How 5G and IoT will drive convergence, consolidation and infrastructure rationalisation

The Future Network spoke to Andrew Kitson, Head of TMT Research at BMI Research to discuss what they see as the key themes in the sector in 2017 and beyond. Ubiquitous connectivity demand in the consumer space is driving unprecedented growth in data traffic, and in the enterprise sector, the Internet of Things (IoT) is posing security risks as well as prompting discussions over technological overlay and network architecture.

At a consumer level, we see ubiquitous connectivity demand continuing, with consumers requiring constant access to mobile applications, messaging services, internet access, gaming, calls, Wi-Fi, uploading photographs, social media, location services and music streaming. We forecast that 8.1bn phones will be in use by 2021, and that 72% of these will be smartphones. We also view phones as an increasingly small part of the connected device ecosystem.

In the enterprise space we see the tech industry increasingly revolving around connected objects or ‘things’, including machine-to-machine (M2M) technology to connect cars, fridges, smart meters, with low power, wide area wireless technology to connect much much more. Almost anything can be connected, but anything connected can be hacked.

5G will be good for more than just faster phones. In the UK, 5G standardisation has been brought forward by one year to 2019. Any companies looking to launch ‘pre-5G’ products risk investing in dead end technology and customer alienation. Operators will be wary of overpaying for 5G spectrum, but ultimately it will be a war of nerves, and who will make the first move remains to be seen. There is also an inherent risk that 5G will fail to fulfil its potential, and a perception that faster phones are all it can do.

Digital technologies will progressively transform businesses and society, with the upside that it will increase efficiencies and lower costs, but the downside that regulations and laws may not be able to keep pace and the risk of robotic process automation (RPA).

Ultimately digitalisation triggers change and transforms business, with mobile commerce impacting processes and IT, social media influencing skillsets and fields of work, location based services affecting the way people work, mobile touchpoints impacting knowledge management, innovation influencing leadership style and company culture, and connected products, sensors, devices and industries affecting time pressure and management.

In infrastructure we see the evolution of buildings from static spaces to more functional, useful entities. The operation and management of buildings should be part of an integrated approach to tackling population growth, urbanisation and pollution, underpinned by smart cities and intelligent transit. Developed markets will focus on technological overlay, while developing markets will focus on building out new infrastructure that incorporates smart tech, creating opportunities to leapfrog developed counterparts.

Smart cities will unite civil infrastructure such as traffic lights, hospitals, railways, power stations, and wind turbines with residential buildings, data centres, factories, solar panels and cars.

Services vs connectivity - networks enable the IoT, but the focus for end users is on services.

Enterprise will be the first adopter - Corporate organisations are the quickest to implement cost saving measures, and smart cities will emerge first in city-states like Singapore and Dubai.

Partnerships and cooperation are essential - no player can be all things to all people. Collaboration across the value chain can allow players to monetise their core competencies.

The Internet of Things is global - standing in contrast to the telecoms market which remains national in terms of regulation and services.

Fragmentation - the nascent market means there is a lack of standardisation and interoperability, which could deter some companies from early adoption.

In addition to our five key IoT views, we also see trends in the global TMT space, with convergence and over-the-top-content (OTT) driving new service development. Local broadcasters and video on demand services will follow Netflix and Amazon’s content creation drive, but few have the scale to compete with the global giants in the long term. ROIs in video on demand will be highly elusive as players will struggle to raise prices to help offset content creation and purchasing costs.

We also notice the rationalisation of infrastructure investments, as moves to reduce infrastructure costs through joint network build-outs and asset sharing in jointly or independently owned companies continue - we see this as a positive for the European towercos in particular. However, fibre will only be laid in the most commercially viable areas, elsewhere operators will focus on life extending solutions for existing copper networks like G.Fast and vectoring.

We expect consolidation to continue as telecoms operators pursuing acquisitions outside of their core area of expertise in order to better compete in a service orientated market, recent examples include the AT&T acquisition of Time Warner, and the Verizon acquisition of AOL and Yahoo! But the blocking of deals between direct competitors by regulators will curb operators’ ability to invest in services and improved networks.

We expect regulatory toolkits to be refreshed as few regulators have the tools or experience to properly oversee the smooth functioning of modern TMT markets, and we believe that there should be a concerted effort by these agencies to catch up in 2017. Key regulatory issues we have identified include: national vs global companies; telecoms and media mergers; curbing market power of incumbents; and spectrum allocation.

As the IoT continues to evolve telecoms companies have a vital role to play in the ecosystem, but their current business models see them trying to position themselves as integrated access and service providers, which we believe is not sustainable. Until there is more structural separation between infrastructure and service providers, telcos will hone their IoT capabilities through partnerships with dedicated solution providers.