UK Gov launches IOT cybersecurity fund

The Department of Digital, Culture, Media and Sport (DCMS) has launched a £400,000 fund to fuel ambition for the security of internet-connected products.

The ultimate hope will be to kick-start the development of an assurance market for consumer internet-connected products such as wearable devices or smart doorbells. Such assurance schemes could offer accreditation for products which have undergone relevant tests, providing more confidence for consumers to purchases and to make full use of all functionality without fear of poor security.

“We are committed to making the UK the safest place to be online and are developing laws to make sure robust security standards for consumer internet-connected products are built in from the start,” said Digital Infrastructure Minister Matt Warman.

“This new funding will allow shoppers to be sure the products they are buying have better cyber security and help retailers be confident they are stocking secure smart products.

“People should continue to change default passwords on their smart devices and regularly update software to help protect themselves from cyber criminals.”

The idea is a simple one, but a very good one. Should such assurance programmes be nurtured correctly, and the general public be made suitably aware, it would become a factor in the buying decision making process. Manufacturers would be effectively coerced into compliance as sales could be impacted without the presence of the certification.

Alongside this initiative, new laws in the UK will come into play for both enterprise and consumer internet-connected devices. Any device sold in the UK will soon have to adhere to three rules:

  1. Device passwords much be unique with no option to restore to factory settings
  2. Manufacturers must create and maintain a public point of contact to report device or software vulnerabilities
  3. Manufacturers must state how long the device will receive security updates

These rules should form the basis of a more secure digital economy, though product assurance programmes would add more credibility and confidence in the quickly developing segment.

Recent figures from IDC suggest the wearables market is growing, 29.7% year-on-year for the first three months of 2020, though the numbers could have been higher. The on-going COVID-19 pandemic limited shipments due to supply chain disruptions and sourcing component for the products.

While the consumer IOT segment is still in the early development stages, it is critical the industry set the standards on security. Should the segment be allowed to progress too far with bad habits, attempting to correct mistakes and bad practice will become much more difficult. The UK should be applauded for its attempts to get ahead of trends, and hopefully other Governments are taking note.


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Work from home helps drive up wearable market by 30% – IDC

The Q1 wearable shipment numbers showed strong growth, with the wireless headset segment up by nearly 70%, partly driven by working from home employees’ need to block out unwanted noise.

In its latest wearable tracker, the research firm IDC saw the overall market go up by 29.7% over the same quarter in 2019. The strongest growth was in the so-called ‘hearables’ segment, which is essentially wireless earphones and headsets. This segment increased by 68.3% and accounted for 54.9% of the 72.6 million wearable market.

“The hearables category was seemingly resilient to the market-suppressing forces caused by COVID-19,” said Jitesh Ubrani, Research Manager for IDC Mobile Device Trackers. “Consumers were clamouring for these sophisticated earpieces not only for the abilty to playback audio but also to help them increase productivity, as many of them were forced to work from home and sought ways to reduce surrounding noise while staying connected to their smartphones and smart assistants.”

The other categories in the total wearable market includes wristbands and watches. IDC estimated the wristband segment grew by 16.2%, helped by the launch of Fitbit’s new Charge 4. However, the watch category has seen a 7% decline. IDC attributed the contraction primarily to supply chain disruption in China caused by COVID-19.

“The downward pressure on watches shifts the onus to the latter half of 2020,” said Ramon Llamas, Research Director for IDC’s Wearables Team. “This gives companies the time to refine their products and messaging, and to align those with customer needs. Given the hyper focus on overall health and fitness in today’s climate, vendors would do well to highlight those capabilities, and provide guidance on how to live healthier lives.”

Incidentally, this estimate of the watch market is rather different to the smartwatch market numbers published by Strategy Analytics earlier this month, when it estimated a 20% increase in the segment. SA also believed Apple Watch volume grew by 23% in Q1 to reach 7.6 million.

“Apple’s global smartwatch market share has grown from 54 percent to 55 percent, its highest level for two years,” Neil Mawston, Executive Director at Strategy Analytics said. “Apple Watch continues to fend off strong competition from hungry rivals like Garmin and Samsung. Apple Watch owns half the worldwide smartwatch market and remains the clear industry leader.”

IDC, on the other hand, put Apple Watch’s sales volume in Q1 at 4.5 million units, down by 2% from a year ago. Such is the difficulty posed to research firms when Apple, the market leader does not disclose device volumes.

It is also worth noting that the two research firms are reporting on slightly different market segments. IDC, in addition to smartwatch, also includes what it calls ‘basic watch’ in its market estimate, by which it refers to those watches that have computing and data processing power as well as wireless connectivity but do not run third-party applications. IDC does not split the volume of two types of watches it reports on in its publicly available data.

Here are the market estimates from the two firms:

A look back at the biggest stories this week

Whether it’s important, depressing or just entertaining, the telecoms industry is always one which attracts attention.

Here are the stories we think are worth a second look at this week:


Facebook reignites the fires of its Workplace unit

Facebook has announced its challenge to the video-conferencing segment and a reignition of its venture into the world of collaboration and productivity.

