growth dependent on growing revenues in enterprise IoT segments and new 5G services that consumers are willing to pay more for.

When it comes to CAPEX, GSMA estimates that operators will invest up to $1 trillion in 5G. The think tank says that much of the 5G network investment to 2025 ($700 billion) will be backloaded, reflecting more targeted rollouts compared to 4G.

In the report, it also shows that 5G network investment can be divided into three main waves, with the first wave of deployment taking place from 2018 to 2020, and with China, the US, South Korea and Japan dominating the market.

Secondly, between 2021 and 2023, Europe is expected to accelerate its rollouts, more than doubling its 5G CAPEX, to reach nearly $100 billion in this phase. Europe’s 5G coverage is forecasted to be around 40% by 2021, “reflecting a cautious investment sentiment and remaining headroom for LTE”.

Lastly, the third wave will kick off from 2024 and beyond, with 5G arriving to the rest of the world in Latin America, MENA, the CIS and parts of Africa.

All in all, by 2025, APAC is forecasted to spend a cumulative total of as much as $370 billion in 5G CAPEX, followed by North America at $305 billion, Europe with $201 billion, Latin America topping $60 billion, CIS reaching $28 billion and Sub-Saharan Africa $11 billion.

Today, 5G is still a novelty to consumers often priced at higher rates or only usable in premium phones, and according to GSMA’s report, for enterprises “4G is still good enough”.

“To a certain extent this reflects the fact that 5G is young. The greater point is that enterprise digitisation is a pond being waded into by multiple sectors including telcos, cloud, SaaS and systems integrators,” researchers say.

However, this is exactly where Hatt’s previous point of “being as much a partner as a service provider” comes into place.

The challenge today and in the near future will be to move the conversation away from technology and towards a consultative mentality that solves problems.

Hatt says: “The rise of the internet generation in the developing world is an important factor. There’s a reason why we say that the next billion [users] are mobile only users. And it’s very interesting when you look at the numbers like of those next billion internet users that will come in the next five years.

“Eighty percent are from five countries and India is by far the biggest. There is also China, but you have countries such as Nigeria, Pakistan and Indonesia that are low-income but high growth economies. The interesting thing here is not just the size, but the predominantly non-English-speaking populations, the youthful demographics, and therefore the sort of content that will be needed to capture their attention. I don’t think it will simply be big headliners from Netflix or what has necessarily worked in Europe and in the US, but this opens up a whole kind of space for local content generation, or at least local production facilities if Western companies are willing to invest in those.”