ABI smart city warning tells all too familiar sluggish telco tale

ABI Research has warned MNOs might miss out on the $7.6 billion ‘UnTelco’ revenue opportunity if it waits for the 5G euphoria to kick in.

It’s a story which we have heard before, though the telcos run the risk of missing out on a future craze of the digital economy by doing very little. Although it might seem a long-way off, there will certainly be an opportunity to make money in the smart city segment, as well as a chance to banish the dreaded utility tag.

“Smart cities is a huge and complex market, where a traditional vertical focus is now co-existing with a cross-vertical trend that is gaining momentum,” said Pablo Tomasi of ABI Research. “The size of the market, with all its different sub-verticals, means that MSPs [Mobile Service Providers] can target and assume various roles from system integrators to platform providers.

“While the opportunity is huge, competition is mounting, as proven by network vendors’ aggressive activities in the platform space. MSPs need to balance coopetition and prioritize innovative business models, for instance, based on advertising or performance-based revenues, rather than waiting and fostering the marketing trend centred on the role and potential of 5G in smart cities.”

As Tomasi points out, there is a lot of work which can be done pre-5G to lay the foundations for monetization in the smart city era. There are a couple of companies preparing themselves, Verizon has a smart city strategy focused on M&A after purchasing Sensity System and LQD, while Deutsche Telekom is leveraging aggressive NB-IoT deployments, but the industry on the whole looks sluggish. In waiting for the 5G catalyst the boat might have already been missed.

Of course this is not the first time we have heard this tale. Through inactivity and a lack of foresight, cash cow revenues of SMS and voice were destroyed by the OTTs, who also managed to take ownership of the video segment. The smart home is another which is increasingly looking like a lost opportunity as the focal point of the ecosystem shifts to the smart speaker not the router. Even the connected car is under threat as Google carves out partnerships to launch Android as the OS for a number of different automotive manufacturers.

In each of these examples, ownership of the ecosystem has been shifted elsewhere with the telcos slipping down the value chain. The risk is present again with smart cities and it might not be too long before telcos are simply known as connectivity utilities, offering few value-added services to the customer.

While there is still money to be made from being a utility, the focus is shifted towards operational efficiency as opposed to aggressive rollout of value-add services, the risk is with regulation. Should telcos be branded utilities they will fall under the heavy hand of government regulations. There might be benefits in terms of land access and pricing protections, but the telcos are determined to remain at arms-length from the flurry of red-tape and zombie-like civil servants.

As Tomasi said, there is still time to reverse these doomsday predictions, though the signs are not exactly favourable. The telcos are traditionally incredibly risk-adverse organizations which simply won’t work in the cut-throat digital economy. Companies have to be willing to adopt the fail-fast business model, which occasionally means making a bet on a segment which might not work out. Google partnering with automotive manufacturers with its Android OS is an excellent example. It might get disrupted, it might become irrelevant, or it might now have a foot through a very profitably door.

If you don’t buy a ticket, you’re never going to win the lottery.

Fiber-optic is important for 5G but operators will need a range of options

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Jake Saunders VP, Asia-Pacific & Advisory Services at ABI Research, looks at some of the backhaul questions that need to be answered as we enter the 5G era.

Momentum behind 5G is building. Through ABI Research’s own analysis, 48 countries have either carried out consultations or have taken steps to auction spectrum and licenses for 5G services. Korea, Japan and the USA probably have the most extensive 5G commercial deployment plans in place but what is particularly remarkable is the spread of countries across the globe that have committed to 5G commercial deployment by 2020.

5G offers an unprecedented leap in bandwidth speeds compared to the previous generation. This is made possible by using high-band frequency spectrum, as well as key antenna technologies, such as massive MIMO. Bands in three spectrum ranges will be needed for 5G: Sub-1 GHz, 1-6 GHz, and above 6 GHz. Crucial 5G spectrum bands above 24 GHz will be agreed upon at the World Radiocommunication Conference in 2019 (WRC-19); this includes 26 GHz and 40 GHz, which already have significant international support for 5G access. Outside of the WRC process, the 28 GHz band is also supported for 5G access by important markets such as the United States, Japan, and Korea. For the initial enhanced mobile broadband use case, spectrum within the 3.3 GHz to 3.8 GHz range is emerging as an important harmonized 5G “mid-band.”