Full story here


Trump needs fodder for the campaign trail, maybe Huawei fits the bill

A thriving economy and low levels of unemployment might have been the focal point of President Donald Trump’s re-election campaign, pre-pandemic, but fighting the ‘red under the bed’ might have to do now.

Full story here


Will remote working trends endure beyond lockdown?

It is most likely anyone reading this article is doing so from the comfort of their own home, but the question is whether this has become the new norm is a digitally defined economy?

Full story here


ZTE and China Unicom get started on 6G

Chinese kit vendor ZTE has decided now is a good time to announce it has signed a strategic cooperation agreement on 6G with operator China Unicom.

Full story here


ITU says lower prices don’t lead to higher internet penetration

The UN telecoms agency observes that, while global connectivity prices are going down, the relationship with penetration is not as inversely proportion as you might think.

Full story here


Jio carves out space for yet another US investor

It seems the US moneymen have a taste for Indian connectivity as General Atlantic becomes the fourth third-party firm to invest in the money-making machine which is Jio Platforms.

Full story here


Telecoms.com Daily Poll:

Can the sharing economy (ride-sharing, short-stay accommodation etc.) survive COVID-19?

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Why is Google so interested in Fitbit?

In early November, Google announced it was acquiring Fitbit for $2.1 billion, a transaction which has polarised opinion. But why is Google interested in a faltering wearables brand?

Acquisitions in the technology world are not unsurprising, especially when it comes to search engine giant Google. This is a company which is constantly pushing the boundaries of normality, testing ideas outside its core competencies and exploring for the next multi-billion-dollar business.

The question which remains in the minds of some is whether Fitbit could be the catalyst for profits, or if this is an unjustified expansion of Google’s ability to pry into the personal lives of users around the world.

$2.1 billion for a failing wearables business

When talking about wearables, it used to be impossible to avoid Fitbit. This appeared to be one of the very few companies who could turn a profit in a segment which flattered to deceive. Until recently that is.

Looking at the financials of Fitbit, the business was heading south very quickly.

Full-year financial results for Fitbit 2015-19 (USD ($), millions)
Year Total revenue Net Income (Loss)
2019 1,434 (320)
2018 1,512 (185)
2017 1,615 (277)
2016 2,169 (102)
2015 1,858 175

Source: Fitbit Investor Relations

In 2015, Fitbit was a rapidly growing wearables brand turning a tidy profit. What made this even more impressive is the failures of almost everyone else to crack the market; wearables was a segment which no-one else seemed to be able to make work, not even Apple.

The trick with Fitbit was simplicity. It didn’t try to take on traditional timepieces with a clunky digital alternative which still had to be tethered to a smartphone, it produced a simple fitness device. It identified a need and fulfilled a purpose, without trying to be too clever.

The issue which it has faced in recent years is two-fold. Firstly, wearables become more mainstream and demanded more functionality. And secondly, mainstream brands were allocating big marketing budgets.

Fitbit attempted to evolve its offering, creating more devices which were more in-line with the smartwatch image of today, but it struggled to compete with the likes of Apple and Samsung when it came to functionality, design, marketing and acquiring new customers who had not previously been interested in wearables. It failed to evolve, adapt and expand.

That said, the barebones of a successful business are still there.

The resurgence of Fitbit as a competitive force

Fitbit is an interesting acquisition for Google. It has a solid and reputable fitness brand, a loyal customer base as well as existing products and IP. The fundamentals of a good business are in place, the reason Fitbit failed is it was not able to advance its business model to the next level of development.

Aside from good products, consumers nowadays are insisting on experiences and an ecosystem of supporting applications. One explanation as to why Fitbit is a failing business is that it was unable to develop the supporting applications, experiences and services to bundle behind the hardware.

This is where Google can help.

With the Fitbit team concentrating on developing new products, the software and services element can be delegated to the Google engineers. With an army of software experts and existing products, Fitbit could certainly emerge as a fighting force on the wearable scene once again.

Aside from the Android operating system which has Google has created for the wearable ecosystem, Wear OS, there are numerous other services which could be more closely linked to the Fitbit products such as Google Maps and YouTube Music. The products could also benefit from the work Google is doing into new areas such as the voice user interface and gesture control.

Bringing together the Fitbit hardware experience, IP and brand, with Google’s OS expertise and software engineering smarts is a very attractive mix.

Why would Google care about the wearable segment?

Firstly, Google is interested in any idea which can make money, and with the right care and attention, as well as patience, you can make money out of just about anything.

Secondly, the wearable ecosystem allows Google to operate in an area where it currently doesn’t.

And finally, wearable products allow it to buildout other investments in areas such as healthcare and smart cities.

Global smartphone market share – 2019
Brand Market share
Apple 31.7%
Xiaomi 12.4%
Samsung 9.2%
Huawei 8.3%
Fitbit 4.7%

Source: Statista

Just like the smart speaker products Google launched in recent years, the greater opportunity is not to profit from product sales, but to build a services ecosystem behind the hardware. Fitbit products with Wear OS allow Google to interact with customers in a new setting, in a new way, while collecting new data.

This data can of course be used to supplement existing advertising models, hyper-targeted messaging is where the money is after all, but it can also offer Google the opportunity to build new services. With a portfolio of fitness related products, Google can collect new data to create new applications as well as buildout the development of existing ideas.

