Informa Telecoms & Media's top predictions for 2014
January 20, 2014
Telecoms operator consolidation will be a recurring theme throughout 2014. In addition to in-market consolidation – Informa Telecoms & Media is seeing a slow but steady transition to three-operator mobile markets – we expect to see regional and global telecoms operator groups entering into discussions and potential deals. One potential move in particular would significantly change the telecoms landscape. AT&T's reported interest in Vodafone has echoes of US telcos' expansion into European cable TV and mobile markets in the 1990s. Those European forays brought mixed success.
The telecoms business generally will see a further refinement of operator strategy towards OTT players and diversification. Rather than trying to build separate digital businesses for the consumer market, telecoms operators will increasingly focus on bundling digital content, communications services and publications with their core services. New revenue opportunities will be around selling connectivity – both on a retail and wholesale basis – to devices such as tablets and in cars.
Video and streaming will be two important themes in the media and entertainment business in 2014. The World Cup will be the first where live, streamed viewing captures a significant share of total viewing. And in music, streaming revenues will grow rapidly at the expense of downloads.
Highlights from Informa Telecoms & Media 2014 predictions:
A pursuit of Vodafone will be expensive and risky for AT&T
When Vodafone completes the sale of its stake in Verizon Wireless to Verizon in February, we expect AT&T to make initial approaches with a view to bidding for the entirety of the company. But we are not convinced that – if successful with its courtship – AT&T will find that married life is a bed of roses. US mobile operators AT&T Wireless and Verizon Wireless are brimming with confidence because of their successful LTE launches. They see LTE as a game changer and as the driver for the Internet of Things (IoT). But the European perspective is different. Operators there are struggling to charge a premium over 3G for LTE and it is not seen as being of fundamental importance for IoT and M2M where connectivity will only capture a small part of future value. Furthermore, Vodafone's shares have appreciated by 24% over the last six months and a significant premium will be needed to persuade shareholders to sell. Informa believes that AT&T may be better advised to strengthen its position in the US fixed and converged market rather than pursuing Vodafone.
Bluetooth will drive innovation and growth in IoT and mobile commerce
Bluetooth Low Energy (BLE) will come to the fore as a key technology driver for new mobile services and applications in 2014. In mobile commerce, Apple's iBeacon, PayPal's Beacon and other BLE services like them will become widespread as an ecosystem of hardware and service providers grows around the BLE technology incorporated into iOS and Android devices. BLE's potential to deliver a more effortless and truly contactless way of paying in-store makes it a particularly compelling technology – and a potential NFC killer. Bluetooth Smart combines the power efficiency of BLE with the functionality of lightweight software "profiles" which specify how sensors of a certain type should perform using BLE. There is an ever-increasing list of profiles being written to enable an ever-increasing variety of application-specific, sensor-based devices – from heart-rate monitors, to door locks, to treadmills. At the start of 2014, there were more than 160 Bluetooth Smart devices in production, divisible into more than 70 different categories of device type. This astonishing level of innovation will only increase during 2014.
New 'connected tablet' business models will emerge
The relatively low proportion of tablets that are connected to cellular networks is a major disappointment to the mobile industry. Despite the rapid growth in volume of shipments, only a small percentage – approximately 20% – of these devices connect to the macro cellular network meaning that a huge opportunity for access revenues is being lost. In 2014, we will finally see a number of new initiatives to sell more "cellular" tablets. These will often involve the use of MVNO-type business models. We see a new hybrid wholesale model emerging. In some cases, OEMs will purchase wholesale data and bundling the cost of access into the device. In other cases, mobile operators will create "ready to sell" white-label packages for OEMs.
Three's company, four's a crowd
A consensus is emerging in the mobile communications industry that three is the optimum number of mobile operators for any given market. A number of countries in Europe (Germany, Austria, Ireland) have already started to move towards the three-operator paradigm but in other parts of the world too (the US, Colombia), proposed and actual mergers and takeovers will result in the creation of three strong players. In 2014, national regulators will play a crucial role in determining whether to give the green light to market consolidation. Informa Telecoms & Media believes that regulators are now warming to the idea that three-operator markets – plus competition from mobile virtual network operators – provide the right balance between maximizing competition and building sustainable mobile sectors.
Telcos will give up trying to be like OTT communications companies
The window of opportunity for telecoms operators to develop "copycat" OTT voice and messaging services has closed. Such is the dominance of OTT service providers such as WhatsApp and Skype that it is extremely difficult for any new providers to develop similar propositions unless they offer new features and capabilities. Telefonica closed down its TuMe in 2013 and other similar operator initiatives are struggling to gain traction. Rather than building services that are designed to compete with OTT service providers, we expect to see operators developing OTT capabilities and services for their existing customers. 2014 will also be a crucial year in the future of Joyn, the OTT-like service that has been launched by a number of operators in Europe and Asia. Unless operators can demonstrate strong take-up for their services, it will be difficult to persuade device vendors that they need to include Joyn capabilities in their new models.
Telco mobile wallet initiatives will flicker but ultimately fail
2014 will see a proliferation of mobile wallets in developed markets, especially Europe, and largely led by mobile operators. Most of these wallets will be prepaid and focused on NFC payments. But we predict that the year will close without any operator-wallet success stories. The operator wallets that have been launched in the West so far have yet to make an impact and in early January the UK operator Telefonica O2 announced that it was closing its mobile-wallet service because of poor take-up. Banks and payment brands such as PayPal are much more likely to gain traction with mobile wallets. The operators can only hope that there will be a role for them as enablers, charging fees to secure mobile payment transactions via SIMs.
Tablets, wearables and the cloud will make out-of-home content rights even hotter in 2014
With wearables, tablets and cloud storage dominating headlines for video consumption, the missing element has always been the rights to the quality content. Many 3-5 year rights deals finish in 2014 and new deals will include "Internet" and "out-of-home" access to content. In an ideal world, these rights will be acquired by existing consumer TV services and allow seamless integration with TV and in-home viewing.
"Ephemeral media" will be offered by well-known content creators
"Ephemeral media"– i.e. content with a short shelf life, such as that spread via Snapchat – has been associated with user-generated content but in 2014 it will be offered by some well-known content creators and distributors as a way of creating scarcity amid the firehose of new content. It will cause temporary panic among traditional content players which still hope (as with UltraViolet) that users will treat digital content in the same way we treated physical media. They won't.
Small cells will come to the aid of congested LTE networks
In late 2013, Verizon Wireless, the world's largest LTE operator, admitted that it was starting to see pockets of congestion in major cities. In 2014, other "early" LTE networks, particularly those that operate in the lower (700MHz) frequency bands will start to face congestion. Those operators that have secured higher frequencies will start to use them to deploy public-area small cells in 2014. These deployments will provide critical operational and practical lessons for the whole industry, as power, backhaul, planning and maintenance issues are still to be completely solved for mass-market small cells. Operators that do not have immediate access to spectrum – either through auctions or refarming – may end up in a seriously challenged position.
Service providers will bundle digital publications into their broadband offerings
Not all broadband providers can follow the lead of UK incumbent BT by spending huge sums on exclusive TV sports rights. But in order to attract and retain broadband customers, especially in mature markets where churn is a more pressing issue, we expect ISPs to partner with publishers to include subscriptions to newspaper services, magazines and e-books, as well as music and video services, in their broadband offerings in 2014.
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