Each cellular access technology has taken off at a faster rate than the previous generation. GSM took 6 years to reach 100 million subscriptions. 3G’s HSPA+ took 5.25 years, 4G’s LTE 3.5 years, LTE Advanced took 3 years. We will see if 5G further shortens the time to ‘100 million subscriptions’ but the rapid growth in subscriptions combined with the amount of 5G traffic that will be generated, will put increased pressure on the backhaul infrastructure of mobile networks. Over the course of ABI Research’s forecasts, mobile data traffic is anticipated to grow at a Compound Annual Growth Rate of 28.9% to surpass 1,307 exabytes on an annual basis in 2025. 4G and 5G subscribers may only represent 55% of total subscriptions in 2025, but they represent 91% of the total traffic generated in 2025.

Backhauling the Traffic       

The exponential growth of mobile data traffic has been driven largely by the uptake of streaming TV and movie services, as well as video content in social media and instant messaging. A 4G base station based on the Common Public Radio Interface (CPRI) architecture requires bandwidth of 1 Gbps to 10 Gbps per sector, while a 5G base station with the upgraded Enhanced CPRI (eCPRI) architecture requires 10 Gbps to 25 Gbps. However, mobile service providers cannot ignore the latency requirements for 4G and 5G services. A 4G or 5G base station based on eCPRI architecture requires no more than 75 microseconds, but even in the most latency-tolerant scenario (S1/NG), latency of no more than 30 ms is needed.

Many operators have either upgraded their networks to LTE-Advanced or are in the process of doing so. In the case of LTE-Advanced, new RAN optimization techniques impose critical performance requirements on the X2 interface (essentially the IP control and user plane for communications links), which results in a latency cap of no more than 10 ms from end to end. This means latencies across the backhaul network need to be <1 ms. In 5G, for mission-critical applications, latencies will need to be sub-1 ms.

fig 1 abi article (002)

Fig.1: 4G and 5G Bandwidth and Latency Requirements (Source: Ericsson)

Only 5G cell-sites served with fiber-optic cable or microwave links will be able to support the latency tolerances required by some LTE and 5G applications. For some ultralow latency critical applications, the length of the fiber-optic cable will be constrained by the fact that information can only be transmitted at 5 microseconds/Km. For eCPRI cell-sites, the fiber-optic link will need to be less than 15 Km. In geographic areas served by geostationary satellite backhaul, mobile operators may be constrained to 2G, 3G, and non-latency-sensitive LTE services.

5G Backhaul Will Need Options     

Mobile operators have a challenging time backhauling the mobile voice and data traffic from varied environments, such as urban, suburban, rural, offices, residential homes, skyscrapers, public buildings, tunnels, etc. Table 1 below outlines how mobile operators rely on a variety of backhaul approaches to transmit their traffic to and from macro and small cell base stations.

fig 2 abi article

Fig.2: Mobile Backhaul Technology Trade-Offs, Wireless versus Fixed versus Satellite (Source: ABI Research.)

Mobile carriers are increasingly facing the reality of having to deploy a Heterogeneous Network (HetNet) architecture of macro and small cells that may rely on 3G, 4G, and 5G. Microwave and millimeter bands (V-band (60 GHz) and E-band (70/80 GHz)) are suitable for HetNet backhaul because it allows for outdoor cell site and access network aggregation of traffic from several base stations, which can then be handed off to the mobile switching centers and finally the core network.