For example, Verily is a research organization devoted to the study of life sciences. Verily works with academia, hospitals and health systems and life sciences companies to improve healthcare. The work is of course technology focused, making best use of data to augment the healthcare industry, and the addition of a portfolio of health and fitness wearable products would improve this proposition.

Another example is Sidewalk Labs, an ‘urban innovation’ investment from Google. The concept of smart cities is quickly gathering steam, and should the right investments be made, software companies could make billions. Wearable devices will be an important element of the smart cities for identification and authentication with public services, payments and interaction with other applications which could emerge.

These are two ideas which already exist in the Alphabet family, but Google does not currently have a venture into fitness and lifestyle. Fitbit it an entry point.

Owning the OS is critical to owning the ecosystem

Google is one of the most successful companies in the world because it manages to position its products and brands in front of people. And perhaps the most important acquisition it made in its history was Android.

The operating system, founded in 2003 by Andy Rubin, ensured Google powered the majority of smartphones across the world. It is free for smartphone manufacturers to use, but this comes with conditions; certain applications have to be installed as default. Aside from these products being very good, accessibility is one of the reasons they are so popular.

Wear OS, the operating system for wearable devices, offers Google the same opportunity. If users are tied into the Wear OS ecosystem, Google can build services and monetize the audience.

However, success for Wear OS has been wayward to date.

Apple devices use WatchOS, Xiaomi have their own as well, Garmin has developed one internally, Tizen is a Linux-based primarily by Samsung, while Fitbit also had their own. No-one was really that interested in Google’s OS when they have proprietary software, as this would mean handing data and the controlling stake in the software ecosystem to Google.

Purchasing Fitbit offers Google the opportunity to get Wear OS into the wild, collecting data to improve its capabilities. Without the Fitbit acquisition, Wear OS would most likely have dwindled and died, but if the Fitbit brand can be reinvigorated, there is every chance Google could be very influential in this segment. Especially as Fitbit already have a health-orientated brand perception.

Data, data, data…

The Google business is built on data. The algorithm powering search engines only works well because it is constantly trained to improve accuracy of results. Google advertising is only successful because it is hyper-targeted. The Maps products constantly need to be fed data to ensure route-planning is most efficient, local businesses are listed and preferences are honed to the user.

Fitbit offers some extraordinary data, which would be very useful for companies like Google.

To make best use of fitness-based products and applications, additional information on the user is often needed. Weight, height, fitness and lifestyle objectives, eating habits are some examples which can be plugged into the application. These devices also track user location, how and when they exercise, heart rate, and sleep patterns. Analysing this information is very useful for fitness-orientated users, but it is also incredibly valuable to advertisers.

It is always worth pointing out that the more people making use of Wear OS, the more data Google is collecting to fuel the advertising machine. Thanks to Deepmind, Google’s AI powerhouse, all of Google’s service make use of user insight to improve the accuracy and profitability.

This is where some of the objections to the Fitbit acquisition have been directed.

How much is too much insight?

There are many in society who are uncomfortable with the amount of information the internet giants, not Google alone, have already and how much additional access they are gaining through acquisitions. There are some who like the idea of Google purchasing Fitbit, but there are also others who question whether this is handing too much power and influence to the search giant.

Some might question how much of a window Google should be given into the personal lives of people around the world.

“The most critical issue is Google’s acquisition of Fitbit’s trove of health and biometric data,” the Electronic Frontier Foundation, an opponent of the acquisition, said. “Obtaining that data will help Google both improve its advertising business and significantly expand its data empire.

“Google’s acquisition of Fitbit will also deprive users of one simple, meaningful choice they could have made: to track their health and fitness without putting that data into Google’s ecosystem.

“And where users have already made this choice—by buying and using Fitbit devices prior to the acquisition—an acquisition destroys those user choices, retrospectively opting them into Google data collection despite their revealed preference to use a Google competitor.”

The Electronic Frontier Foundation has two objections to Google’s acquisition of Fitbit. Firstly, Google is getting too much personal information. A single, private organisation should not have such power. And secondly, such an acquisition would restrict competition in an already restrictive segment.

On the competition side of things, there is a valid point.

Not only is the smartwatch and wearable segment pretty small already, competition is the digital advertising space is also limited. Should Google expand further it would become more powerful in the advertising game, potentially killing off rivals.

The Electronic Frontier Foundation is not alone with its objections to the deal, and the concerns are not going unheard.

In the US, the Department of Justice is considering the impact of the acquisition in terms of data collection and privacy as well as market competition. Down in Australia, the Australian Competition and Consumer Commission (ACCC) has launched a similar investigation which is due to conclude on May 21.

The big question of whether Google should be allowed to acquire Fitbit

By acquiring Fitbit, Google gives itself a leapfrog in the wearable OS segment, it builds out investments in healthcare and smart cities, creates additional revenue streams, allows it to drive forward another ecosystem in its own vision and adds more valuable data into the advertising machine.

For Google, this is an incredibly intelligent acquisition, $2.1 billion well spent.

However, if it is to be successful it has to develop this business intelligently. The Wear OS team should focus on the development of the operating system and supporting ecosystem, while the Fitbit engineers should be empowered to create excellent devices, whether they are simplistic fitness trackers or complex smartwatches.

Enough money has to be thrown at the development teams, but Google has to let Fitbit be Fitbit; it is a successful brand and must be allowed to continue its own path. Let Google engineers concentrate on software, and Fitbit engineers concentrate on hardware.

But the question is not whether Google is smart in acquiring Fitbit, more whether it should be allowed to. The acquisition would enable Google access to a treasure trove of very personal information, as well as posing a potential risk to competition. The internet giants have already demonstrated a sluggish attitude to data privacy, and this transaction offers access to some very personal information.

Authorities will have to assess whether Fitbit would have survived on its own, which looking at the financials is unlikely, and whether Google should be allowed to expand its influence and power through the acquisition of more data.

Diversification helps Google ride the waves of coronavirus turbulence

Alphabet-owned Google certainly felt the pinch of COVID-19 over the last few weeks of the quarter, but CEO Sundar Pichai identified diversification as key to managing the crisis.

While few would complain when looking at the Google spreadsheets over the last three-months, it might not be living up to the milestones it has set itself in previous years. 13% year-on-year growth could be considered miserly in Google’s standards, but the coronavirus pandemic is a crisis few have experience with.

That said, investors are clearly pleased with the was Pichai and the team are managing the difficulties as share price shot up 8% during pre-market trading.

Google Q1 Financial Results (USD ($), millions)
Metric 2020 Year-on-year
Total revenues 41,159 +13%
Operating income 7,977 +20%
Net income 6,836 +3%

These are all attractive numbers, though coronavirus has inflicted a dent into the business. Pichai highlighted online advertising demand, the core revenue machine of the Alphabet group, was severely weakened from March onwards, as the full-impact of COVID-19 forced society and the economy to close doors.

Performance of individual business units (USD ($), millions)
Business Unit 2020 Year-on-year
Google Search 24,502 +8%
YouTube 4,038 +33%
Network Members’ properties 5,223 +4%
Google Cloud 2,777 +52%
Other Bets 135 -21%
Google other 4,435 +22%

In today’s world, where there is still plenty of unrealised profits in the digital economy, making money does not seem to be good enough. Investors demand high-growth year-on-year, partly due to what is available and partly because they have become used to it. This is the challenge which the likes of Google, Amazon and Facebook are facing; matching the success of yesteryear.

But in this period of uncertainty, it does appear to be a case of damage limitation. Like the financial crisis of 2008, everyone will be impacted but Google has somewhat of an advantage.

“…our business is more diversified than it was in 2008,” Pichai said during the earnings call. “For example, Cloud. In the public sector, we are helping governments delivered critical health and social services. We are supporting the state of New York, new online unemployment application system as it deals with a significant increase in demand.

“In retail, we have held Loblaw, one of Canada’s largest food retailers, and Wayfair, scale to support exponential traffic increases. We are helping communication companies adapt to new behaviour patterns. Vodafone is using Google Cloud platform to help that analyse network traffic flows to keep everyone connected, and we are helping Unity Technologies keep real time online games stay up and running.”

Google Cloud is the business unit which is perhaps profiting the most from the current crisis as more companies are forced through a digital transformation programme to embrace cloud solutions and enable workforce mobility. Some might complain about Google sinking billions into the Moonshot Labs every year, but this is the very reason why.

The more diversified revenues are, the more resilient a business is when faced with turmoil, irrelevant as to whether it is precedented or unprecedented. Google now has online advertising, cloud and video as three major sources, with plenty more bubbling away.

Over the three-month period, Alphabet CFO Ruth Porter said revenues for the Other Bets unit were $135 million, while operating loss was $1.1 billion. This might seem like a remarkable number, but these losses could eventually turn into the next Moonshot Graduate to make billions for the Group. Let’s not forget, the cloud business unit, YouTube, Maps and Android were all cultivated in these labs.

Currently in the experimental unit is Google’s self-driving car project Waymo, a delivery service using specialized drones known as Wing, life science tech unit Verily, smart city initiative Sidewalk Labs and Makani, an attempt to create renewable energy from propellers on airborne kites. Outside of these homegrown experiments, Google purchased Fitbit for $2.1 billion last year, taking it into the world of wearables.

Each quarter, the core advertising business unit brings in billions in profit, but dependence on these revenues are lessened. As the alternative revenue streams gather momentum, Google becomes more diversified and much more capable of managing global crisis’ which could cripple rival firms.

Maybe we should stop talking Millennials and start chirping Generation Z

With 5G becoming a reality, it won’t be too long before new services are launched, which is perhaps why we should stop talking about Millennials and start focusing on Generation Z.

It might seem absurd to ditch the millennials demographic, especially considering they have been referenced so frequently in recent years, but if we are looking to the future, we aren’t designing products and services for the current generation.

If 4G was a technology designed for Millennials, then 5G might possibly have to be designed for Generation Z. In five years’ time, when 5G is likely to be largely ubiquitous in the developed market, this is a digital-native demographic which will come of age with wild ambitions, big plans and credit cards.

Although the definitions of the different generations does vary, below seems to be a widely accepted definition.