At the end of 2017, ABI Research estimates the majority share of backhaul links (an aggregate of macrocells and small cells) were supported by traditional microwave 7 GHz to 40 GHz (56.1%) backhaul equipment. The higher bandwidth requirements of LTE are driving a significant roll-out of fiber (26.2%). Bonded copper xDSL connections (3.5%) are available in 2017, but the need for this technology will continue to decline. Satellite-based backhaul, which primarily plays a role in backhauling traffic in peripheral locations or rural environments where microwave may not exist, represents 1.9% of backhaul links worldwide. Satellite backhaul has a minority share of the market-place but it is still an important backhaul access technology.

On a worldwide basis, fiber-optic backhaul is expected to grow to 40.2% of macrocell sites by 2025, which just eclipses microwave in the 7 GHz to 40 GHz band with 38.2%. Microwave Line-of-Sight (LoS) in the 7 GHz to 40 GHz bands is still a long-term viable solution for macrocell sites. Microwave links in the 41 GHz to 100 GHz bands will double from 5.1% to 12.6%.

 

Jake Saunders will be speaking on Eliminating the Digital Divide in the Evolution to 5G at 5G Asia 2018, taking place 18th – 20th September in Singapore. Find out more about the event and join him there.

Network slicing can unlock $66 billion of industry opportunities – ABI

Analyst firm ABI research has had a bit of a spreadsheet frenzy and come to the conclusion that network slicing can create $66 billion of fresh commercial opportunities for telcos.

Just to remind you, network slicing involves prioritising portions of the network to more specific applications, such as high bandwidth, low latency or massive, low-power IoT. Ideally this can be done dynamically via all the virtualised cleverness we’ve been banging on about for so long and will enable MNOs to offer more bespoke services to various industries.

Unlocking all these new ‘verticals’ has the potential to massively increase the total available market to telcos, so long as they can both utilise network slicing to create useful communications services and work out out to both tailor them for and sell into these lovely new markets.

“Telcos (aka Mobile Service Providers or MSPs) are increasingly seeking to create services that are more differentiated and tap into the growth engine of the future, intrinsically linked to a superior experience for end consumers, and operational simplicity for enterprises and end verticals,” said Don Alusha of ABI Research.

“Network slicing revenues will eventually be on an upward trajectory, driven by digital, cloud, and security requirements of multiple industry verticals, particularly for the trio of manufacturing, logistics, and automotive. Realizing the full revenue potential is dependent on essential slicing infrastructure from vendors, and pertinent applications delivered by MSPs.”

Alush thinks BT and Swisscom are ahead of the game when it comes to this sort of thing and are showing the way for others. “This is encouraging and lays the foundation for widespread commercial deployments even before 5G diffusion. There are specific vendors in the market who are addressing end-to-end slicing scenarios that pull together a number of technologies, Nokia and Ericsson chief among them.”

“MSPs and vendors are pursuing different models of collaboration with vertical markets and growth for each market will be driven by premium services, revenue potential and ability to address existing challenges in the short and medium term. Vendors should aim to eliminate complexity through automation and ‘deep’ orchestration, a feat that calls for close collaboration with standard bodies to standardize and achieve alignment apt for commercial deployments and ecosystem integration.”

All good advice, but easier said than done.

Smart home is $11.2bn opportunity, but are the telcos ready for it?

ABI Research estimates the smart home segment could potentially be worth in the region of $11.2 billion by 2022, but the diversification question still remains for the telcos.

The smart home is a concept which has been on the horizon for some time, we’ve been debating the merits of talking fridges for years, but until recently it has perhaps been little more than a gimmick. The advantages of the expensive upgrades were limited, and in all honesty, there seem like little point in connecting your toilet to the internet. That said, during the last 12-18 months applications and services have started to appear to make the prospect genuinely interesting. And we’re talking about more than just connecting your bog.

This seems to be the point of the ABI Research note, the consumer is starting to welcome the idea of the smart home. AI-powered products are becoming more the norm off the shelf, while the concept of the data-sharing economy is no-longer a baffling idea. But are the telcos ready for this evolution?