Category Born Age range today
Generation X 1965 to 1980 40 to 55
Millennials 1981 to 1996 39 to 24
Generation Z 1997 to 2012 8 to 23
Generation Alpha 2013 onwards 0 to 7

Of course we are being very flippant when we suggest forgetting about the Millennials. This is and will continue to be a generation of individuals who have money and will want to spend it, but for those who are attempting to create a service to take the world by storm, an innovative eye will have to be cast beyond the horizon.

As an example of creating future-proofed services for the generation which is likely to be the most attractive, lets have a look at Rich Communication Services. It is an evolution for the telcos and SMS, but the Millennials are all using WhatsApp. RCS is redesigning a service created for a previous generation and competing against one which has been designed with today in mind. This is an attempt to savage old revenues, as opposed to thinking ahead and attempting to create new streams.

With every new generation of mobile technology, a change in societal behaviour is enforced. 4G democratised mobile internet and was embraced by the Millennials much more aggressively than Generation X. Arguably, older demographics have become accustomed to a way of life, therefore are not as welcoming of change, which will perhaps explain why so many services are seemingly designed for Millennials. But could the same not be said about 5G?

In five years’ time, Millennials will be in the same position as Generation X when 4G started gathering momentum. Your correspondent is a Millennial, so is writing from an informed (somewhat) position and is perhaps exasperated by the idea of something completely new. Today, your correspondent becomes frustrated attempting to learn all the different nuances and features of smartphones, applications, platforms or services, something which would not have been a problem in the first post-Uni years of the early 2010s.

But perhaps there is evidence of services being designed for Generation Z, even if the buzzword is yet to catch on completely.

Twitch is video live streaming service, designed for online gamers, which was acquired in 2014 by Amazon for $970 million. This is effectively an aggregator platform for commentary on gaming videos, tips and tricks, highlights or live streaming of organised competition and all other forms of user-generated content.

This might sound like a ridiculous idea to many reading this article, but Twitch has four million content creators who contribute every month, 15 million daily active users on average and more than 600 billion minutes of content were streamed through the platform over the course of 2019.

Members of Generation X or Millennials might find themselves asking a question now:

Why would anyone want to watch a video of someone else watching a video game and commentating on what is going on?

The users are of course gamers themselves (or very likely to be) but this does seem like a service which is beyond logic. Older demographics might struggle to understand why this is appealing, but then again it is not designed for us. Different types of content are emerging for a different generation, and there is plenty of money to made of the back of it should products be designed with the right nuances in place.

Another example of this evolving landscape is the work-from-home mentality which is being forced on us all due to the COVID-19 outbreak. This is perhaps a glimpse into the future, where offices have become obsolete (perhaps not…) and the digital economy is running rampant. This would have been unforeseeable a few years ago, but a new era of connectivity could bring about an evolution in working practices.

Remote working is definitely not new, but it hasn’t really been embraced by the working world until it was forced to. Older generations might not be the most comfortable with the new status quo, but digitally native Generation Z may well be.

Of course, what is worth noting is this is simply history repeating itself. In the mid-00s, some older individuals might have wondered why anyone would want to display personal details on their lives for everyone to see (Facebook), how people could trust taxi drivers when you haven’t rung the depot (Uber) or why on earth you would want to stay in the spare room of someone else’s home (AirBnB).

These are all products which were designed for the next generation and enabled by the emergence of a new mobile technology. The Millennials are far from an obsolete generation for the ambitious innovators, but to fully embrace the 5G era, perhaps the baton will soon have to be passed to Generation Z.

But what could these services look like? Virtual reality might be one, having been written off numerous times by today’s demographics. Virtual meetings and video conferencing will certainly be a trend is staying for the long-term. The voice interface might well overtake touch at some point in the future, and there does seem to be incredible potential for gesture control. And who knows what else connectivity could be embedded into in the future…

And what is important to Generation Z? This is a generation which tends to travel more, is more socially and environmentally conscious, are super-swipers with relatively short-attention spans, they demand connectivity and access to services constantly, are OK with the cloud but take digital privacy and security more seriously and as they have been born into the social media revolution, are more welcoming of user-generated content, as well as creating it themselves.

If you’re wondering what might be big in the future, ask some of the kids in the office and just remember all the things which don’t make sense to you. It takes a special type of person to design products for the next era, but it will become a necessity as 5G stumbles towards us, albeit at a slower pace while we are in the grips of the coronavirus pandemic.

Millennials, we had a good run, but maybe we are just getting a bit old.

What a Wonderful World of 5G Devices

Many brands have already brought to market large numbers of 5G devices, such as smartphones and hotspots. According to the latest tracking done by the GSA (Global mobile Suppliers Association), an industry organisation, over 250 devices had been announced by mid-March 2020, with 67 of them commercially available, including 40 smartphones. Half a year previously, the same tracking recorded only 100 public device announcements, with only nine 5G smartphones commercially available. The pace of new 5G device launches has clearly been accelerating.

(Here we are sharing the opening section of this Telecoms.com Intelligence special briefing to look into how 5G operators and device makers can work together to deliver a win-win solution to grow the 5G ecosystem.

The full version of the report is available for free to download here.)

Consumers Love 5G Smartphones, or Do They?

Even in the midst of the ongoing uncertainty of COVID-19, the smartphone marketplace has been busy. A number of flagship 5G smartphones have been launched by companies like Samsung and Huawei as well as their challengers, most of which had been meant to be unveiled at this year’s Mobile World Congress that did not happen. Many companies have moved their launch events online.

Consumers have signed up to 5G services faster than they did 4G. South Korea clocked up 5 million 5G subscribers by the end of 2019, eight months after the three operators switched on their 5G networks. China’s total number of 5G subscribers topped 10 million by the end of 2019, only two months after the three operators launched 5G in the world’s biggest smartphone market. China Mobile, the world’s largest mobile operator by subscriber number, reported that it had attracted 15.4 million 5G customers by the end of February, four months after launch. Despite that few if any other operators have published their 5G subscriber numbers, the momentum is there.

So far, 5G device shipment numbers have been strong. The research firm Strategy Analytics estimated that 19 million 5G smartphones were shipped in 2019. This was higher than most analysts had expected. So, at the first sight at least, consumers have shown strong enthusiasm in embracing 5G smartphones. Meanwhile, some evidence is showing that consumers have bought 5G smartphones not necessarily for 5G, or at least not the 5G the industry professionals would define it.

A research recently published by the software company Amdocs found that over a third of British consumers are interested in upgrading to 5G devices this year, but most of them are not sure what 5G is all about. The minority of consumers that claimed to know 5G would primarily cite faster internet. However, if the consumers take operators’ “gigabit speed” promise literally, they will be disappointed.

The network benchmarking and testing firm Global Wireless Solutions conducted a field test of the 5G networks in the centre of London towards the end of last year. The highest download speed of 470 Mbps was recorded on EE network, while the lower speeds of 330 Mbps and 320 Mbps were recorded on O2 and Vodafone networks respectively. These numbers, in addition to falling far short of “gigabit”, could only be achieved if the customer stood next to the base stations. Even those consumers well versed enough to quote buzz words like “low latency” would also be disappointed. The Global Wireless Solutions tests have found no meaningful improvement in latency from 4G connectivity.

This is an indication that the success to expand 5G adoption from early adopters to early majority is far from certain. While operators are honing their skills to convince consumers of 5G benefits, device makers, in particular smartphone brands, would also have much to lose if consumer enthusiasm should dampen by the underwhelming experience and patchy coverage.

To explore the topic further, the rest of this report first discusses what operators are looking for in 5G devices. We then analyse the key drivers for higher consumer adoption of 5G devices, including the underlying technologies. The report concludes by looking at the leading trends in the 5G device market in the next two to three years.

The rest of the report include these sections:

  • Do Not Ask What Operators Can Do For You, Ask What You Can Do For the Operators
  • What Is Happening Under the Hood?
  • Plenty To Look Forward To
  • Q&A with Daniel Gleeson, Principal Analyst, Omdia
  • Additional Resources

The full version of the report is available for free to download here.

Who is set to benefit from the COVID-19 outbreak?

For millions of individuals and businesses, the threat of COVID-19 is financial ruin, but there are parts of the technology industry that are benefiting from the considerable changes forced on society.

The FTSE 100 Index is likely to close below 5,000 today, a 27% decline in a month, while the Dow Jones is currently down (at the time of writing) 31% over the same period. Economies around the world are being hit disastrously hard, but some will see gains out of this pandemic at least temporarily, if not permanently.

Cloud Computing

The cloud computing segment has been on the rise for years, though as more employees find themselves restricted to their homes more workloads will have to be migrated to the cloud to ensure the business can function as usual.

For the cloud companies, the coronavirus outbreak is effectively forcing some organisations through a very rapid digital transformation project, to embrace the cloud and mobility trends. From an IaaS perspective it means more money, from SaaS it means more engagement and PaaS more opportunity.

Amazon Web Services, Microsoft Azure and Google Cloud are the obvious beneficiaries as market leaders, though for companies like Oracle, who might be working with more traditional industries that have resisted evolution to date, new conversations about enabling the workforce will have to occur.

Interestingly enough, once these businesses have begun their journey towards a cloud-based business model and environment, it is highly unlikely they will go into reverse. This could be a catalyst for accelerating the already fast-blossoming cloud segments.

Video conferencing and collaboration

Although there is no substitute for a face-to-face meeting to progress and complete complicated projects, alternatives have to be sought today. Many businesses are encouraging more meetings to be conducted via video links rather than email to not only ensure effective communication but ensure well-being of employees. Contact with colleagues via video link is not perfect by any stretch, but it might assist some who are feeling the loneliness of remote working.

Microsoft is an obvious beneficiary here, it announced last week the number of daily active users for its Teams collaboration suite increased by 12 million, though there are many others who are financially better off also.

Zoom Video Communications, a remote conferencing services company headquartered in San Jose, has seen share price increase 130% since the beginning of the year, while more marketers are turning to companies like ON24 to purchase webcasting and webinar services to ensure lead generation projects can continue.

As mentioned above, some companies are being forced into a digital transformation project meaning some of the remote working capabilities might be retained in the long-term, but virtual alternatives are never going to be a complete replacement for face-to-face meetings, where we can subconsciously pick up non-verbal communication cues so easily.