“CSPs are being threatened in a market increasingly driven by the likes of Google and Amazon with a range of products and services from AI-powered smart home voice control smart speakers to security solutions,” said Pablo Tomasi Senior Analyst at ABI Research.

“But things are changing and CSPs are accelerating their strategies for the smart home. Telefonica with Aura, Orange with Djingo, and SK Telecom with Nugu lead the way of CSPs developing AI assistant to support their smart home play. Now is the time for CSPs to be more aggressive in tying the usage of their AI assistants to their other connected and smart home offerings.”

The smart home will also offer a small opportunity for the telcos, all of these devices will have to be powered by the internet, therefore those who are happy with the utility tag can sit back and wait for the trend to kick-in. However, for telcos who want to diversify revenue streams and interact with the consumer in a more meaningful manner, they will have to demonstrate they are capable of competing with some of the most innovative companies on the planet.

A platform approach is one way in which this can be done, with telcos favouring the ‘freemium’ model over the traditional ‘bundled services’ option, according to ABI. By creating an extensive and varied ecosystem, and leveraging current assets all around the home (connectivity, content delivery, etc.) and emerging concepts such as monitored security, the telcos have a wider reach than others attempting to capitalise on the smart home enthusiasm.

The issue here is timing. As with any hype curve, getting in ahead of competitors is critical. There was an opportunity to act as the middle man between the consumer and the manufacturers of smart home devices, leveraging the excellent relationship telcos have developed, though this is still a distinct possibility.

Research from consultancy firm EY suggests consumers are not settled on where they would like to purchase their smart home devices from. Broadband providers proved to be the most popular choice, at 19%, but tech websites were a popular choice on 18%, while going direct to the specialist manufacturer was as well on 17%. Utility providers collected 15% and household appliance manufacturers took 13%. 11% choosing smart phone manufacturers is encouraging for that segment, though MNOs only took 4%. Variety is important right now, as it demonstrates there is still an opportunity for someone to take a strangle hold of this relationship with the consumer.

The potential for the smart home is massive, and this potential will only become bigger as the voice user interface becomes more commonplace. The important factor here is to take a risk and secure a leadership position. With the emergence of the connected and sharing economy a couple of years ago, the telcos took a backseat and suffered because of it. They sit at the bottom of the totem pole waiting for the crumbs to fall down, largely collecting revenues from connectivity alone.

The smart home is an opportunity for mistakes of yesteryear to be corrected.

Telematics could be key for US telcos – just don’t get distracted

ABI Research has pointed to statistics claiming 68.5% of cellular connected M2M devices are telematics or broader transport applications, but telcos need to laser focus to reap the rewards of this window.

The connected car is without a doubt an opportunity for the telcos, but ABI has warned the fortunes might be missed if they get distracted by other technologies. This is a genuine opportunity for the telcos, though ABI has cited new LPWA technologies that are being positioned as a competitor to cellular, increased interest in private network opportunities, and the on-going debate on the merits of licensed and unlicensed spectrum, as distractions which could erode margins.

“Some of the biggest opportunities and drivers for cellular operators are in telematics and asset tracking; coverage and low latency are the essential requirements for these fast-growing segments,” said Kevin McDermott, Principal Analyst at ABI.

At the end of 2016 there were 82.65 million cellular connected M2M devices, 68.5% of which were related to telematics and other transportation applications. The ABI team is also predicting cellular M2M market will grow beyond 300 million connections by 2022 in the US alone. While the proportion of connections for connected vehicles will surely erode, it will still be prominent.

The risk here is that of distraction. Should the executives start seeing the dollar signs everywhere, there is a danger of overreach. Not in the sense of being too ambitious, but spreading operations and research too thin. The greediness of telcos, who have seen profits eroded steadily over the last couple of years, could see them becoming average at everything and exceptional at nothing. Being average at everything is opening the door to disruption, tempting the re-emergence of the downward spiral the telcos have been in for the last decade.