Electronic payments

The likes of Visa, Mastercard and AMEX are already benefitting from long-standing trends where physical cash is quickly becoming a thing of the past, though the COVID-19 outbreak could accelerate this.

In the short-term, some shops are now only accepting digital payments, though as the total number of transactions are decreasing, so will revenues. That said, in the long-term it could force customers into adopting digital payments.

Although cash is quickly becoming a thing of the past, some from the traditional generations still resist the use of digital currency. The chequebook took years to fall out of common usage as banks and shops were still compelled to accept such payment when offered. The same could be said of physical cash; as long as some still want to use it, it will persist. But in refusing to accept physical payments, shops are forcing some individuals to adopt digital payments.

This is not a likely to be a permanent change for all, but it might be for some, both in terms of consumers who adopt digital payments and the shops who will now only accept digital currency.

Ecommerce

The more people are at home bored, the more likely fingers are going to venture towards the eCommerce apps to spend the money which has been saved from not going to the pub. Your correspondent’s household has turned into a satellite Amazon storeroom thanks to certain individuals in the flat.

Streaming, gaming and video content platforms

This is perhaps the most obvious example of a beneficial segment.

In terms of video streaming, parents will need to occupy children, while adults will also need entertaining as pubs, clubs, theatres, parks, beaches, holidays and gigs all disappear. Netflix is already immensely popular, but with more people stuck at home in the evenings, it may well become more so, but this benefit is not limited to the content king. All streaming platforms could benefit, while Disney+ is launching at a good time to capture the attention of European consumers.

In terms of video platforms outside of streaming, YouTube is enjoying particular success. Not only are there those who are trying to entertain themselves, but there is also millions of hours of information (some much more accurate than others) on the pandemic itself.

From a gaming perspective, this is back to the boredom conundrum. With the usual entertainment venues shut down, consumers will need to be entertained. The likes of Microsoft Xbox, Google Stadia and PlayStation are likely securing additional subscriptions as well as in-game purchases.

Savvy corporates

For those corporations who in a more fortunate cash position than others, the shock to the financial markets could be viewed as an opportunity. Softbank is a perfect example.

Today (March 23), Softbank announced it was selling off certain unnamed assets to fund a second share buyback programme. Combined with the first announced on March 13, Softbank will be able to retire 45% of Softbank shares which are currently on the open market.

Generally speaking, the fewer shares which are on the open market, the less exposed a company is to external influences. All you have to do is look at the conflict between Elliott Management and Twitter/AT&T/Telecom Italia to see what influence an activist investor can have on a business where share price has taken a decline. Share buyback programmes could be viewed as a way to protect a corporate strategy from short-term influences and aggressive investors.

Online grocery delivery

With the rush on supermarkets persisting as the days turn into weeks, online grocery delivery companies are seeing a surge in popularity.

Online shopping delivery service Ocado suspended its website last week, telling customers demand exceeded its capacity to deliver. The firm has said it would fulfil its orders and will soon reopen, with rations placed on certain food items. Share price for Ocado has surged this month, though it did decline once it announced it would temporarily stop taking orders.

The telecommunications industry

The telecommunications industry is critical to today’s society functioning seamlessly, though it has traditionally been ignored. Consumers have simply expected the internet to work without appreciating the importance of the telecommunications industry. Telcos are viewed as boring companies, paid little attention in everyday life.

Thanks to the number of people attempting to entertain themselves, work from home or access educational resources the telco industry has been thrust into the limelight. Authorities are putting in measures to protect these valuable assets, not only to ensure consumers are able to continue their daily lives but so emergency services can continue to function, or research labs can collaborate to create a vaccine.

The telco industry underpins the success of almost every element and facet of society, and now the networks are under pressure, everyone realises it.

Fitbit financials tumble but that might not worry Google

Fitbit might not be the profit bonanza it once was, but with sales increasing it offers Google another interface to collect data and launch new services.

Although the financial results do not seem the most attractive at first glance, it is always worth remembering what the new objective of this business is likely to be. Google acquired Fitbit in November, and while the Mountain View residents never say no to money, there is a bigger picture.

Fitbit is most likely about exposure, increasing the number of Google interfaces in society and offering more opportunity for the internet giant to create services. This is where Google’s expertise lies, in software not hardware, but it does occasionally need to encourage the development and adoption of supporting ecosystems to realise its own goals. If more smart devices are being worn by consumers, the greater the opportunity for Google to make money.

“In 2019, we continued to advance our mission of making health accessible to more people around the world by delivering devices, software and services at affordable prices that help improve peoples’ health,” said CEO James Park.

“As a result, we sold 16 million devices and our smartwatch business grew 45% at retail, due to strong demand for Versa 2. Our community of active users increased to nearly 30 million, and Fitbit Health Solutions grew 17%, underscoring the strength of the Fitbit brand.”

2019 2018 Change
Total Revenue 1,434.8 1,512 (5%)
Net Income (120.8) (320.7) (264%)
Devices Sold 16 13.9 15%
Monthly Active Users (MAUs) 29.6 27.6 7%

Figures in millions (US$)

The full year financial measurements are clearly not heading in the right direction, though part of this can be attributed to the average selling price of the devices decreasing 17% to $87. This trend is thanks to the decision to introduce more accessible and affordable devices, increase the range of devices and various promotions or offers.

Perhaps the most important statistic to note here is the number of devices sold over the period. This is up 15% on 2018, while 61% of sales came from completely new customers. For the repeat customers, 54% came from customers who were inactive during a prior period meaning Fitbit is re-engaging those it might have lost as well.

Google might have spent $2.1 billion to acquire the Fitbit business, but it was highly unlikely going to be driven by the direct revenues it would achieve. $1.434 billion is nothing to turn you nose up at, but it is a drop in the ocean if Google can scale wearable devices in the same way it has done to smart speakers.

Prior to the entry of Google and Amazon, the smart speaker segment was sluggish. Adoption was almost non-existent, and interest was even lower. But in introducing their own, more affordable, devices and very cash-intensive advertising campaigns, these two internet giants drove up engagement and sales, whilst also forcing competitors to create their own products.

Looking at the final quarter of 2019, Strategy Analytics estimates that 55 million devices were sold globally, with Google collecting a 24.9% market share. Others are catching-up, but that won’t bother Google.

The more smart devices which are in the world, the more opportunity there is for Google to own the platform which services are build on and through. Android extends the Google influence into the smartphone world, the smart speaker gives it a voice interface in multiple rooms in the home and Wear OS is a version of Google’s Android operating system designed for smartwatches and other wearables.

From here on forward, pay a bit of attention to the financials of Fitbit, but be more interested in the number of devices which are being sold and the number of customers who are signing up to not only Fitbit’s health monitoring services, but also Google’s. This is a new data treasure trove for Google and a further opportunity to monetize digital lifestyles through a new interface.

Wearables and services are paying off for Apple

The iPhone is still the biggest contributor to the monstrous profits Apple claws in each quarter, but efforts in wearables and services are balancing out the company.

While Apple is not a company which is going to go bust at any point in the foreseeable future, the dependence on the performance of the iPhone was leaning onto the unhealthy side. With more consumers leaning towards second-hand, refurbished devices, or extending the life of products due to the eye-watering price of new iPhones, there was a threat to profitability.

For the most recent quarter, there are no worries about the profitability of Apple, however. Total revenues for the three-month period, including Christmas sales, stood at $91.8 billion, a 9% increase from the same period in 2019. Net income set a new record of $22.2 billion, while international sales accounted for 61%.

That said, efforts over the last few years to supercharge alternative revenue streams and diversify the profit channels have certainly been paying off. The iPhone is still king at Apple, but it is evolving into a different company.

Quarter Product Revenue Software and Services Revenue Ratio
Q1 2020 79,104 12,715 86.2/13.8
Q1 2019 73,435 10,875 88.2/12.8
Q1 2018 79,768 8,471 90.4/9.6

For the purpose of continuity, we have only selected Q1 for the above comparison. This is a quarter which contains the Christmas period and therefore revenues are almost incomparable to the rest of the year.

As you can see, there is a clear trend of Apple become less reliant on hardware for revenues and profits, with the Software and Services becoming more than a bolt-on bonus for investors. $12.715 billion is an amount most companies would be happy to call group revenues for the year.

Interestingly enough, even in the ‘product’ segment, the team is becoming less reliant on the iPhone to drive revenues and profits.

Quarter iPhone Mac iPad Wearables and Home
Q1 2020 55,957 (60.9%) 7,160 (7.8%) 5,977 (6.5%) 10,010 (10.9%)
Q1 2019 51,982 (61.6%) 7,416 (8.8%) 6,729 (8%) 7,308 (8.7%)
Q1 2018 61,576 (70%) 6,895 (7.9%) 5,862 (6.6%) 5,489 (6.2%)

In short, diversification of revenues is an excellent way forward for the Apple business and demonstrative of the power of the Apple brand.

Apple is a brand which certain consumer identify with, and such is the innovation and creativity of the Apple marketing department, loyalty has been almost cult-like. Cross-selling alternative products when the consumer is so heavily invested in the brand and ecosystem is a much simpler task, this will be one of the reasons Apple’s services division is becoming so successful, but it also explains the growing wearables segment.

Wearables is a family of technologies which has struggled through the years. The first smart watch, in its current form, was released in 2011, though the segment has never really gained the traction to make it an attractive business. Apple has been persisting with its own portfolio of smart watches for years, but it does now appear to have turned a corner.

“Apple Watch had a great start to fiscal 2020, setting an all-time revenue record during the quarter,” CEO Cook said during the earnings call. “It continues to have a profound impact on our customers’ lives and it continues to further its reach as over 75% of the customers purchasing Apple Watch during the quarter were new to Apple Watch.”

Apple is no-longer simply satisfying product refreshment cycles but attracting new customers into the smart watch bonanza. The more smart watch customers there are, the more normalised the product becomes, which then compounds the success, especially with more digital natives entering their 20s and collecting bigger salaries.

Apple is a company which is defined by iPhone. This will not change, such is the success of the product and the importance of the smartphone in today’s society, but diversifying the business was always viewed as critical to expanding the profitability of the firm. Apple is doing a remarkable job of capturing new revenues.